Investec Property Fund: virus greenlights shift to logistics assets
The coronavirus is hitting retail assets and is accelerating a trend towards online sales and demand for warehouse space
Investec Property Fund (IPF), the diversified JSE-listed company with an annual net property income of R1.5bn, said on Thursday that the national lockdown could cost the company at least R40m in unpaid rent.
The company addressed investors in a pre-close update the day before SA’s economy goes into a 21-day lockdown in an effort to curb the spread of Covid-19. During the lockdown, all shopping centres in SA will be closed except for stores selling essential goods. No alcohol or cigarettes will be sold.
Co-CEO Andrew Wooler said it is difficult to quantify what repercussions the lockdown will have beyond unpaid rent from tenants under pressure, but the company is somewhat protected as it has spent the past 18 months or so investing in Western Europe.
IPF’s total portfolio is worth about R24bn, with about R16bn of it, or two-thirds, in SA.
The company has invested in warehousing and distribution centres in Western Europe because it is able to get better returns on its capital there than at home amid SA’s weak, no-growth environment. The warehousing assets have attracted retailers who sell goods online. These industrial assets are used for the storage of fast-moving goods such as food and other essential products.
IPF said the coronavirus outbreak has accelerated a shift to online sales in Europe while also increasing demand for warehouse space as companies increase stock levels.
This sector of European listed property is still offering growth prospects and is less sophisticated than that in the UK, according to Wooler.
European logistics assets are quite enticing for IPF because they promise double-digit returns each year over the next five. IPF also owns a stake in Investec Australia Property Fund.
The group said its offshore exposure has risen to about 32% of assets as of its year to end-March, from 18.6% at the end of September 2019.
During that financial year, IPF increased its stake in the platform, known as Pan European Logistics (PEL), from 42% to 75%, which cost it about R3.1bn. The PEL portfolio consists of 45 logistics properties and is valued at about €900m (R14.5bn).
Separately, IPF acquired two Belgian warehouses during the period, which will be added to the PEL. A quarter of the Belgian exposure will be sold in the coming months.
IPF said that while its deployment of capital into Europe is expected to increase earnings, the full effect of its acquisitions will only take place in its 2021 financial year.
Bracing for the lockdown
IPF’s co-CEO Darryl Mayers said the company, meanwhile, is bracing itself for an “incredibly difficult” three weeks on the local front as many of its tenants will not be able to trade during the national lockdown.
The company anticipates that it could lose R40m in the period, and R40m each month after that should the lockdown be extended.
This is because R40m of IPF’s monthly regular rental income is linked to non-essential retail stores that had to cease trading in the lockdown.
“This is going to be an incredibly difficult time for landlords and we are doing whatever we can. About 26% of our portfolio across all geographies is made up of retail assets. Fashion retailers, mall traders and line shops are going to be hardest hit and many won’t be able to pay rent, but supermarkets and big nationals will come to the party. We are doing what we can on a tenant-by-tenant basis. The whole industry is under immense pressure,” Mayers said.
The group revised its guidance for distributable earnings growth to 3%, having given a range of 3% to 5% previously.
“We will update the market again in May. We are all in a tough situation and we ask that you bear with us and stay safe,” Mayers said.
In afternoon trade on Thursday, IPF’s share price was unchanged at R6.80, having lost 53.84% of its value so far in 2020. Over the same period, the JSE property index has fallen 47.86%.
Update: March 26 2020
This article has been updated with company comment and financial information.
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