Burstone group: positioning for growth amid uncertainty


It has been a busy twelve months for the Burstone Group, formerly Investec Property Fund. Strategic transactions have seen the internalisation of our management function from Investec.

The internalisation enables us to introduce strategic partners in our local and international businesses, launch new platforms and bring in additional capital partners in all regions to drive our capital-light fund management strategy. It also removes inherent conflicts of interest between the external manager and funding partners. Consolidation within the listed property sector in South Africa remains an opportunity, which we can now pursue as the deal has simplified the business and opened new doors.

These developments have seen the company become even better aligned to becoming an international fund and asset management business that is able to generate returns through the property life cycle, leveraging both our capital and people in a more efficient and effective way.

The result is the emergence of Burstone as a standalone fully integrated international real estate company that is committed to delivering attractive returns for our investors and sustainable outcomes for the communities in which we invest.

Geographic diversification

We are diversifying our business by spreading capital allocations across various geographies. As a result of this rebalancing, 56% of our assets are now in Europe and Australia, with the balance in South Africa. We now have c.R35 billion in gross asset value across nine countries and A$450 million of equity under management.

This is not simply a flight from South Africa, or a rand hedge. It is the result of our focus on quality assets and the leveraging of our in-depth knowledge and expertise in the regions in which we operate. In fact, we remain bullish about property in South Africa and believe it will stay an important part of our business mix.

But we are also realists. As long as the South African macroeconomic backdrop remains muted, the property sector will continue to face challenges. While our local portfolio of 79 properties is expected to deliver growth that is reflective of the operating environment, our local assets produce good yield and are highly cash-generative relative to our offshore interests, which are more total-return-driven investments.

With our regional teams now competing for resources on an equal footing, the challenge will be how much gets allocated to South African real estate as opposed to offshore.

Integration and synergy

The internal changes we have made allow us to bring our three different geographies together functionally under one roof. Although we have operated together for years, we haven’t operated under one brand and in one team with one vision. By bringing it all together, we now have the ability to leverage our different management teams and drive towards achieving the same overall strategy.

Our Australian team already has a record of successful partnerships and executing on a capital-light model. Our European colleagues are also more advanced than us from a funds management and capital-light perspective. With their know-how and track record, working together opens up phenomenal opportunities. For example, we’ve got a number of partnerships in Australia that we believe we can leverage off of in Europe and vice versa and an equally strong capital base, which gives us an opportunity here in South Africa to support the growth of our offshore businesses.

Managing risk

Globally, we face challenges that vary across our different markets. Some of them are not in our control and so we take a very cautious approach to things like balance sheet management. We try to maintain a healthy loan-to-value ratio, and we hedge as much of the potential interest rate and foreign-exchange risk as possible, because those are things we just cannot control.

Coupled with conservative balance sheet management, the management team, having grown up in South Africa, is well versed in navigating volatility and uncertainty. We have an active management set-up across all of our regions, and the knowledge shared between us puts us in a good position to recognise risks ahead of time, giving us the agility to shift the business quickly.

Sometimes, bad news and risk can have unforeseen positive consequences. In our European business, which focuses on warehouse and logistics assets, demand is outstripping supply as a result of a shortage of land and credit. That’s good for our business, which is enjoying strong returns.

I think everyone has realised that you can stay in maintenance mode while you’re working from home, but if you want a business to grow and take advantage of opportunities, you need that collaboration, which can only happen in an office.

Twelve months ago, we were talking about there being no floor in office rentals, but these developments are reflected in our business, where we’ve seen a positive uptick in demand, particularly in Gauteng.

The shift and the shape of how people, corporates and teams work are also changing. We’re seeing a significant change in the layout of offices, with much more space needed for meeting rooms because of hybrid/online meetings, and the integration of more tech.

Here again, what started off as a conversation about reducing space, which indeed happened post-COVID, has seen a move back into expansion. Not expansion because there’s more headcount, but because of how teams and people work and what they expect from their space.

Ultimately, as these examples demonstrate, commercial property as an asset class is not one that can accurately be measured on a quarterly basis. Our outlook is longer term. If you look at the most successful investors, they have been in the space for a long time. Time is a beautiful thing when you have quality real estate.

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