The property business in South Africa is going through a period of some consolidation, and Rebosis is one of those companies that, as Alec Hogg puts it, would rather eat than be lunch. In the three years since its listing, it’s more than doubled the value of its assets and delivered great returns for its shareholders. Scale is important for property counters in a rising interest rate environment, because companies need a large book in order to obtain funding at a favourable rate. Thus, Rebosis’ strategy of acquiring suitable competitors is an appropriate one for the current environment. The company plans to keep growing rapidly, presumably through more acquisitions as well as organic growth. The first few paragraphs below provide Alec’s daily opening to the Power Lunch show, including the day’s news headlines, so skip past it to get straight to the Rebosis interview. – FD
ALEC HOGG: Welcome to Power Lunch. It’s Thursday and we have another long weekend coming up here in South Africa. It’s not that long when you have four-day weeks. Unfortunately, I don’t know what we’re going to do in two weeks’ time when we have to go back to a full five-day week. I guess we’ll survive.
Anyway, we have lots to keep you occupied with in this edition of Power Lunch. We’ll have Steve Meintjes coming in from Imara SP Reid to be our market commentator today. He is the Head of Research at the stockbroking firm. What I like about Imara SP Reid is that they focus on private investors, so a lot of the information we talk about here, often really goes into the minds of the institutional investors, because that’s who the people service. With Imara SP Reid however, it’s a different story, so if you’re looking for some good share insights, this is the place to be.
We’ll also be talking to Rebosis’ Chief Executive, Sisa Ngebulana. You might recall that this is a company, which started off in the Eastern Cape. It’s a property business. They own the huge Hemingway’s mall in East London. If you’re from that part of the world, you know it pretty well. They have subsequently been quite active in corporate action, so we’ll be talking to Sisa about that and financial results, which are way ahead of expectations. When we spoke six months ago, he said this year they’re likely to raise their distributions to unit holders by about five-and-a-half percent. Well, they’ve come nine percent higher at the half-year stage, so good news there.
Thanks to LinkedIn, I know that Alan Knott-Craig, one of our guests today, is celebrating a year today with Project Isizwe. He’ll be giving us more information. The last time we spoke on air was in Davos where he was quite a hit, telling the gathering at the World Economic Forum about the processes that were going through in Project Isizwe’s project in Tshwane on Wi-Fi. We have that. We also have a crossing to Mauritius to an expert on stem cells. One of the biggest stem cell companies in India, which is now deciding to move, or not to move, but to establish a presence in Mauritius as well. So, there are lots of good stories coming up. Stay with us.
Firstly, we have to get the headlines, though. Tshepiso is not in the newsroom today, so you’re stuck with me I’m afraid, on the news headlines. Here we go.
MTN continued to lose subscribers in the local market in the quarter-to-end March. The mobile operator says this was largely due to the disconnection of almost one million subscribers who’ve been showing activity, but not generating revenue. Data subscribers increased to 14.5-million, largely due to competitive data packages and the launch of the low cost Steppa Smartphone.
The case against Pinnacle Holdings Director Takalani (or Tam) Tshivhase has been postponed to the 2nd of July. Tshivhase appeared in the Specialised Commercial Crimes Court in Pretoria this morning. He is charged with attempted bribery of an SAP member – nogal – after allegations emerged that he tried to bribe him by giving him R5m to secure a government tender.
Cashbuild has opened three new stores, bringing the number of stores trading at the end of the third quarter, to 210. Two store were refurbished and one relocated during this quarter.
Plex, which released results today, recorded a 9.6 percent improvement in first-half turnover. The group also saw a ten percent increase in diluted headline earnings per share. It declared a dividend of three-and-a-half cents – that’s up ten percent.
Sibanye Gold, Neal Froneman’s business, completed the purchase of Wits Gold in April and has reduced its capital expenditure as a result.
Property Group Rebosis recorded a nine percent growth in its distribution per linked unit – that’s to forty-eight-and-a-half cents. The company also saw a huge rise in its assets under management – up by more than half – and an 18 percent improvement in market capitalisation.
Anglo American posted an increase in its copper and iron ore production in the first quarter of 2014. This was broadly in line with analysts’ forecasts, but its platinum output slumped – not surprisingly. They’re on strike in the South African operations.
Well, those are the headlines of the day, and a very busy stock exchange news service this morning. Let’s see what’s happening right now in the markets.
Property Group Rebosis saw positive half-year results with an increase in growth per linked unit and an increase in the assets under management, and of course, its market cap is also higher. Joining us now is Sisa Ngebulana, Rebosis Property Fund’s CEO. Good news Sisa, for your shareholders. When we last spoke about six months ago, you said you were hoping that this year you could increase your distribution to five-and-a-half percent. I see that in your first half you’re nine percent ahead. Are we expecting a slump in the second?
SISA NGEBULANA: Thanks, Alec. One of the things with results is very good property fundamentals. I think we have a very good portfolio – high quality assets [unclear 0:06:42.3]. When the cycle is down, I think you saw the portfolio is pretty much a 50/50 retail and office, so we have a good office underpin in long-term leases and good escalations, so it’s good to predict etcetera. We have retail invested in dominant centres. Everyone knows we have the jewel in the crown, which is Hemingway’s mall. In the reporting period, Hemingway’s reported 10.5 percent double-digit growth.
ALEC HOGG: That’s in East London.
SISA NGEBULANA: Yes, it’s about dominance.
ALEC HOGG: Getting back to what I actually asked, which was that you told us five-and-a-half percent growth. You’ve come up with first-half figures at nine percent. Is the year as a whole going to be nine percent, or is that five-and-a-half, predicated on a fall-off in the second half?
SISA NGEBULANA: I think you can expect a robust and solid growth for the year. The five-and-a-half was the bottom end of our forecast, so we gave a range. We’re therefore right above the upper end of the range, and I think you can expect similar results.
ALEC HOGG: You can bank the nine for the year.
SISA NGEBULANA: I wouldn’t say that. That’s why we maintain the fact that we’ll come within that range.
ALEC HOGG: But it is a 98 percent occupation in your business. Unless there’s a disaster of some nature between now and August, you should be pretty set fair.
SISA NGEBULANA: Look, we boast one of the highest occupancies in the market and again, we are very robust in managers’ assets. We invested in the right quality assets. When you have dominant regional shopping centres like a Hemingway’s for example, there is ever a demand for space by tenants. With a double-digit growth on turnovers and low rent-to-sales ratios, those tenants are sustainable in our centres.
ALEC HOGG: It’s like the days for Johannesburg when there was only Sandton City, before anything else came along. You got that in the Eastern Cape, or certainly, around East London. Given that you’ve expanded so rapidly – and we’ll get into that in a moment – how big a share now does Hemingway’s have in your portfolio?
SISA NGEBULANA: It comprises 19 percent of our income.
ALEC HOGG: 19.
SISA NGEBULANA: It’s about 22 percent of the value of the portfolio.
ALEC HOGG: So it’s about one-fifth.
SISA NGEBULANA: Yes.
ALEC HOGG: That’s nicely diversified. Tell us about the MANCO acquisition of Ascension. That was an interesting story. What attracted you there? Just take us through what happened.
SISA NGEBULANA: I think Ascension has very good property qualities. They have about R3.6bn worth of properties and that’s made up of 28 properties. They invested largely in our government. They’ve been able to buy some properties, turn them into long-term leases, fill up some vacancies, and they’ve been quite good at it. We’ve been following their story and we think it’s really a good counter to consolidate into Rebosis. That was the main thing. When you control the management company, it makes it easier to consolidate the business down the line. That’s what we did. We bought 30 percent of the company’s B units and we called them MANCO. We’ve since incorporated all the managers into our company. They’re now part of Billion Asset Managers. To all intents, we run the management of Sandton already.
ALEC HOGG: And the people…have they all stayed?
SISA NGEBULANA: Yes, they all stayed and they’re very happy. They’re part of Billion Asset Managers now and we work as a team.
ALEC HOGG: Were there options for them? Were there other prospective suitors?
SISA NGEBULANA: Yes, there were. Delta was a big prospective suitor and I think it’s in all our interests and our shareholders’ interests to rather look at something bigger. Hence, there was talk of a merger between the three companies.
ALEC HOGG: Between Delta as well?
SISA NGEBULANA: Yes.
ALEC HOGG: When might we get more information on that?
SISA NGEBULANA: Look, we’re currently in the process of due diligence, which we’ll complete in the next two to three weeks. By September or October at the latest, we should consummate the transaction.
ALEC HOGG: And once that’s done…
SISA NGEBULANA: We’ll possible create the six largest Reid’s in the listed space – the property sector space – and we’re talking about just under R18bn worth of properties and about R10bn market cap. With that scale, comes liquidity and all sorts of benefits for our shareholders.
ALEC HOGG: It’s been an incredible ride for you. Just to go back to what you’ve achieved in the last year-and-a-half with your fundraising, and every time going back to the investment managers. They’ve been happy to give you money. Don’t you feel that you’re on a bit of a treadmill now?
SISA NGEBULANA: Not really. I think we’ve planned and timed everything that’s happened very carefully. The consequence is therefore good results and the scale we’ve seen. Last time we spoke, we were about R3.6bn. We’re now R7bn worth of assets, so it’s all logical steps and careful planning executed earlier on, so you’re seeing the good results on the back of what was by design, not by accident.
ALEC HOGG: Next time we talk, you could be R18bn.
SISA NGEBULANA: Yes.
ALEC HOGG: Did you think that it was possible to grow so quickly?
SISA NGEBULANA: We’re three years on now, from R3.3bn when we listed, to R7bn. Yes, we always said that in the first five years we‘d be at R10bn, so I think that’s something that market forces change. I think there’s many consolidations in the property sector because they are smaller cap funds and suffer from liquidity issues etcetera. There have been consolidations. I think there are about six announced on the market already. We are one of those who thought it appropriate to rather consolidate and create something bigger.
ALEC HOGG: Rather eat lunch than be lunch. What about Safari? There’s an interesting one – recently listed – it’s small, about R2bn market cap: there are a few people knocking on the doors. In fact, when we spoke to the CEO, he said before they even listed, there were two companies that wanted to take them on. Would you see them as a possible fit?
SISA NGEBULANA: Look, they invested into township and rural shopping centres. Generally, their centres are smaller than our criteria. We always invested in large regional shopping centres. It’s not a thought that’s crossed our minds. Right now, we have what we’re busy with, and who knows what’s next.
ALEC HOGG: So you want to put the Delta Ascension – that triumvirate of companies – together first. Then you’re at R10bn market cap and then you can become the next Growthpoint. Why not?
SISA NGEBULANA: Well, not that I think Growthpoint is quite big, but who knows where the future lies.
ALEC HOGG: It was not that long ago that they were R10bn company. The opportunities are great. I guess the other question has to be the way property has had a fantastic run – as you were talking earlier about the consolidation we’re seeing in the sector with many new listings. When you look out…five to ten years…is this a structural change perhaps in the marketplace or might we be coming to the end of what has been a fantastic run?
SISA NGEBULANA: Firstly, you’ve had very good contractual escalations on leases, which is good for markets. We come from an environment of hyperinflation, so escalation tended to follow that thinking and that trend, and then we’re in a lower inflation environment. Because we’ve had leases with contractual escalations a little higher – following that trend – that’s why we’ve had very good results, because your contractual escalations generally underpin your rental performance, which is your income performance and your property performance. We come from that background and I think we’re still contracting at similar rates – eight percent – and I think you’re going to see that trend going forward. I think nothing’s going to change.
ALEC HOGG: I’m going to let you get to the Eye-Gene bottle. Thanks Sisa, it was good seeing you again. That was Sisa Ngebulana. He is the Chief Executive of Rebosis Property Fund.
