CIREF is Corovest International’s property fund which has significant participation by South African investors including JSE-listed Redefine Income Fund Limited. The proposed interim dividend of R0,45 (3,18p) per share is up 51% on the previous dividend.

As a result of a higher number of shares in issue following CIREF’s listing on AIM in May 2006, and the impact of a staggered deployment of the cash raised, earnings of 60 cents per share (4,17p) had dipped slightly.  Net asset value per share increased to R20,75 (145,42p).

The portfolio was valued at a gross value of R4,9 billion (£343,4 million) at the end of the period, made up of 19 investments spanning town centre developments, shopping centres, office buildings and supermarkets across the UK, Europe, the Channel Islands and the British Virgin Islands.

CIREF Chairman Gavin Tipper says the company’s strategy of balancing higher risk income streams with stable income, supported by proactive asset management, contributed to the fund’s strong performance. “The period under review has seen us consolidate our existing portfolio and unlock further value, while at the same time pursuing an aggressive acquisition strategy.” CIREF’s primary acquisition focus is value-enhancing retail assets such as high street shopping areas, shopping centres and service stations.  

In line with this focus, CIREF completed a number of acquisitions during the period including a one third stake in Birchwood Shopping Centre in Warrington, a 35,8% stake in Trinity Walk Shopping Centre in Wakefield and retail outlets on Streatham Hill in South London. “CIREF’s UK shopping centre development projects are all on target with Houndshill Shopping Centre in Blackpool expected to be fully let on opening in mid-2008,” says Corovest International CEO Mike Watters.  The fund also purchased a 50% stake in an “A Grade” office building in Jersey. In Switzerland it added to its existing stake of 30,5% in co-op retail outlets when it bought a further 49,1%.

A successful capital raising exercise post the period saw 18,7 million new CIREF shares placed at R21,41 (150p). “The R400,0 million (£28,0 million) raised will be used to fund our future acquisition and expansion strategy,” says Watters. The significant oversubscription showed keen investor interest in the portfolio from private as well as institutional investors. Watters says this response reflects the market’s confidence in CIREF’s portfolio and growth strategy.  “We successfully broadened our shareholder base with a number of new institutional investors buying into the fund less than a year after listing.”

CIREF has recently acquired a portfolio of 22 petrol stations across the UK for a total consideration of R391,0 million (£27,4 million) at an initial yield of 5,5% and a reversionary yield of 7,8%. Watters says: “The acquisition further enhances our stable income portfolio with the service stations let on a 20-year lease to a leading UK petrol station operator.” The stations are located beside busy arterial roads and have all been recently refurbished and rebranded to leading market brands.

Looking ahead Tipper says that CIREF is seeking to expand its investments in Europe and has been developing a German investment team. “We are in the advanced stages of acquiring a portfolio of 17 properties valued at R246 million (€25 million) throughout Germany which include supermarkets, retail stores and petrol stations.” Negotiations are also underway to acquire a further 10 properties with a similar profile, at the same price.  “We believe the anticipated economic growth and stable interest rates in mainland Europe bode well for the retail sector,” he says, explaining the rationale behind CIREF’s German/Swiss expansion strategy. Germany and Switzerland should account for 20%-25% of CIREF’s gross assets within the next 12-18 months.

In the UK, despite recent interest rate increases real estate prices have not dropped significantly across all sectors and long bond yields look set to escalate by up to 50 basis points in the medium term. “Higher yields will see earnings become more dependent on growth in rentals and therefore active asset management – already a strength of CIREF’s portfolio.”

Tipper remains optimistic on CIREF’s prospects with the high quality portfolio well balanced between exposure to lower risk income-generating assets and developments with higher capital returns. He believes this should enable CIREF to outperform the UK real estate sector in future. “Although certain real estate sectors are seeing a cooling-off, CIREF’s target sectors continue to offer positive prospects.” He adds that CIREF’s significant cash balances will enable it to capitalise on any market correction with the fund positioned to acquire further assets.

SA investors make up a large portion of CIREF’s shareholding with 18% held by Redefine Income Fund.  The share closed trade yesterday at R22,83 (£1,60).