May 19 2023
Investec Property Fund (IPF), the JSE-listed real estate investment trust (Reit) is in a very strong position and is expected to grow is dividend again during the financial year to end-March, CEO Andrew Wooler said in an interview with Property Flash.
“I believe we are in a very healthy position right now both locally and in Europe. We have spent the past few years rationalising our balance sheet, such that we now have a really attractive asset base. We directly own high quality retail and office assets in South Africa as well as a large stake in a European logistics platform. We also have exposure to Australia through our joint venture with Irongate.
IPF this week released results for the year to March 2022.
“The period was characterised by the strategic repositioning of the business, a strong operational performance from the underlying portfolios, and a volatile economic and interest rate environment globally,” the group said in a statement.
A high global interest rate environment inevitably weakened the fund’s overall performance.
Distributable earnings (DIPS) and dividend per share (DPS) declined by 2.8% to 104.64cps (March 2022: 107.61cps) and 99.41cps (Mar-22:102.23cps) respectively.
“Interest rate increases have harmed real estate values globally. So, even though our dividend fell, operationally our business is in a very strong position, with low vacancies,” Wooler said.
The South African portfolio continued its positive trajectory generating strong like-for-like net
property income (NPI) growth of +5.3% and significant letting activity, with approximately 90% of
expiring space re-let, as well as a 7.4% vacancy among its offices. The overall office sector’s vacancy rate is around 20%.
In Europe, the underlying fundamentals supported the pan-European logistics (PEL) portfolio with demand still outstripping supply. The PEL platform delivered strong rental growth driven by the ability to
capture positive estimated rental value, resulting in an increase in like-for-like NPI of 7.4%.
IPF’s loan to value (LTV) increased temporarily to 42%. Defined plans, however, are in place to reduce the LTV to below 39.9% in the short-term.
Fund managers tend to prefer for Reits’ LTVs to below 40% to avoid financial distress. Many Reits’ LTVs currently sit around 55% or higher.
The stability of the portfolios and a healthy balance sheet enabled the business to
maintain a dividend payout ratio of 95%. The Board declared a final dividend of 48.32cps for the
six months ended 31 March 2023, bringing the dividend for the full year to 99.41cps down from the comparable March 22’s financial year’s 102.23cps, 2.84% lower.
“We are extremely pleased with the fund’s performance over the past twelve months. Despite the heightened macroeconomic unpredictability, the operational metrics in the underlying portfolios remain healthy and we are excited about the strategic steps we have taken to position IPF for growth,” said Wooler.
IPF would consider expanding in Western Europe further. In SA, it wouldn’t be pressed to buy distressed assets as funds such as Rebosis and Delta Property Fund were forced to sell assets. Rebosis is going through business rescue while Delta Property Fund is having to auction off its assets.
IPF completed three significant strategic transactions which were long-term, value accretive and
planned to set the fund on a clear path for future growth.
Transaction activity included increasing the fund’s interest in the PEL platform to 83.2% from 64.2% a year before. IPF also entered into a 50/50 joint venture with Australian funds management business, Irongate.
On May 17, shareholders approved the internalisation of IPF’s asset management function in support of the fund’s ambition to build an international real estate fund and asset management company.
“As a dynamic international property company, with a clear strategic focus on creating long term
sustainable value, IPF is well positioned to capture strategically aligned opportunities. However,
while the South African portfolio has stabilized and is performing to expectations, it is expected to
deliver low growth that is reflective of the operating environment,” said Wooler.
“Conversely, given the continued tailwinds supporting the logistics sector in Europe, growth in contracted rent is expected to continue within the PEL platform, as the management team actively works to capture ERV growth,” he said.