South Africa’s fourth-largest REIT, Resilient has slowed down on plans to build 10 shopping centres in Nigeria. In 2012, Resilient Property Income Fund entered into a JV agreement with Shoprite and Standard Bank to develop quality shopping malls in metropolitan areas throughout Nigeria.
Speaking at the company’s recent annual results presentation, the company’s MD, Des de Beer presented a bleak outlook for the country’s retail market, stating that the risks were now outweighing returns. This has led them to reduce their exposure to future projects and a reduction in the size of its Owerri Mall and Asaba Mall, both under construction with initial plans of 13,000sqm each. The two centres will now house mainly grocery and other convenience stores, which De Beer says are still doing well.
Speaking further, De Beers said the key reason for the slowdown is the sharp drop in oil price and the government’s subsequent attempt at import controls, which has left a number of large clothing retailers without any stock. It should be recalled that Truworth’s had already closed its store in Delta Mall, and according to the statement Mr. Price is likely to follow soon. Both closures have increased the vacancy from 6% to 20% for Delta Mall. Despite noting that the company has taken a “stand-still” position given the exchange rate risks, its plans to improve occupancy include letting the vacant shops to small local traders who will pay rentals in Naira due to exchange rate risks.
“We thought we would make development profits of around 30% in Nigeria. But that’s basically all gone…”- De Beer
Although Resilient’s $70 Million exposure to Nigeria is just 2.7% of its total portfolio which is valued at $2.4 Billion, the uncertainty of making its projected 30% development profit in Nigeria has made it very difficult to continue with its plans.
Despite its issues in the Nigerian retail space, Resilient’s $880 Million exposure (~36% of total assets) to offshore property markets has paid off for investors through Romanian-focused Nepi, Rockcastle (which has a growing presence in Poland), and FTSE-listed shopping centre over Hammerson.
Exchange Rate: $1: R15.90
Source: Financial Mail