| Thu 28 Sep 2023, 10:45 | | BURSTONE GROUP LIMITED - Investor pre-close conference call and voluntary trading update for the interim period
ending 30 September 2023 |
|
Investor pre-close conference call and voluntary trading update for the interim period
ending 30 September 2023
BURSTONE GROUP LIMITED
(Previously Investec Property Fund Limited)
(Incorporated in the Republic of South Africa)
(Reg. No: 2008/011366/06)
Approved as a REIT by the JSE
Share Code: BTN
Bond Code: BTN
ISIN: ZAE000180915
("Burstone" or "the Group")
Investor pre-close conference call and voluntary trading update for the interim financial period
ending 30 September 2023
The Group is pleased to give a pre-close trading update for the interim financial period ending
30 September 2023 (1H24). An investor conference call will be held today at 11:00 South African time /
10:00 UK time (details are provided below).
Overall Group performance
- As expected, overall Group distributable income per share (“DIPS”) will be approximately 4% to 5%
lower for the half year, with 1H24 expected to deliver between 51.09 cps to 51.62 cps (Sep-22:
53.78 cps), reflecting:
- Strong operational performances from the South African and European businesses;
- Offset by higher funding costs which occurred only in the second half of the prior year and
did not impact 1H23.
- The Group however, anticipates delivering full year DIPS in line with previous guidance of low single
digit growth.
- Performance in the second half of the year (2H24) will be underpinned by:
- Further operational efficiencies;
- Positive impact from the recent management company internalisation;
- Cost reduction measures and continued revenue growth in the European business; and
- A continued focus on the Group’s strategic priorities.
- Global interest rates remain persistently high, and are expected to continue to negatively impact
results, with rate increases larger than originally anticipated. The year-on-year impact in the
second half of the year will however be lower, as the higher funding costs were already in the base
in the second half of FY23.
- Key performance indicators for the period include:
- Loan to value (“LTV”) is expected to remain stable at c.42% (Mar-23: pro-forma 42.0%)
following:
- The implementation of the internalisation for R850 million;
- Net investments in assets of c.R250 million;
- Offset by net asset sales of R950 million at a c.1.5% discount to book value.
- Over the past three years the Group has sold R1.5 billion of assets (over and above those
sold during this period) at a 1% discount to book value.
- The Group is focused on several initiatives, which are at various stages of progress, to
further manage LTV down, as previously highlighted.
- The Group (ZAR) all-in weighted average cost of funding has increased to c. 9.3% (Mar-23:
9.0%; Sep-22: 8.9%). The Group (Euro) (excluding the European platform) all-in weighted
average cost of funding has increased to 3.1% (Mar-23: 2.9%; Sep-22: 2.1%). The funding
costs in the European platform are discussed in more detail below.
Key developments in the period and strategic priorities:
- The internalisation of the South African and European businesses was successfully completed in
July 2023, with the full accretionary impact not reflected in the results for the half year.
- Management has spent significant time during the period to effectively integrate its international
platform.
- The 50:50 JV with the Irongate Australia Fund Management platform is progressing well, and the
Group is well placed to unlock its capital light fund management strategy.
- The Group’s key strategic objectives include:
- Driving growth initiatives including: the roll-out of the Group’s capital light funds
management strategy in all regions; seeking value-add / core plus opportunities.
- Extracting value from the management internalisation through operational efficiencies
and internal integration across the global platform.
- Optimising current portfolios including: a focus on maintaining stability within the
portfolio and retaining clients; enhancing quality of recurring earnings; reducing the cost
of occupation; exiting non-core assets; extracting cost savings in the European platform.
- Maintaining a robust balance sheet with an active focus on reducing LTV, recycling capital
and effectively managing interest rate and refinancing risk.
- Driving and implementing a holistic sustainability strategy that: positively impacts the
planet, acts as an enabler of ESG within clients’ businesses, improves the lives of
employees, tenants and the communities in which the Group operates.
Performance of the South African business
- The South African portfolio is expected to deliver like-for-like (“LFL”) base net property income
(“NPI”) growth of c.2%.
- The portfolio remains stable and continues to perform in line with expectations, despite the
ongoing challenging environment and the continued impact of load shedding.
- Retail and Industrial portfolios have delivered strong NPI growth, whilst the Office portfolio
continues to experience negative reversions, albeit with a solid improvement in vacancy levels.
- Total vacancies expected to remain stable at c.4% (Mar-23: 3.9%; Sep-22: 7.1%) with continued
reduction in office vacancies to c.6% (Mar-23:7.4%; Sep-22: 10.3%).
- Approximately 90% of space expiring year to date has been re-let.
- Negative reversions persist, given lack of market growth, with the Group expected to achieve
c.7% negative reversions on letting in the first half of the year (Sep-22: negative 17.6%).
- Portfolio weighted average lease expiry (“WALE”) expected to be maintained at c.3 years (Sep-22:
3.0 years).
- The Group continues to successfully recycle capital, with asset sales at or around book value and a
further c.R700 million of assets held for sale.
Performance of the European business
- The Pan European Logistics Platform (“PEL”) is expected to deliver strong LFL NPI growth of
between 7% to 8%.
- PEL has a defensive portfolio that is well positioned to continue to capitalise on sector dynamics.
- Performance has been driven by positive rental reversions and good letting activity.
- Majority of the space expiring during the period has been re-let or renewed at c.9% average
positive reversions, with vacancies stable at c.1% (Mar-23: 0.9%; Sep-22:1.2%).
- The half-year has seen a c.7% average indexation across the portfolio.
- Portfolio WALE of c.5.1 years (Sep-22: 5.2 years).
- There has been a material shift in Euribor of c.4% since September 2022. As communicated
previously, funding costs increased in the PEL platform in the second half of the prior year to the
Euribor cap of c.1.5% plus margin. These higher funding costs are now fully reflected in 1H24 and
equate to an increase of c.55% for the half year.
- The average all-in cost of funding within the PEL platform is c.3.9% (Mar-23: 3.7%; Sep-22: 2.5%).
The platform is 90% hedged and therefore has limited further interest rate risk for 2 years.
- As a result of the higher funding costs, the PEL platform is expected to report a decrease in earnings
of c.15% in Euros (negative 10% in ZAR).
- The Group’s share in the PEL platform has increased over the reporting period (from 64.15% to
83.15%), and the Group thus expects to report an increase of c.18% in distributable earnings from
the PEL platform.
Irongate fund management platform
- On 31 March 2023, the Fund concluded a 50:50 joint venture transaction with Irongate Australia
fund management.
- The fund assets have performed well in a tough market.
- The platform is well positioned to take advantage of any dislocation in the market as REITS are
looking to de-lever.
The financial information on which this trading update is based has not been reviewed and reported on by
the external auditors.
The above guidance assumes that current normalised trading conditions will persist and does not consider
the impact of any unforeseen circumstances, potential business failures or the occurrence of any other
factors that are beyond the Group’s control.
On behalf of the board
Moss Ngoasheng (Independent Non-Executive Chairman), Andrew Wooler (Group Chief Executive)
Other information
Investor call
An investor conference call will be held today at 11:00 South African time / 10:00 UK time.
Participants should register for the conference call by navigating to
https://www.diamondpass.net/2550487
Interim results
The interim results for the six months ending 30 September 2023 are scheduled for release on 16
November 2023.
For further information please contact:
Jenna Sprenger (CFO)
E-mail: investorrelations@burstone.com
Notes
Definitions
- Distributable income per share is equal to distributable earnings divided by the weighted number
of shares in issue for the period. Where, distributable earnings equals the total NPI of the South
African business, plus investment income, less fund expenses, less funding/interest costs.
Profit forecasts
The following matters highlighted in this announcement contain forward-looking statements:
- Overall Group distributable income per share (“DIPS”) will be approximately 4% to 5% lower for
the half year, with 1H24 expected to deliver between 51.09 cps to 51.62 cps (Sep-22: 53.78 cps).
- The Group however, anticipates delivering full year DIPS in line with previous guidance of low single
digit growth.
- Loan to value (“LTV”) is expected to be remain stable at c.42% (Mar-23: pro-forma 42.0%).
- The South African portfolio is expected to deliver like-for-like (“LFL”) base net property income
(“NPI”) growth of c.2%.
- The Pan European Logistics Platform (“PEL”) is expected to deliver strong LFL NPI growth of
between 7% to 8%.
- As a result of the higher funding costs, the PEL platform is expected to report a decrease in earnings
of c.15% in Euros (negative 10% in ZAR).
- The Group’s share in the PEL platform has however, increased over the reporting period (from
64.15% to 83.15%), and the Group thus expects to report an increase of c.18% in distributable
earnings from the PEL platform.
(collectively the Profit Forecasts).
- The basis of preparation of each of these statements and the assumptions upon which they are
based are set out below. These statements are subject to various risks and uncertainties and other
factors – these factors may cause the Group’s actual future results, performance or achievements
in the markets in which it operates to differ from those expressed in the Profit Forecasts.
- Any forward looking statements made are based on the knowledge of the Group at 27 September
2023.
- These forward looking statements represent a profit forecast under the Listing Rules. The Profit
Forecasts relate to the six months period ending 30 September 2023.
- The financial information on which the Profit Forecasts are based is the responsibility of the
Directors of the Group and has not been reviewed and reported on by the Group’s auditors.
Basis of preparation
- The Profit Forecasts have been compiled using the assumptions stated below, and on a basis
consistent with the accounting policies adopted in the Group’s March 2023 audited financial
statements, which are in accordance with IFRS and are those which the Group anticipates will be
applicable for the year ending 31 March 2024.
- The Profit Forecasts have been prepared based on (a) audited financial statements of the Group
for the year ended 31 March 2023; (b) the unaudited management accounts of the Group for the
five months to 31 August 2023; and (c) the projected financial performance of the Group’s
businesses for the remaining one month of the period ending 30 September 2023.
Assumptions
The Profit Forecasts have been prepared on the basis of the following assumptions during the forecast
period:
Factors outside the influence or control of the Group:
- There will be no material change in the political and/or economic environment that would
materially affect the Group.
- There will be no material change in legislation or regulation impacting on the Group’s operations
or its accounting policies.
- There will be no business disruption that will have a significant impact on the Group’s operations.
- The Rand/Euro and Rand/AUD and any other relevant exchange rates remain materially unchanged
from those as at 27 September 2023.
- The Euribor and Jibar curves remain materially unchanged from those as at 27 September 2023.
- The tax rates remain materially unchanged.
- There will be no material changes in the structure of the markets, client demand or the competitive
environment.
About Burstone
Burstone (previously Investec Property Fund) is a fully integrated international real estate business with
c.R35 billion GAV under management and c.R5 billion third-party capital under management. Burstone
strives to deliver purposeful and authentic client experiences with agility, speed and passion. The Group
has the unique ability to identify potential that lies within something and then transform it into something
of real value.
Listed on the Johannesburg Stock Exchange (South Africa) since 2011, the Group has a strong management
track record of more than 30 years operating in both local and international markets. Internationally, the
Group has invested in, and built platforms in markets where its operating teams have extensive on-the-
ground experience and proven track records.
In South Africa, the Group directly owns a sizeable and diversified portfolio of 79 properties in the retail,
industrial and office sectors valued at c.R15 billion. About 55% of the Group’s asset base is comprised of
foreign investments, largely an effective 83% interest in a Pan-European logistics portfolio (c.€1.1 billion
GAV). This platform was established in 2017 and consists of logistics properties that are located in the major
logistics corridors of 7 European countries, including the core countries of Germany, France and
Netherlands, which together comprise c.70% of the portfolio. This provides the Group with geographic
diversification and exposure to quality real estate in the developed markets of Western Europe.
The Group has recently entered the Australian market through its c.18.7% investment in the Templewater
Australia Property Fund and its 50/50 JV with Irongate Australia Fund Management, a platform that was
originally founded in 2005. These initiatives provide the Group with an exciting opportunity to further scale
its funds management strategy.
Across all regions, the manager has a presence on-the-ground with in-country expertise and therefore
adopts a hands-on approach to managing the properties. These internationally diversified businesses
provide the Group with investment capability across multiple strategies and risk profiles allowing Burstone
to enjoy returns through the whole property life cycle. Burstone continues to identify potential to deliver
attractive returns for its investors, generate value for all stakeholders, and seeks sustainable outcomes for
the communities in which it invests.
Johannesburg
28 September 2023
JSE Equity and Debt Sponsor: Investec Bank Limited
Date: 28-09-2023 10:45:00
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