NEWS FROM SPEARHEAD PROPERTY HOLDINGS
 
SPEARHEAD EXPECT TO DOUBLE THEIR PORTFOLIO BY MID 2008
 

At the end of June of this year, the property portfolio of the JSE Securities Exchange company, Spearhead Property Holdings, was valued at just over R1,5 billion.

This represented a very substantial increase on the year before – and it is now clear that Spearhead in fact envisage continued growth until 2010 and beyond provided that interest rates keep reasonably close to their current levels.

"Growth for growth’s sake has never been our aim - but we are, in fact, one of the fastest growing of all the listed property companies - and we expect our portfolio to have a value of over R3 billion by the end of the 2007/2008 financial year,” said Mike Flax, CEO of Spearhead Property Holdings.

Six current projects initiated by Spearhead, he said, are adding R800 million to the value of the company’s portfolio.

These are:

·    The R110 million 6,500 m2 extensions to Knowledge Park, Spearhead’s Triple A office complex at Century City.  This is scheduled for completion in November this year  and, it is now known that, in addition to the office space it will have a R40 million 4,000m2 motor showroom and related retail premises.

·    The R200 million Sable Square at Montague Gardens.  This is South Africa’s first retail outlet mall.  It will sell top brand clothing and accessories at a discounted 30% to 50% on high street prices.  The 15,000 m2 phase one should be complete in September this year and the similarly sized second phase is scheduled for completion in late 2007.

·    Convention Tower, the prestigious 16-storey R250 million Foreshore office block with 18,000 m2 of office space.  This will come on stream in late 2007 and already just over 40% of the space has been taken up, with negotiations proceeding on another 8,000 m2 to 9,000 m2.

·    Wembley Square, developed in joint venture with Faircape and sited on the southern mountainside precinct of the Cape Town CBD, it is valued at over R100 million.  The final phase here was completed recently.  All 186 apartments were sold fairly shortly after the launch and all of the 10,000 m2 office and retail space has been taken up.

·    The 3,000m2 Old Oak Village Shopping Centre between Bellville and Brackenfell.  This was recently upgraded by Spearhead and now has a value of R20 million. Spar is the anchor tenant.

·    The 35,500 m2 Berg River Business Park at Paarl.  Here a total rebuild and upgrading have resulted in what was formerly conventional factory premises (owned by the Seardel Group) becoming suitable for smaller businesses in a well controlled security estate.  The completed project will have an end value of R80 million.

In addition to these Spearhead-initiated developments, said Flax, the company has, ever since listing in 1999, acquired property that it deems to have value growth potential.

“We continue to buy in at an average rate of about R200 million per annum,” he said, “and we are now moving away from residential property towards industrial and office space.  Properties like our new Wynberg office complex and factory space in Montague Gardens are set to give Spearhead returns in excess of  11% per annum.”

In addition, said Flax, Spearhead’s development managers are now involved with a wide range of projects, all destined for starts within the next  12 months.

Included in this list are:

·    The CTX Freight Park at Cape Town International Airport that will bring 25,000 m2 of warehousing to the market.  This will have a value of just on R100 million.

·    Golf Air Park at the nearby Airport Industria which, with 30,000 m2 of space.  It will go into Spearhead’s books when complete in 2009 with a value of R120 million.

·    The upgrading or replacement of many of Spearhead’s own Cape Town CBD or CBD periphery buildings.

“It is still to early to give a definite statement here,” said Flax, “but it is clear to us that with CBD land values up 200% in two years and office vacancies running at below 5% , several low return buildings could be demolished to make way for high rise office and ground floor retail premises on which the rentals could be far higher.

“We have in fact analysed our entire portfolio and can see the potential for replacements in at least 25% of our existing property.”

Asked by one of those present at his talk how it was that, operating in the loan stock industry which has sometimes said to be managed by cautious “bank manager” types, Spearhead has been able to show such entrepreneurial flair, Flax said,

“When we look for new staff we go for just the type you mentioned - genuine entrepreneurs, with a desire to initiate, innovate and achieve.

“We realised quite early on, too, that those who outsourced their development work were sacrificing a huge chunk of their potential profits - and, conversely, investment companies buying such completed developments often did so at initial returns that we might regard as unsatisfactory.

“We decided, therefore, to go for the potential extra profit made possible by developing ourselves and in most cases we have been able to translate this additional income into shareholders’ dividends.”
 

Flax added that it now looks very much as if the trend set by Spearhead will be followed by certain other companies.

The company’s entrepreneurial spirit, he said, had also been evident in its willingness to become involved in projects where, although it may not be the initiator, it can see the possibility of a straight trading profit.

At the Oasis Retirement Village in Century City, for example, a joint venture with Harries Projects, sales have been taking place steadily since the launch in 2005. These, said Flax, are likely to continue until 2009, by when, with all 700 units sold, R1 billion will have been generated.

Spearhead is also now in partnership with Kine Homes to bring to the market  100 properties with a value in excess of R 100m   at the Broadlands Equestrian Estate near Somerset West.

With expansion, upgrading and revaluing of existing properties, Spearhead’s market capitalisation should have doubled by 2010

“We are,” said Flax,” still fairly confident that the 13% compound income growth achieved over the last seven years, i.e. since our listing, is sustainable for the foreseeable future.

“Spearhead shares, currently at R27, have grown at a rate of over 20 % per annum since their low point of R4.50 shortly after the listing.”

The Finance Week’s performance index, based on a whole variety of criteria, recently listed Spearhead as the top performer in the property sector over the last five years.  At the time Flax commented that this showed the value of operating exclusively in one area (the Western Cape) and of insisting that all management functions be handled in-house, with management holding a significant shareholding in the company but prevented from pursuing major outside interests.

For further information contact Mike Flax on 021 425 1000.