Property Flash


March 14 2024

JSE-listed shopping centre landlord and investor, Resilient Real Estate Investment Trust (Reit) reported in its financial results for the year to December 31 2023, that its dividend per share had fell 31.79% in the year to end-December 2023 to 406.24c compared with the comparable period to end-December 2022’s 438.03. But the group’s net asset value per share climbed 7.45% from 58.26c to 65.71.

Impressively, Resilient released its results at 13:34, before the market closed at 17:00, for the first time in years which helps media houses and analysts comment and report on the results on the same day as release.

Resilient’s strategy is to invest in retail centres which dominate their catchment areas and which have a minimum of three anchor tenants and let predominantly to national retailers. Its management has said that core competency of the group is its strong development skills which support new developments and the reconfiguration of existing malls to adapt to structural changes in the market. Resilient also invests directly and indirectly in offshore property assets. Its South African malls include Arbour Crossing in KZN, Brits Mall in the North West Province, Diamond Pavilion in the Cape, Jabulani Mall in Soweto, Limpopo Mall in the Limpopo Province, Rivonia Mall in Gauteng and Secunda Mall in Mpumalanga.

Resilient’s board declared a dividend of 203.02c per share for the six months to end-December 2023.

“The total dividend of 406.24c per share for FY2023 is in line with the guidance of approximately 400.00c per share provided in the interim results. The results were ahead of guidance mainly due to less loadshedding experienced in the portfolio compared to what was expected, particularly in the months of November and December,” the group said.

The total dividend for FY2023 was 7.3% lower than the 438.03c per share for the previous year. The main reasons for the decline in distributable earnings were higher interest rates, an increase of 450 basis points since January 2022 with long-standing interest rate caps not providing full protection, and lower distributions from investee companies, it said.

The South African property portfolio recorded comparable net property income (NOI) growth of 7.1% for the year.

“This growth has been supported by Resilient’s energy strategy that assisted in containing the rise in electricity costs,” it said.

During the 2023 finacial year, comparable sales increased 5.2%. Comparable sales were affected by the high base effect in KwaZulu-Natal, construction at Mahikeng Mall and surrounding infrastructure upgrades in Mahikeng as well as the redevelopment of Tzaneng Mall.

Excluding these malls, the remaining portfolio achieved comparable sales growth of 6.9%. Strong trading performances were achieved in the Northern Cape, Mpumalanga and Limpopo provinces, Resilient said.

During 2023 , trading was supported by a new Checkers store at The Grove Mall in Equestria, as well as a Dis-Chem brnach and Food Lover’s Market that opened in Kathu Village Mall.

Dis-Chem also opened in I’langa Mall, Tubatse Crossing and Diamond Pavilion. A relocated and enlarged Truworths store was opened in Mvusuludzo Mall. A&D Spitz, Kurt Geiger, G-Star RAW, Fabiani, Pringle, Skipper Bar and Le Coq Sportif opened in Tubatse Crossing while Totalsports, Sportscene and Markham expanded materially. G-Star RAW and Fabiani opened in Limpopo Mall. At Mall of the North, Checkers was fully revamped, while Sportscene, Totalsports, Baby City and Hi-Fi Corporation were materially expanded.

Checkers and Clicks are being expanded and revamped at Diamond Pavilion. Sportscene, Totalsports and Markham were expanded and revamped at Kathu Village Mall. During the year, A&D Spitz, Fabiani, Polo, Yuppiechef and Pringle were introduced and Poetry and Sportscene were expanded at I’langa Mall.

The new Pick n Pay store in Jabulani Mall, owned by a local franchisee, opened in November 2023. Rentals on lease renewals were concluded on average 4.6% higher than expiring rentals. Leases concluded with new tenants were on average 26.5% higher than the rentals of the outgoing tenants. In total, rentals for renewals and new leases increased on average by 7.9%. Resilient is invested in 27 retail centres with a gross lettable area of 1.2-million square metres.

Resilient’s pro rata share of the vacancy in the portfolio was 1.5% at December 2023. This included vacancies created to facilitate the introduction of new tenants at Tzaneng Mall and Jabulani Mall.

Resilient’s European investments include a 40% interest in Retail Property Investments SAS (RPI), the owner of four regional malls in France, in partnership with Lighthouse Properties p.l.c.

In the first half of 2023, the French portfolio was negatively affected by a number of tenant failures and receiverships, including Go-Sport, La Grande Recre, Kookai, Don’t Call Me Jennyfer and San Marina.

A common theme was that most of these retailers had private equity capital structures. Administrative procedures in France were challenging, resulting in delays of up to 12 months to recover space from failing tenants. These tenant failures increased the French vacancies from 7.2% at the end of December 2022 to 9,0% at the end of June 2023. At December 2023, vacancies reduced to 7.9% following lettings to national retailers Chaussea, Bershka, Action and Normal. Economic conditions were subdued but terms were agreed (pending lease signature) with international tenants for 3 877m2 of currently vacant space.

The conclusion of these leases would reduce vacancies in the French portfolio to 5.2%.

Comparable sales for 2023 financial year grew 6.5% with footfall increasing 9,6%. The improved footfall was driven by the introduction of new retailers including Action, New Yorker and Primark. At Saint Sever, Primark successfully opened its 6 709m2 flagship store and is trading ahead of expectation. The Primark opening increased December’s footfall by over 29% year-on-year.

The introduction of Primark has resulted in a significant increase in tenant demand. During the year, New Yorker, ONLY and Crep’eat opened for trading and Bershka, Normal and Chaussea have either concluded leases or taken beneficial occupation to open new stores during 2024.

Footlocker agreed to relocate from its current 250m2 store to a new 450m2 flagship concept on the upper level of the mall. Terms have been agreed with a large international sports retailer to occupy the majority of the space vacated by Go-Sport, which went into receivership in February 2023 with the remaining space having been let to Chaussea.

Resilient and Lighthouse each own a 50% interest in the holding company of Salera Properties, S.L.U.. On December 21 2023, the group acquired Salera Centro Comercial (Salera), a retail shopping centre in the city of Castellon de la Plana, Spain.

The transaction closed and transfer was taken on January 31 2024. Salera opened in 2006 and is the dominant regional shopping centre in the province of Castellon.

The shopping centre provides a comprehensive retail offering of 68 752m2, including a 13 693m2 Alcampo Hypermarket. The Alcampo Hypermarket is under separate ownership and does not form part of the acquisition. Salera is fully let to 147 major international and national tenants including Primark, H&M, JD Sports, FNAC, Primor, C&A and eight Inditex brands (Zara, Massimo Duo, Leties, Bershka, Pull&Bear, Oysho, Zara Home and Stradivarius).

The entertainment offering includes a 14-screen cinema, an arcade, bowling, as well as a food court. The current annual footfall is 9-million, which is 8,7% above 2019 levels. The shopping centre allows easy access to the A-7 motorway (the main motorway between Valencia and Barcelona).

During December 2023, Resilient paid EUR8.6m (R171.6m) as a deposit towards the acquisition of Salera. The purchase consideration of EUR174.5m (100% and inclusive of transaction costs) represents an annualised net initial yield of 7.7% based on the forecast 2024 net operating income.

In total, Resilient paid EUR87.25m (R1.765 bn) for its share of Salera.

Resilient Africa, together with local partners, owns Asaba Mall, Delta Mall and Owerri Mall. Resilient owns 60.94% of Resilient Africa in partnership with Shoprite Holdings Limited. Resilient Africa received $45m of funding from the Shoprite group which was due to be repaid on March 3 2024. The funding was secured by the three properties, with no recourse to Resilient’s South African balance sheet.

As the valuation of the properties exceeded the value of the funding, Resilient and Shoprite effectively agreed, subsequent to year-end, that Resilient’s portion of the properties will settle its share of the debt. Consequently, Resilient will dispose of its Nigerian operations to Shoprite for a consideration of R1.

From March 3 2024, Resilient has no further financial obligations with regard to the Nigerian operations with Shoprite taking full responsibility thereof. The Nigerian investment contributed 42c per share to Resilient’s net asset value of R66.28 per share at the end of December 2023. Resilient has effectively exited Nigeria.

Resilient’s full property portfolio was subject to an external valuation at the end of December 31 2023. The South African property portfolio was valued by Quadrant Properties. Resilient’s share of the positive revaluation of its South African portfolio was R1.2bn (4.8% up). The French portfolio was valued by Jones Lang LaSalle and the Nigerian portfolio by CBRE Excellerate. Resilient’s share of the negative revaluation of the French portfolio was EUR8.3m and its share of the negative revaluation of the Nigerian portfolio was $11.7m.

Resilient’s interest in UK mall owner Hammerson plc was sold during the year in line with the Board’s priority to proceed with Resilient’s energy initiatives and fund its capital commitments while retaining conservative leverage, it said. Des de Beer, the former CEO of Resilient left Hammerson’s board recently. There had been talk of Resilient and Hammerson merging but Resilient was unable to get support for a potential deal. Total proceeds of R1.2bn were received against the original purchase price of R746.4m.

In respect of its Lighthouse investment, Resilient elected to receive scrip dividends in April 2023 and 50% of its dividend as a scrip dividend in October 2023. The Group currently owns 30,8% of Lighthouse.

Macroeconomic factors such as low economic growth and the higher interest rates would affect Resilient’s performance. In a South African context, high unemployment, continued loadshedding, infrastructure maintenance and the delivery of municipal services remained concerning.

Management’s focus will remain on ensuring the portfolio is defensive against these challenges. Resilient will continue to maintain a conservative loan-to-value ratio and hedging profile. Lighthouse has guided lower dividends for FY2024 as it grows its direct property portfolio. The currency hedges in respect of FY2024 are higher than those of FY2023, neutralising the impact of the lower euro dividends expected. The Board forecasts that the dividend for FY2024 will be in line with that of FY2023. Resilient is committed to paying out 100% of its distributable earnings as a dividend each year (in two parts, interim and final).

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