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Finweek English Edition - - Companies & Markets - JOAN MULLER

SOUTH AFRICAN con­sumers may well have tight­ened their purse strings but that hasn’t stopped listed prop­erty funds to con­tinue pour­ing money into new shop­ping cen­tres. Re­silient is a par­tic­u­lar case in point, with its lat­est an­nual re­port show­ing a pipe­line of re­tail de­vel­op­ments cur­rently un­der con­struc­tion worth R516,4m.

Share­hold­ers will no doubt be pleased to see its man­age­ment is re­tain­ing its fo­cus on in­vest­ing in malls in smaller cities and Plat­te­land ar­eas that cater mainly to lower in­come earn­ers. Re­silient’s strat­egy is to fo­cus on non-metropoli­tan ar­eas – in­clud­ing the likes of Tza­neen, Polok­wane, Kim­ber­ley, Rusten­burg, Mafikeng and Nelspruit – has to date paid off hand­somely for share­hold­ers. Re­silient was one of the R112bn listed prop­erty sec­tor’s top per­form­ers in terms of in­come growth for 2009, with dis­tri­bu­tions up a healthy 14,21% com­pared to a sec­tor av­er­age of around 8%.

Fur­ther­more, Re­silient’s re­tail port­fo­lio ap­pears to have bucked the gen­eral trend of ris­ing ten­ant clo­sures: va­can­cies re­mained static at 3,2% last year. MD Des de Beer says there are fur­ther op­por­tu­ni­ties for re­tail devel­op­ment in the Plat­te­land, which isn’t yet as over-shopped as South Africa’s ma­jor cities.

De Beer notes in the di­rec­tors’ re­port that Re­silient will con­tinue to in­vest in dom­i­nant re­tail cen­tres in non-metropoli­tan ar­eas ten­anted pre­dom­i­nantly by na­tional re­tail­ers. De Beer says: “These cen­tres have out­per­formed sim­i­lar cen­tres in metropoli­tan ar­eas due to con­sumers hav­ing lower lev­els of per­sonal debt and the un­der­pin pro­vided by in­creases in so­cial spend­ing.”

Man­age­ment is also tak­ing ad­van­tage of the down­turn in the con­struc­tion cy­cle to ne­go­ti­ate com­pet­i­tive build­ing rates on new malls with rep­utable con­struc­tion com­pa­nies. Bulk­ing up the port­fo­lio with stakes in new de­vel­op­ments will help Re­silient to in­crease its con­ser­va­tive gear­ing level from its cur­rent 26,4% to be­tween 35% and 40%, which man­age­ment be­lieves will be pru­dent in a re­cov­er­ing econ­omy.

Some of the malls cur­rently un­der con­struc­tion in which Re­silient has size­able stakes in­clude the 75 000sq m Mall of the North (Polok­wane) and the 33 000sq m Brits Mall. The I’langa Mall (Nelspruit), in which Re­silient has a 25% in­ter­est, opened its doors last month. Con­struc­tion of the Burg­ers­fort Mall (Mpumalanga) should start later this year.

Man­age­ment ex­pects re­tail trad­ing con­di­tions to grad­u­ally im­prove dur­ing this year, which should be pos­i­tive for rental growth. “The re­tail trad­ing en­vi­ron­ment re­mains buoy­ant and trad­ing den­si­ties – par­tic­u­larly in Lim­popo prov­ince – are cur­rently grow­ing sig­nif­i­cantly faster than rental es­ca­la­tions. This pro­vides fur­ther op­por­tu­ni­ties for in­creased rentals on lease ex­piries.”

How­ever, De Beer says the board re­mains concerned about the sub­stan­tial in­crease in the cost of ser­vices, par­tic­u­larly elec­tric­ity, which has a di­rect im­pact on ten­ants’ oc­cu­pancy costs. Dis­tri­bu­tion growth is fore­cast to slow some­what this year but should re­main in the dou­ble dig­its. Re­silient’s flag­ship prop­er­ties in­clude Highveld Mall (Wit­bank; 60% in­ter­est), Tza­neng Mall (Tza­neen), Di­a­mond Pavil­ion (Kim­ber­ley), Jab­u­lani Mall (Soweto; 55% in­ter­est) and the Lim­popo Mall and Taxi Cen­tre (Polok­wane).

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