Background

Burstone is a fully integrated real estate investor, fund and asset manager that has c.R42 billion gross asset value (“GAV”) under management and c.R25 billion third-party assets under management (“AUM”). Approximately 69% of the Group’s GAV is offshore, across western Europe and Australia. The Group’s AUM is set to increase in the short to medium term as the Group executes and grows its fund management platforms.

Strategic highlights

The Group has made significant progress over the past year in executing its stated strategy and growing its fund and asset management platforms.

• Total third-party AUM grew from R8.9 billion to c.R25 billion with total fee revenue expected to comprise c.11% of earnings (Mar-24: 7.3%).
• Europe:
  • Strategic partnership between the Group’s Pan European Logistics (“PEL”) portfolio and funds managed by affiliates of Blackstone Inc (“Blackstone”) (“the Blackstone transaction”) completed on 12 November 2024. The transaction has launched Burstone’s European funds and asset management strategy.
  • Burstone retains a 20% co-investment in PEL and retains the asset management of the c.€1 billion PEL portfolio.
• Australia:
  • Irongate continues to provide a strong platform for Burstone to grow its fund management activities in Australia.
  • During the year, Irongate established an industrial platform with TPG Angelo Gordon, a global diversified credit and real estate investing platform within TPG, with approximately US$91 billion assets under management.
  • The new industrial platform has already concluded the acquisitions of A$280 million of industrial logistics assets in New South Wales and Queensland, deploying approximately A$133 million of equity into four Burstone’s equity investment into this platform, alongside TPG Angelo Gordon, is c.A$20 million (15%).
  • Irongate now manages c.A$625 million of equity across office, industrial, retail and residential assets from last year for some of the world’s leading real estate investors (Ivanhoe Cambridge, Phoenix Property Investors, Metrics Credit Partners and TPG Angelo Gordon). AUM has grown 28% over the period.

• South Africa:
  • Burstone has made significant progress with a cornerstone investor to seed and then build to scale a South African focused diversified real estate platform (“SA Core Plus platform”). All material due diligence is now complete subject to various investment approval processes.
  • Burstone is targeting implementation of the SA Core Plus platform on the following basis:
    • Burstone to seed the platform with up to c.R5 billon of South African retail and industrial assets that fit within the investment mandate.
    • Burstone is expected to retain a significant equity interest in the SA Core Plus platform, which proportion of equity should naturally reduce over
    • A target LTV of 40%.
    • Burstone will act as a fund and asset manager of the SA Core Plus
  • The launching of the platform is anticipated before the end of the calendar Shareholders will be kept informed as key milestones are achieved.
• Maintaining a robust balance sheet:
  • De-gearing and loan to value (“LTV”):
    • Post the implementation of the PEL strategic partnership with Blackstone, the Group settled debt of c.R5 billion.
    • Disciplined and continued capital recycling resulted in South African asset sales of approximately R0.9 billion in FY25.
    • Funding of capital expenditure and further investment into Australia, alongside TPG Angelo Gordon, partially offsets the reduced gearing impact of the Blackstone transaction and South African sale of assets.
    • The Group expects its LTV to be between 34% and 36% for
  • Successful refinancing of R6.6 billion of Group ZAR and EUR debt in August 2024 that has improved margins, extended the debt profile and provided greater flexibility with respect to sales and facility settlement.

Overall Group performance

• The Group is expected to deliver full year results in line with previous full year guidance provided of approximately 2% to 4% lower than the 2024 financial year (“FY24”). This would deliver FY25 distributable income per share (“DIPS”) of between 101.44cps and 103.56cps (FY24: 105.67cps).
• The dividend payout ratio is expected to be in line with the interim period (i.e. 90%), resulting in an expected increase in dividends per share of between 2% to 4% compared to FY24.
• Key elements which have underpinned the Group’s performance:
  • The South African base like-for-like (“LFL”) net property income (“NPI”) is expected to be in line with the prior year, reflecting a resilient retail performance which is offset by declining growth in the office portfolio which continues to be impacted by negative
  • The European business is expected to deliver a marginal increase in LFL NPI mainly driven by positive rental reversions and indexation.
  • Group fee income is expected to grow significantly over the period, driven by European and Australian fund and asset management activity, resulting in fee income representing approximately 11% of earnings (FY24: 7.3%).
  • The Group has continued to focus on cost optimisation initiatives with operating costs expected to increase by between 1% and 2%.

• Group net interest costs are expected to decline significantly, impacted by:
  • Proceeds from the Blackstone transaction and proactive refinancing efforts that have reduced the all-in cost of debt;
  • Partially offset by further investment in the Group’s Australian platform and maintenance capital expenditure in South Africa; and
  • The c.R0.9 billion in South African asset sales at a c.2.5% discount to book value, that led to net interest savings and contributed to a lower LTV ratio. However, the transactions were earnings dilutive.
• The Blackstone transaction, which was effective from 12 November 2024, is expected to be marginally accretive on the Group’s results in FY25.

Performance of the South African business

• LFL base NPI for the South African portfolio is expected to be in line with the prior
• Total average vacancies across the portfolio are expected to increase to 5.5% (Mar-24: 4.2%) driven by a large industrial asset that became vacant in the second half of the year.
• Total reversions over the period are expected to improve to negative c.5% (Mar-24: negative 3%).
• The retail sector continues to deliver positive NPI growth, however, results have been impacted by the redevelopment of Zewenwacht Mall and associated vacancy linked to the introduction of a new second anchor.
• The office sector continues to face negative reversions of c.20% (Mar-24: negative 6%) and average vacancies of c.8% (Mar-24: 6.4%).
• The industrial sector has experienced strong letting activity with overall reversions of negative 5% driven by long dated leases of negative 17%.

Performance of the European business

• The performance of the PEL platform is expected to deliver a positive LFL NPI growth mainly driven by positive rental reversions (c.13%) and indexation (c.4%), partially offset by higher average vacancies of c.4% (Mar-24: 1%).
• Burstone has decided not to pursue the co-investment opportunity in the German light industrial platform. As such, the third-party management contract ended in December 2024.

Performance of the Australian business

• The Group’s investment in Irongate continues to perform well, benefiting from the significant

growth in AUM and underlying real estate performance which is in line with the deal thesis.

• The Irongate Group is well positioned to capitalize on a strong pipeline of
• Irongate’s co-investment in the industrial platform with Phoenix Property Investors is performing well. The latest valuation shows a c.11% increase in asset value, driven by positive rental reversions and full occupancy, highlighting the platform’s strong leasing performance.

Proactive balance sheet management and successful debt refinancing

• Successful refinancing of R6.6 billion of Group ZAR and EUR debt in August 2024 that further improves the Group’s funding and liquidity profile.
• The PEL portfolio was successfully regeared and refinanced post the Blackstone transaction, extending the debt tenor in the platform to 5 years.
• As at the date of this announcement, the Group holds R2 billion in undrawn committed available facilities and cash, excluding proceeds from disposals that have yet to be completed.
• The Group remains well-hedged, covering over 90% of its interest rate exposure at rates below current market levels.
• The Group’s investment in PEL has been hedged at 100% through a combination of Euro debt and Euro cross currency interest rate swaps (“CCIRS”) following the strategic partnership.
• The Group’s investment in Australia is also 100% hedged AUD/ZAR via CCIRS in line with the Group’s policy.
• The Group has R13 billion direct on-balance sheet property investments and c.R2.4 billion equity investments in fund management platforms.

Concluding remarks

The Group’s real estate portfolio is performing as expected and in line with guidance. Strategically the Group is pleased with the progress made across the business, notably in:

• De-gearing the balance sheet, reducing LTV significantly;
• Establishing a funds management business in Europe;
• Driving solid AUM growth in Australia;
• Advancing exclusive negotiations in South Africa to develop a fund management strategy;
• Capitalizing on the internalisation, making strong strides in leveraging the Group’s platforms, processes, skills, and expertise across regions; and
• Successfully refinancing debt while maintaining prudent balance sheet

The Group will continue to focus on the recycling of direct on-balance sheet investments and using the proceeds to co-invest in fund management platforms, which will result in a significant increase in third party funds under management.

Expanding the Group’s fund and asset management model offers multiple benefits for Burstone, particularly the ability to achieve enhanced integrated real estate returns. This approach combines traditional real estate asset yields with additional upside from operating a funds, investment, and asset management model, where the Group can earn management, leasing, and acquisition fees, as well as potentially generate performance fees through outperformance.

This hybrid model of traditional real estate investment, integrated with expertise across fund management, investment management, asset management and development management supports the Group’s strategy of delivering enhanced returns on capital deployed and maximising operational leverage from its scalable platform.

The year ahead offers great opportunity for the Group as it looks to execute and grow the fund and asset management platforms.