Burstone Group Acquires 50% Stake in ‘The Neighbourhood Square’ for R380 Million

Burstone Group Limited, formerly known as Investec Property Fund Limited, has recently completed a significant transaction in the real estate sector, acquiring a 50% undivided share in “The Neighbourhood Square” property. This acquisition marks a strategic move for Burstone as it expands its portfolio with a high-quality retail asset. Let’s delve deeper into the details and implications of this transaction.

Background and Transaction Overview

Burstone’s acquisition of “The Neighbourhood Square” stems from a right of first offer granted by Investec Property, a subsidiary of Investec, as part of the Internalisation Transaction. The property, a newly built convenience retail shopping center located in Linksfield, Gauteng, offers exceptional trading statistics and strong operating fundamentals. The transaction, valued at R380 million, involves Burstone partnering with Flanagan and Gerard Frontiers Proprietary Limited (F&G) to jointly acquire the property.

Rationale Behind the Transaction

Burstone’s strategic objectives include investing in best-in-class assets to deliver sustainable income and capital returns. The acquisition of “The Neighbourhood Square” aligns with these goals, offering several key benefits:

1. Property Specific Advantages:
   • Exceptional trade density and occupancy rates.
   • Strategic location in an upmarket residential suburb with a sizable catchment area.
2. Strategic Benefits:
   • Expected long-term returns exceeding typical core assets.
   • Predictable, long-term income streams supporting Burstone’s objectives.
3. Partnership Opportunities:
   • Collaboration with F&G, a leading property development and investment company.

Transaction Details

The acquisition involves Burstone and F&G each paying R190 million for their 50% share in the property. Operational decisions will be jointly made between the two entities, and the transaction is subject to approval by the Competition Authorities.

Property Information

“The Neighbourhood Square” is a convenience retail center spanning 10,897 m² in Linksfield, Gauteng. With a weighted average rental of R285 per m² per month, the property was valued at R381.35 million as of January 1, 2024.

Financial Implications

The forecast for the year ending March 2025 indicates a rental revenue of R18.6 million and a net property income of R15.3 million. While the transaction may result in a marginal dilution of earnings for FY2025, the long-term impact on earnings and capital value is expected to be positive.

Small Related Party Considerations

Investec Property, being a subsidiary of Investec and a material shareholder in Burstone, is considered a related party. However, the transaction represents only 2.25% of Burstone’s market capitalization, qualifying as a small related party transaction. An Independent Property Valuation confirms the fairness of the transaction to shareholders.

Conclusion

Burstone Group’s acquisition of “The Neighbourhood Square” represents a strategic move to enhance its portfolio with a high-quality retail asset. The transaction aligns with Burstone’s objectives of delivering sustainable returns and unlocking value in the real estate sector. With strong property fundamentals and strategic partnerships, Burstone is well-positioned to capitalize on long-term growth opportunities in the market.