Resilient Property Fund
Resilient Property Income Fund, along with Growthpoint, Redefine and Hyprop, is one of the heavyweights in our local property index, with a market capitalisation of R44bn and an index weight of 9.1%.
History
Resilient was established and registered in June 2002, and listed on the JSE later that same year as a property holding company able to hold properties directly or via listed or unlisted securities. Its focus has always been on regional malls situated in non-metropolitan areas, where shoppers’ potential disposable income can grow quickly from a low base and competition from other developers is less. Past interests in listed funds include Shops for Africa, Acucap and Ambit. The Group was also involved with the establishment and listing of New Europe Properties, with exposure to Romania, Slovakia and Serbia, on the LSE and the JSE. Resilient listed a portfolio of their B-grade properties in 2009 under the Fortress Income Fund.
Property Portfolio
The group’s direct portfolio includes 26 properties with 1 million square meters of gross lettable area, as well as developments in Nigeria and 6 vacant plots for development in SA. The Group’s portfolio of local regional malls include interests in Jubilee Mall, Irene Village Mall, Boardwalk Inkwazi Shopping Centre and Brits Mall. When evaluating target investments, criteria includes the presence of at least three national anchor tenants and 70% of the lettable area occupied by major national retail groups.
The table below illustrates the geographical spread of assets and the comparable sales growth for the 2015 Financial Year:
In terms of listed assets, the Group currently holds four different counters at a total fair value of R 13.5bn, with Rockcastle and Nepi providing some global exposure. The group remains committed to global diversification into markets with high growth expectations, and the board has committed R4bn to the development of malls in Nigeria through Resilient Africa, a joint venture with Shoprite. As at June 2015, 28.5% of the Group’s total assets were offshore, and management aims to increase this further to 35%. The average annualised property yield on the entire portfolio is 7.6%, while the weighted average rental escalation is 7.1% for 2016, around 1% above medium-term inflation.
Tenant and Lease Expiry Profile
The graph below illustrates the percentage of gross rentals attributable to each of the national tenant groups. It is clear that Resilient is highly dependent on the success of retail groups Edgars, Foschini and Pep for its rental income.
The tenant profile determines the reliability of the Group’s future rental income stream, and the aim is to have as many A-grade tenants, which include large retail groups, large listed companies and the government, as possible. B-grade tenants include smaller retailers, franchisees and professional firms. C-grade tenants, of which Resilient has around 580, are the remaining smaller businesses.
From the table below, it is clear that Resilient’s exposure to A-grade tenants are high in terms of both rentable area and gross rental income.
Any property management company has to manage its lease expiry profile in order to ensure that leases do not all expiry in a single year but are staggered into the near future. Resilient receives 18% of its gross rentals from longer term leases expiring after June 2020, which will be favourable should annual rental escalations come under pressure.
Outlook
Resilient’s performance will depend on the stability of its rental income and the ability to keep vacancies at the current low levels, which in turn depends on the success of its tenants, especially Edgars, Foschini and Pep. Load shedding, resulting in reduced trading hours, continues to hamper profits for these retailers, as does the weaker rand for those importing goods from overseas.
Kind regards,
Cor van Deventer
Seed Investment Portfolio Manager