Burstone Group has provided its shareholders with a pre-close trading update for first six months of its FY2025 financial year, having made significant progress in accelerating the expansion of its fund and asset management strategy.
With c.R38 billion gross asset value under management. Burstone has c.R4.7 billion third-party assets under management with approximately 65% offshore (across western Europe and Australia).
In South Africa, the Group is in exclusive negotiations with cornerstone investors to seed and aggregate to scale an ‘SA Core plus platform’ to utilise a portion of its local assets to seed the platform which is expected to be executed over the next 6 to 12 months. On completion, Burstone will act as fund and asset manager of the platform.
In Europe, Burstone’s strategic partnership with funds managed by affiliates of Blackstone on the Group’s Pan-European Logistics Portfolio (PEL) launched Burstone’s European funds and asset management strategy whereby the Group will retain a 20% co-investment in PEL and asset management of the c. 1 billion PEL portfolio with net proceeds of c.R5 billion to Burstone.
The earnings impact of the transaction is marginally accretive in the short term, and it is expected to increase earnings in the medium term due to the reduced impact of higher funding costs through lower Group leverage, increased fee revenue and operational leverage through scale and accretive capital deployment over time. The strategic partnership will look to further aggregate industrial and logistics assets across Burstone’s core European markets.
While shareholder approval remains the only condition to the approval of the transaction with a general meeting to be held towards the end of October 2024, more than 50% in principle support has already been received.
Burstone is also currently in exclusive negotiations with regards to a 25% co-investment and the ongoing management of a €170 million German light industrial and last-mile logistics platform.
In Australia, the Irongate JV, which was concluded in March 2023, has provided a strong platform for Burstone. Irongate has concluded a new industrial JV backed by a leading global alternative asset management firm and increasing its equity AUM from A$490 million to c.A$600 million (up 32% since acquisition).
An initial soft commitment of A$200 million of equity has been earmarked with the aim to upsize upon successful deployment. Burstone, through Irongate, will have a minority co-investment in the new JV and the Irongate JV will provide the investment and asset management functions for an initial portfolio of industrial assets located in Queensland for a total purchase consideration of c.A$140 million and an equity commitment from the new JV of c.A$80 million.
The Group has made progress in de-gearing of its balance sheet. Post the implementation of the PEL strategic partnership with Blackstone, Burstone expects its loan-to-value ratio (LTV) to decrease by 12.5% to c.33.5%.
Burstone is in the process of selling several SA assets; c.R0.3 billion of sales were unconditionally concluded during H1 2025 and a further c.R0.8 billion are subject to final due diligence and funding. The Group anticipates total asset sales to amount to between c.R1.6 billion to c.R1.8 billion over the next twelve months.
In August 2024, Burstone refinanced R6.6 billion of ZAR and EUR debt to further improve its funding and liquidity profile which will achieve an annual margin saving of c.20 basis points and to extend the Group’s debt expiry to 3.1 years (from 2.2 years as at 31 March 2024).
Burstone will increase its dividend payout ratio from 75% to between 85% and 90% with effect from the Group’s interim reporting period (H1 2025).
Overall Group performance
Burstone expects to deliver its first half year results in line with previous full year guidance of approximately 2% to 4% lower than FY2025, delivering H1 2025 distributable income per share of between 49.02 cents per share and 50.04 cents per share (H1 2024: 51.07 cents per share).
Group fee income is expected to grow significantly, largely drive by European and Australian fund and investment management activity with Group total costs expected to reduce by c.4% to 5% over the period.
Group net interest costs are anticipated to be higher than the previous year driven by the elevated interest rate environment and impact on interest rate and cross currency interest rate swaps (“CCIRS”) hedges maturing during the period.
South African portfolio
Burstone’s local assets are expected to deliver a marginal reduction in like-for-like net property income of c.1.% to 2%. While its retail and industrial portfolios continue to deliver positive net property income growth, its office portfolio was impacted by higher vacancies, albeit still low at c.6% to 7% with continued negative reversions resulting from muted market rental growth.
Total vacancies are expected to remain flat (March 2024: 4.4%, September 2024: 3.7%) with total reversion over the period expected to be negative c.10% (March 2024: -9.3%, September 2023: -12.2%) largely driven by the negative reversions in the office portfolio.
Burstone’s retail portfolio’s trading density remains strong at c.R2 900 per square metre with average turnover increasing by c.2.2% over the past twelve months. Funding of c.R300 million capital expenditure (capex) and development spend has given rise to an increase in funding costs
European portfolio
The performance of the PEL platform is anticipated to deliver like-for-like net property income growth of c.1% to 2%, driven by positive rental reversions (c.5%) and indexation (c.3.5%), offset by marginally higher vacancies of c.3% (March 2024: 2.2%, September 2023: 0.9%).
The distributable earnings from the PEL portfolio will further benefit from c.€0.6 million in cost savings achieved through various streamlining and restructuring initiatives, partially offset by higher funding costs on the unhedged portion of the PEL debt.
As a result, the PEL platform is expected to report an increase in earnings of c.1% to 2% in Euros for H1 2025 (an increase of c.9% to 10% in ZAR).
Australian portfolio
The Group’s investment in Irongate is performing well, benefitting from significant growth in assets under management. On the 30th of August 2024, Burstone completed a R6.6 billion refinance with strong support received from its lenders. The refinance has significantly reduced near-term liquidity risk, enhancing flexibility.
Additionally, the Group negotiated a more favourable covenant set, achieving full alignment with all its lenders. The security pool was restructured to exclude South African assets held for sale.
As at the date of this announcement, the Group holds R1.2 billion in undrawn available facilities and cash, excluding proceeds from disposals that have yet to be completed. The Group remains well-hedged, covering 95% of its interest rate exposure at rates below current market levels.
Burstone’s investment into PEL has been hedged at 75% through a combination of Euro debt and Euro CCIRS and upon completion of the PEL strategic partnership, this will increase to 100% in the short-term but will normalise to a range of 60% to 70% over time.
Burstone’s investment in Australia is 60% hedged AUD/ZAR via CCIRS.
