Resilient Reit is putting on ice its plans to build 10 shopping centres in Nigeria, placing it among a growing number of SA companies whose African bets haven’t quite panned out.
Resilient recently overtook Redefine Properties to become the JSE’s fourth-largest real estate counter, after Growthpoint Properties, New Europe Property Investments (Nepi) and Fortress.
The company was one of the listed property sector’s early movers into the rest of Africa.
It entered Nigeria in 2012 through a joint venture with Shoprite with an investment target of R2bn.
Back then the plan was to build 10 shopping centres. Only Delta Mall has been completed, and two others are under construction — Owerri Mall and Asaba Mall. Resilient has invested R712m in Nigeria and committed an additional R397m.
But at the company’s recent annual results presentation, Resilient MD Des de Beer said the risks in Nigeria now outweighed the returns, prompting the company to reduce its planned exposure to future projects and reduce the size of the two malls under construction.
The key reason for the move is that it is becoming more difficult for clothing retailers to trade profitably in Africa’s largest economy. De Beer says the sharp drop in the oil price and government’s subsequent attempts to limit the depreciation of the naira against the US dollar by, among other things, introducing wide-ranging import controls have left a number of the large clothing retailers without any stock.
“Truworths has already closed its store in Delta Mall and Mr Price is likely to follow soon.” De Beer expects vacancies at Delta Mall to increase from 6% to around 20%.
These two centres will now house mainly grocery and other convenience stores, which De Beer says are still trading well.
Vacancies in Delta Mall should decrease over time as empty shops are let to small local traders who will pay rentals in naira. De Beer notes that the company has moved to a “stand-still” position for now, given the exchange rate risks.
Resilient’s R1.1bn exposure to Nigeria comprises only 2.7% of its total portfolio valued at R38.9bn, but it is disappointing that projected returns fromthe company’s African foray haven’t materialised as they would have provided a nice kicker to earnings.
“We thought we would make development profits of around 30% in Nigeria. But that’s basically all gone,” says De Beer.
Nigerian issues aside, Resilient’s R14bn exposure (around 36% of total assets) to offshore property markets has paid off for investors through Romanian-focused Nepi, Rockcastle (which is building a presence in Poland) and FTSE-listed shopping centre owner Hammerson.
The euro and pound-based dividends paid out by these three stocks helped push dividend growth for the six months to end-December to 25.2%.
That’s the highest growth yet achieved by Resilient and around three times the average 7%-9% expected from the property sector as a whole this year. The growth comes despite dividends from Nepi, Rockcastle and Hammerson not benefiting from December’s sharp fall in the rand as management decided to hedge offshore dividends for the interim period to provide more exchange-rate certainty for investors.
“If we hadn’t hedged December’s projected dividend income from our Nepi, Rockcastle and Hammerson holdings, dividend growth would have been 31%.”
Resilient, which also owns an SA portfolio of 28 shopping centres, mostly in smaller cities such as Polokwane, Nelspruit, Tzaneen and Kimberley, has also outperformed on the capital growth front, no doubt due to its offshore interests.
Despite recent volatility, Resilient’s share price is up 38% over the past 12 months against a 3% drop in the SA listed property index as a whole over the same time.
Evan Robins, portfolio manager at Old Mutual Investment Group’s MacroSolutions boutique, says: “While the counter is certainly very expensive at a dividend yield of less than 4%, investors who buy now are paying for management’s expected delivery of future blue-sky upside in line with the superb levels of dividend growth it has provided in the past.”
source: Financial Mail