REITs well-placed to weather SA’s current economic and political volatility

REITs well-placed to weather SA’s current economic and political volatility

Downgrading to junk status and ongoing political tomfoolery might make South African investors a little anxious about protecting their investment portfolios against the market volatility resulting from the uncertainty created by the current environment. 

But, as the South African Real Estate Investment Trust Association (SA REIT) points out, REITs are relatively well-placed to weather the expected instability, making them an excellent hold during periods of volatility. 

In spite of these uncertainties, REITs are forecast to post total returns in the range of 8% to 10% for 2017.

Izak Petersen, SA REIT Chairman

 It is important to realise that many SA REIT counters were aware of the possibility of a rating downgrade and had planned accordingly,” says SA REIT Chairman Izak Petersen, who is also CEO of Dipula Income Fund. “This is where the benefit of experienced and professional management can be clearly seen.”

 

Offshore diversification is one strategy that local REITs are also employing. 

SA REITs currently have offshore exposure of about 30% to 40% of their earnings,” explains Mark Stevens, Chairman of the SAREIT Marketing Committee and CEO of Fortress Property Fund. “This provides a buffer against local market uncertainty and serves as a Rand hedge.” 

Interest rate hedging is another strategy. 

REITs in South Africa have on average typically hedged about 80% of their interest exposure with the hedge expiry profile being three- to four-years, making them less vulnerable to interest rate fluctuations due to a volatile Rand. 

And finally, low gearing levels in the sector ensures REITs are resilient to fluctuations. 

With low loan-to-value (LTV) ratios and strong balance sheets, REITs are able to wait out market ebbs and flows, and perform well over the longer-term horizon,” points out Petersen. 

REITs have in fact consistently outperformed other investment sectors in the last 20 years. 

Compared to the 16% average return generated by equities over that time, listed property has achieved a 19% average return,” explains Petersen.

The SA REIT Association represents the South African listed REIT (real estate investment trust) sector, which is one of the most active and innovative sectors on the JSE. SA REIT members comprise all listed SA REITs and represents a market capitalisation of around R400 billion. The quality of these REITs influence our economy and the quality of people’s lives.

2: Image: kfsa.co.za

Rebosis’ Baywest Mall celebrates robust growth

Rebosis’ Baywest Mall celebrates robust growth

Following our report last month on Rebosis Property Fund’s steady and consistent performance across its property portfolio, Shopping & Retail SA brings you a more in-depth report on the company’s Baywest Mall, whose strong performance indicates strong consumer appetite for larger shopping centres

As the Eastern Cape’s largest shopping and entertainment centre, Baywest Mall, marks its second birthday this month, its performance for owners Rebosis Property Fund suggests consumer appetites for super-regional malls are far from waning.

According to Rebosis Property Fund group marketing manager Deborah Bailey, the flagship mall for South Africa’s largest black-owned, listed property fund is living up to its tagline, “the pulse of the Bay”.

Growth indicators for the mall include:
• Consistent foot traffic year-on-year (seven million visitors in 2016)
• Total sales growth year-on-year over a comparable period of 16.0%
• Mall trading density (sales per m²) growth of 14.3% year-on-year over a comparable period, and
• Spend per head growth of 21% year-on-year over a comparable period

“Our data shows Baywest has been embraced by the region, with almost seven million visitors through our doors in 2016,” said Bailey, adding that the super-regional mall attracted not only residents of Nelson Mandela Bay (Port Elizabeth, Uitenhage and Despatch), but also brought out-of-towners into the city from as far afield as Plettenberg Bay and Grahamstown.

“These out-of-town shoppers would previously have visited the city intermittently, but now the mall provides a unique shopping and entertainment destination to warrant them travelling more frequently. Furthermore, once these visitors arrive in the Bay, they don’t just stop in at the mall but also conduct business elsewhere in the city, meaning that other businesses benefit from our presence,” said Bailey.

“On the whole, with a 91% occupancy rate by gross leasable area (GLA) – up from the 85% when we opened in 2015 – Baywest Mall is in a healthy state given the fact that it is just two years old and part of a larger precinct which is still in its developmental stage, and especially given the challenging macro-economic environment.”

During its two-year construction phase, the 90,000m² mall created employment for over 5 000 mostly local construction industry workers. Since opening on May 21, 2015, a further 2 000 permanent jobs have been created to staff the mall’s 250 outlets.

“Baywest creates direct employment for up to 2 000 Bay residents. This excludes the downstream economic benefits which the mall provides for the many service providers working with our tenants,” continued Bailey.

Baywest Mall general manager Troy Zunckel said the shopping centre has brought a variety of exciting new brands to the Nelson Mandela Bay region, covering entertainment, dining and retail.

“Such a shopping and entertainment experience was previously only accessible to Bay residents when they travelled to cities like Johannesburg, Durban and Cape Town.”

Speaking on the filling of the mall’s vacant stands, he said: “We have strategic vacancies to let and we are constantly in discussions with key brands around those vacancies. It is important that we create the right tenant mix of local, regional and national brands which complement all our stores. If we relax our standards and fill our available space with tenants that do not fit our strategic mix, it would harm our existing tenants rather than complementing them.”

With regard to the coexistence of the mall in relation to other centres in the region, Zunckel said: “We believe Baywest is fulfilling its role as a super-regional mall by supplementing – not cannibalising – trade at smaller shopping centres.”

Baywest had brought “fantastic new brands to the region, and created major employment opportunities”, he added.

“It has created a one-stop destination for leisure activities that were previously unavailable to local residents – such as an Olympic-size ice rink and the region’s only Ster-Kinekor IMAX and Cine Prestige movie theatres.”

Baywest leads Rebosis’ strong retail performance

Baywest Mall, Port Elizabeth

Baywest leads Rebosis’ strong retail performance

In April Rebosis Property Fund reported a net property income growth of 74,6% for the six months ended 28 February 2017. A JSE listed Real Estate Investment Trust (REIT) Rebosis’ strategy is directed toward dominant retail malls.

The company’s Chief Operating Officer, Andile Mazwai, said: “We saw strong retail performance despite a depressed retail sales environment. This performance was largely led by Baywest Mall, which held the highest trading density growth at 11.6%, and Bloed Street Mall. Alongside this performance we reduced our retail vacancies to 1.5% in the reporting period.”

Rebosis’ South African retail portfolio makes up 62% of its South African assets and consists of six high-quality, dominant shopping malls with strong anchor national tenants delivering income streams escalating at 7,4%.

Expanding on this solid performance, Rebosis plans to embark on extensions to its Mdantsane Mall in Pretoria, as well as implement a R55 million upgrade to Hemingways Mall in East London.

Forest Hill City, Pretoria

Rebosis concluded the watershed R5 billion Baywest Mall (Port Elizabeth) and Forest Hill City (Pretoria) acquisition during the reporting period and at the same time internalised its asset and property management entities. This gave rise to the increase in market cap growth and share price appreciation and saw the fund achieve its stated objective of becoming a retail-focused fund with an internalised management function.

Rebosis’ Chief Executive Officer, Sisa Ngebulana

Rebosis’ Chief Executive Officer, Sisa Ngebulana, said, “We achieved exciting growth in both total assets and income during the 6-month period under review. We were also able to hedge 100% of our debt and extend debt maturity profiles in order to mitigate potential risks that arise as a result of a market downgrade and low economic growth. To have achieved a 38% increase (74.6% including new mall acquisitions) in net property income while reducing our overall vacancies to 2.4% bears testament to our defensive office-sovereign underpin and the dominant retail strength in the portfolio, which we believe will continue to perform well in a sluggish economic environment.”

The retail portfolio delivered a strong 6% trading density growth and the fund’s remaining industrial property is presently under offer and is being held for disposal.

Further detail of Rebosis performance reveals that total distributable income increased 32,7% to R389 million from R293 million over the period. Following various acquisitions during the period, assets under management rose a significant 51% to R17,9 billion from R11,8 billion.

A dividend of 60,08 cents per share has been declared for the six month period. This amounts to 7,07% dividend growth year-on-year, which is in line with the 7% to 9% guidance expected for the financial year.

Rebosis also concluded the acquisition of Ascension Properties which led to the listing of the Rebosis-A shares at a market capitalisation of R1.6bn (thus giving Rebosis a combined market capitalised value of R9.8bn). The Rebosis A-shares were listed on the JSE on the 19th of April 2017.

The completion of this acquisition consolidates Ascension Properties under Rebosis’ direct properties and has bolstered the Rebosis asset portfolio by a further R17.9 to R21.3bn.
The combined SA properties now constitute 8 retail shopping malls, 42 office buildings and two industrial properties.

The commercial properties are located in nodes attractive to government tenants and are mainly single-tenanted buildings let to the National Department of Public Works, providing for average escalations of 8,2%.

The dividend growth in the period is in line with the Rebosis Board’s view that the dividend per share will grow by between 7% and 9% for the full year to 31 August 2017, provided there are no unexpected or drastic deteriorations in the South African economy.
This forecast outlook is issued by the Board, and has not been reviewed or reported on by the company’s auditors.

Rebosis also holds 67,5% in New Frontier Properties which owns the dominant shopping centres in the English towns of Blackpool, Middleborough and Burton-on-Trent.

Hemingways Mall, East London

 

Emira teams up with retail property specialists ONE Property Holdings

Emira teams up with retail property specialists ONE Property Holdings

In the process of rebalancing its diversified portfolio, Emira Property Fund Limited, a diversified JSE-listed REIT, has joined forces with retail property specialists ONE Property Holdings to form the specialised Enyuka Property Fund.

Earlier this year Emira reported a 68,93 cents dividend per share for its half-year ended 31 December 2016, which is in line with its market guidance.

Last year the company primed the market for negative growth of 2% in distribution per share for its year to 30 June 2017, projecting a total dividend of 143 cents per share. Emira is performing in line with expectations for its full year, and is anticipated to return to positive growth in the 2018 financial year.

Geoff Jennett, CEO of Emira Property Fund

Geoff Jennett, CEO of Emira Property Fund, says “We are fully focused on coming through the current challenges with a stronger portfolio and an even better business. We have clear strategies in place to do this. Emira has made good steps towards a return to positive growth in 2018 and will continue to investigate all opportunities to create value and ensure growing and sustainable earnings for our investors.”

Growing Emira’s low Living Standards Measure (LSM) retail portfolio at a faster and better rate than that currently achievable within its existing structures, Emira joined forces with retail property specialists ONE Property Holdings to form the specialised Enyuka Property Fund, effective from 16 January.

Enuyka started out with Emira’s R575 million portfolio of 15 retail properties, and a war chest for immediate acquisitions and developments up to a further R625 million. It has a current pipeline of R400 million of similar assets, and further acquisition opportunities of up to R500 million.

“With Enyuka, Emira will receive the same returns from these retail properties as we would if the properties remained in the portfolio, plus will benefit from a share of any excess income above a benchmark. We will also benefit from the acquisition of new assets and enjoy meaningful participation in an actively-managed and growing base of rural retail assets,” explains Jennett.

The short-term challenges Emira faces are increased vacancies in its office portfolio, the oversupply of offices in the market, rising municipal costs, and negative rental reversions resulting from the weak macroeconomic environment.

Emira’s half-year was defined by an intense strategic focus on portfolio rebalancing out of the office sector, aggressive leasing and tenant retention, vigilant cost control, prudent financial management and identifying new opportunities.

While Emira successfully renewed 72.8% of space expiring during the half year, as expected its overall vacancies increased from 5.3% to 7.0%. Its low retail (3.6%) and industrial (1.2%) vacancies are better than the respective sector national averages measured by SAPOA. However, its office vacancies increased to 16%.

Jennett explains that, besides managing its vacancies with letting and tenant retention strategies, Emira is also better aligning its portfolio for a persistently tough market by reducing its exposure to office property. It is undertaking a significant non-core property disposal programme, which will further its rebalancing Initiative.

During the period, Emira sold and transferred two properties for R130,2 million at a combined premium to book value of 26.7%. It has committed to selling a further 19 properties valued at R917,1 million. Unconditional sales have already been concluded for R381,2 million of these properties, and they are expected to transfer before 30 June 2017.

Jennett says the disposal funds will be put to best use. As part of this process, Emira is also assessing its properties for potential upgrades, refurbishments, extension or even conversions to different uses, including residential.

“We want to put every asset to its highest use. Emira will continue to invest in projects that modernise, extend and redevelop our assets to enhance their values and competitiveness and extract value from existing bulk,” says Jennett. “Furthermore, we are planning some exciting projects that include the conversion of office space to residential space, where the best use of the asset is residential. Announcements in this regard will be made shortly”.

Currently, Emira has four projects underway, including the complete redevelopment of Knightsbridge, creating 30 000 m2 of quality offices in what will be the only P-grade green-certified office park in Bryanston. The phased project has already secured tenants WSP|Parsons Brinckerhoff in 5 900 m2 and the KFC and Pizza Hut head offices in Africa in 3 150 m2 of efficient modern offices.

Favouring the offshore exposure it gets from its investment in Growthpoint Properties Australia (GOZ), Emira recently followed its rights and acquired a further 1 332 753 GOZ shares. It now holds 4.9% of GOZ shares in issue. Its GOZ investment is valued at R924,2 million with an investment cost of R416,8 million – this equates to a 121.7% increase in value. Emira’s income from GOZ grew by 1.7%, with the stronger ZAR against the AUD largely offsetting distribution growth.

Good news for Emira came in the form of winning an interim award to claim for a damages amount, still to be determined by the arbitrator, from Worley Parsons for breach of a valid lease agreement. No rental was accrued for this lease during the period.

Emira continues to enjoy good access to funding and, during the period, concluded a new R300 million four-year secured facility with Standard Bank. Its gearing remains a conservative 37.8%, with 84.0% of its debt fixed for a weighted average duration of 2.9 years.

It also completed a share buy-back programme of 14,016,201 Emira shares that benefits from the divergence between its equity value on the stock exchange and its net asset value. “We have great confidence in Emira’s prospects relative to its share price and believe it is an opportune time for share buy-backs,” says Jennett. Emira’s net asset value increased 1.4% during the period.
Emira is a medium-cap diversified JSE-listed REIT that is invested in a quality balanced portfolio of office, retail and industrial properties. Its assets comprise 142 properties valued at R13,3 billion. Emira is also internationally diversified through its direct interest in ASX-listed GOZ.