Is it short-term pain and long-term gain for Burstone?

The strategic pivot to a hybrid model following Burstone Group’s rebranding from Investec Property Fund in 2023 has yet to pay off for shareholders. The name change was accompanied by a move away from a focus on directly held bricks and mortar towards a third-party funds and fee-based asset management business.

It seems that the strategy, which has expanded Burstone’s exposure from South Africa to Western Europe and Australia, has not fully landed with investors. Burstone is one of the few domestic real estate investment trusts (Reits) not now trading at six-year highs.

Despite a 12% pullback in property share prices since the start of the Iran war in late February, the South African Reit index is still up more than 50% over three years. In contrast, Burstone’s share price has risen only 15% over the same period and is about 25% down from its early 2022 peaks. At last week’s R9.25 level, the stock was trading at a 20% discount to NAV of R11.53. By comparison, most of its South African peers had narrowed their NAV gap to roughly 5%-10%.

Burstone owns a R13.5bn directly held local portfolio of retail, office and industrial properties, as well as stakes worth about R2bn in Western European and Australian investment platforms, which own and manage mostly industrial and logistics properties collectively worth more than R20bn. The local portfolio includes Design Quarter (Fourways) and The Firs (Rosebank) in Joburg, Dihlabeng Mall in Bethlehem and Zevenwacht Mall in Kuilsriver.

At the recent pre-close update, management said the group expects to deliver earnings growth of 2%-3% for the year to the end of March. That is at the lower end of its 2%-4% guidance and lags the 5%-7% average analysts expect most Reits to achieve this year. Earnings growth has been constrained by “measured occupier demand” in Western Europe, resulting in lower than expected income amid higher vacancies on the Pan-European Logistics (PEL) platform. Burstone owns 20% of PEL alongside New York‑listed asset manager Blackstone.

Still, Burstone CEO Andrew Wooler is confident the hybrid model is the way to go. He tells the FM that while new to South Africa, it is an investment strategy that is well understood and supported internationally. Wooler concedes it will take time to secure buy-in from local investors “until the numbers start filtering through to the bottom line”. That will probably take at least two to four years, he says.

Wooler accepts that the local market prefers a directly held business model but says: “We’re taking a long-term approach and focusing on the value we can create five to 10 years down the line.

“It won’t be a nice, easy straight line for us. There will be some choppy waters. But we believe the hybrid model will be hugely beneficial to South African shareholders over time.”

The benefit of investing alongside other funders and on co-owned platforms, according to Wooler, is that less of Burstone’s own capital “goes out the door” while still providing access to large offshore real estate portfolios with growth potential. He says the funds and asset management business is already taking shape, with momentum building in fees earned from its European and Australian co-managed platforms. Fee income has increased from 10.7% of total group income in the 12 months to March 2025 to between 15% and 17% in the 2026 financial year.

In addition, Burstone has secured R4.4bn in third-party equity commitments over the past year. “That provides a huge amount of firepower to deploy offshore. It effectively gives Burstone and its capital partners the opportunity to acquire R10bn-R12bn worth of real estate in Europe and Australia,” he says.

Last month, Wooler also clinched a major joint venture deal with European property investment manager Hines to assemble a portfolio of light industrial assets. Hines already manages European industrial assets worth €5bn. Burstone will invest 20% of the equity in the new joint venture and be responsible for investment and asset management activities.

There will be some choppy waters. But we believe the hybrid model will be hugely beneficial to South African shareholders over time

—  Andrew Wooler

Wooler says the initial focus will be on Germany and the Netherlands, Europe’s two most dominant and liquid logistics markets. The joint venture has already invested R760m to acquire six assets with 90% occupancy; tenants include warehousing, storage, distribution and wholesale trade businesses. Wooler says the joint venture will likely deploy at least €400m in 2026 but stresses that the team is focused on “buying the right assets at the right price”.

While European and Australian exposure is set to expand, there is no plan to exit South Africa. Wooler says that given the recovery in the South African economy and real estate markets, it makes sense for Burstone to deploy more capital in its own backyard, where it has a 30-year track record. “But we’re not interested in traditional income-focused real estate. We’re always looking for an angle,” he says. He adds that he likes the rental housing market, among others, noting: “We have taken time to really understand the multifamily residential sector over the past 12 to 18 months. But we need to ensure we enter at the right price.”

Plans also remain in place to replicate Burstone’s European and Australian third-party asset management platform in South Africa. Asked why this is a good time to buy Burstone shares, Wooler notes that the stock is trading at a disproportionately large discount to tangible NAV. That means there is significant value to be unlocked over the next few years as more benefits from the hybrid model flow through. He says: “Our growth trajectory is underpinned by property and people. That the biggest real estate players in the world are choosing to partner with us says something about our track record and the strength of our team.”

Meanwhile, analysts and fund managers remain somewhat sceptical of Burstone’s contrarian investment model. Ian Anderson, head of listed property and portfolio manager at Merchant West Investments, believes the shift from property owner to capital‑light asset manager has not been well received because Burstone hasn’t provided sufficient information about the underlying portfolio assets. “That makes it difficult to forecast earnings and the growth drivers of those earnings,” he says.

Anderson adds that despite positioning itself as capital light, there remains a significant degree of leverage in the business and in the vehicles in which Burstone co-invests. “The income it receives from management and performance fees can also be lumpy.” He says the market is wary of an investment strategy that favours Australia and Europe at a time when South African property fundamentals are improving.

Garreth Elston, MD of equity research firm Golden Section Capital, expresses similar concerns, saying that while Burstone’s funds management pivot is sensible in principle and strategically sound, it has yet to deliver tangible results. “The company has been signalling for several years that transition benefits are imminent, yet the financials during this period have been underwhelming.”

However, Elston notes several encouraging signs: rising fee revenues, the securing of R4.4bn in new third-party equity commitments, the launch of the European light industrial platform with Hines and an additional A$170m commitment to the Australian business. Elston also points to other positives, including a stronger balance sheet and meaningful operational improvement in the South African portfolio, with vacancies expected to fall sharply from 6.7% to between 3% and 4%. Net property income in Burstone’s local retail segment is growing at a healthy 8%-10%.

Even so, Elston says the market is likely to remain cautious until fee income becomes large enough to move the dial on earnings and distributions visibly. “The persistent NAV discount may reflect a genuine misunderstanding of the model, but it may also reflect a measured market view that the management platform will take longer to prove itself than the investment case assumes.”