Property investment magnet: confident JSE listing yielded 11.8%, confident to grow in 2014

Originally a focused Eastern Cape property play, Rebosis has taken full advantage of the investment community’s infatuation with the sector, successfully launching two large capital raising exercises in the past year. That has bumped its market cap to a now weighty R4.25bn. Flagship Hemingways Mall in East London is being expanded (a more profitable way of allocating resources than greenfields developments) and its mix of assets has helped generate a near 12% rise in the annual distribution to shareholders. A reflection of the Rebosis view on finding value came through in CEO Sisa Ngebulana’s response to our question on the price paid by the Chinese for their big land purchase from AECI – “I think it’s a bit high”. With a conservative forecast of  at least 5.5% distribution growth in the year ahead, Rebosis is certainly one for those seeking yield.  – AH 

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ALEC HOGG:  Rebosis has recorded full year distribution of 92 cents per linked unit.  The group also saw an almost 41 percent improvement in its market cap because of a couple of Rights Issues that were conducted successfully in the year.  Joining us now as we unpack the numbers, is Chief Executive Sisa Ngebulana (struggled with the surname…..).

GUGULETHU MFUPHI:  Alec, the Zulu in you is supposed to come out.

ALEC HOGG:  Sisa, that’s much easier – my apologies.  Before we talk about your numbers, the whole of Johannesburg is abuzz with the acquisition done yesterday by the Chinese of 1600 hectares in Modderfontein – or as Gugu puts it, “Baby Beijing”.  Did they pay a fair price?

SISA NGEBULANA:  Yes, every property acquisition is different.  You never know.  It all depends on what you want to do with the asset – if you want to turn it into a good industrial and the numbers work for you – but I think it’s a bit high.

ALEC HOGG:  It’s a bit high.  You would have paid a little less?

SISA NGEBULANA:  Certainly.

GUGULETHU MFUPHI:  Just on that, we’re seeing a lot of development coming through in the South African market.  You have the Waterfall Estate with regard to the Mall of Africa and now this Baby Beijing coming along.  What does this explain or tell us about the South African property sphere?

SISA NGEBULANA:  I think there’s still some room for some isolated pockets to develop in our country.  Gauteng is the engine of the economy, so you’re going to see a lot more development in Gauteng, but in some of the outlying areas, you’re going to see very little development.  I think that’s really what’s happening.

ALEC HOGG:  You’re quite focused outside of Gauteng.  You did the Pretoria deal (R587m acquisition of Sunnypark) , but East London – you’re particularly big there…

SISA NGEBULANA:  When we listed, we were quite overweight on the Eastern Cape.  That has since come down.  On the reporting period, about 35 percent of our income is derived from the Eastern Cape – balance largely from Gauteng.  That has shifted post year-end as well to about 28 percent Eastern Cape.

ALEC HOGG:  You’ve done well in raising capital with two Rights Issues – pushing the price up every time….

SISA NGEBULANA:  Yes, we did a Rights Issue earlier this year, which was well oversubscribed.  Subsequent to that, we did a vendor placement after we took transfer of Sunnypark Shopping Centre, which was fully subscribed –  opened at 9:00 in the morning and closed at 3:00 in the afternoon.  One day, R475 million raised, which is quite a record and just talks to the fact that we run a good show.

ALEC HOGG:  And the fact that there’s big demand for property stocks in South Africa, perhaps.

GUGULETHU MFUPHI:  Just on that, that investor confidence must be a bit of a chip on your shoulder.

SISA NGEBULANA:  Well, it is.  I think we’ve not disappointed.  We’re now reporting very good results, which is great.

ALEC HOGG:  What I liked to see was your distribution up 11.8 percent.  We had Marc Wainer (of Rdefine) in here the other day with a seven percent distribution increase and he was saying how well he had done.  You’ve almost, not quite doubled, but you’re way more than that. Is that because of the different types of portfolios?

SISA NGEBULANA:  I can’t talk about the other people, but I think the sector on average has delivered, about 7 percent.  I’d like to think we have a better portfolio.  We have good underlying quality if you look at our retail portfolio.  It’s still at the early cycle of maturity and yet it has good trading densities – which is a barometer for measuring performance – and good growth and turnover.  Our retailers are growing very nicely.  If you look at our largest asset – Hemingways – turnover growing at eight percent, which is quite nice; way above inflation and retail sales, the other retail assets also growing up around the eight percent mark.  It’s really pleasing to see that.  Yet we’re still harmonising and optimising those assets, so we’re adding more Edgars, coming to double volume and opening up with more mono-brand stores within Edgars.  There is still Cotton On, taking the largest footprint in the country and at Hemingways  we’ve seen a couple of brands coming in, which is quite nice and pleasing.

GUGULETHU MFUPHI:  What can we expect from you in the next year to come?

SISA NGEBULANA:  We’ve given a guidance of 97 to 99 cents distribution, which is a (growth) range between 5.5 and 7.6 percent.  We’re being conservative.  We’d like to surprise on the upside.