SPEAR REIT
Spear Takes Long-Term Position in Burgeoning Western Cape
SPEAR REIT
Spear Takes Long-Term Position in Burgeoning Western Cape PRODUCTION: Jamie Waters
As the only Real Estate Investment Trust listed on the JSE concentrating on a single province, Spear REIT and CEO Quintin Rossi are confident about 2024 and beyond, looking forward with ambition. “For us, it has been the best investment case in South Africa,” he tells Enterprise Africa. 2 / www.enterprise-africa.net
INDUSTRY FOCUS: PROPERTY
market in the Western Cape having led Spear REIT for 13 years. The company is listed on the JSE with an asset portfolio focused solely on the Western Cape, made up of commercial office space, industrial assets, warehousing, manufacturing, light industrial, urban logistics, and convenience retail and destination retail stock.
Quintin Rossi, CEO
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In the large open valley between the high Outeniqua mountains to the north and the cold melting pot of Atlantic and Indian Ocean in the south sits George, the Western Cape’s boom town. Pre pandemic, the city consistently hit above 4% average annual growth rates and is the main economic driver along the famous Garden Route. Through George – a coastal town with a rich history and a pristine shoreline – trade flows successfully thanks to good governance, a zerotolerance approach to corruption, and a growing population. The city is well-governed and, like the rest of the Western Cape, is a reliable investment destination. Taking advantage of this, a new industrial property development is set to commence imminently, the Airport Business Park. On the corner of the R404 and the R102, by George Airport, there is a buzz in the air, not just from
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the aircraft that cruise overhead. “GTX Park is one of three that will be developed in the Airport Business Park Precinct,” opens Spear REIT CEO, Quintin Rossi. He highlights the fact that 20 hectares will be split between developers, with Spear REIT taking around 7.8 hectares to realise a project that will bring opportunities and possibility to the area. “We have split it into eight portions where we will develop industrial units ranging from 300 to 10,000 m2. We want to tap into the growing market around George which is halfway between the Eastern Cape and the Western Cape. There is so much food and agro processing thriving in that area, everything from avocados to cheese, and all of the processing and cold storage that goes with it. The food economy there is booming and we see that as a major opportunity.” Rossi understands the real estate
CLOSE TO ASSETS Today, the Spear portfolio is valued at just shy of R5 billion and covers more than 410,000 m2. Its impressive reach is, however, only within the borders of the Western Cape and this is where Rossi sees so much potential. “We are going through challenging macro-economic times and testing political times,” he says. “So, we have set our investment strategy around a region where we are one hour from every one of our assets. We conduct a very hands-on asset management approach and we manage everything internally.” At GTX Park in George, Spear is planning a modern and integrated approach for its development. The area is attracting businesses across multiple industry sectors, from construction to manufacturing to forestry and fisheries, all keen on the growth on offer. As more people and businesses arrive in the Western Cape, attracted by positivity around high-speed fibre rollout and other structural successes, Spear is busy positioning itself as the real estate partner of choice. “The motivation for GTX Park comes from the semi-gration trend,” says Rossi. “Municipal service levels have been decreasing in other parts of the country but improving in the Western Cape and that makes it attractive for business. There is a lot of development happening in the region and there has been a large oil and gas find off the coast of Mossel Bay which has driven investment into the region.” The site will have a specialist water treatment facility and a solar power system to remove the burden on local municipal services and de-risk
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investment for potential tenants who will need reliability and consistency in provision of basic utilities. “Solar is important as we still suffer from loadshedding,” admits Rossi. “The municipality of George has established a wheeling policy where we can generate and transfer power from one property to another,” he says, adding that the company’s solar journey began in 2018 and in just five years the total installed capacity is around 9MW. “That is around 25% of our total energy demand coming from PV solar rather than placing further burden on the national grid.” To bring about this tremendous achievement, the company has partnered with those who can clearly deliver. Not happy with a simple tendering process, Spear has been ultra-thorough when onboarding collaborators to deliver high quality. “It is absolutely essential to partner with the right people,” says Rossi. “In 2018, we partnered with Emergent
Energy to drive solar rollout. It was important for us that they had a proven track record and were well-capitalised. They had a proof of concept and they could deliver a good product – that was vital for us. We are effectively stewards of public money and so we have to partner with those who can deliver.” Currently, the onsite activities surround installation of the water augmentation system, with various lines installed to drive the project. “We have installed grey water and water harvesting lines which will effectively feed into the augmentation system that provides onsite water generation capacity for up to 80% of the total Airport Business Park development. We are always looking at how we can place less strain on water supply and fossil fuel generated electricity supply.” As one of the largest developments in the area for the past 15 years, the wider R1.2 billion project will act as an example going forward, highlighting
sustainable development as both right for the environment in the longer-term and right for shareholders looking for consistency in returns. “Spear’s total capital cost for the bulk infrastructure and the top structures will be around R400 million when it is fully developed,” highlights Rossi, citing a five-year programme for development. “It is a great location, intersecting between a growing residential, retail, and industrial area.” “In addition, we have an incredible amount of residential development taking place along the garden route which is driving demand for space from tenants who would supply to the residential developers. Those developments range from entry level to high end luxury and those segments have different requirements. It’s early days for us, but we have had a lot of enquiries from companies from outside of George who want to
Sable Square, Milnerton
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GTX Park
establish a presence in George.” For GTX Park, Spear and the co-developers will upgrade further infrastructure around the airport to ensure that the development is future-proofed and sustainable. Upgrades to roads to smooth arterial flow of traffic in the first phase will be followed by a new traffic circle at the airport’s exit in phase two. Later in
phase two, another larger traffic circle will be added along with all new street lighting and other ancillary services. FULL OF OPTIMISM Alongside GTX Park, Spear REIT is on the lookout for new opportunities. Rossi is buoyant, and the team is looking forward with ambition as he aims for strong progress next year.
“There’s a lot to be optimistic about. In 2024, we have this great development coming out of the ground and we have what we believe to be the topping out of the interest rate cycle and that will boost the real estate market. Generally, the first 18 months of an interest rate tapering cycle is when real estate does its absolute best.” Focussing on renewing leases, keeping tenants happy, keeping stakeholders happy, and being innovative, the team is aggressive around growth but not aiming for size for the sake of it. “We are not in any rush to become a behemoth. We have always operated with very strong entrepreneurial characteristics,” says Rossi. “To be entrepreneurial, you can’t be lumpy. Our business will remain nimble and always on the lookout for opportunities.” The goal is to expand from Continues on page 10
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Clear and Simple The successful rollout of the Spear REIT solar strategy is because of the company’s sharp and focused approach, implementing at portfolio level. Spear REIT has cut through the noise in a burgeoning sector, taking the advice of Emergent Energy’s team of investment engineers, to become an industry leader when it comes to rooftop PV infrastructure in the Western Cape. “Spear REIT appreciated our approach of keeping it real, taking the noise and unnecessary complexity out of the solar model, and unpacking it for them in a way they could identify the true value for themselves - keeping it clear and simple,” says MD Dayne Sage. There is a market boom in South Africa right now, with large amounts of solar panels being imported on the back of the crippling loadshedding crisis. Panels are cheaper than ever before and solar energy is the cheapest form of energy globally. However, because of this aggressive growth, many have entered the relatively unregulated market making selection of a reliable partner a minefield. From designing, developing, financing, and installing, the industry faces a skills shortage and many hunting only money and not meaningful impact. “We differ from the norm,” says Sage. “The key to a good portfolio rollout is being able to collaborate as partners. We identify true value for our clients and we avoid getting caught up in the market frenzy. Instead, Emergent opts for a more selective approach, working closely with a limited number of clients.” With Spear, Emergent has been enabling a green energy transition since 2018. By concentrating on quality and results rather than high volume, low sustainability transactional relationships, the company is able to deliver exceptional service. This is what sets it apart from the rest. When Emergent proved its value following a large installation at the 31,111 m2 GLA Sable Square in Milnerton, the benefits of solar and a portfolio-wide approach became clear. With a mixed portfolio across industrial, commercial, retail, warehousing, and manufacturing, Spear’s rooftop space is a perfect opportunity for Emergent to display its expertise. “Through partnering with Emergent Energy and applying the portfolio approach Spear REIT has been able to benefit from all the different funding models, from self-funded to roof rental, and has had access to green infrastructure funded instalment sales with very aggressive finance rates,” explains Sage. It is essential that property owners are advised on the best way to finance solar packages and understanding the income generation prospects for each site and each asset. Taking a blanket approach to a portfolio, utilising only one financial option, makes it easy to lose out on value. Often, it can be more profitable to employ differing financial methodologies across different elements in the asset base. “Looking at these different levers together can allow for better funding options and access to better returns,” says Sage. As the market evolves quickly, with demand for solar soaring from tenants, working hand-in-hand with a partner that has credibility and experience, delivering creating thinking, while keeping things clear and simple is critical. “A crucial aspect to seek in a partnership is the capacity to adjust and evolve together, aligning with market expansion and adapting to shifts in the environment and context,” highlights Sage, confident of Emergent Energy’s ability to help clients make the right decisions.
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Continued from page 6 a R5 billion to R15 billion fund in five years, all in the Western Cape, always concentrating on industrial, warehousing, office, and retail assets. In this growth comes opportunities for employment creation, something which Spear drives through various CSR activities throughout the year. “For us, it is important to find ways to stem the rising tide of unemployment in our country,” highlights Rossi. “Outside of loadshedding, this is one of the biggest risks that we face. We want to do our part in the year ahead to find employment opportunities – whether that is through temporary job creation in construction and development or permanent job creation within our business.”
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Spear is a proud supporter of a number of initiatives that assist in getting people into work for the first time or back into work after challenges in their personal life. It labels its philanthropy Impact in Action. The Bonginkosi Educare Centre, Hope Farm Restoration, and others are NPOs that go above and beyond to help people in a meaningful way so that more can thrive within society. LIFTING ALL SHIPS Spear is the only REIT to be regionally focused, and this comes from Rossi’s ambition to remain hands on with the assets in the portfolio. Completing an asset buyout of certain Western Cape assets from his previous employer in 2011, the core of Spear has always been the Western Cape where the Spear team live, learn, and work.
“The Western Cape economy has grown from R750 billion to almost R1 trillion over recent years. We generate 100% of our value through the Western Cape and so we want to do what we can to fuel the rising tide that will lift all ships,” Rossi smiles. Key in the company’s success over the past decade has been strong relationships. From partners that work on developments to long-standing financial backers, Spear shares its passion and chooses partners who do the same. “We don’t believe we are gods gift to real estate – we are humble and we love what we do. There is a collaborative culture and that stands out – especially in times like Covid. We had shareholders who are reliant on their dividend from us and we maintained that all the way through Covid. The consistent,
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credible, and predictable approach has always been at the forefront of our business since inception. “As small as we are in relative terms,” Rossi adds, “we have become quite a countercyclical property counter. The rest of the country’s real estate companies are facing severe headwinds
// THE CONSISTENT, CREDIBLE, AND PREDICTABLE APPROACH HAS ALWAYS BEEN AT THE FOREFRONT OF OUR BUSINESS SINCE INCEPTION //
because of municipal decline but we are a net benefactor of semi-gration and investment in the province.” He explains, as an example, that the budget for Cape Town infrastructure (4.3 million people) for the next three years is around R43 billion but Johannesburg (5.6 million people) only expects around R21 billion. “That means we will have better roads, better sewage, better water, better electrical services etc,” says Rossi. “For me, as someone looking to grow a business, that tells me I can happily look around Cape Town and the Western Cape for investment opportunities as the population grows.” Clear that there is more to the Western Cape than wine and tourism, Rossi offers potential investors a way to experience the province’s beauty from a different perspective – a
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growing investment destination, with an obvious plan for advancement, and with consistent, predictable, and credible returns for those who understand the lay of the land. “If you’re looking for SA real estate exposure without direct hassles of ownership, Spear offers a highly attractive investment proposition given the fact that we are invested in the fastest growing economic province in the country, in the most industrialised nation on the continent,” he concludes.
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December 2023
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Spear Takes Long-Term Position in Burgeoning Western Cape Exclusive interview with Spear REIT CEO, Quintin Rossi ALSO IN THIS ISSUE:
Similan Properties / Trellidor / Unisure / K-Way Manufacturers
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ENTERPRISE AFRICA D E C E M B E R 2023