When Investec Property Fund (IPF) listed in 2011, management aimed to grow the counter’s assets to at least R10 billion over five years from an initial R1.7 billion.
Four years later, IPF has reached and surpassed its growth ambitions.
IPF, with a market capitalisation of R7.1 billion, concluded real estate acquisitions worth R1.9 billion boosting the value of its 80 properties to R8.3 billion for the six months to September 2015.
One of the big-ticket acquisitions was the Griffin industrial property portfolio consisting of two properties valued at R826 million.
But the game changer for IPF was its recent acquisition of property developer Zenprop’s portfolio for R7.1 billion, acquiring 26 properties at a blended yield of 7.5%.
The transaction, which was announced post the period under review, will double the fund’s property value from R8.3 billion to about R16.4 billion. This is the biggest deal of the property counter’s four-year history.
The properties to be incorporated into its portfolio include 12 offices, 11 industrial and three retail properties. This will bring IPF’s sectorial property exposure to about 40% office, 36% retail and 24% for industrial.
Last week IPF announced a rights offer to raise R2.6 billion to part fund the transaction. It will issue 171 million shares at a price of R15 per offer share, priced at a discount to its net asset value of R15.15. IPF will fund the balance of the transaction through debt.
CEO Nick Riley says the fund is looking at long term growth and value creation for shareholders through the Zenprop deal. He adds that the latest acquisition, which IPF looks to bed in the next six months, will add scale, liquidity and enhance the quality of the existing portfolio.
Investors on Thursday were rewarded with 9.1% growth in dividend payouts (distributions) to 59.63 cents per share. It saw vacancy rates of 2.8%, believed to be lowest in the sector. IPF’s weighted average lease expiry is four years, with rental escalations of 8.1% and 40% of the fund’s leases expiring after five years.
IPF’s flagship properties include Dihlabeng Mall in the Free State, Great North Plaza in Limpopo, Balfour Park shopping centre and The Firs in Rosebank in Johannesburg and Investec’s head offices in Pretoria and Cape Town.
In recent months property players raised concerns about the dearth of reasonably priced and quality opportunities, prompting investments into developments and refurbishments to properties rather than acquisitions of existing properties.
Says Riley: “There is value in developments compared to institutional quality assets. But there is also more risk in developments.” IPF has embarked on a R320 million redevelopment of its Great North Plaza in a joint venture with The Moolman Group, where it’s adding 20 000 square metres to the mall.
“Previously we were reluctant to take on large developments because of the size of IPF’s balance sheet. But now that our assets will be valued at R16.4 billion, we have the scale and we have the ability to look at those kind of opportunities,” he says. IPF will not develop land, but rather refurbish existing assets.
With a gearing of 23%, IPF has further room to raise debt. But after the conclusion of the Zenprop transaction its gearing will rise to 35%. IPF has a rand hedge component through its 18.6% stake in sister fund Investec Australia Property Fund, representing 5.7% of the fund’s total assets.
“Out of all development markets we think Australia is attractive and through our metrics we will carry on supporting Australia and potentially increasing that stake.”
Trading at a forward yield of 8.3%, IPF is still an affordable play into the JSE’s more than R600 billion listed property sector, given that the sector is trading at 7%. Latest figures from Cape-based Catalyst Fund Managers indicate IPF’s stock is among the worst performers, delivering a negative total return of 0.69% for the ten months to October.
IPF was up 2.54% to R14.95 on Thursday.