November 17 2023
JSE-listed Burstone group’s financial results were not too keenly received on Thursday, with its share price falling around 5% by late trade on the day and then again by 2.59% on Friday.
A new story
Burstone was known as Investec Property Fund (IPF) until a couple of months ago. The group rebranded for a number of reasons. While Investec Bank owns a portion of Burstone’s shares, Burstone wants to be seen as a group with its own management team focused on its operations which can attract capital based on merit and not necessarily the Investec name. Burstone is led by Andrew Wooler. Previously he acted as a joint CEO with Darryl Mayers. Mayers is CEO of unlisted group, Seer Property. He spent decades at Investec in various roles.
Burstone now owns a diverse range of properties directly in SA and also has exposure to western European logistics real estate and a stake in Irongate, an Australian landlord.
Wooler said, as expected, financial results for the reporting period were adversely affected by higher funding costs which occurred only in the second half of the prior year.
Nevertheless, key elements of the performance in the first half included that the group maintained its previous guidance and expected to deliver growth in distributable income per share (DIPS) of 0% to 2% in the 2024 financial year. This equated to expected growth in DIPS of 5% to 9% in the second half of 2024.
The dividend payout ratio was 95% with an interim dividend of 48.52 cents per share declared compared with 51.09 cents per share in the comparable September 2022 period. Results for the six months were in line with the group’s expectations, with DIPS declining 5.0% to 51.07 cents per share against the 53.78 cents per share in the September 2022 period.
“We have brought the different parts of the business and our people closer together under the new Burstone name. More than a name change, the Burstone rebrand is a culmination of a shared vision and shared purpose as a group of people with common passion and the exciting opportunity to leverage in-depth local knowledge to take advantage of international opportunities. We believe our collaborative approach, speed, agility and passion for property, coupled with our on-the-ground expertise, are levers for differentiation going forward,” said Wooler.
The South African portfolio achieved 2.0% growth in like-for-like net property income (NPI). The European logistics portfolio reported an increase in like-for-like NPI of 7.9%, driven by continued growth in contracted rent. Overall performance was further bolstered by cost containment initiatives.
“The Group has maintained stability across its portfolio with vacancy levels in South Africa and Europe remaining at low levels of 3.7% and 0.9%, respectively,” said Wooler.
In South Africa, 90% of space expiring has been re-let or leases have been extended; in Europe the ratio was 96%. We continue to engage proactively with clients to reduce the cost of occupation,” he said.
The balance sheet
The balance sheet remained sound supported by proactive capital and interest rate management. Its loan to value (LTV) increased marginally to 43% from 42.0% at the end of March 2023. In the short-term the group will lower the LTV to circa 41% largely through further asset sales.
The South African direct property portfolio accounts for 44% of the group’s asset base on a look-through basis. The local portfolio comprises 77 properties.
In Europe, the European logistics sector is robust with strong demand and low vacancy levels which has driven rental growth, further supported by rising indexation across the Eurozone. While rental growth remains above the long-term trend, this is expected to moderate across most European markets as central banks raise interest rates to tackle inflation.
Performance of Burstone’s European platform is underpinned by a strong, defensive portfolio that has capitalised on the sector dynamics consistently since acquisition. The portfolio is geographically diverse and concentrated in core Western European jurisdictions, with a strong tenant base and a varied lease expiry profile providing opportunities to drive rental income on a staggered basis, with the income derived from a wide spread of strong, household named companies, according to Wooler.
The future
“Burstone has an underlying quality asset base and a robust balance sheet, which provide strong foundations for growth. We believe that our integrated international offering will be a key differentiator as we implement our strategic plan over the next few years,” said Wooler.
Burstone is expected to perform stronger as interest rates ease in late 2024.
alistair@propertyflash.co.za
