Texton Property Fund appears unfazed by the UK’s decision to leave the European Union – as the company sees more upside potential and deal-making in the region.
The small-cap counter (R2.6 billion at the time of writing) – which already owns a portfolio of UK-based properties worth R2.2 billion – hinted that more offshore deals are in the pipeline for the company.
Texton’s CEO Angelique de Rauville (pictured) says the company still has the capacity to grow its UK property portfolio to represent 50% of its total property value with the balance made up by South Africa-based properties.
The company’s UK property portfolio, which is largely industrial properties, represents 38.8% of its total portfolio value of R5.7 billion for the year to June 2016.
“We do believe that Brexit could provide us with some opportunities that we would like to take advantages of, as we are seeing that South Africa is overtraded. It’s likely that in the course of next year we would achieve more of the 50% to 50% balance of UK- and South Africa-based properties, with the portfolio restructuring we have underway,” De Rauville tells Moneyweb.
Fears that the UK’s economy could be pushed into a recession since the Brexit referendum in June, has prompted some market watchers to suggest that investors could pick up properties at a bargain given the declining valuations and the weakening of the pound against major currencies.
To stimulate the economy, the Bank of England has cut interest rates to rock-bottom levels and unleashed a fresh round of quantitative easing – with the central bank looking to purchase £60 billion worth of long-term government bonds over the next six months.
Texton unveiled its growth ambitions as it declared a 9.4% growth in the dividend per share to 103.68 cents compared with 94.77 cents for last year. Vacancies across its portfolio increased to 9% compared with 7.9% in the previous year and it saw a weighted average lease expiry across its portfolio of five years.
Texton’s offshore plans echoe that of its peers in South Africa’s listed property sector – with property companies concluding deals largely in the UK, Central and Eastern Europe and Germany in recent years to diversify earnings from the worrying state of the domestic economy.
The company has had a busy year, with four property acquisitions in the UK including Broad Street Mall, located in Reading, west of London for R570.9 million; an industrial building located in Doncaster for R368.2 million; the Camborne Retail Park in Camborne for R224.2 million and a building consisting of two industrial units in Peterlee for R180.7 million.
Texton, in which retail baron Christo Wiese is a major shareholder through property and financial services firm Tradehold, still has the capacity for more bank debt to fund its property acquisitions given its loan-to-value ratio of 37.2% during the period under review. The company’s management is comfortable with the ratio not being higher than 45%. “Banks have more appetite for funding and typically fund properties with longer leases,” De Rauville says.
Texton’s share price is relatively cheap at a forward yield of 13% versus the listed property sector average of 6.2%.
The company’s shares were 3.43% higher on Monday.
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