Collins Property Group: Profits Surge, REIT Conversion on Horizon, and Strategic Expansion

  • Financial Rebound: Collins Property Group reported R108 million in net profit, a significant improvement from a R958 million loss.
  • REIT Conversion: The company is progressing toward REIT status, bolstered by a name change, onshore tax moves, and strategic acquisitions.
  • Portfolio Expansion: The company is diversifying its portfolio in Europe and the Western Cape while maintaining its financial stability.

Collins Property Group Limited, formerly known as Tradehold Limited, recently unveiled its unaudited condensed consolidated financial statements for the six months ending on August 31, 2023. The real estate company, listed on the Johannesburg Stock Exchange (JSE), reported a positive financial outlook and significant progress towards its ambitious plan to convert into a Real Estate Investment Trust (REIT). In this article, we delve into the company’s financial performance, restructuring efforts, and the potential impact on shareholders and investors.

A Turnaround in Financials

Collins Property Group reported revenue of R581 million for the first half of 2023, representing a growth of R11 million compared to the same period in 2022 when revenue stood at R570 million. The improvement in revenue can be attributed to the company’s strategic moves and a renewed focus on its local and international portfolios.

However, the standout performance was in the profit from continuing operations before non-controlling interest, which reached R159 million. This marks a significant improvement over the R139 million reported during the same period in the previous year. More notably, the net profit attributable to ordinary shareholders reached R108 million, signifying a substantial turnaround from the loss of R958 million recorded in August 2022. This drastic shift in profit positions the company favorably for its future endeavors.

The Path to Becoming a REIT

One of the most noteworthy aspects of Collins Property Group’s recent activities is its ongoing transformation into a Real Estate Investment Trust (REIT). The company embarked on an extensive restructuring process aimed at achieving REIT status in the current financial year, subject to the necessary approvals being obtained in a timely manner.

The first step in this transformation involved bringing the company onshore from a tax perspective at the end of February 2023. As part of this process, an agreement was reached with the owners of U Reit Collins (Pty) Ltd. They exchanged their 25.7% shareholding in CPP, the South African division of the group, for a 21.78% shareholding in the company. This exchange was facilitated through the issuance of shares at an effective price of R13.64 per ordinary share.

The name change from Tradehold Limited to Collins Property Group Limited was another strategic move designed to leverage the strong reputation of the Collins name in the local property market. These changes, along with the positive financial results, mark significant progress towards the company’s REIT conversion objectives.

Financial Stability and Growth

Collins Property Group’s total assets now amount to R12.2 billion, maintaining stability compared to the figure reported at the end of February 2023. This demonstrates the company’s ability to manage its assets effectively during a period of significant change and transformation.

In addition to the strong financial performance, the company’s earnings per share improved to 42 cents, compared to a loss of 373 cents per share in the corresponding period. This highlights the company’s ability to generate positive returns for its shareholders.

Furthermore, the net asset value per share also showed positive growth, reaching R12.62 compared to R12.40 at the end of February 2023. This indicates that the restructuring efforts and expansion strategies have enhanced the company’s overall financial health.

Strategic Portfolio Expansion

The company’s management has demonstrated a renewed focus on balancing its local portfolio with international properties, particularly in Western Europe. Over the past six months, Collins Property Group acquired a share in four industrial properties in the Netherlands, adding to the six properties already owned in Austria.

To further strengthen its European presence, a senior staff member of the group is set to move to the Netherlands in January 2024, with the goal of actively expanding the company’s portfolio in Europe. The company is also considering potential assets in Germany.

In South Africa, the company has made significant progress in selling off assets to free up cash for its intended offshore expansion. This ongoing asset recycling strategy not only provides financial resources but also aims to improve the overall quality and profitability of the company’s portfolio.

During the six-month period under review, seven properties were sold for a total of R62 million. Additionally, the company expects to complete the sale of further properties worth R159 million before the end of the financial year. This sales activity reflects a proactive approach to managing the company’s assets and reallocating resources effectively.

Focused Expansion in the Western Cape

Collins Property Group is increasing its presence in the Western Cape, a region that the management believes offers substantial opportunities for real estate development. Currently, the company has several substantial projects at various stages of investigation and development in this region. The primary focus in the Western Cape is on convenience retail, with major retail groups being targeted as anchor tenants.

The company’s strategy of diversifying its portfolio into different sectors and regions not only spreads risk but also positions it to take advantage of emerging opportunities in high-potential markets.

Lease and Rental Market

The majority of Collins Property Group’s gross lettable area (GLA) comprises large industrial warehouses and distribution centers that are leased to mainly national and JSE-listed companies on long-term leases. As of the end of the reporting period, the weighted average lease expiry date (WALE) stood at 4.7 years. However, it’s worth noting that vacant space increased slightly from 3% in February 2023 to 4.04%, primarily due to some smaller tenants being forced to downsize or close their businesses due to challenging economic conditions.

Since the end of the reporting period, the company has managed to reduce the amount of vacant space to 3.6%, indicating its ability to adapt to market dynamics. Rental collections, while still strong, reduced slightly from 98.8% to 97.5%. These metrics are essential indicators of the company’s performance in the South African property market.

Dividend Expectations

The board of directors of Collins Property Group has expressed its intention to declare an interim dividend for the six months ending on August 31, 2023, contingent on the company being granted REIT status by the JSE. The company is in the process of applying for REIT status and anticipates being granted this status by the JSE.

This interim dividend is expected to be treated as a “qualifying distribution” for purposes of section 25BB of the Income Tax Act, 58 of 1962. The declaration of the interim dividend will occur once Collins Property Group officially obtains REIT status from the JSE, with further announcements expected on SENS in due course.

The Road Ahead

The period under review, as well as the months since, has seen Collins Property Group’s management devote significant time and effort to the extensive restructuring of the business and its preparations for REIT status. The company is now much more focused and well-positioned to manage the challenging operating and economic environment.

The expansion into Europe, particularly the acquisition of industrial properties in the Netherlands, and the Western Cape region in South Africa have strengthened the company’s ability to adapt and thrive in diverse real estate markets.

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