All malls are not created equal. That’s clear from the surprisingly solid performance achieved by Resilient Reit’s shopping centres for the year to end-June.
The property company, one of vanishingly few still paying dividends, owns 28 malls in SA, the bulk of which cater to shoppers in smaller cities, rural areas and townships — such as Kimberley, Kathu, Tzaneen, Thohoyandou, Soshanguve and Secunda.
But it also has foreign aspirations: Resilient owns three malls in Nigeria, as well as a stake in the Eastern European-focused Nepi Rockcastle and in fellow rand-hedge property company Lighthouse Capital.
Last week, Resilient reported a 31% fall in distributable earnings for the period. That is largely because it offered rental relief to retail tenants crippled by the lockdown and because cross-currency interest rate swaps were terminated. Its income was further hit when Nepi Rockcastle and Lighthouse Capital postponed dividend payouts.
Nonetheless, Anchor Stockbrokers analyst Pranita Daya points out that despite the impact of Covid-19 and other economic headwinds, Resilient achieved a "robust" operational performance for the year.
If you strip out the discounts it offered because of Covid-19, the SA portfolio recorded net property income growth of a decent 5.5%. At home, retail sales were down only 3.6%, which Keillen Ndlovu, head of Stanlib’s listed property funds, says exceeds expectations for retail-focused property funds on the JSE.
"Resilient also has one of the strongest and most simplified balance sheets in the sector," says Ndlovu.
Referring to its loan-to-value ratio of 35%, he says: "We are likely to see most Reits report loan-to-value levels of over 45% as results come through in the next few weeks, largely due to a decline in asset values."
The company, which was co-founded in the early 2000s by former banker Des de Beer, who is now CEO, was one of the first developers to build malls in underserved townships and rural areas. Resilient’s contrarian view — at the time most developers were building glitzy malls in higher-income urban areas — allowed it to become a dominant player in this niche.
Both Daya and Ndlovu cite Resilient’s focus on nonmetropolitan areas as key to its competitive advantage. They say these malls, which often cater more for daily needs than for nice-to-have items, have proven fairly defensive through the lockdown period.
More importantly, many members of the communities they serve rely on government grants, so their disposable income hasn’t been badly hit by the pandemic. And shopping centres in these areas are also fairly immune to online competition.
Even so, the performances of individual shopping centres diverged widely. Not every rural and township mall in Resilient’s portfolio held up equally well (see table).
For instance, while Mahikeng Mall in North West (sales growth of 1.2%) and two malls in Limpopo — Mvusuludzo in Thohoyandou (9.2% growth) and Tzaneen Crossing (3.3% growth) — outperformed for the year, this wasn’t the story everywhere. Sales at Jabulani Mall in Soweto fell 6.4% and at Soshanguve Crossing near Pretoria they dropped 2.4%.
The few urban malls that the company owns in Gauteng (The Grove in Pretoria, Irene Village in Centurion and Rivonia Village in Joburg) counted among its worst performers with sales down between 6% and 13%.
Following the release of Resilient’s results, De Beer told the FM that the malls that did well had benefited from strong agricultural and mining activity in their areas.
Tzaneen Crossing, for instance, has been supported by strong exports of avocados and citrus fruit in particular, which have boosted the spending power of farmers. Similarly, Mahikeng Mall on the North West’s platinum belt has felt the ripple effect of the higher prices fetched by platinum group metals.
De Beer says poorly performing centres, such as Irene Mall and The Grove, have large entertainment and leisure components, including cinemas and restaurants, which were severely affected by lockdown restrictions.
When it comes to specific retail categories, De Beer says shoppers have become more value conscious and are focusing their spending on essentials. That means better sales for grocery stores, pharmacies and value clothing brands in particular.
Still, says De Beer, it’s difficult to predict what the post-Covid retail landscape will look like, especially given SA’s uncertain economy, and the company hasn’t given any earnings guidance for financial 2021.
This means investors are also adopting a wait-and-see approach. Resilient’s share price has traded in a fairly narrow band of between R40 and R43 for most of the past three months.
At its current levels of R39, it offers a discount to NAV of 27% and trades well below its early 2020 highs of R68.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.