Asset quality underpins Investec Property Fund’s performance in an acquisitive and transformative year
19 May 2016
Full Year Results to 31 March 2016.
- Investment philosophy – quality real estate consistently delivers through the cycle
- Full year distribution of 124.66 cents per unit (cps) – like for like growth of 6.1%
- Base portfolio net property income growth of 8.2%
- Zenprop acquisition was a strategic decision to acquire quality real estate
- Dilution in short term growth translating into enhanced long term value
- IPF total return of 106% since listing
- Portfolio vacancy reduced to 1.1%
- Reduced cost to income ratio demonstrating disciplined management
- R17 billion investment portfolio
- 5.9% increase in NAV per share to R15,85
- Offshore investment in IAPF delivering 34.3% total return in the year
- Focused capital allocation, risk and balance sheet management
The defensive nature of the Fund has come to the fore yet again, with 8.2% net property income growth of the base portfolio driven by client demand for IPF’s product and a disciplined asset management approach. Cost containment, improved utility management and sustainability initiatives contributed to an improvement in the Fund’s cost to income ratio which further drove net property income performance.
Commenting on the performance, Investec Property Fund’s CEO Nick Riley said:
“We are extremely pleased with this result and the consistent growth trajectory of our base portfolio. This growth has been achieved through contractual rental escalations of 7.8%, a reduction in the portfolio vacancy from 2.8% to 1.1% and average positive reversions on renewals and new lets. In a tenant and incentive driven market, the ability to reduce our vacancies and achieve the reported growth illustrates the quality of the portfolio. Our vacancies are arguably the lowest in the sector.”
IPF enjoyed a transformative year from an acquisition perspective. The R860 million Griffin and R7.1 billion Zenprop acquisitions, which consist of a diverse portfolio of office, industrial and retail properties, provide strong visibility of earnings and cash flows. These acquisitions affirm the Fund’s investment philosophy of deploying capital into assets which will outperform over the long term and through property cycles.
The acquisitions were funded with a combination of equity and debt. Equity totalling R4 billion was raised at an average clean price of R15,31, which was enhancing to the previous clean reported NAV of R14,50. New debt of R3.7 billion was sourced from a combination of banks and the capital markets at a blended margin of 175 basis points with a tenor of 5.4 years. These terms are very attractive considering the volatility experienced in the capital markets during the period. The issue price of the new equity increased gearing from 23% to 34% and the revaluation of the base portfolio by 4.1%, resulted in a 5.9% increase in net asset value per share to R15,85.
“This was an acquisitive year for the Fund, with the total investment base almost doubling to R17 billion. Ensuring our capital allocation is efficient and enhancing for our shareholders is a primary focus for management. Long term asset returns generated by either the existing asset base or through acquisitions are scrutinised upfront and on an ongoing basis. Recycling capital is fundamental to long term performance.”
The R530 million offshore investment in Investec Australia Property Fund (“IAPF”) delivered a total return to the Fund of 34.3% (ZAR) for the year. IAPF continues to deliver impressive returns underpinned by quality real estate in a developed economy. IAPF is attractively priced considering its return outlook. The Fund will therefore look to increase its investment in IAPF as and when the opportunity arises.
The Fund is opportunistic in its acquisition approach and is constantly evaluating local and international opportunities which the Fund accesses through the Investec network. All investment decisions are driven first and foremost by property fundamentals, followed by capital structure and other macro and foreign exchange factors.
“The Fund’s investment and management approach of focusing on real estate fundamentals supports its objective of delivering long term capital and income growth which is evident in its total return of 106% since listing.”