Texton Property Fund interim dividend fails to buoy stock as firm struggles to prove its value

Posted On Saturday, 19 March 2016 09:48 Published by
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The past 10 months have been something of a mix for Texton Property Fund, with the firm’s shopping in the UK contrasted by pieces of negative news, including a falling stock and a worryingly high churn rate at the top.

Angelique de Rauville

Likewise, earnings numbers are mixed. Texton’s headline earnings per share plummeted 46% to 24.71c for the interim period to end-December, but the dividend declared came in at 51.52c per share, or an impressive 15.3% higher. That’s well behind Resilient’s 25.2% surge, but double Tower’s 7.6% increase in dividend per share for the same comparable period.

“Despite the difficult economic climate, the portfolio continues to perform well and we are committed to achieving double-digit distribution growth for the full year to 30 June 2016,” Texton management said in a Sens announcement as it touched on prospects. “The company is expected to continue to benefit from its offshore strategy via accretionary transactions and the softer rand.”

The group has come a long way since the asset-rich consortium, after which it is now named, bought JSE-listed Vunani Property Investment Fund for R117 million at the end of 2013. In August 2014, or nine months after the transaction, the company changed its name from Vunani Property Investment Fund to Texton. A series of deals followed helped in part by rights issues, including the one in October that was meant to raise up to R986 million.

Key investors include Romeo Makhubela’s Business Venture Investments, Luna Group, part of Christo Wiese’s empire, and Nedbank. Texton directors and associates own a quarter of the Reit.

Its portfolio has grown to R5.9 billion, but the leadership feels the South African portion, spread across the country’s metros, should be revalued at the end of 2016. Investment Place and Edcon buildings are part of the portfolio. Britain, where Texton has struck back-to-back deals (giving it ownership of Parc Pensarn, Caterpillar, Broardstreet Mall and others) makes up 40% of the group’s portfolio by value. Tenant mix at home includes government departments and listed firms. The group singles the purchase of the Golddurb building in Durban for growing its portfolio to 57 properties, with a total gross lettable area of 425 000 m². The inclusion of recently-snaffled British assets will extend GLA markedly.

Texton is now under CEO Angelique de Rauville – an erstwhile non-executive who replaced Rob Kane when he quit in June “owing to added demands” according to company chairman Dempsey Naidoo. Industry heavyweights Chick Legh and Thys van Heerden also serve, as non-executives, as is Property Sector Charter Council CEO Portia Tau-Sekati.

After finding itself in acting mode for three months in the wake of Marelise de Lange’s exit, the firm hired Brigitte de Bruyn as its financial director in November. The new recruits are industry powerhouses with years of experience. Further, in an industry that tends to relegate women to lowly posts, Texton’s attitude is notable. Women, including Nosiphiwo Balfour and Kyansambo Vundla, occupy a third of its board seats.

Formerly with Investec, De Rauville’s background is steeped in property, an industry where she has led businesses for two decades. De Bruyn is a chartered accountant whose previous stints took her to property firms Dipula, Hospitality and Sycom’s asset manager Grapnel.

As much as the arrival of highly qualified individuals – and this month’s appointment of highly-respected businessman Patrick Ntshalintshali as a non-executive –should be lauded, there is a real probability that the departures stunned investors given their quick succession. The fact that there was no clear succession plan did not do much to win the Reit fans either. The Naidoo-chaired board could draw some lessons from this episode.

As for the interim dividend, decent as it may be, it failed to buoy the stock which has given up more than 10% since July 1. The share has given up ground since the results announcement on February 23, and has erased almost a quarter over the past 12 months to trade at 870c – off the net asset value. Some would view that gap as an opportunity. The Reit’s share price puts its market cap at a negligible R3.4 billion, with PE ratio nearing 15.

Notwithstanding a dispiriting counter or the institutional memory-threatening top-level traffic  that saw nearly 10 directors arriving or departing since the beginning of June – the owner of Greenstone Park and Linger Longer assets continues to expand its portfolio.

December was a particularly busy month for De Rauville, De Bruyn and the rest of the team. Nic Morris, the new chief operating officer (whose predecessor Lyndon Kan was in and out in five weeks mid-2015), assumed the hot seat in January.

First, the Reit announced the conclusion of its agreement to buy a high-quality A-Grade 272 260 square-feet distribution warehouse in Doncaster in Britain for £17 million at an acquisition yield of 6.45%. The conclusion of that deal “further enhances Texton’s UK portfolio, which is in line with (its) stated strategy to achieve geographic diversification beyond South African borders”, the Reit announced, citing its asset management company’s fluency with the British market, coupled with “attractive” acquisition opportunities in that country.

Three weeks later, as investors were preparing to see the back of 2015, Texton announced its purchase of a 1.62-hectare retail park in Camborne, a town in England, at an acquisition yield of 6.4%. The price tag came in at £9.9 million. Combined, these two assets fetched £26.9 million, or a tad less than R600 million, given the R22/£ exchange rate. The applicable acquisition yields don’t dazzle, no less for a Reit that pursues growth via “yield-enhancing assets”. Still, in a climate like this, not to mention the leases that span up to 15 years, they could be seen as a positive.

The distribution warehouse building, which boasts a net annual income of £1.1 million (R23.8 million), is tenanted by global titan DHL’s unit, while the retail park is described as “a purpose-built, single-storey retail warehouse which is exclusively let to B&Q plc”, a British multinational DIY and home improvement retailing company.

Given last month’s announcement that the Reit has a “solid pipeline of acquisitions”, and that it will continue to focus on its strategy of growing while improving the overall quality of the portfolio, you can expect the De Rauville-led firm to keep them coming.

Last modified on Monday, 21 March 2016 13:54

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