Spear REIT (SEA:SJ) hosted its HY2025 pre-close presentation to shareholders via its YouTube channel on Thursday, 29 August. The theme of the pre-close aligned with the positive and stable macroeconomic landscape of the Western Cape. Spear remains the only regionally focused REIT listed on the JSE, investing in high-quality real estate assets within the Western Cape.
Quintin Michael Rossi |
Chief Executive Officer
During the presentation, Spear CEO Quintin Rossi said that despite the tougher trading environment, green shoots were accelerating in the province following the recent positive national elections and the subsequent formation of the Government of National Unity (GNU). Rossi commented, “The GNU has turned out to be positive for SA Inc. and equally good for business.” Furthermore, 155 days without load-shedding have brought new life into the general market, as the operational continuity created has improved levels of certainty for tenants and businesses alike. Rossi added, “We have noted an acceleration of tenant commitments that saw 9000m² of office space being taken up in the six months from March to the end of August 2024.” Spear reported that overall portfolio occupancy rates had increased by 200 basis points, from its FY2024 year-end of 93% to a YTD HY2025 occupancy rate of 95%. This is attributed to a strong leasing momentum across its portfolio, particularly the office segment. Positively, across the portfolio, Spear’s letting activity for the period displayed a positive rental reversion profile of 4.51%, with just under 50 000m² of lettable area either being renewed or let in the period while maintaining a robust in-force escalation profile of 7.47%. The higher interest rate environment and unavoidable operating cost creep have resulted in a slight dip in operational performance profitability; however, Rossi is confident that the interest rate tapering cycle will commence in September 2024 and notes that this will have a positive impact on Spear’s finance cost line item. The recent severe weather in the Western Cape has enflamed repairs and maintenance costs as record-breaking rainfall and gale-force wind conditions battered the province. Decisive and appropriate action was taken to ensure tenant operational continuity and rent preservation was maintained. Spear’s sustainability momentum was maintained during the half year, with one new PV solar system coming online and two site expansions being commissioned and completed. An impressive 60% of Spear’s assets are equipped with PV Solar infrastructure. The company’s strategy is to have more than 10mw of built solar capacity in place by the end of FY2025. This will include PV solar installations on the newly acquired Western Cape portfolio from Emira Property Fund. Currently, 25% of Spear’s power demand across its portfolio is generated via its PV solar portfolio, with this percentage set to increase further. At present, three wheeling projects are in the feasibility phase as the City of Cape Town pioneers new models of energy security. Cash collection profiles displayed consistency, with 95.17% of rentals collected for the period and general receivables well managed despite the tougher economic cycle. Management has maintained a proposed payout ratio of 95% for HY2025. On a year-to-date basis, Spear displayed a robust balance sheet of 25% loan to value (LTV) and an interest cover ratio (ICR) of just under three times post the disposal of the Liberty Life building and 142 Edward Street for a combined value of R 443 million in the first quarter of FY2025. Spear further advised via SENS that it had sold its 100 Fairway Close Office Park to the City of Cape Town for R 160 million, with disposal proceeds being recycled into assets within the industrial and convenience retail sub-sectors. The acquisition of the Western Cape Emira portfolio for R 1,146 billion is now unconditional. Spear is in the process of implementing the transaction that will expand its Western Cape portfolio by 93,500m², bringing the total to 502,000m². This portfolio will include high-quality industrial, medical, retail, and well-established office assets, expected to deliver an initial yield of approximately 10.1%. Rossi highlighted that despite the unavoidable challenges in the market, there was reason for Spear to be optimistic, summarised during the presentation as follows:
- Successful vacancy mitigation stimulates profitability
- No load-shedding, improved PV solar yields and reduced certain operating costs
- Interest rate tapering cycle is imminent
- Positive rent reversions on a portfolio level point to consistent growth
- Strong balance sheet at 25% LTV and three times ICR
- Spear’s acquisition-led growth strategy was paying off with the implementation of the Western Cape Emira portfolio acquisition
- Spear’s Western Cape focus continued to underpin the operating performance across the portfolio.
In closing, Rossi said, “Spear’s management team remains confident that the vast majority of our FY2025 strategic objectives will continue to be achieved, resulting in a positive outlook for the year ahead. Management is firm in its view that DIPS growth will be achieved for FY2025 and will provide full-year guidance at its HY2025 results presentation in October this year.”
About Spear REIT
Spear was founded in 2011 as a private equity real estate investment business focusing on owning Western Cape assets with a Cape Town preference. The founders of Spear, industry stalwarts Mike Flax, Abu Varachhia and Quintin Rossi have propelled Spear from a private equity fund to a JSE listed REIT as the only regionally focused REIT on the JSE that exclusively focuses on owning high-quality assets within the Western Cape. Quintin Rossi is Group Chief Executive Officer supported by a highly competent executive team being Chief Financial Officer Christiaan Barnard, Chief Investment Officer Kim Pfaff-Karg and Chief Operations Officer Cliff Toerien. Spear achieves specialisation through its focused regional investments, while its diversification strategy is driven by investing across a variety of asset types. Since being listed on the JSE in November 2016 with assets valued at R1.4 billion, Spear has grown significantly. Year-to-date, excluding assets pending transfer, Spear’s current portfolio is valued at R4.19 billion, comprising a mix of commercial, industrial, retail, and mixed-use properties. Spear is a fully internally managed REIT conducting all asset, property, financial and development management in-house. Spear owns the iconic No.2 Long Street in Cape Town which is currently where its head office is located.
