Texton has released financial results for the six months to December 2021. The company has walked a difficult strategic road over the years and is now pursuing a strategy of investing in the US market via property funds.

The direct portfolio is valued at R3.3 billion as at 31 December 2021 and the indirect investments amount to R189.2 million. The company describes its strategy as “reinvesting heavily into direct property investments” (in SA and the UK) and investing in high-quality property investments in developed markets with “best-in-class partners” (the US strategy).

Property revenue fell by 29.3% and distributable earnings fell by 56.9% in this period. Headline earnings per share (HEPS) increased by 39.9% though to 15.43 cents. A dividend per share of 10 cents has been declared.

A critical metric in any property fund is net asset value (NAV) per share. This decreased by 1% since December 2020, now at R6.03 per share. The closing price on Friday of R3.75 (up 16.8% on the day) reflects a discount to NAV of 38%.

The vacancies in the SA portfolio increased to 16.6% from 10.5% at 30 June 2021, primarily due to the Transnet Ports Authority not renewing the lease at 30 Wellington Road. Collections in the SA portfolio were 93% and the UK portfolio achieved 100% collections.

I’m personally not convinced by Texton’s US strategy of investing in other funds, as the alternative would be to buy back Texton shares at a deep discount to NAV. Instead, Texton has invested USD4.4 million in the Blackstone Real Estate Income Trust iCapital Offshore Access Fund SPC (and breathe…) and USD7.0 million was invested in Starwood Real Estate Income Trust Offshore Fund SPC.

Texton has also made a GBP2.5 million commitment to an ESG-focused last mile logistics fund in the UK and Western Europe. The key differentiator is that the fund focuses on environmentally friendly solutions for the e-commerce sector.

Texton has identified two further funds to invest in and hopes to conclude the investments by 30 June 2022.

There were some buybacks at least, with just over 3 million shares repurchased at an average of R3.14 per share during the period. That’s tiny compared to the offshore investments, so my comment stands re: buybacks vs. investments in offshore funds.

Over the period, the company sold and transferred four of the eight properties held for sale, realising R398.4 million in cash in the process. Long-term debt was reduced by R127.8 million but only R26.5 million is a permanent decrease. The loan-to-value ratio has improved to 31.2%.

Texton has R342 million cash on hand, which I suspect will mostly find its way into other offshore property funds.

The share price is up around 58% in the past 12 months. The discount to NAV remains substantial and returning cash to shareholders would probably go a long way towards closing it. Texton has other plans, so we will have to see how that pans out.