Strong results give Resilient share wings

Resilient CE Des de Beer says the group's existing portfolio of 26 malls, with the exception of its North West and KwaZulu Natal south coast centres, also delivered better-than-expected retail sales growth of an average 8,8%.

Blue chip mall owner Resilient Property Income Fund has for many years been labelled as expensive. Yet the counter continues to test new highs.

The stock has had a particularly strong run since mid-2014, with the share price up 65% for the 12 months to February 9.

Resilient has now overtaken fellow mall owner Hyprop Investments in size, with its current market cap at R31bn.

That ranks the stock as the JSE's fourth-largest property counter after Growthpoint Properties, Redefine Properties and Romanian-focused sister fund New Europe Property Investments (Nepi).

But more impressive perhaps is management's ability to continue to deliver double-digit growth in dividend payouts (distributions) despite a stalling economy, weaker retail sales and ongoing electricity supply issues.

Last week, Resilient declared distribution growth of 16,3%, significantly ahead of forecasts of around 12% and way ahead of the sector average of 8,5%.

Resilient has been particularly successful in developing dominant malls in secondary cities, townships and rural areas such as Polokwane, Burgersfort, Brits, Kimberley, Kathu and Thohoyandou.

The company's recent outperformance was driven by among others the acquisition of two large malls, both near Pretoria: Irene Village Mall for R665m and Jubilee Mall (Hammanskraal) for R975m.

Resilient CE Des de Beer says the group's existing portfolio of 26 malls, with the exception of its North West and KwaZulu Natal south coast centres, also delivered better-than-expected retail sales growth of an average 8,8%. Star performers include The Grove in Pretoria East and Jabulani Mall in Soweto, which recorded double-digit growth in sales turnover. De Beer believes December trade slowed in KwaZulu Natal because of fewer holidaymakers taking shorter breaks.

Resilient's increased exposure to offshore real estate markets (now at 26% of assets) through sister funds Rockcastle Real Estate Company and Nepi also continues to pay off.

While De Beer believes it is becoming increasingly difficult to build new malls in SA given lengthy delays in municipal approval processes and uncertainty regarding electricity and water supply, he still sees growth opportunities in some rural and township areas. Mamelodi outside Pretoria is a case in point, where Resilient recently bought a 50% stake in the R500m Mams Mall development. "There has been a huge housing explosion in Mamelodi in recent years and existing retail facilities in the area are limited.''

Resilient also offers investors exposure to the Nigerian retail market through its joint venture with Shoprite Checkers. Resilient's first two Nigerian shopping centres, Delta Mall in Warri and Owerri Mall in Imo State, are expected to open in April and October respectively. Seven more projects in the country are in the pipeline.

The company has committed to invest R2bn in Nigeria though the current exposure sits at R393m. De Beer says it has taken longer than initially expected to get projects off the ground. "We are still excited about Africa but there are huge currency, tax and legal risks. You also have to be very careful with your location to ensure you build where the money is.''

The question is: to what extent can Resilient continue to deliver above-market earnings and share price growth?

Macquarie First South Securities property analyst Nazeem Samsodien has a neutral recommendation on Resilient, suggesting that the stock is still trading at fair value. He notes that management continues to push through value-adding extensions and redevelopments across its portfolio of shopping centres, as it looks to further assert its dominance in the nodes where it has a presence.

Samsodien forecasts income growth of 16,6% for the year to June 2015 followed by 10,1% and 9,5% growth for the 2016 and 2017 financial years respectively. Though Resilient is trading at one of the lowest forward yields in the sector, at 4,7% compared with the sector's 6,5%, Samsodien says the premium is justified given the stock's superior income growth prospects: 13,8% versus the sector's 9,3% on a 12month rolling basis.

Keillen Ndlovu, head of listed property funds at Stanlib, says though Resilient looks expensive on a yield basis, it's a stock in which it is difficult to take an underweight position. "Management does not rest on its laurels. The team is innovative and always looking for opportunities. That's why Resilient's income growth always surprises on the upside.''

Ndlovu says there are some concerns around the Nigerian exposure, given that the lower oil price and currency fluctuations are likely to slow economic growth in that country. "But we believe these are shortterm issues. Property is a longterm game and investors should look through the cycle."