Ghost Bites (Sibanye-Stillwater | Spear REIT | Tongaat Hulett)

Sibanye’s subsidiary has improved its balance sheet (JSE: SSW)

Unfortunately, the update is very light on details

In May 2023, Sibanye-Stillwater acquired a 100% stake in New Century Resources, having owned 19.99% in the company since October 2021. This is a tailings management and rehabilitation company with a zinc operation in Queensland, Australia.

The company has restructured its environmental bond and trading facilities on improved terms, which means that banks are viewing the company more favourably than before. The announcement is vague though, so we don’t know if the improved terms relate to the cost of debt or just the repayment terms. Remember, there are many elements of a debt package.

A large part of why the terms have improved is probably the guarantee that Sibanye has given for the company’s debt. This is the benefit for a smaller mining house of being part of a larger group.

Spear REIT reports encouraging first quarter metrics (JSE: SEA)

This is one of the more solid property funds on the JSE

Spear REIT is an exercise in simplicity. The group doesn’t try and own properties all around the world through intricate structures. In fact, they don’t even bother with properties outside of the Western Cape!

Although share price growth has been modest in recent years, you simply have to include the dividends in an analysis of shareholder returns. The current trailing dividend yield is 10.5% and the portfolio is seen by the market as being robust.

But even the Western Cape isn’t insulated from South Africa’s troubles, obviously. The lights still go off and businesses still face pressure. This has a knock-on effect for property funds.

The three months to May represent the first quarter of this financial year. Portfolio vacancies fell from 7.82% in FY23 (the previous full financial year) to 6.80% in this quarter. Among other drivers, the fund notes an uptick in demand for office space, an asset class that has been battered in the past couple of years.

The average escalation rate in the portfolio is 7.4% and the rental reversion rate in this quarter was +4.17%, up from +3.69% in FY23 and on the right side of zero, which is more than many other property funds can say.

Looking deeper, the industrial portfolio has benefitted from curtailment agreements with City of Cape Town that have improved the availability of electricity supply. Rental reversion was a lovely +10.73% this quarter and the average escalation on existing leases is 7.63%. The vacancy rate is down from 2.23% to 1.50%.

The retail portfolio is fully focused on convenience retail, delivering a vacancy rate of just over 0.5% which has been consistent. The bad news is negative reversions of -5.57%, which shows that even the Western Cape is hit by macroeconomic conditions. 41% of the portfolio is occupied by national tenants on long-dated leases.

The commercial (i.e. office) portfolio is still finding things difficult, but Spear specifically highlights the importance of the local and international business process outsourcing sector and the positive impact this has had on vacancies in the Cape metropole. The vacancy rate is still high at 15.42% but at least reversions were positive at +4.73%.

The loan-to-value ratio has increased from 36.30% at the end of FY23 to 39.06% at the end of this quarter. Combined with the weighted average cost of debt increasing from 8.66% to 9.16%, this puts pressure on distributable income. The sale of the Liberty Life building in Century City will help, with that deal closing after the end of the quarter covered by this update.

In this quarter, distributable income of R43.15 million is down from the quarterly run-rate that would’ve achieved distributable income of R188.4 million in the prior year. As solid as Spear is, there’s no escaping the pressure in the system.

Tongaat Hulett gets a funding extension (JSE: TON)

RCL Foods must be wishing that it gets used for sugar levies

I found yesterday’s update from RCL Foods about the sugar levies fascinating. Due to Tongaat’s non-payment of these levies, the entire sugar industry has been hit with a special levy for the shortfall. I don’t know much about the industry at all, but it seems bizarre.

It’s certainly in South Africa’s best interests for Tongaat-Hulett to continue operating. The business rescue practitioners have reached an agreement with the current funders to extend the post-commencement funding facility from 30 June to 21 July 2023. It shows how tough this process is that the funding is agreed for just a few weeks at a time.

The approval process for longer-term funding is underway.

Little Bites:

• Director dealings:
  • A director of Afine Investments (JSE: ANI) has bought R1.5k worth of shares on EasyEquities, which is probably a function of low liquidity rather than lack of desire to own more!

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