JSE-listed Investec Property Fund (IPF) still sees acquisitive growth opportunities in SA, despite economic headwinds in the country and the acceleration of the fund’s capital investment drive offshore.
Speaking to Moneyweb following the release of its interim results to end September on Wednesday, IPF’s Co-CEO Andrew Wooler said with more than 81% of its R21.7 billion real estate portfolio held locally, SA remains a priority.
Acquisitions and opportunities
“We still see growth opportunities in the local property market and will continue to look for M&A (merger and acquisition) opportunities. However, considering SA’s macro-economic challenges, we have increased IPF’s offshore exposure over the last year, mainly into Europe,” he said.
Moneyweb reported earlier this year that IPF was considering a takeover of embattled SA Corporate Real Estate – one of the country’s oldest JSE-listed property funds. However, it never made an official bid. Smaller property counters – Dipula Income Fund and Emira Property Fund – both made offers for SA Corporate, but the fund later said it was not open to mergers.
Coincidently, IPF’s JSE sponsor and sister company Investec Limited bought a further stake in SA Corporate in August, taking its shareholding to just over 5%. This was after SA Corporate had withdrawn a cautionary related to previous takeover offers.
Investec Limited has sold some shares since then and its stake in SA Corporate is just below 5%.
Wooler would not specifically mention companies that IPF considers acquisitive opportunities, during his interview with Moneyweb. However, he did say that the fund has looked at a few chunky potential acquisitions.
“We don’t take acquisition decisions lightly. Any acquisition will need to be a strategic match for IPF and needs to tick all the right boxes…. We will always be on the lookout for opportunities in SA, which remains a key market for us.
“We believe there are still quality property assets in the country that we can acquire to grow the fund,” he notes.
Meanwhile, IPF reported a creditable set of results for its half-year, considering the difficult commercial property market in SA. Its dividend per share (DPS) grew 3.1% for the interim period to 70.93 cents per share. This was in line with its guidance, which it has kept at between 3% to 5% for its full year.
During the half-year, IPF sold around R850 million in assets, which included part of its stake in Investec Australia Property Fund (IAP) as well as some SA assets. The proceeds were redeployed offshore into IPF’s Pan-European logistics platform and the UK. This increased its offshore exposure from 15% to around 19%.
While IPF’s larger SA portfolio delivered like-for-like net property income (NPI) growth of 1.3% for the period, its offshore exposure largely drove overall distribution growth for the period. Its Pan-European logistics platform delivered investment returns of 12.3% in rand terms.
IPF noted that the SA property portfolio was affected by its rental rebate to Edcon as well as bad debts linked to tenant failures. If this was excluded, NPI growth would have come in at 3.6%, it added.
The fund’s SA property vacancy rate increased from 2.4% at its prior full year to March, to 3.9% for the half-year. Its loan-to-value (LTV) ratio ticked up from 35.9% to 37.3% for the same period. While IPF reported it rented out 89% of space expiring during the period, it saw a rental reversion rate of -8.7%.
“The subdued South African economy and its impact on the tenant base continues to constrain the growth of the local portfolio. Increased bad debts, void periods and negative reversions negatively impacted like-for-like NPI,” IPF noted.
IPF’s R17.7 billion SA portfolio includes around 100 retail, office and industrial property assets across the country. Some of its major assets include The Firs complex in Rosebank, Newcastle Shopping Centre in northern KwaZulu-Natal, 4 Sandown in Sandton and Design Quarter in Fourways.
Stanlib listed property analyst Ahmed Motara says despite tough local operating conditions, IPF delivered a robust SA portfolio performance. “The reiteration of prior guidance at a time when property companies are struggling to meet prior market guidance or are unable to give guidance, shows that significant effort has gone into maintaining its SA property operations.”
He adds: “The fund’s diverse global operations – including holdings in Investec Australia Property Fund, the European logistics platform and in the UK – are generating reasonable returns on investment and surprising positively in some instances. Its 3% DPS growth at the interim stage, with a guidance range of 3% to 5%, is in excess of what the property sector is anticipated to currently deliver in the short term.”