Spear sells its R400m Century City office block to Capitec

• Disposal is in line with strategy to focus on industrial warehousing, logistics and retail assets

Spear Reit, a Western Capebased property fund has sold the Liberty Life office building in Century City for R400m, at a disposal yield of 9.57%, to Capitec.

The building, bought in 2019 for R375m, has a gross lettable area of more than 18,000m² and weighted average net rental of more than R200/m². Spear will settle the R375m debt attributable to the property, R1m is for sale costs and the company will retain about R24m in cash for reinvestment into the fund.

Spear recently sold 15 on Orange for R246m at an 8.1% yield to The Capital Hotels and Apartments group as part of its strategy to exit the hospitality sector.

“The disposal creates portfolio rebalancing opportunities, with a focused investment bias towards industrial warehousing, logistics and retail assets in the Western Cape,” CEO Quintin Rossi said.

The disposal is part of the company’s strategy to mitigate risk against exposure to the office sector given the changes in the sector’s fundamentals locally and globally after the Covid-19 pandemic, Rossi said.

The role of the office had been evolving long before the pandemic, and for many users is more of a collaborative environment than just a building in which to work. While some users continue to reduce space, many large occupiers have adopted the hybrid model — working from the office and remotely, and this is having an effect on long-term space requirements.

After the transaction the revenue contribution of the office portfolio would be aligned to that of the industrial portfolio of about 40% each, with the balance being in retail, Rossi said.

The Reit owns property worth R4.48bn, which includes 30 industrial, commercial, retail and mixed-use assets in the Western Cape, predominantly in Cape Town.

Rossi said the net disposal amount represents an 8.7% discount to the book value of the property after transaction costs.

The discount on the sale price was considered given the nature of the property is suited to a large single user, the lease expiry, cost of vacancy of a portion of the property, refurbishment costs and augmentation of the office space, as well as related allowances to be provided to the new tenant upon reletting.

He said the transaction will reduce the loan-to-value (LTV) by about 500 basis point to 34%36%. For the 2023 interim period, Spear reported LTV of 38.69%. Its fixed debt ratio will increase from 62% in February to 72%-77% after the sale, which is expected to become effective in September, during the 2024 financial period.

As part of its investment strategy, Spear bought The Island Urban Logistics Park in Paarden Eiland in Cape Town for R185m from unlisted property fund and last-mile logistics specialists, Inospace. The 21,000m² fully let asset was funded via proceeds realised from noncore disposals and bank debt.

“We will allocate capital to new acquisitions, developments or redevelopments, ongoing share repurchase programmes as well as portfolio enhancements which generate organic portfolio income growth,” Rossi said.