After a rip-roaring 60% rally in property share prices in the past three years, investors may well be looking for better value elsewhere.
But don’t ditch the sector entirely, as some stocks — notably Burstone Group (formerly Investec Property Fund) — still look relatively cheap.
It’s true that the market hasn’t been overly enamoured of Burstone’s pivot to a hybrid strategy. The real estate investment trust (Reit) changed focus from directly held shopping centres, offices and factories towards a third‑party funds management and fee-income business when it rebranded three years ago.
The strategy expanded Burstone’s South African exposure to Western Europe and Australia via co-owned investment platforms. But the timing of the move offshore coincided with investor sentiment shifting back to South Africa Inc property counters. In addition, local fund managers prefer a directly held business model.
Burstone fell further out of favour because its earnings growth numbers lagged those of its peers. Unlike most domestic Reits that returned to inflation-beating income growth last year, Burstone delivered a muted 2.2% uptick in distributable earnings and dividends for the year to March 31.
Unsurprisingly, Burstone also underperformed on share price growth. While the JSE’s all property index has climbed about 60% in the past three years, Burstone managed only 24%.
So it’s still trading at a disproportionately large discount to NAV of nearly 20%, while most of its peers have closed that gap to below 12%. That places the stock at an income yield of nearly 10% — one of the highest in the sector.
The good news is that Burstone appears to have turned the corner, with management lifting its earnings growth guidance for the next financial year (to March 2027) to between 4% and 6%. More encouragingly, Burstone’s dividend payout ratio will rise from 90% to 92.5%. That means dividend payouts are likely to increase by a decent 7%-9% in 2027.
Any transition can get a bit messy, but the path to growth gets clearer as you go along
— Andrew Wooler
Speaking at Burstone’s results presentation this month, CEO Andrew Wooler said the transition to a more diversified real estate and income base is starting to pay off. The fee income from Burstone’s offshore funds management business is already up nearly 50% year on year in the 12 months to March, taking its contribution to group earnings from 10.7% to 15.5%.
Burstone’s offshore interests comprise stakes worth about R2bn in Western European and Australian co-managed platforms that invest mostly in industrial/logistics properties collectively worth more than R20bn. These include the Pan‑European Logistics platform, of which Burstone co-owns 20% alongside New York‑listed asset manager Blackstone.
Wooler said Burstone has secured R4.4bn in third‑party equity commitments to deploy in its offshore pipeline, which effectively gives Burstone and its capital partners the opportunity to acquire another R10bn-R12bn worth of real estate.
Wooler plans to launch a similar fee-generating management platform in South Africa in the next three months, which he said would represent an important milestone for Burstone and further boost earnings.
The Reit’s directly held R13.5bn South African portfolio, which still contributes 80% of total group income, posted an impressive turnaround for the year to March. Burstone’s retail centres, including Design Quarter (Fourways) and The Firs (Rosebank) in Joburg, Dihlabeng Mall in Bethlehem and Zevenwacht Mall near Somerset West, achieved an impressive like-for-like net operating income growth of 8.9%.
Rental reversions turned positive to the tune of 5.2%, while the retail vacancy dropped markedly from 4.3% to 0.6%. Even the office portfolio is performing better, with the vacancy rate down from 7.7% to 5%.
Wooler said the 2026 financial year was about repositioning the business for the future. “Any transition can get a bit messy, but the path to growth gets clearer as you go along. And that’s where we are now.”
Burstone’s discount to NAV is not expected to close overnight, but the fact that the Reit has surprised on the upside in terms of its earnings and dividend growth guidance may well result in investors warming to its strategy in the coming months.
As independent property analyst Keillen Ndlovu says: “Burstone remains relatively complex for most. Its business model, while popular in markets like Australia, is new to the South African listed property sector. But if earnings growth continues to improve and the market becomes more confident in its strategy, we could see Burstone rerate gradually over time.”
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