Our opinion on the current state of BTN
Burstone (previously Investec Property Fund) is a diversified South African real estate investment trust (REIT) with a R27,2bn portfolio with 92 properties in South Africa worth R15,7bn. Like most REIT's, IPF suffered from the general sell-off in property shares on the JSE during 2018 following the Resilient group's melt-down. It is currently trading well below its net asset value (NAV) and represents good value. The fund includes property investments in South Africa and Europe. The company owns 9,2% of Ingenuity Property. The company says that the unfavourable economic conditions in South Africa have resulted in a lower demand for space, lower rentals, longer void periods, and a greater cost to attract and keep clients. In our view, this has been an extremely well-managed REIT under CEO, Nick Riley, but he has now left and been replaced by Andrew Wooler and Darryl Mayers as joint CEOs. The company is recycling its capital away from South African assets and towards Western Europe. On 11th February 2020, the company announced that it was increasing its holding of Pan European Logistics (PEL) from 42,9% to 75% for 191m euros. PEL has 45 logistics properties worth about 900m euros. IPF expected to lose R40m a month while the lockdown is in progress. The company had managed to collect 71% of its South African rentals, 83% in Europe and 87% in the UK. On 9th March 2020, the company announced that it had sold its 38.04% interest in its UK operation (Argo) for GBP35m (R744m) - which was GBP12,7m (R270m) less than its book value. In its results for the year to 31st March 2023 the company reported revenue up 3% and headline earnings per share (HEPS) down 75,4%. The company said, "Results were however, adversely impacted by the global interest rate environment, resulting in an increase in our weighted average cost of funding in Europe. European interest rate costs have been capped with limited interest rate risk over the next 2.5 years". In a pre-close update for the six months to 30th September 2023 the company reported distributable income down between 4% and 5% and loan-to-value (LTV) stable at 42%. The company said, "Over the past three years the Group has sold R1.5 billion of assets (over and above those sold during this period) at a 1% discount to book value". The share is trading at about 50% of its net asset value (NAV) but was a rising trend until January 2022. Since then it has been trending down. We regard it as a good buy at current levels.
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