Rebosis beats distribution forecasts, bulks up asset base

Rebosis Property Fund CEO, Sisa Ngebulana says the team did a really good job in improving portfolio fundamentals, decreasing the overall cost of funding and driving continued operating efficiencies across our portfolio

Black-controlled Rebosis Property Fund’s distributions for the year to August 2014 surged 8.1% to 99.45c a linked unit on the back of a strong performance from its retail and government tenanted office assets.

With a market capitalisation of R4.5 billion, Rebosis declared full-year revenue of R855.9 million with basic and diluted headline earnings per linked unit at 100.40 cents.

At year-end, the JSE-listed REIT increased its property portfolio under management by 44% to R7.6bn from R5.3bn at the end of August last year.

Rebosis CEO, Sisa Ngebulana said on Wednesday that the fund grew the assets by R2.3 billion without raising equity due to strategic head room created in the prior year that resulted in low gearing.

The property portfolio increase relates mainly to the acquisition of Nthwese portfolio for R1.06 billion as well as Ascension Manco and units earlier in the year.

“The strategic acquisition of the Ascension linked units as well as the Ascension Manco, diversifies the overall investment basket within Rebosis," says Ngebulana.

The acquisition follows Rebosis and Delta Property Fund both bidding for Ascension, as each property counter believed its negotiations were exclusive. A three-way merger between Delta, Rebosis and Ascension was proposed but subsequently collapsed. Delta reverted to sell its holding in Ascension to Rebosis, boosting its stake from 16% to 32%.

The average vacancy across the portfolio remained at 2.4% of the total portfolio by GLA.

The current portfolio of 19 properties has a total GLA of 414 398m² and is diversified across Gauteng, the Eastern Cape, KwaZulu Natal and North West Province. The portfolio comprises 44% retail, 54% office and 2% industrial, by value.

Its retail portfolio consists of four large shopping malls underpinned by strong anchor and national tenants that deliver income streams at an average of 7.5 per cent. Hemingways Mall in the Eastern Cape is Rebosis’ largest property in its portfolio which has reported turnover growth of 8.8 per cent.

The office portfolio consists of 14 buildings, mostly leased to government tenants under long term agreements, contributes a significant portion to earnings and shields Rebosis from private sector risks such as tenant insolvency and default.

“Our government exposure is well managed with mainly single tenanted, long-term leases in place. There is some confusion around National Treasury’s directive, but we continue to negotiate new leases at an average 7% escalation over five years due to our empowerment status,” said Ngebulana.

Looking ahead, Ngebulana concluded: “Given our high-growth, defensive portfolio fundamentals we remain bullish on the performance of the fund. Demand for space remains strong, vacancies are low and operating costs are well managed.”

Analyst Comments

Stanlib head of listed property Keillen Ndlovu said Rebosis achieved a favourable distribution growth, which was above market consensus as well as management's guidance.

Ndlovu says fundamentals of the portfolio remain good with portfolio vacancies at 2.4% being one of the lowest in the sector.

"Gearing has however increased considerably from 25% to 38%. Although 76% the total debt is hedged, 54% of this is hedged through interest rate caps which means that the company is still exposed to some interest rate risk," explained Ndlovu.

Old Mutual Investment Group portfolio manager Evan Robins said Rebosis was a good investment at its existing price. "Its results next year should again be solid. Rebosis is not an expensive stock and it is offering good value to investors."

But Coronation Fund Manager’s Anton de Goede said while Rebosis’ near-term prospects were good, there were some concerns. "The prospects for financial year 2015 are looking good, but remain dependant on potential interest-rate increases, which are becoming less defined in a declining inflation environment," he said.