Small cap retail property fund Fairvest on Wednesday reported its first annual dividend decline since the current management took over in 2012.
The Cape-based company, which focuses on convenience shopping centres in rural towns and townships, declared a final dividend of just under 10 cents per share for the second half of its financial year to the end of June 2020.
This takes Fairvest’s full-year distribution to 21 cents per share, which is down 3.4% on the prior year. The decline is due to the impact of Covid-19. However, in contrast to most of its peers, the group is paying out 100% of its full-year dividends.
Many large and smaller JSE-listed property counters are either withholding a portion of distributions or have opted to defer pay outs in order to retain cash and bolster balance sheets in the face of the Covid-19 economic fallout.
“The pandemic has also had an impact on Fairvest … The decline in distribution is our first since 2012, when the business was recapitalised and new management took over,” Fairvest CEO Darren Wilder told Moneyweb.
“However, the group has still shown its resilience and is well-positioned, with strong cash flows and a prudent balance sheet,” he added, noting that this meant the group could pay out 100% of its dividends.
Fairvest’s portfolio consists of 44 retail properties, covering 262 702m2 of lettable area and valued at R3.49 billion. Most of its properties are neighbourhood centres of around 10 000m2 and are located near commuter routes, targeting the lower end of the market.
“The group differentiates itself in the market by performance, not size … We have hands-on management and a strong collections team. We have not gone offshore and have stuck to our knitting,” said Wilder.
Unlike many of its peers, Fairvest has not been impacted by major devaluations in its properties. In fact, the group reported a 1% increase in its property portfolio on a like-for-like basis.
“We don’t overpay for assets and have always been conservative when it comes to valuations, so you are not going to see massive devaluations [in the portfolio] in a bare property market,” noted Wilder.
“A case in point is Fairvest’s recent sale of the Tokai shopping centre, which was sold at a 10% premium to its book value,” he added.
While Fairvest’s gearing or loan-to-value (LTV) ratio had increased markedly from 27.9% (for its 2019 financial year) to 36.2% by the end of its 2020 financial year, this is still comparatively lower than many other listed property funds.
Wilder, however, pointed out that with the sale of the Tokai shopping centre, the group’s LTV will drop down to around 31%.
“We are going to use the funds from the sale to pay down debt. In the current uncertain market, Fairvest has no intention of making any acquisitions. We are being very conservative and will take a wait and see approach in terms of where the market goes. The idea is to sit tight and ride out the [Covid-19] storm,” he said.
Fairvest’s share price closed 10% up on Wednesday, at R1.60.
Vukile Property Fund, which owns a stake in the smaller counter, closed almost 4% up at R4.46.