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Burstone has evolved from a traditional property company into something very different. Instead of relying on shareholders to fund growth, the company is increasingly using institutional partners and private capital to scale its platform.

But can that model deliver the returns that investors are looking for?

In this episode of Ghost Stories, Andrew Wooler (CEO of Burstone Group) joins The Finance Ghost to unpack the thinking behind the strategy.

This includes details on the launch of the Core Plus platform in South Africa with Nedbank Property Partners, as well as a reflection on the Blackstone journey in Europe.

Along with more technical concepts like first-loss exposure and the ring-fencing of debt, this podcast offers a great insight into how Burstone uses “Other People’s Money” to drive returns.

In this episode, we cover:

• Why Burstone moved away from the traditional REIT growth model
• The logic behind the Nedbank Property Partners Core Plus platform
• What went wrong, and what was learned, from the Blackstone partnership
• First-loss exposure, ring-fenced debt and look-through gearing explained
• Whether Burstone’s platform strategy can ultimately drive stronger returns for shareholders

This podcast has been sponsored by Burstone, but The Finance Ghost was allowed to ask whichever questions he felt were most pertinent for an investor audience. Please always do your own research and do not treat this as an endorsement of the stock.

Transcript:

00:00 Intro

01:48 How Burstone evolved from Investec Property Fund

05:35 The platform strategy: using partner capital to grow

10:03 Private capital vs. public markets

12:15 The Core Plus platform in SA explained

17:54 What happened in Europe with Blackstone?

22:14 First-loss exposure explained

24:11 Ring-fenced debt, recourse and the loan-to-value ratios

28:39 Burstone’s outlook and long-term strategy

The Finance Ghost: Welcome to this episode of Ghost Stories. Another fantastic opportunity to really get to grips with the strategy of one of the listed companies on the JSE. 

Today, I’m excited to bring Burstone Group to you. They’ve never been in Ghost Mail before (other than me writing about them, of course), so this is a really cool opportunity for us to learn about something new. 

And to do it today, I have Andrew Wooler. He’s the CEO, so right at the top here.

Let me just set the scene here. I noticed on your pre-close presentation that as much as the official name might be Burstone Group, in the corner it said Burstone Real Estate Partners.  

That might sound like one of those typical corporate nuances, but the word ‘partner’ there, I suspect, is doing quite a bit of work, because that is very much the way you and the group think about this thing. 

You’ve got an unusual approach to creating value from transactions. You’ve got a platform strategy. You tend to bring capital partners on board.  

There’s going to be a lot to talk about today, ranging from the exit of the Blackstone relationship in Europe to the announcement of your Nedbank relationship in South Africa. 

Thank you for joining me on this podcast, and it’s very nice to have Burstone in the ecosystem. 

Andrew Wooler: Good to be here. Appreciate the opportunity. 

The Finance Ghost: Let’s start, then, with an elevator pitch of the group, because I’m not sure that the retail investor audience necessarily knows Burstone as well as they should, and even some instos. We all know that in South Africa, not everyone gets to everything. 

So, I think let’s kick off then with just a brief history of the group within the broader Investec stable, how it then became a separate entity, and then what the group looks like today, basically? 

Andrew Wooler: Sure. I’ll try to keep it relatively succinct because there has been a lot that has happened. 

Burstone was formerly known as Investec Property Fund, or IPF. We listed that business in about 2011 with R1.7 billion of South African assets. 

I joined the team about a year later, and I think the majority of the team that sits here today probably joined at a similar time. It was a time when listed markets were very supportive of IPOs and new listings. The Investec property team had been heavily involved in the listed sector previously with Growthpoint, and it was time to get going again. 

If you looked at the portfolio back in 2011/2012 – small, kind of cobbled together, some interesting assets that sat in there, but it was all about growth and trying to build scale with good underlying real estate. 

And over the course of the next 10 or 12 years, we built IPF from R1.7 billion of assets to what we have today, around R42 billion of assets sitting across multiple jurisdictions. 

Over the last 12 to 14 years, you saw us start the Australian business. I think we listed that in 2013/2014. That, we very smartly named Investec Australia Property Fund (I think our marketeers had probably got a bit bored by then). IAPF started with about AU$130 million of assets and inward listed that on the JSE. 

The Australian team built it up to about AU$1.6 billion of assets over the course of the next eight or nine years before they were bought out by Charter Hall. In the interim, they had been rebranded as Irongate Group when they internalised the business. I think that was about 2021. 

And funnily enough, we’ve gone full circle with Australia because that management team and the Irongate management business now sits back within Burstone. 

And yeah, we’ve been in different markets. We’ve been in Europe since 2017/2018. Again, that started with a partnership with Ares Management Corporation and an operating partner on the ground, a guy called Paul Rodger. That team is still with us today. Ares is no longer with us. We bought them out in February 2020, just before COVID hit. That portfolio now serves as the platform that we have with Blackstone. 

And so, yeah, it’s been a really interesting journey going international, but at the same time being very focused on what our South African business can do. 

I think there’s been a lot of learning and experience gained over the last 10, 12, 14 years as we’ve navigated very volatile and uncertain markets at different times. So, yeah, happy with where we are today, but it feels like we’re very much at the starting line and nowhere near that finishing line. 

The Finance Ghost: Yeah, thank you. At least the marketing team has been kept busier now with the Burstone name, as opposed to “Investec fill in the blank”, as you say [laughing]. 

It is very much a new era for the group, and it’s quite interesting to track what you’ve been up to and then just dovetail that against what we’ve seen in the broader property sector over the past 15 years or so, right?  

If you go back a decade, there was so much capital-raising activity on the JSE and so much of that capital was going offshore. And understandably, you’ve got to go where the action is when you’re actually looking to raise money and build out these things and, certainly, that would have informed some of the offshore decisions, I guess. 

It does now feel like South Africa is back in vogue to some extent, which ties in with your recent announcement of the platform that we’ll get to just now. 

Before we actually go into detail on what you’re doing with Nedbank Property Partners, I think we need to just understand the platform thinking. 

Now, I’ve always understood this to cheekily be the ‘Other People’s Money’ strategy, which speaks to banking DNA, and it’s actually a very clever way to generate capital-efficient income. If you can bring partners on board who can provide capital and you can bring expertise and capital, then you’ve got a way to basically gear up the returns you’re going to get – not just through using debt, but also through using your brains and actually managing the property. 

So, that’s my overall understanding of the platform thinking. I’m very keen to hear it in your words and perhaps just understand why that is Burstone’s strategic differentiator? 

Andrew Wooler: Yeah, maybe we should hire you for investor presentations [laughing], because you’ve summarised it really simply. And it isn’t more complicated than that, right? 

Capital is so scarce, and as you say, pre-2016, 2017, as a listed company, you had tremendous access to equity capital markets. That has changed massively over the course of the last 10 years. And so, as you think about creating value, leveraging not just your balance sheet, but also leveraging the people that you’ve got in your business, what are the other options in terms of access to capital? 

You mentioned Other People’s Money, as we think about it, and I guess it is a fair amount of the DNA that comes out of the banking side from Investec, but it was very much around: what problems are out there that need solving? 

And one of those is that, from a private capital markets perspective, big institutions and big pension funds require access to opportunities and real-estate opportunities. They require access to best-in-class management teams, and they require access to very strong governance structures. And, if you look at all three of those and then look within our business, we pretty much tick all of those boxes.  

So, the ability to go and find both on-market and off-market opportunities, to build and aggregate platforms to scale with best-in-class management teams that operate on the ground in the different regions. And then, from a listed perspective, you’ve obviously got a very strong governance structure and DNA to the business. So, what better offering to take to the private capital markets? 

And we’ve seen the benefit of that in a lot of the offshore markets in which we operate. I think Australia is probably the best comparative. Strong management team sitting within those listed REITs; big pension funds; the supers there needing to allocate capital to real estate and they just don’t have the people in-house to do that necessarily, so it creates a solution for them. 

From our perspective, the way that we think about it, it’s not just about enhancing the return on our capital – that ultimately becomes the end-product. But we’re able to use our real-estate management team and not just the balance sheet.  

We significantly increase the diversification of our real-estate investments because we are putting less capital into every transaction or every asset acquisition. And so, we’re able to invest more widely, more broadly, across different regions, different asset classes, into different risk and return profiles, but still putting effectively the same amount of capital to work as you would have if you had financed everything 100% yourself. 

Put that all together, and it becomes really exciting. I think we’re at the start of that, pretty much across all of our regions. South Africa being the last one to kind of join that fund and asset management model. 

But ultimately, the test for us will be not just whether we can continue to scale the platforms, but also whether we can bring in additional and new partners, and new mandates, over time.  

What gives us the confidence there is, if you look at the partners that we’ve got across the globe, they really are some of the world’s best. I think it’s a real vote of confidence in us in terms of them wanting to partner with us.  

Obviously, we love the idea of partnering with the best on the planet. Look at the suite of names: Blackstone and Hines in Europe; in Australia, we’ve got TPG Angelo Gordon; La Caisse (they rebranded from Ivanhoé Cambridge), a massive Canadian pension fund; Phoenix Real Estate Partners. And then to partner up with Nedbank Property Partners here in South Africa. 

It is really exciting and great to work with people like that because not only do they test you and really push you, but also, from a partnership perspective, from what they bring to the table and what you learn from them, one plus one more often than not equals three. 

The Finance Ghost: It is a very interesting way of thinking. And you’ve tapped into one of the big changes there, of course, which is private capital markets as opposed to public capital. I think that is what’s changed so much over the past decade or so. 

We always read about alternative assets and how much value is actually flowing into private funds. I guess the overarching point here is that, instead of trying to raise capital continuously at listed level (which can actually become really difficult and is often at a discount to NAV), you can go and actually build out these platforms, and there you’re not necessarily raising at a significant discount to NAV. Sometimes you have to do a small one, and we can talk about that just now with Nedbank. 

But I just want to understand that final point, which is that raising into these underlying funds does seem like a more efficient way to access capital markets these days, rather than trying to do book builds all the time at listed level, right? 

Andrew Wooler: Yeah. I think the equity capital markets are volatile, and [laughing] have probably been more volatile in the last couple of years than certainly over the last 10 to 15. They turn on and off as they do all over the world. And so, as we think about our business, real estate is naturally a capital-hungry machine, right? So, accessing different pools of capital at different times is important.  

And if you’re reliant solely on the listed market, you can find periods (like we had in South Africa, really, from pretty much 2017, 2018, right through to probably the last 18 months) where it’s really difficult to raise capital. And so, the only access you had to capital was from recycling the assets on your balance sheet. Those private capital markets are incredibly deep, and there’s a constant need for deployment into real estate. 

It doesn’t mean that they’re always open. We’ve seen that more recently in Europe and Australia, where it’s a bit of a risk-off, so those private capital investors are sitting on cash rather than deploying, just given the broader global uncertainty. But what it does is it creates that second potential pool or outlet for capital.  

And I’m sure there will be more times over the future where the listed capital markets come back; you’re able to raise at the appropriate sort of pricing, but you’ve then got the flexibility and optionality in terms of where you go and raise capital to support the growth of your business. 

The Finance Ghost: Absolutely. Speaking of growth and raising capital, let’s then turn to the South African news, because I think it’s quite exciting. I mean, just as a South African myself who still lives here, I’m obviously always happy to see investment in our country. 

Look, in this case, some of it is just reshuffling what’s there, I suppose. It’s a joint venture, ultimately. It’s a platform you’ve put together with Nedbank Property Partners. As I understand it, you’ll have a 50% stake in it when all is said and done, at least for now.  

You’re selling at a modest discount to the NAV. But I think the one point that came through in your pre-close, which I appreciated, was that if you’re selling at a discount into a thing that you still own 50% of, then the discount is smaller than it initially looked. 

It’s going to unlock a lot of capital for you. It’s admittedly going to be a highly leveraged structure on day one. There’s a lot to think about here, and there’s a lot for investors to try and understand.  

So, having set out some of the complexities and some of the key points I know you’ve focused on describing this joint venture, maybe just walk us through what you’re doing here, what it means for the South African strategy, and then also why Nedbank? Why have you chosen to partner with them on this? 

Because it’s been a long time coming, right? You’ve been talking about this platform for a while now. 

Andrew Wooler: Yeah, so we’ve had a long-standing relationship with the Nedbank Property Partners (NPP) team – Jean and Claire. That goes back to the Investec days, and so we’ve done some exciting and interesting deals with them over the last 10, 12 years. Really easy to deal with. And not only do they bring equity to the table, but they also obviously bring debt capital (which is great) and they are able to move pretty quickly. 

Certainly, in our working relationship with them, they’re pretty dynamic and agile, very like-minded when it comes to real-estate investment and able to look through cycles, which is important, right? Because they’re not just a day-one yield investor. Very much like us, they’re thinking about total return over time. 

And then they also bring to the partnership distribution capabilities. As we think about looking to bring in further capital into the SA Core Plus platform over time, they’ve obviously got a significant investment book themselves, and potentially this platform becomes a nice exit vehicle for those investments over time. 

And there are certainly assets and platforms in there which we’d love to get our hands on and bring into the platform. But they also bring an incredible brand and level of reputation as a partner to a platform. 

We’ve been speaking about catalysing the platform. I don’t think there are many better to catalyse an opportunity with, and really then look to build on that over time. So, we’re really excited to get going with the guys and build that out. 

I think from a South African perspective, we don’t have our heads in the sand about the broader SA macro situation and position. It’s definitely better than it was. And this is a country where there’s almost always opportunity. We’re well networked. We’ve got a long legacy here, right from our days obviously with Investec and post, and we believe that we can build something quite interesting and get access to opportunities and take that into the platform and build that out over time. 

We’ve been quiet here over the last five or six years as we’ve looked to build our offshore footprint, but we’re excited to get running in SA. 

This platform will become effectively the growth strategy for our South African business. 

It starts off with retail and industrial logistics assets, and we’ll look to build that up over the next few years while we also raise further capital to come in alongside Nedbank and ourselves. And then there’s always the ability to expand into different asset classes. 

And we’ve got Myles Kritzinger, who joined us about a year or 18 months ago from Transcend. There was a residential play, and there have been discussions internally and externally about that possibility. So, I think you’ll see us adding new things over time and bringing in new opportunities, new asset classes, to that platform. But also, importantly, looking to catalyse and bring in additional third-party capital alongside ourselves and Nedbank. 

The Finance Ghost: Yeah, it all makes a lot of sense. Nedbank has a really good reputation in the property space, so that obviously lends itself well to this. You guys have been doing this for a very long time. You’ve got this great portfolio to just seed this joint venture, and I think you’ve also mentioned there that it provides an exit for not just other stuff that might be in their ecosystem, but also other property funds in South Africa. 

And therein lies that point again around private asset platforms. Because if we went back 10 years, there’s a very good chance that this joint venture would have been listed in one way or another and might have actually tapped capital markets in that way. But in this environment, there’s actually just so much liquidity in private markets looking for a home and looking to lock up these assets that it probably makes sense to do this. And again, it just speaks directly to what’s happened in the past decade, right? 

Andrew Wooler: Spot on. It does give management teams or families who have been building real estate portfolios just another alternative to a listing. And the listed markets, you’ve seen it over the last kind of five years – huge amounts of volatility and uncertainty and, obviously, increased regulation and processes and control. So, listing is difficult. 

Certainly, our view is that you really need to have scale to warrant bringing something to market. So, this platform does provide that opportunity to guys who have been building up portfolios over time and looking to monetise and create liquidity for themselves. 

Then we give them that potential exit and platform to exit into and then provide those opportunities to the private capital markets that may not have had the access to those opportunities if the platform didn’t exist. 

So, we’re not reinventing the wheel. We don’t think it’s that smart. We think it’s just a really simple, neat solution that can play into everyone’s benefits over time. 

The Finance Ghost: Speaking of alternative assets, the biggest name in the game internationally is Blackstone (not to be confused with Burstone, of course, there are a lot of stones going on here). And that was one of the big focus points of your pre-close update, actually – that the European journey with them seems to have run its course. 

And maybe this is a good opportunity for you to just explain what the lifecycle of that journey has been – the value created for shareholders along the way, how you feel about how that all played out – and also the learnings from that which you may have applied to thinking about the South African joint venture, for example, and platforms down the line. 

Because I think that’s the one point you raised earlier in the podcast, was just how much has been learned over the past 10 to 15 years of doing this thing. 

I’m keen to understand, specifically from the European experience, what some of those learnings might be? 

Andrew Wooler: Yeah, so, it has been a really interesting and, at times, challenging process. First of all, picking a name that was so similar to what could become (or who would become) our single biggest partner at a point in time is quite interesting. I remember going in to introduce ourselves to Blackstone and I thought that if we could just rewind the clock, it might have made the conversation easier at the time. 

But there’s a long history with Blackstone. I mentioned Paul Rodger earlier, who runs our European business. Blackstone had bought Hansteen in about mid-2015 or 2016, and Paul ran the European side of Hansteen. It was a light industrial business, and that got sold into Blackstone, and he exited and ultimately then became (a couple of years later, alongside Ares) our operating partner and is still with us today. 

So, there’s a strong relationship between Paul and the Blackstone team. We also sold them a small portfolio in, I think it was 2021 – a light industrial portfolio in Europe. And so, we’ve obviously done multiple transactions with them over time. 

And we were looking to catalyse (similar to South Africa) a European platform utilising the €1 billion of logistics assets that we had across six or seven countries. We’d been exploring opportunities with them and a couple of others for a while, and they pinned their ears back and made it happen.  

At the time, doing a deal like that and creating a partnership with the biggest (and ultimately some of the best) real-estate guys in the world was really exciting. And if you look back at it, there are certainly things we could have done differently. There was massive opportunity in that relationship and that partnership, if we thought about growth opportunities. 

There’s a great saying: “You miss every shot you don’t take.” That would pretty much summarise the situation that we got with Blackstone. We did the best deal we thought we could do at that point in time.  

It hasn’t played out from an overall platform perspective the way that we would have hoped. And so, what was meant to become a real growth platform over the course of three to five years, we’ve unfortunately not seen that happen. 

It hasn’t been from a lack of trying. I think we’ve worked through about €1.5 billion worth of pipeline with the team. But there have also been broader macro challenges. We haven’t exactly found ourselves in the best market, from a capital deployment and transactions perspective. So, we find ourselves today in a position where it feels right to kind of bring it to an end. 

Certainly, they’ve got their own strategy, and they’re looking to combine a lot of their legacy investments under what is going to be called the PROXITY platform. And so, our European platform, or Pan-European Logistics (PEL), will ultimately roll up into that, and we’ve worked with them to agree on a framework that ultimately creates a good exit for both parties. 

We’ll come across Blackstone again in Europe over time, no doubt, and we’d like to continue to work with them on other ideas and opportunities as they come up. And so, I think we’re both working towards a way or a solution that should work out for both parties. 

From our perspective, it obviously gives us the equity back that we’ve got invested in that platform. It kind of frees up our management team to look for new opportunities again. So, they’re effectively unencumbered. 

We have to deal with a few things in relation to – we talk about ‘first-loss assets’, but there’s a solution to that – and, again, it creates certainty and gives us clarity as a business in terms of how best to move forward. 

The Finance Ghost: That concept of first-loss exposure is something that came through quite strongly, actually, in your pre-close, and I’m not sure that that’s a term that the majority of investors would necessarily understand. 

It’s not something that comes up too often. 

Perhaps you can just explain what that actually means in the context of Burstone? 

Andrew Wooler: Yeah, sure. Ultimately, it comes down to a valuation differential. When we concluded the transaction with Blackstone in November ’24, there were three assets that were fairly chunky – €240 million in assets out of the portfolio of just north of €1 billion – in which there were fairly significant value differentials in terms of how they were looking at it versus how we looked at it. 

We had agreed on a price of €240 million. They were lower. We said, “Well, tell you what. Pay us the €240 million today in the deal, and then there’s a period of time,” – which we agreed would be two years – “in which we will look to take those assets to market and effectively sell them out of the platform, and any shortfall relative to the €240 million, we’ll top up.” 

And obviously, if we achieved more than the €240 million, there would be a sharing of that value, and there were other ways to solve that differential. But ultimately, the total potential differential for us was about €52 million. So, R1 billion. Not a small number. 

Markets have changed and transaction activity has been very limited, so we haven’t been able to trade those assets in the open market at a value that we thought justifiable. And so, the decision that we’ve taken is that we’re going to take the majority of those assets back onto our balance sheet and effectively just pay Blackstone what they paid us on the way in.  

And that’s the simplest way to effectively solve what is called the ‘first-loss position’. But ultimately, it arises because of a valuation differential on the way in. 

The Finance Ghost: Excellent, thank you. I think the other concept that is really important is to just understand the way your loan-to-value (LTV) ratios actually work in the group and how much recourse you’ve got from these underlying platforms into the holding company. 

Because, as much as the platform strategy is very interesting and clever and it can have some real benefits, it does obviously create some complexities for investors when they look at this thing and they’re trying to understand the extent to which they’re actually exposed to certain things – as you’ve described there, the first-loss exposure. Debt recourse would perhaps be another one. 

So maybe just walk us through, from a debt perspective, what is ring-fenced? Just the concepts in the platforms versus exposure potentially to other assets in the group. 

Andrew Wooler: At a platform level, all the debt that goes into that platform is fully ring-fenced to that platform. Ultimately, it means that the banks can only get access (or have limited access) to those assets only. 

So, if there was ever a situation or a scenario where you’re in default, for whatever reason, the banks are limited to effectively attaching value to the assets in that platform, as opposed to coming back and looking up to the Burstone balance sheet or to your other capital partners who are in that strategy and platform alongside you. 

The important thing is we don’t look at it as a way of trying to keep the banks at bay. Ultimately, reputation for us is the single most important aspect of how we do business. And so, we don’t just see it as a way of being able to get off the hook, but we do think about it from a risk-return perspective. 

So, when you’ve got really strong assets – and I think the platform that we’ve put in place with Nedbank is a really good example, where the quality of the real estate that has gone in there and the cash flows that are coming out of those assets is so strong – Finance 101 tells you to use the most effective and efficient way of structuring the balance sheet around that. 

Debt is a lot cheaper than equity, and if those assets are as strong as they are, leveraging them up is a really efficient way of creating your returns over time. 

We wouldn’t go and put a 60% or 70% leverage number against high-risk assets, or assets that have a high risk of vacancy in the short term, or have a significant risk factor associated with them. So, we think very carefully about when to use a lot of leverage and when to reduce that leverage profile in the asset base 

Ultimately, that deals with the platform side. Most of our platforms across the globe are in that really strong real-estate space – strong cash flows and well-located real estate. 

And then we’ve obviously got the assets that sit on our balance sheet at a group level that currently, from a South African perspective after the Nedbank deal, will be around R8.5 billion. We will have debt against those assets (typically secured, but we also have unsecured debt that finances the group’s activities) and that will look up at the group’s balance sheet for support. 

As we then report our numbers, and we always talk about two levels of gearing. 

We talk about reported LTV, which really is straight out of the accounts. Post-Nedbank, I think that’ll be sitting at about 19%, which is really nice and low. 

But we also think very carefully about look-through gearing. And really, for context, that’s almost like the old-school proportional consolidation. So, thinking about our share of leverage in the underlying platforms and our share of the assets in the underlying platforms and running a calculation based on that to give you effectively proportionally consolidated (or look-through) gearing. 

And, given our shift away from owning direct assets towards having co-invest positions in these platforms, that look-through number is probably going to be more important over time as we think about the risk that we’re willing to take on, because we’re thinking about how much exposure we’ve got to the underlying debt across the business, even though a lot of that debt (or all of that debt) in the platforms is ring-fenced. 

And so, naturally, what you’ll find in our business over the next three to five years is that the reported gearing number actually comes down and settles quite low – so probably in the 20s, whereas your traditional REITs will probably be sitting in the 30s. But our look-through gearing needs to be managed between, call it, the 40% and 50% number. And that’s going to be the key metric for us, from a risk perspective over time. 

The Finance Ghost: Old-school proportional consolidation, indeed. You’re giving me some varsity accounting PTSD there, Andrew, I’m not going to lie, but it is complex stuff and thank you for explaining it so clearly. 

I think let’s bring it home now with a final question around the future, which at the end of the day is what investors would probably care the most about. You’ve still got a directly held SA portfolio. You’ve got quite a tilt there towards offices, so some interesting optionality there for recovery, but also risk in what has been a difficult asset class. 

You’ve highlighted there a low overall LTV at holdco level, but obviously you’ve got to think about the look-through. You’ve got lots of decisions that you’re going to have to make around how you recycle and deploy capital, which I think is interesting. 

And, perhaps cheekily, I think investors would love to see an uptick in your distributable income per share growth. It’s hard to compare across REITs, but we have seen some pretty high growth levels coming out of some of the JSE counters recently, so obviously investors will contrast these things. 

Bringing it home now: what is the message you want to leave current and prospective investors with around the investment case for Burstone? Where’s your head at, what might the next few years look like and what are you hoping to achieve? 

Andrew Wooler: We’d all like to see the earnings line grow at double digits. I think we’re in the position where our focus is really on how we build the fund and asset management model out on a measured basis. Not slowly, but certainly thinking very carefully about how we do it and where we put capital to work. And so, as we build that business, we think about total return and we kind of ignore very short-term earnings numbers. The way that we think about it is that those earnings numbers will follow.  

And if you look at the model, we’re not just reliant, obviously, on the underlying real estate driving the earnings line for us. The growth in that funds management model really does enhance overall returns. Our hope is that the bottom-line earnings line over time certainly would outpace those without a funds management model within their business, so that’s the hope and that’s the strategy. 

There are a couple of things that we’ve got to deal with in the relatively short term, obviously, execution-wise in relation to Blackstone in Europe, etcetera, etcetera. 

And then you think about what’s sitting on our balance sheet and, as you mentioned, an office portfolio of around about R5 billion and some residual assets that didn’t go into the Nedbank deal. So, we’ve got R8.5 billion that’ll sit directly on the balance sheet for a while. 

We’ve got to think about recycling that capital. So, do we sell out or trade out of those assets directly and release capital back into the group? There are one or two assets that I think, after a little bit of leasing work and a bit of repositioning, will fit perfectly into that Core Plus platform with Nedbank. So, that’s a possibility. 

Office liquidity, we haven’t seen that in the market for a long time. But if you look at the underlying metrics of our portfolio, I think we’ve only got around 3.5% vacancy, a decent weighted average lease expiry (WALE) in there of around 3.5 years. So, it’s a portfolio that has stood the test of time.  

And there are green shoots coming through that broader market. Not to say that we think it’s going to be a hugely rapid and exciting space to be in the very near term, but certainly those fundamentals are improving. And I think there is optionality in office over time and the things that we could do with that platform. 

But the other key focus is: how do we raise additional capital into these platforms? How do we get away from single mandates? Going back to the Blackstone piece, it’s a lot of risk to have with one partner. It’s almost like having a massive single-tenant building that makes up 30% of your balance sheet. You want to avoid that. 

So, massive focus for us is getting to market, raising third-party capital from existing capital partners, but also bringing new partners into the fold. That means we’ve got to show them interesting ideas. We’ve got to show them track record. 

We’ve still got the better part of R4 billion of capital to deploy in Europe and Australia from our existing relationships with Hines and TPG, so that’s critically important for us over the next six to 12 months. 

Over time, if we try to fast-forward three to four or five years from now, we would hope to have significantly more capital alongside us in multiple platforms in multiple regions. Balance-sheet-wise, we’d hope to have the same amount of total capital deployed, but pretty much only into those co-invest decisions, and to have the balance sheet being used to warehouse very opportunistic deals or take advantage of distressed situations, but looking to convert the risk and then move those assets on. 

Distributable income per share (DIPS) should follow, but it’s going to take time. 

That’s one thing that we’ve been trying to say to the market, “This isn’t an overnight strategy. It takes patience, but we’re giving it our best shot.” And some of the early signs here and the partners that we’ve got alongside us certainly give us that conviction, that we’re going to get this right. 

The Finance Ghost: Of course, funnily enough, when you say, “the DIPS will come”, what we mean is distributable income per share, not ‘dips’ in the way that a lot of investors would think about it. That’s exactly what you don’t want to see, of course. 

Andrew, that’s a lovely way to finish it off. I really appreciate the additional insights that you’ve brought to the Ghost Mail audience about Burstone – and to me. I’ve learned a lot as well, which I’ve really enjoyed. Thank you.  

And congrats on this exciting news around the South African platform. As I said earlier, always nice to see this kind of thing in the home market. So, good luck. I look forward to tracking how it all goes, and hopefully at some point we can have you back to update us on the strategy. 

Andrew Wooler: Great. And again, thanks so much for the opportunity. It’s been really good talking through it.