Investec Property Fund (IPF) has bedded down major acquisitions that were made in the past couple of years and is now set to provide investors with strong returns after a challenging financial period.

The company announced a final dividend of 66.74c per share for the six months ended March, taking the full-year dividend to 127.65c per share.

This represents full-year growth of 2.4% in its dividend payout for the year to March, slightly ahead of expectations.

The short-term dilutionary effect of the R7.1bn Zenprop property portfolio acquisition, which was announced in August 2015, had been absorbed, as well as the R826m Griffin industrial portfolio, and the fund could revert to its historical dividend growth profile, said CEO Nick Riley.

The company’s base portfolio delivered 8.7% net property income growth year on year despite market volatility.

IPF reported a 6.9% increase in net asset value per share, driven largely by a 4.1% increase in property valuations.

Riley said IPF shareholders had received a total market return of 19.1% for the 12-month period ending March 31 2017, made up of a 10.1% capital return and a 9% income return.

The fund let or renewed 93% of 175,969m² of space that came on line during the year at a positive reversion rate of 3%.

IPF has already renewed a further 83,228m² or 34% of space expiring in 2018 at a positive reversion rate of 6.3%.

The group’s overall vacancy rate was 1.4%, which was up slightly from 1.1% at the end of March 2016.

Meago Asset Management director Thabo Ramushu said that IPF was set to reward shareholders more in the future after a difficult year.

"They have now bedded down Zenprop, and Griffin should see growth going forward. The balance sheet is well managed and the recycling of capital through disposals has been on target. They have earmarked further disposals.

"Net property growth was driven by strong property fundamentals and is well above that which IPF’s peers have been managing," said Ramushu.

IPF’s all-in cost of funding improved 10 basis points to 8.9%, which was achieved despite the fund increasing its hedge ratio from 75% to 86%.

The robustness of the fund’s balance sheet was enhanced by the proactive recycling of capital, issuance of R285m of new equity and a R681.1m, or 4.1%, increase in property valuations at year end, according to Riley.

"Our gearing remains stable at 34.1%, which provides sufficient capacity for the fund to transact. The balance sheet remains significantly unencumbered, with only 33% of assets secured, providing significant flexibility in terms of future funding initiatives," said Riley.

Despite it being a year of consolidation, the fund completed R1.4bn of investments, including an initial 8% investment in Cape-based real estate group Ingenuity for R75m in January 2017.

IPF increased its stake in the Investec Australia Property Fund (IAPF), which now stands at 22.9%. On a leveraged basis, IAPF would generate a cash-on-cash return of 9.8% based on current market pricing. IPF’s offshore expansion plans remain focused on Australia, but the company will consider western and eastern Europe.

IPF expected dividend growth of between 7% and 8% for the 2018 financial year.

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