Rebosis’s results hit hard by UK plan to exit the EU

The UK’s impending withdrawal from the EU, the world’s richest trading bloc, has derailed another South African company, with Rebosis Property Fund reporting its worst set of results since listing seven years ago.

Rebosis, founded by Sisa Ngebulana, the Eastern Cape property developer who built two of the largest shopping centres in the province — Hemingways Mall in East London and Baywest in Port Elizabeth — said struggles at its UK associate, New Frontier Properties, had worsened an already weak performance.

A number of South African companies, including Brait and Famous Brands, which bought UK assets in recent years in a bid to diversify their earnings against SA risk have seen their UK investments turn sour, partly because uncertainty about Brexit has dented consumer confidence. Brexit uncertainty has caused the valuations of New Frontier’s properties to decrease significantly.

Ngebulana founded New Frontier in 2014 and Rebosis, which he also heads, took a controlling interest in the company in 2015, when it bought 62% for R1.18bn. This stake has since decreased to 49.3% and is now worth R990m according to its share price.

Ngebulana said that New Frontier was designed to give Rebosis exposure to a strong consumer market in the UK and that Brexit had been “impossible to predict”.

NO DIVIDEND

Rebosis’ dividend per B share shrank a staggering 27.7% in the year to August, slightly worse than the market had expected, with the company having forecast a drop of between 20% and 25%, saying it was removing once-off income items so its dividend growth could be from sustainable rent in the future.

But New Frontier’s underperformance had made its “poor set of results worse“, Ngebulana said.

New Frontier said that it would not pay the company a dividend for the year to August “given the challenging Brexit and retail environment it continues to operate in, and the anticipated decline in the external valuation of its property portfolio”.

The UK property group owns three shopping centres located in Middlesbrough, Burton upon Trent and Blackpool, as well as a logistics warehouse in Dublin.

Many of its tenants are struggling to make profits and have entered the UK version of business rescue; company voluntary agreements (CVAs) to survive.

They have said they are struggling to compete on high streets and with online retail.

CVAs are agreed to so a tenant can close under-performing stores, negotiate rent reductions and restructure its debts while continuing trading.

Ngebulana said Rebosis would exit New Frontier if it received an appropriate price for its stake.

Rebosis has a dual capital structure with A and B shares, which suits investors with different risk profiles.

The company’s B-share price fell 23.5% on Monday, closing at R4.60.

27.7% the drop in Rebosis’s dividend per B share in the year to August, slightly worse than the market expected

POSITIVE STEPS

Head of property at Momentum, Nesi Chetty, said that Rebosis had taken positive steps in the 2018 financial year, having done well to sell R888m of noncore office assets in May and lower its debt levels.

“A lot of focus in 2019 will be on the balance sheet structure and funding of Rebosis. Management will be hard pressed to sell noncore assets,” he said.