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Voluntary Operational and Financial Update for Three Months Ending 30 November 2021
SPEAR REIT LIMITED
(Incorporated in the Republic of South
Africa)
(Registration number: 2015/407237/06)
Share code: SEA
ISIN: ZAE000228995
(Approved as a REIT by the JSE)
(“Spear” or “the Company”)
VOLUNTARY OPERATIONAL AND FINANCIAL UPDATE FOR THREE MONTHS ENDING
30 NOVEMBER 2021; UPDATE REGARDING THE DISPOSAL OF ISLAND BUSINESS
PARK AND BLACKHEATH PARK
1. INTRODUCTION
We are pleased to provide a high-level update for the three months ending
30 November 2021 (“Q3”) for the financial year ending 28 February 2022.
Management has continued to successfully navigate Spear through the pandemic
environment and continued executing its hands-on and active asset management
approach. Spear’s Western Cape specialisation has been key to its financial and
operational achievements for the year to date. Proximity to portfolio assets has been a
strategic and competitive advantage during the year ensuring tenant and rental
preservation. As announced on SENS the disposal of the Double Tree by Hilton, Cape
Town is unconditional and will result in Spear having zero exposure to variable income
producing assets by the financial year ending 28 February 2022, ahead of what was
announced during the interim results presentation for the 6 month period ended 31 August
2021.
Whilst the macro-economic conditions remain extremely challenging, management
remains intently focussed on the execution of its strategic asset management objectives
focussed on maintaining high levels of rental recoveries and occupancy percentages
across the various asset types. Spear’s core portfolio remains of a high-quality, defensive,
and positioned to take advantage of growth opportunities in the Western Cape.
Operational performance across the portfolio has been robust and in line with
management’s forecast and in certain instances exceeded management’s expectations,
in particular in the letting up of vacant space within the portfolio. Renewal negotiations
and finalisations have continued to remain in line with management’s expectations,
limiting significant negative rental reversions at portfolio level. The trading environment
has shown a noticeable improvement since Spear’s interim results announcement for the
6 months ended 31 August 2021 irrespective of the 4th infection wave muting a growing
hospitality and tourism recovery path.
Management believes that the Western Cape, and Cape Town Metropole in particular,
will lead the recovery of demand for rental & hospitality units compared to the rest of South
Africa, given the pre-pandemic low vacancy levels across the real estate sector in the
Western Cape, scarcity of supply and the pending business on the books for hotel
accommodation once unrestricted travel recommences. Management welcomes the
news that South Africa has once again been removed from travel red lists permitting
international tourism to flow into South Africa.
Both the balance sheet and income statement of Spear remain in a healthy state as trade
receivables continue to reduce on a consistent basis and management’s loan to value
(“LTV”) reduction roadmap starts to bear fruit together with the Company’s hospitality exit.
Spear’s consistent and sustainable cashflows across the portfolio have continued to
underpin the financial and operational performance of the business, as Spear navigates
back towards pre-pandemic rental recovery rates, occupancy rates and financial
performance.
2. OPERATIONAL UPDATE FOR THREE MONTHS ENDING 30 NOVEMBER 2021
Sectoral Update:
Industrial:
Spear’s industrial portfolio has continued to show resilience with rental demand
outstripping supply as portfolio assets are located in highly attractive nodes and rental
levels are in line with market demand. The lion’s share of the industrial portfolio remained
unaffected by the pandemic environment for the year to date. Lease renewals have
remained robust for the year to date with limited rental reversions being absorbed.
Convenience Retail:
Spear’s convenience retail portfolio has met every milestone set by management for the
year to date. None of Spear’s retail assets are reliant on any form of local or international
tourism to support its trading success. 41% of the retail portfolio’s gross lettable area
(“GLA”) is occupied by national tenants on long dated leases and have traded
successfully for the year to date despite the variety of alert level adjustments. Spear’s
open air convenience retail assets have reported month on month improvements in footfall
and tenant turnovers.
Commercial:
Spear’s commercial portfolio was negatively affected by the pandemic, giving rise to
vacancy creep. Management deployed aggressive marketing strategies to mitigate
against further vacancy creep since the interim results for the 6 months ended
31 August 2021. Notable and very positive inroads have been made in letting up a variety
of office units post 31 August 2021. Spear’s commercial assets remain attractively
positioned in the market from a locality and overall value proposition perspective.
Management remains confident that further inroads will be made in vacancy compression
as more and more businesses commence return to office programs. Renewal activity has
been positive during the period despite the current trading environment.
Hospitality:
Spear’s hospitality exit has commenced with the disposal of the Double Tree by Hilton,
Cape Town. Trading conditions have improved both in the form of accommodation and
events. The Capital, 15 on Orange, which is now under a fixed income lease has reported
positive trading across all revenue centres since opening the hotel under the new brand.
The Double Tree by Hilton, Cape Town has been the beneficiary of increased demand for
business and travel accommodation together with improved food and beverage and
conferencing business.
Industrial Commercial Retail Hospitality Total
Total GLA 260 229 134 346 48 695 28 048 471 318
m²
Vacancy % 1.75 4.19 0.58 - 6.52
of total
Sector 3.17 14.70 5.65 - -
vacancy %
Reversion (2.98) (6.26) (1.17) 221.27 14.51*
% YTD Nov
2021
WALE 21.37 27.15 27.08 49.66 25.76
(months)
Average 6.74 6.27 6.22 5.00 6.37
escalation
%
Revenue 46 462 64 525 21 412 8 406 141 043
Billed Q3
(R’000)
Revenue 136 344 192 165 63 158 19 846 411 750
Billed YTD
Nov 2021
(R’000)
Collections 96.55 97.67 96.51 98.29 97.34
YTD Nov
FY22 %
*Reversions excluding hospitality is negative 5.85% for November 2021 across the
portfolio
3. FINANCIAL UPDATE
Group funding
R257 000 000 of variable group debt has been refinanced in Q3 for the financial year
ending 28 February 2022. Fixed debt to the value of R225 000 000, expiring in the
financial year ending 28 February 2023 was extended for a further 12 months to the
financial year ending 29 February 2024 with 68 basis points saving on the current fixed
rate at the extended date.
A further R51 000 000 of variable debt expiring in FY23 is in final stages of being renewed
and will be renewed on fix terms, effective during the first quarter of the financial year
ending 28 February 2023.
R100 000 000 of the refinanced debt relates to the disposal of Doubletree by Hilton, Cape
Town, as announced on SENS 15 November 2021 and will effectively be settled through
the share sale on the effective date of the transaction. The net proceed of the disposal
will be used to settle variable debt to the value of R30 000 000.
Post the implementation of the disposal of Doubletree by Hilton, Cape Town, the expected
group LTV at the financial year ending 28 February 2022, before any year end valuations,
will be 44.84% with a fixed debt ratio of 59.88% with a weighted average fix expiry of 31
months.
As at November As at 31 August
2021 2021
Weighted average variable Months 27 31
expiry
Weighted average fix expiry Months 34 34
Weighted average interest % 7.06 7.01
rate
Weighted average variable % 5.72 5.62
rate
Weighted average fixed rate % 8.34 8.34
Covenants
As at November 2021 As at 31 August 2021
Loan to value 46.56%* 45.91%
Interest cover ratio 2.16 times 2.15 times
*Group LTV increased post the payment of interim distributions from cash reserves as
disclosed on page 28 on the interim results for the 6 months ended 31 August 2021 but
is lower than the forecast per the LTV forecast provided in the interim results for the
6 months ended 31 August 2021.
Cash Collections and Cash Availability
Spear group’s collections remain strong and post the distribution payment for the interim
6 month period ended 31 August 2021, the group has R158 000 000 cash availability.
The positives collections and the increasing cash availability will support the group pay-
out ratio of between 85% and 95%.
Group Expense Ratio
As at 30 November 2021 the SA REIT – cost to income ratio was 43.55% (HY22 43.13%)
and the SA REIT administrative cost to income ratio was 6.06% (HY22 6.86%).
4. UPDATE REGARDING THE DISPOSAL OF ISLAND BUSINESS PARK AND
BLACKHEATH PARK
Shareholders are referred to the announcement released by Spear on SENS on
27 May 2021, advising shareholders that Spear had concluded two sale of letting
enterprise agreements (“Sale of Letting Enterprise Agreements”) with Inospace 5
Proprietary Limited (“Purchaser”) in terms of which Spear agreed to dispose of the
properties known as Island Business Park and Blackheath Park, respectively
(“Properties”) to the Purchaser, for a combined disposal consideration of R160 000 000
(“Disposal”).
Shareholders are hereby advised that, notwithstanding the successful conclusion of the
due diligence investigation, the Purchaser was unable to fulfil the conditions precedent
relating to obtaining pre-sales of sectional title units to be created over the Properties,
equal to 30% of the Purchaser’s projected sales value in respect of each Property. As
such, all the conditions precedent to the Disposal have not been met and, accordingly,
the Sale of Letting Enterprise Agreements have lapsed.
5. DPS GROWTH REMAINS ON TRACK
Spear remains on track to achieve management’s guidance set out in the interim results
of the 6 month period ended 31 August 2021. Management’s guidance remains a
distribution per share growth of 6% – 8% for FY2022 based on an 80% pay-out ratio.
Management will closely monitor the cash collections scenario closer to financial year end
to determine the final pay out ratio for the FY22.
All forward looking statements in this announcement have been based on the following
assumptions:
• continuous recovery of the macroeconomic environment post- pandemic;
• no further extensive and deeply prohibitive lockdowns;
• lease renewals are concluded per the Company forecast;
• no major tenant failures occur for the balance of the financial year;
• tenants will maintain their ability to settle current rental, historical deferments
together with rising cost of occupancy;
• South Africa remains off travel red lists resulting in inbound travel recovery;
• return-to-office momentum increases as vaccination percentages increase
nationally;
• no significant periods of load shedding or national grid failures; and
• no major civil unrest within the Western Cape and South Africa.
Shareholders are advised that the information in this announcement has not been
audited, reviewed or otherwise reported on by the Company’s external auditors.
Any changes in the above assumptions may affect management’s expectations
Cape Town
17 December 2021
Sponsor
PSG Capital
Date: 17-12-2021 04:50:00
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