Texton Property Fund records 11.7% dividend per share

Posted On Monday, 23 February 2015 22:13 Published by
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Rob Kane, CEO of Texton said the Fund was pleased with another period of strong distribution growth and acquisitions.

 

Rob Kane

Net property income rose 44%, NAV was up 0.26% and portfolio growth was up 42.6% since June 2014. Distribution growth of 11.7% to 44.68cps was an excellent achievement.  He noted, “The first 6 months of this financial year saw evidence of our strategies in terms of a larger management team, accelerated growth, sectoral diversification, and our intention to become a meaningful black empowerment vehicle. Post balance Sheet, we are able to report on our UK acquisitions”. 

He added that “the larger transactions were concluded in late December resulting in a rerating of Texton’s share price in January. The last leg of our strategy was entry into the UK market and today we announce two acquisitions and another three impending.”  The Fund has a solid platform on which to build into the future and the remainder of the year will be equally productive.

Despite a struggling economy, the Texton Property Fund’s key performance indicators have remained robust. While the commercial sector average vacancy is 11.1%, Texton’s has improved to 3.5% from 6.2% in the previous interim period, on a total GLA of 322 007m2. The low vacancy rate and high tenant retention (90.1%) indicates that the Fund’s leasing strategy has been successful, having started the reporting period with 12.2% leases expiring.  Kane noted some rental reversions but is satisfied with an average lease escalation of 7.5% and confident that the company will keep vacancies well below the sector average.  

The Fund has a high weighting of blue chip (listed, national or government) tenants  -  at 75.6%  -  a factor which has protected income. Despite the tough economic conditions, rental collection has been tightly managed at 90% within 5 days of month end. The Fund’s diversification into low risk industrial and retail assets has enabled it to extend its weighted average lease expiry to 4.63 years, resulting in a less cyclical rental profile. The office portfolio generates 80% of the revenue.

The strategy on listing in 2011 was to grow the asset base by investing in well priced income and quality enhancing investment properties. The vast majority of the assets were commercial and the intention was to diversify to smooth out the inevitable cyclical performance of a commercially focussed portfolio; and to take advantage of good acquisition opportunities in other areas. The past six months saw the implementation of this strategy, both locally and in the UK. Says Kane, “In the reporting period, we acquired twelve excellent SA properties valued at R878.7 million which improved our lease profile and represent good value for the Fund.  The two UK properties will be acquired in the next few days and we expect to conclude further low risk UK acquisitions before our year end.”

In September 2014, the Fund concluded an empowerment transaction with PD Naidoo that placed 6.3% of Texton shares in black hands. In late December, a second black empowerment transaction was announced for another 20% (R443million). This transaction is subject to shareholder voting in March 2015 and, if successful, the shares will be issued at the 30 day VWAP with a six year lock-in. The cash proceeds will be deployed immediately into impending acquisitions.

The combined transactions will give Texton a meaningful, sustainable and commercially driven black economic empowerment shareholding at the listed level and will ensure that the Fund achieves a Level 3 rating. Says Kane “We are particularly pleased with our new BEE partners who comprise a combination of broad based beneficiaries, and very competent, well networked business men and women. Importantly, they have already added significant value to the business and we look forward to a very fruitful, close working relationship”.  

 The 39.5% increase in revenue from the prior comparable period was due largely to the effects of contractual rental escalations and property acquisitions.  The ratio of net property expenses (property expenses less recoveries) to rental income has improved from 18.0% to 15.1% partly due to strict cost management and the partly the acquisition of properties with triple net leases. The ratio of gross property expenses to investment property income (rental income including recoveries from tenants) has also improved from 35.4% to 33.8%. Tight management of receivables resulted in total arrears decreasing significantly to R2.1 million. 

 At 31 December 2014 the Fund had a loan to value of 34.7% (31 December 2013: 17.1%) and we are pleased to note our hedges provide us with efficient debt. The fund has an average cost of debt of 8.27% with 48.7% of the outstanding debt hedged through the use of interest rate swaps (2013:52.4%). The relatively high proportion of floating debt is a result of our recent acquisition activity.  The board has approved an interim dividend (distribution number 8) of 44.68 cents per share for the period, growth of 11.7%. 

 Referring to future prospects, Kane said that despite the difficult economic climate, the portfolio continues to perform well and anticipates being able to deliver above market distribution growth into the future.  Texton’s greening projects are progressing well and the Fund remains committed to this strategy.  He concluded, “We are beginning to see the positive effect of our new strategies. We will continue to have a disciplined focus on growing the fund with yield enhancing assets from our solid pipeline of acquisitions without compromising on quality. We look forward to another busy, successful period up to year end.” 

FINANCIAL HIGHLIGHTS (for the six months ended 31 December 2014)

·                Dividend per share up 11.7% to 44.68 cps

·                Investment property income  36.5% higher at R169.9 million

·                Portfolio growth of R3.140 billion up 42.6% from June 2014

·                Net property income rose 44.4 % to R119.6 million

·                Net asset value up 0.26% to 996.43 cps

NON-FINANCIAL HIGHLIGHTS

·                75.6%      Blue chip tenants (on revenue)

·                3.5%         Vacancy               

 

·                90.1%      Tenant retention (on GLA)

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