Landlords desperate for economic growth, says Investec Property Fund
IPF’s offshore investments help offset the muted growth in the local market
Investec Property Fund (IPF) says if the national election achieves a positive result for business, it and other South Africa-focused real estate stocks should see their fortunes turnaround in late 2020.
Speaking after the release of financial results for the six months to September, CEO Nick Riley said South African commercial property landlords were desperate for renewed confidence and spending in the economy.
“Real estate companies focus on putting bums on seats. We need a pick-up in economic growth to bring new tenants and demand to our assets, as then we can spend more and provide more space. I think the right things are happening at a government level, with state-owned enterprises, and the investment and jobs summits that were held recently. So if we get the right result in the beginning of 2019, I reckon about 18 months down the line, we’ll see SA property owners back on the right track,” Riley said.
The weak economy has been a major contributor to the shoddy performance of South African commercial property.
SA’s All Property Index has suffered a total negative return of close to 19% so far this year. Many property funds have had to offer existing and potential tenants special deals, which can include a year rent-free or locking in rental-rate increases in order to sign leases.
IPF, which has a market capitalisation of R11.5bn, reported interim normalised dividend growth of 5.4% in the six months to end-September, results showed on Tuesday, but most of the growth in dividends stemmed from offshore investments.
“Net property income growth from the South African portfolio tracked historical lows of 1.7%. The remainder of the growth in dividend per share stems from the fund’s offshore investments,” Riley said.
Net asset value growth of 2.9% per share was attributable to the fund’s offshore investments, Investec Australia Property Fund (IAPF), Investec Argo UK Property Fund, and an investment in a pan-European logistics portfolio.
Guidance for the full year remains between 5% and 5.5%.
Riley on the move
Riley will leave IPF at the end of November, after nearly four years as CEO to head up the Investec group’s South African investment bank.
IPF listed seven years ago with assets worth R1.7bn. Its total investments were worth R20.8bn at the end of September. Its directly held South African assets were worth R17.6bn. Including its investments in listed group Ingenuity and BEE fund Izandla, IPF’s total South African exposure is valued at R18bn.
Riley was appointed CEO at the age of 36 because of his lauded deal-making skills and distinguished career in the Investec group’s corporate finance team. He played a role in a number of acquisitions for IPF, including a R7.1bn portfolio from Zenprop and an R826m industrial portfolio from Griffin. He also oversaw the formation of IAPF.
Head of listed property funds at Stanlib, Keillen Ndlovu, said IPF had been smart to invest in Australia, through IAPF.
IAPF’s dividend grew 2% during the reporting period to 5.05 Australian cents per share. The company’s portfolio size has grown 7.8 times to A$1.03bn since listing and it now has 99% occupancy across its 27 properties.