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Rebosis Property Fund reports 8.1% distribution growth

Posted On Wednesday, 05 November 2014 20:51 Published by
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Rebosis Property Fund reports solid annual financial results for the year ended 31 August 2014, ahead of its forecast range and market consensus.

Sisa Ngebulana

The Fund declared an annual distribution of 99,45 cents per unit for the year, up 8.1% on the prior year distribution of 92.2 cents per unit.

Rebosis Chief Executive, Sisa Ngebulana commented: "We are excited to have exceeded our growth objectives in challenging circumstances. We grew the portfolio by R2.3 billion without raising equity due to strategic head room created in the prior year that resulted in low gearing.

"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."

Property expenses continue to be well contained with net cost to income ratio stable at 13.7% for the year. Receivables are tightly managed and at the reporting date arrears were 3.8% of annualised collectables. Despite a slight uptick, the average vacancy across the portfolio remained exceptionally low at 2.4% of the total portfolio by GLA.

Although the prime lending rate increased during the year under review, Rebosis decreased its weighted average cost of borrowing by 0.5% to 7.9% from 8.4%.

At year-end, the property portfolio was valued at R7,6 billion (2013: R5,3 billion). The increase in value predominantly relates to the acquisition of the Nthwese portfolio for R1,06 billion which transferred with effect 1 September 2013 and Ascension Manco and units acquisitions in February and July respectively.

"The strategic acquisition of the Ascension linked units as well as the Ascension Manco, diversifies the overall investment basket within Rebosis. Although our focus will predominantly remain on growing a quality retail portfolio, we will acquire assets if and when it makes sense in terms of the investment criteria set by the Board.

"Since the takeover of the Ascension Manco we have successfully managed the assets and reduced vacancies significantly. The possible Ascension scheme of arrangement will further secure size and liquidity, but we will not rush this transaction," commented Ngebulana.

During the year under review, the Ascension management team successfully integrated with Billion Asset management, resulting in significant value unlock.

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.

The retail portfolio comprises four high quality shopping malls underpinned by strong anchor and national tenants delivering secure, income streams escalating at an average 7.5%.

The expansion and tenant mix optimisation programme at Hemingways Mall, the largest centre in the portfolio was completed in July 2014. As the Eastern Cape's only current super regional mall, Hemingways Mall is well positioned for exceptional growth. The mall reported turnover growth of 8.8% for the year under review.

The office portfolio consists of 14 buildings which are well located in nodes attractive to government tenants. These are mainly single tenanted buildings let to the National Department of Public Works under long leases providing for average escalations of 8.4%.

The office portfolio represents a sovereign underpin to a substantial portion of the earnings and shields it 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.

Despite an expected challenging economic environment, the Fund has guided on a distribution for the year ending 31 August 2015 of between 105,5 cents and 107,5 cents per linked unit. This forecast is based on the assumption that there will be no change in current trading conditions of the existing portfolio, no major corporate failures, a stable macroeconomic environment and the ability of tenants to absorb rising utility costs.

Commenting on the company's prospects, 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."

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