November 29 2024 16:15
Burstone CEO Andrew Wooler
SOUTH AFRICA, EUROPE, AUSTRALIA
JSE-listed Burstone Group, has become a fully integrated international real estate business, which recently announced half-year (first half of the 2025 fianncial year) results in line with guidance, reporting stable operational performances across its geographical businesses, despite earnings pressure from a high interest rate environment globally.
The group has been placed on a strong track by CEO Andrew Wooler, chief financial officer Jenna Sprenger and the rest of the team over a number of years, with it striving through the pandemic, SA’s weakened economy and political uncertainty in South Africa.
Burstone saw its distributable income per share fall 3% to 49.53 cents per share from 51.07 cents per share, but the drop was in line with guidance given to the market months back. The dividend payout ratio was 90% with a total dividend of 44.58 cents per share compared with 48.52 cents per share in the comparable 2023. The group maintains a payout ratio of between 85% to 90%.
The results for the half-year were underpinned by stable operational performances from the South African and European businesses, with like-for-like (LFL) net property income (NOI) marginally declining 1.2% in the South African portfolio and increasing 1.1% (in EUR) in the European pan-European Logistics portfolio which was about 8% in Rands.
The results from underlying operations were as expected, affected by higher funding costs, with an increase in interest rates resulting in a circa R40m increase in funding costs over the period, Wooler said.
Burstone completed numerous strategic objectives during the reporting period. It announced its strategic partnership with its pan-European portfolio and funds managed by affiliates of Blackstone. Irongate, an Australian landlord in which Burstone holds a stake, concluded a new industrial joint venture backed by a leading global alternative asset management firm, increasing Irongate’s third-party equity assets under management from A$490m at the end of the 2024 financial year to about A$628m.
Burstone is in negotiations with regards to a co-investment opportunity and ongoing management of a €170m German light industrial and last mile logistics platform. Burstone is also in “negotiations with cornerstone investors in South Africa to seed and aggregate to scale an SA core plus platform”.
Fee revenue grew 54.5% over the period to R34m compared with R22m in the six months to the end of September 2023, amounting to 8.5% of distributable earnings compared with September 2023’s 5.4%. The group expects the funds and asset management initiatives to have a significant positive effect for earnings over the next few years.
After the implementation of the Blackstone and Australian transactions, Burstone’s total direct and indirect gross asset value (GAV) will be about R42bn, of which 56% will be third party assets under management (AUM). Third party AUM is expected to increase almost five times from R4.7bn at the end of March 2024 to about R23bn.
Andrew Wooler, CEO of Burstone Group said Burstone was in an improved position.
“The Group is pleased with the progress made in its strategic repositioning of the business into an integrated international real estate investor and funds and asset manager. Significant traction has been achieved in expanding the fund and asset management segment of our business, underpinned by several key transactions that establish a strong foundation for scaling these platforms further. The Group’s hybrid business model stands out as a key differentiator, enabling the Group to deliver enhanced returns on capital deployed. The Group is positioned for growth and will look to take advantage of several opportunities across its business to continue to grow its funds and asset management business,” he said.
The Group’s balance sheet was bolstered during the period. The group’s adjusted loan to value (LTV) is expected to fall to about 33.5% post the implementation of the Blackstone transaction. Look-through gearing will reduce from 58% to c.41%.
Burstone successful refinanced R6.6bn of group ZAR and EUR debt in August 2024 that has improved margin, extended the debt profile and provided greater flexibility with respect to sales and facility settlement. The group continued with its capital recycling programme, with about R0.3bn of sales unconditionally concluded during the reporting period and a further R0.3 billion awaiting transfer.
The group expects further asset sales to amount to between R1bn and R1.2bn over the next 12 months.
“The Group will continue to assess several opportunities to fund its growth strategy and decrease reliance on its balance sheet including continued asset recycling, the development of its South African fund management strategy and the introduction of LP capital partners to co-invest alongside Burstone. We will continue to seek to deploy capital into the best international/local opportunities that will support our longer-term strategic plan and continue to create shareholder value. As we look to deploy capital into growth opportunities in our fund and asset management platforms, we expect near term LTV to be between 34% to 36%, whilst we target a longer-term LTV of below 35%,” said Wooler
On the balance sheet investment side, Burstone directly invests in diverse real estate portfolios across South Africa, Europe, and Australia. These include income-generating assets in retail, office, and industrial sectors, which bare intended to ensure steady and stable returns.
The funds and asset management business partners with global capital investors through joint ventures and platforms managed by Burstone. By co-investing and managing third-party assets, Burstone earns fees and aligns interests with Burstone’s partners to maximise overall performance.
“Burstone has the capability to invest across all aspects of the real estate life cycle, partnering with specific capital partners for specific opportunities. Our hybrid model of traditional real estate investment – integrated with expertise across fund management, investment management, asset management and development management – supports the Group’s strategy of delivering enhanced returns on capital deployed and maximising operational leverage from our scalable platform,” said Wooler.
The South African portfolio stabilised and is performing in line with expectations, with LFL NOI growth expected to be flat relative to the 2024 financial year, because of ongoing negative reversions in the office portfolio.
Expanding the group’s fund and asset management model offered multiple benefits for Burstone, particularly the ability to achieve enhanced integrated real estate returns. This approach combineed traditional real estate asset yields with additional upside from operating a funds, investment, and asset management model, where the group can earn management, leasing, and acquisition fees, as well as potentially generate performance fees through outperformance.
The rollout of the group’s fund and asset management strategy, and the conclusion of recent transactions, is expected to generate a significant increase in fee revenue over the next two years.
alistair@propertyflash.co.za
