Investec Property Fund finds early success in Europe
Further expansion offshore to diversify against local risks has led to an immediate boost to income growth
Investec Property Fund’s (IPF’s) new management team says the group’s expansion into Europe has helped it weather difficult operating conditions at home.
In fact, the offshore contribution to dividend growth dwarfed that of local operations, said new joint CEOs Andrew Wooler and Darryl Mayers.
IPF grew its dividend 5.1% in the year to March 2019, above prevailing inflation rates. The group’s offshore exposure helped boost dividend growth significantly while the domestic portfolio achieved net income growth of only 0.8%. However overall, the total dividend growth was weaker than the 8.5% it achieved in the year before.
“Our full-year dividend growth is in line with guidance, and the majority of it was driven by our new pan-European logistics investment,” Wooler said.
The group has positioned itself as a defensive and reliable investment while the listed real estate sector battles through its worst period in years, according to fund managers. This was partly thanks to it investing €88.4m in a pan-European logistics platform with exposure to the Netherlands, France, Poland and Germany.
IPF’s R3.18bn offshore portfolio — which was spread across Europe, Australia and the UK — accounted for 15.2% of the group’s R17.3bn portfolio at end-March.
Head of listed property funds at Stanlib Keillen Ndlovu said Wooler and Mayers picked up the mantle easily from previous CEO Nick Riley who left his role at the end of 2018.
“IPF is a conservatively and well-run fund with great depth in management as well as managerial succession. It has big support from its parent company, Investec, and has steadily delivered good results since listing,” he said.
IPF announced a final dividend of 73.51c per share for the six months to March, taking the full-year dividend to 142.3c per share compared with 135.4c per share for the 2018 financial year.
The 2018 financial year’s interim dividend included a once-off dividend received from IPF’s R1.27bn investment in Investec Australia Property Fund, which meant its normalised full-year dividend represented year-on-year growth of just more than 5%. The company also kept its loan-to-value (LTV) at a conservative 35.9%.
Healthy balance sheet
Evan Robins, a portfolio manager at Old Mutual Investment Group, said LTVs of more than 40% place property companies at risk.
Mayers said IPF’s balance sheet is healthy and that the group is in a position from where it can make acquisitions locally and abroad.
“We are in a position where we can buy assets without placing strain on our balance sheet. Currently much of our focus has been on building our European logistics platform, and post year-end we committed €64.5m to a new light industrial platform on the continent,” he said.
Wooler said IPF will consider acquiring local property portfolios in the next financial year if pricing is attractive but that a number of potential sellers are cautious to let go of their assets while economic conditions are weak and while the country waits for the government’s cabinet to be appointed and for other actions after last week’s election.
IPF expects to grow its dividend 3%-5% in its 2020 financial year. Wooler said this growth would have been 1% higher but IPF had agreed to give a rental reduction of 40.9% to struggling national retailer Edcon over the next two years, in exchange for equity in the group.
Edcon is a tenant in 10 of IPF’s shopping centres, but delivered less than 2% of IPF’s total revenue.