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Texton Property Fund: good results despite difficult 2017

The company will at this point maintain its exposure to just the UK and SA, according to CEO Nosiphiwo Balfour.
Texton CEO Nosiphiwo Balfour. Picture: supplied.

NASTASSIA ARENDSE:  We now move on to Texton Property Fund, which published year-end numbers today and saw a growth of 6% compared to the rebased dividend period the previous year. Their net property income improved about 10% to about R440 million.

Texton CEO Nosiphiwo Balfour joins me now on the line. Nosiphiwo, thank you so much for your time.

NOSIPHIWO BALFOUR:  Good evening.

NASTASSIA ARENDSE: I see your share price closed up about 3.4% in the green. Take me through the numbers. Were they in line with expectations?

NOSIPHIWO BALFOUR:  Yes, certainly. Thank you so much. Very much in line with the guidance that we provided to market around our distribution growth of 3 to 6%. So based on our rebased dividend we came in at the top one of that expectation, the guidance that we provided to shareholders as at the 2016 period. And we are very proud and pleased that our asset management has really come through in the numbers in terms of reducing our vacancies substantially from 9% to 4.9%, and of course net property income being up 10% as well.

NASTASSIA ARENDSE:  What about the operating environment, because you have properties in the UK, you have properties here in South Africa – what’s your reading on the current background economic effects and how they are playing into your results?

NOSIPHIWO BALFOUR:  It has been a challenging year for both the SA and the UK economies. South Africa has specifically entered a technical recession combined with political uncertainty. On the UK of course the looming uncertainty on the back of the expected Brexit coming about has provided more uncertainty feeding into the global financial systems. For us what it means is that we’ve had to ensure that we’ve actively managed our portfolio in tenant retention, ensuring that we are engaging our tenants at least 12 to 18 months ahead of lease renewals, ensuring that in seeing that there is likely to be pressure coming through on a tenant’s perspective and a downward revision rental that we retain our rentals at the levels at which they are at, in order to be able to still continue to distribute consistent distribution growth for our stakeholders going forward.

NASTASSIA ARENDSE:  On the topic of your portfolio, what is the percentage split between South Africa and the UK, and how each of those splits performed?

NOSIPHIWO BALFOUR:  Our current portfolio split by value is now sitting at 61% towards South Africa and 39% towards the United Kingdom. This is really broadly on the back of a strategy that we’d employed as a fund from 2014, in order to increase our exposure to the UK in entering that market. We have substantial assets in office, industrial and retail, and in South Africa we also on the same basis are diversified.

More specifically on the South African perspective, where we seeing pressure really on the back of a weaker office market, we still think we are defensively positioned given that our office assets are located in decentralised secondary nodes, which aren’t as impacted in terms of an oversupply of offices as you see for example, in the likes of Sandton and premium and A-grade office space. We are more … in the B-grade office space and our take-up has been quite good in that.

NASTASSIA ARENDSE:  Speaking of your take-up, have you done any acquisitions in the past year?

NOSIPHIWO BALFOUR:  No, we haven’t. In SA we have not. In SA we’ve been more around rationalising our property portfolio and reducing our non-core assets – those sitting below the threshold of R50 million – and that have really been high-maintenance and problematic assets. This is more on the streamlining and ensuring that our asset value at least sits at around R120 million and upwards.

On a UK perspective, we made two key acquisitions – that of Mowbray and Stanford House – and one industrial and office…property. And that was really in line with…industrial buildings acquired for roughly £16.2 million. These acquisitions will really generate on the back of disposing of our non-core assets and increasing our GPA exposure.

NASTASSIA ARENDSE:  I see that you are on this drive of acquiring assets that are yield-enhancing. Outside of the UK, are you seeing other markets perhaps in Europe that could be able to give you that yield-accretive growth that you need?

NOSIPHIWO BALFOUR:  For assets we really are around sticking to our knitting and battening down the hatches in terms of our current portfolio, so that it’s specifically the SA and the UK property market. We have in-country and on-the-ground property and asset management in the  UK, and we feel that that is our skill set. And employing to that strength we’ll continue to hold our investment mandate at this point in time to an exposure to UK and SA.

NASTASSIA ARENDSE:  We’ll have to leave it there. Thank you so much for your time.

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