Compared to a profit of R76,3 million (£4,86 million) in the previous year, the diversified earnings base of the fund however drove a strong operating performance. Underlying operating profit (before valuation movements) was up 50,0% to R62,8 million (£4,0 million). The group has significant participation by South African investors.

The sharp decrease in UK property values which led to a substantial write-down of asset values, translated into a net loss per share of R5,76 (36,66p). Net asset value per share accordingly fell 25,8% to R17,52 (111,59p).  The total return for the year after dividends and movements in the listed share price was negative 16,9%. 

The fund adopted a defensive strategy fairly early in the cycle and as a result ended the year in a positive net cash position with R281 million (£17,9 million) on hand.

CIREF has proposed a final dividend of R0,39 a share (2,51p).  This equates to 4,5% of the net asset value for the year pro-rated to the second half of the year, and is in line with the group’s target dividend payment.  Shareholders will be given an option of acquiring further shares in CIREF in lieu of a cash dividend.

At year-end CIREF held 26 investments in a range of properties and listed property securities.  Its property assets are located across the UK, mainland Europe, the Channel Islands and the British Virgin Islands.

Chairman Gavin Tipper says of the defensive quality of CIREF’s assets: “Our diversified portfolio across a combination of property types and different geographic regions provided some protection against the adverse impact of the global market turmoil.”  For instance, he says CIREF’s European-based properties suffered limited write-downs mainly because many of the properties have retail tenants who perform well in poor economic conditions.

He adds that CIREF’s stable income portfolio performed solidly and remains resilient.  These properties provide a predictable, low risk income stream and the fund is able to enhance the value of the investment without further development.

He says with the significant de-rating of property as an asset class in the UK, a number of property companies may fail.  However he remains confident that CIREF is well positioned to capitalise on opportunities which will arise.

Mike Watters, CEO of Corovest International, says developments progressed well during the year. The 37 161m² Houndshill Shopping Centre in Blackpool was successfully opened and is trading ahead of expectations with weekly footfall of between 250 000 and 300 000. Construction on the 48 309 m² Trinity Walk shopping centre in Wakefield, which includes retail space, an indoor market and a library, continued on track to opening in 2010. 

A cash injection in November 2007 when the group successfully raised R482 million
(£30,7 million) for expansion opportunities, helped boost the acquisition programme in the European portfolio where opportunities were attractive.

Watters points out that the Standard Bank Group participated in the capital raising and went on to affirm its confidence in CIREF’s business model and prospects when it later bought a 10% interest in the fund’s investment manager - Corovest Fund Managers (CFM).

Looking ahead he says certain development projects have been put on hold.  “The credit crisis has restricted bank lending, which together with increased risk levels has seen certain development projects delayed until stability returns to the markets.”  He emphasises that CIREF’s healthy cash position is a major advantage in the current environment and says the group will continue acting defensively to conserve cash and reduce expenditure. “Strict expense control together with the strong stable income portfolio should sustain CIREF’s sound financial position.” 

He is positive about improved market prospects in the wake of the Bank of England’s recent drop in interest rates by 150 basis points.  “The expectation of further interest rate decreases is expected to buoy property yields.  Once markets normalise the group is well placed to pursue acquisitions using the lower interest rate environment to our advantage.” In Europe he says the focus in the year ahead will be on consolidation and value-enhancing asset management. 

Tipper concludes: “Ongoing asset management and monitoring of the security of the tenant base, underpinned by a solid cash balance, should ensure that the group can withstand any prolonged recession.”