Burstone manages property on three continents, and this half most of the lifting is being done at home. Roughly two-thirds of the property it manages sits in Europe and Australia, yet the property group expects South Africa to supply about four-fifths of what it earns in the six months to September. It said so in a trading update on SENS on 28 September, ahead of a call with investors.
The number Burstone guides investors on is distributable income per share, the earnings that back the dividend a property fund pays out. Burstone has promised growth of 4% to 6% in that for the full year, and it now expects the first half to land marginally below that range. Burstone puts that down to timing: money it is putting to work in Australia and Europe will earn more in the second half than the first. The full-year promise stands, and so does its target for dividend growth of 7% to 9%.
Malls and offices doing better than planned
South Africa is running ahead of Burstone's own expectations. Comparing the same buildings year on year, what they make after running costs should grow by more than 7%, with shops and offices doing most of the work: tenants trading well, space getting let, and more solar switched on. The one blot is an industrial building, where a single tenant leaving towards the end of the half will lift vacancies from 2.7% in March to somewhere between 5% and 7%.
Fees are the other part that is growing. Burstone increasingly manages property with other people's money, and it expects its fee income to rise by about a fifth on last year, mostly from putting over R300 million of outside investors' money into about R1 billion of property.
The European warehouse problem
Europe is where it goes wrong. Burstone owns 20% of PEL, a Pan-European warehouse platform it invests in alongside Blackstone, and the platform's earnings keep falling. There is more empty space in France and Spain, and European interest rates rose during the half, making the platform's borrowing dearer.
That partnership is now being unwound. Burstone and Blackstone have agreed non-binding framework terms, under which Burstone intends to sell most of what is left of its stake to Blackstone and the management arrangements between them end. There is a bill attached. Under the existing partnership Burstone agreed to take the first hit on certain losses, up to about R1 billion, falling due in November, and it has already set aside R569 million against it.
Burstone's separate deal with Nedbank Property Partners, expected to take effect by 1 December, is what gives it room to deal with that. Once it does, the group's borrowing would come to about 19% of the value of its property, down from 39.6%, which Burstone says creates the capacity to take the risk out of Europe and go after new growth.
