Chief Executive Officer, Darren Wilder said: “Fairvest is operationally strong and agile in a tough environment. We are very pleased with the Group’s performance in the past six months. We generated strong like-for-like net property income growth of 7.0%, relative to 4.4% at year-end. We achieved positive leasing, with rental reversions of +3.0% relative to +2.8% at year-end and increased the weighted average lease expiry from 29 to 31 months over the same period. We also continued to dispose of non-core assets and strengthened our balance sheet with the proceeds.”
Operations
In a challenging economic environment, vacancies increased from 4.5% at 30 September 2023 to 5.3%. GLA of 133 149m² was renewed at positive rental reversions of 3.0% overall and an aggregate retention rate of 87.1%. New leases in respect of 80 092m² were concluded. The weighted average lease escalation across the portfolio was 6.6%. The weighted average lease expiry was 31.0 months.
Property expenses increased by 8.8%, mainly driven by above-inflation increases in municipal costs.
Restructuring the portfolio
The Group’s stated strategic objective remains to continue its move towards a retail-focused fund by disposing of non-core assets. Since the merger in January 2022, Fairvest has successfully concluded disposals exceeding R1.3 billion. Three Office disposals valued at R259.5 million were concluded during the period at a 0.4% premium to book value. These offices had a 25.5% average vacancy rate. Three more properties valued at R20.8 million are currently classified as held-for-sale pending registration and transfer. The Group continued to invest in its property portfolio over the interim reporting period with total capital expenditure of R113.9 million incurred.
Debt funding
The Group reduced its net debt ratio (LTV) from 33.3% to 32.6% through disposals and remains well within the Group and portfolio LTV covenants for its facilities. The weighted average interest rate for the period reduced to 9.63% (September 2023: 9.74%) The debt portfolio had a weighted average maturity of 1.9 years and 76.9%% of the debt was hedged. The interest rate swaps have a 1.3-year weighted average maturity. As at 31 March 2024, the Group had cash on hand and undrawn debt facilities of approximately R651.9 million to apply towards growth.
Environmental, Social and Governance Projects
The Group has continued to invest in renewable energy, with an additional R27.4 million invested in solar initiatives during the period. Fairvest currently operates 39 solar plants with 17.8MWp of installed capacity, which generated 14.4% of the combined portfolio’s electricity requirement for the period. Nine more plants are in various stages of approval and implementation, which will add a further 5.2MWp of capacity. Five solar-generator integration projects have also been commissioned, and two more are currently under construction.
Water management remains a significant focus area, with 17 groundwater harvesting plants in operation and two more projects in the construction phase. Smart monitoring equipment has been installed at 22 properties with another five on order and water savings projects are in operation at several properties.
Outlook
Fairvest anticipates net property income growth, on a like-for-like basis, to exceed inflation and positive renewal reversion from all sectors for the full financial year. This is despite the challenging operating environment that is expected to persist.
The Group remains committed to its strategic objective of transitioning towards a retail-focused fund by disposing of non-core assets and this focus will continue throughout the remainder of the 2024 financial year. Since the merger, the Group has also increased its shareholding in certain profitable co-owned retail assets, with a further four co-owned retail assets identified in which the minority shareholding will be acquired at accretive terms, aligning with the Group’s strategic objectives.
Given the substantial progress made in implementing our stated strategy and optimising the portfolio, distributable earnings per B share are now expected to be at the upper end of the guidance range issued in November 2023 of between 41.50 cents and 42.50 cents per share (September 2023: 41.29 cents per share). The current dividend payout ratio of 100% of distributable earnings will be maintained.