Spearhead's set of sparkling results

Posted On Tuesday, 30 August 2005 02:00 Published by eProp Commercial Property News
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Spearhead the fastest growing property loan stock company.

Mike FlaxSpearhead Property Holdings, the Cape Town-based and JSE listed Securities Exchange property loan stock company, has, in releasing its June 2005 year end results, confirmed once again that it deserves to be ranked among the top performers in its sector.  It is now widely recognised as the most profitable (in relation to assets) and fastest growing of the Securities Exchange property loan stock companies.

Mike Flax, Chief Executive of Spearhead, announced that in the financial year ending June 30th distributions per unit were 25% up – at R2.00 each- on a revenue of R103 million which was 30% up on last year.

Headline earnings grew by 18% to R2.43 per unit.

Spearhead will be increasing its distribution per unit by 25% to give a final distribution of 105 cents per unit for the six months to June and the net asset value per unit has risen 35% to R20.63.
Monty Kaplan, Spearhead's chairman, commented,

"Shareholders have good reason to be satisfied with the results:  their total returns this year amounted to 67%:  54% in capital growth on the share price and 13% on income yields."

These figures reflect the share price at the end of June, since when it has risen by a further 29% from R23.32 to R30.00.

In the year under review Spearhead increased the value of its property portfolio to just under R1 billion, while at the same time significantly improving its debt position.  Long-term debt was, in fact, only increased to R308 million, with the result that the company's gearing levels have now dropped from 44% to a lean 35%.

Flax stressed, too, that nearly 80% of the long term debt is hedged against interest rate rises by a variety of interest rate swaps extending up to five years.

"These factors," said Flax, "put Spearhead in a strong position to finance further acquisitions despite 2005 having been the year in which these grew faster than ever in our history."

In 2004/2005 Spearhead, in fact, added some R200 million worth of new acquisitions to its portfolio.  Included in the list were:

  • Three neighbouring mixed-use medium-rise buildings in Edward Street, Tyger Valley.  These were the Bloemhof, Omnipark and Manhattan Plaza buildings, for which together Spearhead paid approximately R80 million.  Since the financial year-end a further building, Stirling Place, has been added to the portfolio here.
  • Several properties in the Epping area.  Included in this list are the Viking Business and Retail Park, the Nampak building, the Coricraft factory, the Meditech factory and the Premquip building; and
  • In the Southern Suburbs, Maynard Plaza and the Edgars building, both in Wynberg, and Claremont Shoprite.

Shortly after the year-end, the company made its largest purchase to date, the fourteen storey Pier Place on the Cape Town Foreshore, purchased at a price of just over R150 million.

Also announced after the year-end is the fact that Spearhead is now disposing of its last two non-Cape properties, the Lyttleton Retail Centre near Pretoria and Delft House in Johannesburg's Rivonia.

By the end of 2005 the company, said Flax, will have a 100% Cape Town portfolio, a goal they have been pursuing for some time.
2004/2005 also saw Spearhead developing more actively than ever before. They have been in joint venture with Faircape to develop the R 180 million South Seas apartment complex at Mouille Point, a highly successful conversion of an office complex, and the R140 million Wembley Square in Gardens, which comes on stream in September.

Other major new developments started in the year under review were:

  • The refurbishment of the Ottery Hypermarket with major improvements carried out particularly in the line shop section;
  • The final phase of the R90 million Spearhead Business Park in Montague Gardens which, on completion, will have brought 30,000 m² to the market altogether and is probably the most sophisticated facility of this kind in its precinct;
  • The next phase of the 16,000 m² Knowledge Park office complex in Century City, where the extension will be valued at R70 million;
  • The upgrading of the R15 million Old Oak Retail Centre in Bellville;
  • The new luxury Oasis Retirement Village at Century City, developed in partnership with Harries Projects.  Designed to have 450 luxury retirement flats and comprehensive communal facilities, this complex will, said Flax, meet the need for top-level retirement facilities at the Cape.  The total complex will have a sell-out value of R800 million;
  • The R45 million Blue Downs retail development, developed in joint venture with Cavalier.  The Shopping Centre, in this previously disadvantaged area, is scheduled for opening in September this year.
  • The R52 million Stanhope Bridge development in Claremont, now being developed for Spearhead by RMB Properties with completion expected in March 2006.

In addition to the above, Spearhead is currently, said Flax, in negotiations for approximately R600 million worth of new developments which will provide the company with a stream of quality blue chip stock designed to boost distributions in 2007, 2008 and beyond.

Under this heading, Spearhead can list:

  • CTX Freight Park, an industrial warehouse park at Cape Town International Airport involving an investment of R60 million;  and
  • A new 19 storey office tower on the Cape Town Foreshore that will round off and complete the Cape Town Convention Centre precinct.
  • During the financial year reviewed, Spearhead also took steps to become the front-runner in the property sector in groundbreaking black economic empowerment deals.

"We were able this year to do empowerment deals whereby a total of over 26% of our shareholding passed into the hands of previously disadvantaged people," said Flax.  "This was the first really significant ceding of shares in the property sector to BEE shareholders.

The new dispensation was achieved by deals with Ngatana Property Investments, Nabaz Investments and others including Spearhead's Financial Director, Jalal Alie, and the government pension fund PIC.  It is hoped that this significantly enlarged BEE shareholding will help Spearhead to qualify for more government-related leases and land deals.

Flax pointed out that Spearhead had initiated its BEE moves ahead of the publication of the first draft of the Property Charter and, he added, they are well in excess of the Charter's requirements.

Prospects for the year ahead look good, said Flax, because the property sector, like others, is benefiting from the "sound, conservative macro-economic principles on which South Africa's economy is now being run, particularly with regard to maintaining low interest rates and low inflation".

With the obvious exception of the Oasis Retirement Village, Spearhead will in the year ahead be less involved with the residential sector, but will step up its activity in the commercial and industrial sectors where, Flax believes, the prospects are now rosier than they have been for many a year.  Occupancies here, he said, are running at respectable levels and rental growth is likely, he believes, at last to greatly outpace inflation, with the result that returns could in the year ahead begin to fall in line with the rapidly rising current building prices.

Foreign investors, said Flax, are now awakening to the realisation of the value of South Africa's listed property shares where, he said, the yields are currently significantly better than those in London, New York and Sydney.

"Every year since listing on the JSE in 1999," said Flax, "we have cautioned shareholders not to expect significantly increased distributions.  Every year, however, we have in fact increased them ahead of our sector and most of our competition.  Spearhead's growth, I am pleased to say, has continued unabated and right now shareholders can look back on six years in which their share value was quintupled and the income distribution to date has, in fact, paid out almost double the value of their original investment.

"Our expectation is that in the year ahead shareholders can once again look forward to a double digit distribution growth.  The investing environment remains positive and the culture of our company - which is very definitely focused solely and completely on increasing shareholders' earnings - should enable us to take advantage of the current positive economic fundamentals in the country."

Last modified on Monday, 05 May 2014 16:35

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