Growing portfolio pays off for Rebosis Property Fund
The injection of a substantial property portfolio into Rebosis Property Fund last year is paying off with the fund announcing an 8.2%% increase in its distributions for the year ended August 2016.
On Monday, the Fund declared a final distribution of 62.66 cents per share, in addition to an interim dividend of 56.79 declared in February 2016, amounting to a total distribution of 119.45 cents per share for the year under review, up 8.2% on the prior year’s total distribution.
Rebosis’ investment property portfolio consisting of UK based New Frontier Properties and local commercial office specialist, Ascension Properties further bolstered its earnings.
Rebosis CEO, Sisa Ngebulana said the distribution growth is mainly as a result of continued organic growth in our existing portfolio as well as the management team’s containment efforts which saw our cost to income ratio reduce from 13.3% to 12.5%.
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“We have achieved these results despite increased cost of debt from 8.2% to 8.9% due to extended debt and interest hedges taken over a four year profile.” he said.
The property fund also achieved a 3.1% reduction in vacancies.
At the close of the reporting period, the Fund’s direct assets under management were independently valued at R12,8 billion compared to R9.8 billion in 2015. The effective investment in Ascension and New Frontier was valued at R3.9 billion.
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The investment portfolio for the Group consists of 51 assets (20 properties excluding Ascension and New Frontier) made up of 45% retail, 51% commercial offices and 4% industrial, by Gross Lettable Area.
Since listing, Rebosis has held a right of first refusal on any asset coming to market by Billion Property Group (Pty) Limited provided that these assets match the Fund’s investment criteria. Consequently, with effect from 3 October this year, Rebosis acquired 100% of Forest Hill City and Baywest Mall, two large, dominant, early stage retail centes located in Centurion and Port Elizabeth respectively.
As part of the transaction, Rebosis also acquired Billion Group’s asset and property management companies, effectively internalising the Company’s asset manager.
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The acquisition price totaled R4.9 billion and will be settled by new debt facilities of R3.7 billion and an equity raise of R1.2 billion (R700 million of which is deferred over two years at R350 million per year.) Rebosis plans to settle R1.5 billion of the new debt through the disposal of non-core commercial assets.
Analyst Comment
Commenting on the results, Stanlib’s Listed Property Analyst, Lawrence Koikoi said Rebosis achieved 8.2% growth in distribution which is in line with guidance of 8.0% to 10%, and showed strong operational metric on their retail exposure with declining cost to income ratios from 13.3% to 12.5%.
“The company is expected to transform into a retail biased fund in the next 12 month with incorporation of Baywest mall and Forest Hill mall, and it will be interesting to see if the market will re-rate the stock after the reducing the government exposure,” Koikoi said.
Grindrod Asset Management’s chief investment officer, Ian Anderson, said the company finished the year on a extremely high note.
“Distribution growth of 8.2% is in line with our expectations , but based on today’s price action was probably well ahead of the market’s expectations.
“The portfolio, comprising 4 large regional shopping centres, 15 office properties and 1 industrial warehouse, was valued at R8.7 billion at the end of August, with a further R4 billion invested in Ascension and the UK-focussed New Frontier Properties.
“Post year-end, the company has acquired Forest Hill City Mall and Baywest City Mall as well as the asset and property management businesses of Billion Property Group for R4.9 billion, thereby focussing the company as a major mall owner in the South African listed property landscape.
“The company has also made an offer for the Ascension units it does not already own, which would help clean up the group’s structure. The company expects to complete R1.5 billion in asset disposals in FY17. The new, repositioned Rebosis effectively allows management to tick all the boxes in terms of their strategic focus for FY16 and positions the company for growth into the future.
“The only unknown that remains is what Arrowhead intends to do with its 20% stake in Rebosis,” Anderson said.
Rebosis expects to achieve distribution growth of between 7% and 9% in the new financial year