This represents full year growth of 2.4% and results in an outperformance of the guidance provided to the market at the beginning of the year. The short term dilutionary impact of the Zenprop acquisition has now been absorbed and the Fund will revert to its historical dividend growth profile.
IPF delivered a strong performance in a challenging environment due to the defensive nature of the Fund. The quality fundamentals underpinning the base portfolio delivered 8.7% net property income growth year-on-year despite the market volatility. The portfolio’s income stream is underpinned by contractual escalations of 7.7% and a strong client base. Further to this, the Fund reported a 6.9% increase in net asset value per share driven largely by the 4.1% increase in property valuations. The Fund’s shareholders have achieved a total market return of 19.1% for the 12 month period ending 31 March 2017, which is comprised of 10.1% capital return and 9.0% income return.
Commenting on the performance, Investec Property Fund’s CEO Nick Riley said:
“The management team has been focused on consolidating the Zenprop and Griffin portfolios acquired in 2016. We have successfully integrated R8bn of acquisitions onto the Fund’s management and reporting platforms. These are now being managed with the efficiency and intensity of the Fund’s base portfolio and are performing in line with expectations. The performance of the Fund has been underpinned by focussed asset management, active client engagement and cost and utility management.”
The Fund let or renewed 93% of the 175 969m2 that came on line during the financial year at a positive reversion of 3.0%. In addition the Fund has already renewed a further 83 228m2 (34%) of space expiring in 2018 at a positive reversion of 6.3%. The continued low vacancy rate of 1.4% (March 2016: 1.1%) as well as the letting performance is testament to the quality of the property portfolio, the desirability of the product and the proactive management of forward lease renewals.
Commenting on the Fund’s financial risk mitigation strategy in the current volatile and unpredictable environment, Riley added:
“Balance sheet and risk management is a fundamental focus area for the business. It is paramount that the Fund has certainty of its sources and cost of funding. We adopt a conservative approach to both of these measures and as a result the Fund’s debt metrics remain robust in an extremely volatile market.”
The Fund’s all-in cost of funding improved by 10 bps 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 further enhanced through the proactive recycling of capital, issuance of R285m of new equity and the R681.1m (4.1%) increase in property valuations at year end. The 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.
Despite being a year of consolidation, the fund completed R1.4bn of investments, including an initial 8% investment in Ingenuity for R75m in January 2017. The shares were acquired at 80 cents per share which is a 20% discount to the current market price and a 35% discount to latest reported net asset value. Further to this the Fund increased its stake in the Investec Australia Property Fund, which now stands at R1.3bn, representing 22.9% of IAPF (March 2016: 12.3%) and 6.8% of the Fund’s assets. On a leveraged basis, IAPF will generate a cash on cash return of 9.8% based on current market pricing.
Commenting on the Fund’s offshore ambitions Riley added: “Any decision around our offshore strategy is predicated on the underlying property fundamentals and an absolute requirement to have a known and trusted management team on the ground, as is the case with our investment in Australia. The property proposition is central to our investment strategy and, although still important, we view capital structure, financial engineering and foreign exchange as secondary in the investment process,”
The Fund expects dividend growth of 7% – 8% for the period ending 31 March 2018 as growth in dividend per share normalises to historic levels.