Sizzling results keep investors happy as Resilient REIT lives up to its name

Posted On Thursday, 11 February 2016 17:18 Published by
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As if on cue, shares in the suitably named Resilient REIT roared, entrenching themselves in the pound seat, after the firm churned out yet another bumper set of earnings numbers.

Desmond_De_Beer

For the interim period ended December 2015, the internally asset managed real estate investment trust (REIT) reported a sizzling 25,2% increase in dividend declared, over the 185,62 cents per share declared in December 2014.

The rest of the income statement is distinctly in black ink. It’s proof that the asset-rich group is enjoying a purple patch. Investors, including the Government Employees Pension Fund and Siyakha Education Trust, continue to relish huge returns and swelling wallets.

Resilient REIT CEO Des de Beer, who holds 8% (including the 50% non-beneficial holding of Optimprops), is just as delighted as the stock begins to mimmick skyscrapers and generous dividends keep coming. In the last five years, shares in Resilient have almost quintupled, whereas the Alsi is far from doubling.

A well-diversified portfolio spanning developed and developing markets and speedboat-like nimble approach, coupled with a highly skilled team, speak of an extended summer. Markets such as Nigeria – where the REIT’s projects, Resilient Africa MD Holden Marshall told Africa Property Investment summit last year, include a 14000m² mall in Warri, in the south – look feverish. But, the phase is ephemeral. Further, the fever hardly dims the potential upside as economies like Nigeria’s tend to report annual GDP growth north of 5% or more than double in OECD nations on average.

Nigeria’s slowdown, with GDP growth pegged at about 4% this year, is linked to the ailing oil price, among other factors. Oil is the country’s main forex earner. Still, the African powerhouse’s deficit in formal retail is huge. That spells opportunity for the likes of Resilient. How? For one, the sprawling Lagos, home to 17 million people (three times Limpopo’s population), had less than 100000m² of formal retail space last year, whereas Resilient’s malls in Tubatse and Polokwane span a combined 100,000m²-plus and Pareto’s Pavilion, home to 230 outlets, 120000m².

Notwithstanding macroeconomic headwinds or a stressed naira, the Nigerian economy (formal or otherwise), is growing. Recognising such obvious hunger for malls in the oil-producing populous nation, De Beer’s foot is firmly on the pedal as underscored by the R4 billion “capital commitment” to the joint venture in that country. Based on the rally, as punters vote with their wallets, investors like what they see.

The REIT announced last year that it had lifted its interest in Resilient Africa to almost 60.94% after acquiring nearly 10% from Standard Bank, which has since exited, for R73 million. Southern Africa’s premier grocer, Shoprite, the JV partner which also raised its interest when the lender quit the three-way marriage, holds the rest.

The initial yield of 9.3% in the US$60-million Warri project includes land for expansion, Resilient reported, adding that, in Imo State’s Owerri the yield of 9% was seen at 10% upon completion of the final phase. Yields in other projects in the offing pipeline are forecast at 9%-10% in US dollar terms.

Notwithstanding “increased levels of uncertainty” and “the volatility in financial markets” expected to abate at home and elsewhere, Resilient is set to take advantage of potential “attractive investment opportunities”.

The bumper interims are – no less in a climate like this, with the globe still suffering the aftermath of the recession – a tribute to De Beer, a lawyer, and his staff complement (including managers and fellow board members).

Like De Beer, board chairman JJ Njeke, a CA, assumed the reins in 2002 just months before the group was floated that December. Three other directors have been serving for more than a decade, while Barry Stuhler, Resilient co-founder and bean counter, rejoined the REIT’s boardroom in December after an eight-year sojourn. These directors’ extended affairs augur well for group DNA and institutional memory.

The equally-important new blood comes in the form of non-executives Protas Phili, a 41-year-old CA and erstwhile public servant, and Umsha Reddy (45), an engineer who works for brewer SABMiller. As far as skills base are concerned, Resilient REIT’s directorate leans towards accountancy but is, nevertheless, mixed. It’s doing poorly in terms of colour diversity or gender (with just two women, Reddy and Thembi Chagonda, in an 11-person boardroom).

Sadly, this aspect repeats itself across the industry. Social or political imperatives aside, researchers have repeatedly cited squandered diversity dividends.

Nevertheless, Resilient REIT’s stock is among the JSE over-performers (outclassing the Alsi by far). That is thanks to its ability to consistently yield fine results and, on the other hand, perceived prospects. The stock, which vaulted 7%, a princely 800c apiece, to hit R123 cent/share on February 4, when the REIT presented its first half figures, is hovering around its all-time high. Much as it has somewhat given up some gains, as punters take profits, the share remains one of the JSE’s hottest properties.

That it has delivered a 300%-plus return since 2011 is not by chance. Resilient REIT returned 43% to shareholders for the 2015 year. At R46 billion in market cap, this is the fourth-largest play in its sector – after Growthpoint Properties (R62 billion), New Europe Property Investments (NEPI) and Redefine  – according to Catalyst Fund Managers (Catalyst). 

Right there is a twist. Resilient REIT is ranked fourth in market cap terms, but when its separately listed associates and/or investments are added, it eclipses Growthpoint Properties, the premier REIT. At this point, it’s noteworthy that Resilient also has interests in NEPI and Spiro Noussis-led Rockcastle (which lists Stuhler as a non-executive).

Focused on developed markets, the latter is set on “primarily listed real estate securities” in Australasia, North America and rich nations in Europe. Asian territories are also on the list. NEPI, invested in Romania and neighbouring states, and featuring De Beer on its board, has seen a plunge in its properties from 51, at the end of 2013, to 39 at last count. But, gearing has improved with fair value of properties almost doubling to €1.6 billion.

From this angle, with a healthy mix of local and offshore investments, and separate entities helping unlock value, there’s little doubt that the De Beer-led group’s strategy is paying off. Those keen on the unfolding African story get their piece of action and so investors tracking saturating markets abroad where the dynamics (and prospects) differ markedly.

There still exists an option to directly follow Rockcastle or NEPI, led by a bright-eyed 32-year-old Alexandru Morar,who has been with the REIT since the outset, in 2007. The pair’s solid records have won them fans aplenty. Look at their share prices.

In the wake of the trading update that heralded a robust 25.2% in dividends per share (to a princely 232.46 cents), Catalyst said Resilient REIT’s numbers reflected the impact of capital raisings.

In particular, Catalyst singled the June rights issue which reduced the cost of funding. It also cited “the decline in the value of the rand and a solid performance by the property portfolio” as a factor. Now at R16.14/US dollar and R18/euro, the unit is battling to stage a comeback after plunging rapidly at the end of 2015. Nonetheless, its depreciation is proving a fillip for forex earning firms – across the spectrum.

While Resilient REIT notes that the naira performed better than the rand over the past five years, “depreciating by 32,9%” versus the greenback (to the local unit which weakened 58,6% against the major), the firm concedes that the exchange rate “now appears to be ‘managed’”.

Naira depreciation, in the order of 10%-15%, “seems inevitable”, according to Resilient. Arguing that the naira is artificially pegged, pundits cite the massive gap between the official and “other” foreign rate.

Abroad, not only did Rockcastle and NEPI perform well in their own currencies but, noted Njeke, the “depreciation of the rand against the euro and US dollar further bolstered Resilient REIT’s distributions”. That was last year.

Given that the unit has depreciated markedly since, and that recovery to pre-2014 levels isn’t likely soon, expect the group to once again gain from rand weakness come end of the year. For shareholders – still rubbing their hands gleefully as they await yet another payday, on March 7, when first half dividends are due – there’s no end to the party of slick, happy, returns.

Indeed, regardless of whether the rand (or the naira) turns around, or when, slick returns seem to be the only way for the REIT for yet another foreseeable while. Taking the middle road, analysts call it a “hold”. A continued rally in the stock suggests that punters, even at what is arguably a high price, feel it’s worth more than that: a buy. The reason is awesome returns.

Last modified on Thursday, 11 February 2016 22:23

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