Wrap Text
2016 Reviewed Preliminary Condensed Consolidated Financial Results for the year ended 31 March 2016
INVESTEC PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2008/011366/06)
Share code: IPF ISIN: ZAE000180915
(Income tax reference number 9332/719/16/1)
2016
REVIEWED PRELIMINARY
CONDENSED CONSOLIDATED
FINANCIAL RESULTS
for the year ended
31 March 2016
Investec Property
Fund Limited
Key highlights
2016
6.(1%)(1)
FULL YEAR DIVIDEND GROWTH
OF 124.66CPS
8(.2%) R17(bn)
BASE NET PROPERTY ASSET VALUE
INCOME GROWTH
1(.1%) 5(.9%)
VACANCY RATE NAV GROWTH3
continues to fall
34(.3%) R8(.0 billion)
TOTAL RETURN FROM QUALITY DEFENSIVE
IAPF ACQUISITIONS
(1) Compared to normalised 2015 dividend of 117.50cps.
(2) Adjusted for provision for bad debts and cash received after close-off.
(3) NAV is normalised for the clean-out dividend of R142.7 million paid in December 2015.
The Fund's
performance is
underpinned by
strong underlying
net property income
driven by focused
asset management
KEY PROPERTY
FINANCIAL
INDICATORS
Net cost to income ratios
2016 2015
Total 16.1% 16.6%
Office 13.4% 13.1%
Industrial 14.3% 14.7%
Retail 19.8% 20.8%
Arrears (% collectibles)(2)
2016 2015
0.7% 0.6%
Number of properties
2016 2015
122 80
In-force escalations
2016 2015
7.8% 8.0%
Weighted average lease expiry
2016 2015
3.7 years 4.4 years
THE performance by the Fund in a
transformative year is testament to the quality and
defensive nature of the portfolio, delivering normalised
dividend growth of 6.1% exceeding market consensus
and guidance. This was achieved in an environment
of global macroeconomic uncertainty, subdued local
economic activity and the dilutionary impact of the
strategic Zenprop acquisition
KEY FINANCIAL AND
PERFORMANCE
INDICATORS
Dividend per share (full year)
2016 2015
124.66 119.151
All in cost of funding
2016 2015
9.0% 8.5%
Hedged percentage
2016 2015
75% 83%
Investment portfolio
2016 2015
R17.0bn R8.7bn
Weighted average debt expiry
2016 2015
3.9 years 2.7 years
Market capitalisation
2016 2015
R10.0bn R7.4bn
Gearing
2016 2015
34.1% 23.6%
Weighted average swap expiry
2016 2015
3.6 years 3.8 years
Vacancy
2016 2015
1.1% 2.8%
Listed, large national,
professional services tenants
2016 2015
85% 84%
Active asset
management
and conservative
capital and risk
management
(1) Included once-off impact of IAPF antecedent dividend of 1.65cps, normalised dividend in FY2015 was 117.50cps.
Consolidated statement of comprehensive income
Reviewed Audited
Year ended Year ended
R'000 Notes 31 March 2016 31 March 2015
Revenue, excluding straight-line rental revenue adjustment 1 102 579 725 664
Straight-line rental revenue adjustment 92 259 120 765
Revenue 1 194 838 846 429
Property expenses (177 830) (120 559)
Net property income 1 017 008 725 870
Other operating expenses (49 328) (42 703)
Operating profit 967 680 683 167
Fair value adjustments 4 358 273 293 118
Profit on disposal of investment property 13 568 2 444
Income from investment 46 645 32 981
Finance costs (278 492) (136 648)
Finance income 7 851 9 602
Profit before taxation 1 115 525 884 664
Taxation1 (2 042) –
Profit after taxation 1 113 483 884 664
Items that may be reclassified to profit and loss:
Other comprehensive income: (Loss) on cash flow hedge – (276)
Total comprehensive income attributable to equity holders 1 113 483 884 388
Distribution reconciliation
Profit after taxation 1 113 483 884 664
Less: Fair value adjustments (358 273) (293 118)
Profit on disposal of investment property (13 568) (2 444)
Straight-line rental revenue adjustment (92 259) (120 765)
Antecedent dividend 27 485 32 530
Less: Interim dividend paid (286 665) (219 222)
Less: Clean out dividend paid (142 683) –
Final dividend 247 520 281 645
Number of shares
Shares in issue 700 228 202 436 690 118
Weighted average number of shares in issue 519 535 592 391 664 683
Cents
Total dividend per share normalised(2) 124.66 117.50
Total dividend per share 124.66 119.15
H2 dividend per share 65.03 64.50
Final dividend per share 35.35 64.50
Clean out dividend per share(3) 29.68 –
Interim dividend per share 59.63 54.65
Basic earnings per share 214.32 225.87
Headline earnings per share 1 165.24 142.17
(1) Withholding tax on distribution from investment in Investec Australia Property Fund ("IAPF").
(2) FY2015 dividend normalised for "once off" antecedent dividend received from investment in IAPF of 1.65cps.
(3) The clean out dividend was paid in order to enable existing shareholders to receive their share of accrued income prior to the issue of the rights offer shares.
Consolidated statement of financial position
Reviewed Audited
R'000 Notes 31 March 2016 31 March 2015
Assets
Non-current assets 17 033 333 8 706 536
Investment property 16 129 988 7 964 158
Straight-line rental adjustment 329 725 237 467
Derivative financial instruments 2 41 848 2 815
Investment 3 531 772 502 096
Current assets 212 420 127 960
Trade and other receivables 158 959 66 965
Cash and cash equivalents 53 461 60 995
Total assets 17 245 753 8 834 496
Equity and liabilities
Shareholders' interest 11 097 103 6 615 768
Stated capital 6 9 714 108 5 677 360
Retained earnings 1 382 995 938 408
Non-current liabilities 5 139 422 1 736 164
Long-term borrowings 5 093 477 1 718 109
Derivative financial instruments 2 45 945 18 055
Current liabilities 1 009 228 482 564
Trade and other payables 310 104 148 564
Current portion of non-current liabilities 699 124 334 000
Total equity and liabilities 17 245 753 8 834 496
Shares in issue 700 228 202 436 690 118
NAV per share (cents) 1 585 1 515
Condensed consolidated statement of cash flows
Reviewed Audited
Year ended Year ended
R'000 31 March 2016 31 March 2015
Cash generated from operations 906 387 613 090
Finance income received 7 851 9 602
Finance costs paid (261 426) (118 258)
Income from investment 44 620 24 551
Taxation paid (2 042) –
Dividends paid to shareholders (711 403) (426 026)
Net cash outflow from operating activities (16 013) 102 959
Net cash outflow from investing activities(1) (6 452 745) (1 882 117)
Net cash inflow from financing activities(2) 6 461 224 1 481 837
Net decrease in cash and cash equivalents (7 534) (297 321)
Cash and cash equivalents at the beginning of the year 60 995 358 316
Cash and cash equivalents at the end of the year 53 461 60 995
(1) Investing activities include investment property acquired, additions and improvements to investment properties and proceeds from sale of investment
properties.
(2) Financing activities include term loans raised and repaid, corporate bonds issued and repaid and proceeds from issue of shares.
Condensed consolidated statement of changes in equity
Reviewed Audited
R'000
31 March 2016 31 March 2015
Balance at the beginning of the year 6 615 768 5 112 629
Total comprehensive income attributable to equity holders 1 113 483 884 388
Shares issued 4 047 784 1 044 777
Dividends declared (679 932) (426 026)
Balance at the end of the year 11 097 103 6 615 768
Condensed consolidated segmental information
For the year ended 31 March 2016
R'000 Office Industrial Retail Total
Statement of comprehensive income extracts
Revenue, excluding straight-line rental revenue adjustment 416 560 252 153 433 866 1 102 579
Straight-line rental revenue adjustment 42 883 17 261 32 115 92 259
Revenue 459 442 269 414 465 981 1 194 838
Property expenses (55 764) (36 261) (85 805) (177 830)
Net property income 403 679 233 153 380 176 1 017 008
Statement of financial position extracts
Investment property opening balance 3 206 963 1 529 919 3 464 743 8 201 625
Net additions, acquisitions and disposals 3 220 416 2 279 529 2 424 447 7 924 392
Fair value adjustment and straight-lining 125 580 38 235 169 881 333 696
Fair value of investment property 6 552 959 3 847 683 6 059 071 16 459 713
For the year ended 31 March 2015
R'000 Office Industrial Retail Total
Statement of comprehensive income extracts
Revenue, excluding straight-line rental revenue adjustment 264 784 165 315 295 565 725 664
Straight-line rental revenue adjustment 50 077 13 517 57 171 120 765
Revenue 314 861 178 832 352 736 846 429
Property expenses (34 747) (24 296) (61 516) (120 559)
Net property income 280 114 154 536 291 220 725 870
Statement of financial position extracts
Investment property opening balance 2 394 397 1 343 735 2 086 701 5 824 833
Net additions, acquisitions and disposals 674 154 149 140 1 104 885 1 928 179
Fair value adjustment and straight-lining 138 412 37 044 273 157 448 613
Fair value of investment property 3 206 963 1 529 919 3 464 743 8 201 625
Notes to the consolidated condensed financial results
Reviewed Audited
R'000 31 March 2016 31 March 2015
1 RECONCILIATION OF BASIC EARNINGS TO HEADLINE EARNINGS
Profit after tax 1 113 483 884 664
Less: Fair value adjustment – investment property (241 437) (327 848)
Profit on disposal of investment property (13 568) –
Headline earnings attributable to shareholders 858 478 556 816
2 FINANCIAL INSTRUMENTS
Financial instruments held by the Fund include the investment in Investec Australia Property Fund "IAPF" and derivatives. The valuation
of IAPF is based on the closing share price times the number of shares held at the reporting date, which is a level 1 valuation. Derivative
financial instruments hedge interest rate and foreign exchange risk. Interest rate hedging instruments are valued by discounting future
cash flows using the market rate indicated on the interest rate curve at the dates when the cash flows will take place. Foreign exchange
hedging instruments are valued by making reference to market prices for similar instruments and discounting for the effect of the time
value of money. Derivatives are considered to be level 2 valuations.
For cash and cash equivalents, trade and other receivables, trade and other payables and variable rate loans which are carried at
amortised cost, the carrying value is a reasonable approximation of fair value. In accordance with IFRS 7.29 no disclosure around fair
value is required for these items.
Reviewed Audited
R'000 31 March 2016 31 March 2015
3 INVESTMENT
The Fund carries its investment in IAPF at fair value. 531 772 502 096
Reviewed Audited
R'000 31 March 2016 31 March 2015
4 FAIR VALUE ADJUSTMENTS
Fair value adjustment on derivative instruments 4 637 (18 268)
Net investment property fair value adjustment 241 437 327 848
Fair value adjustment on investment 112 199 (16 462)
358 273 293 118
5 FAIR VALUE HIERARCHY Carried at
Carried at amortised
At 31 March 2016 fair value Level 1 Level 2 Level 3 cost
Listed investment 531 772 531 772 – – –
Derivative financial instruments 41 848 – 41 848 – –
Trade and other receivables – – – – 158 959
Cash and cash equivalents – – – – 53 461
Total financial assets 573 620 531 772 41 848 – 212 420
Derivative financial instruments 45 945 – 45 945 –
Long-term borrowings (including current) – – – – 5 792 601
Trade and other payables – – – – 310 104
Total financial liabilities 45 945 – 45 945 – 6 102 705
Reviewed Reviewed Audited Audited
31 March 2016 31 March 2016 31 March 2015 31 March 2015
R'000 Number of shares R 'million Number of shares R 'million
6 STATED CAPITAL
Opening shares in issue 436 690 118 5 677 360 365 576 663 4 645 756
Equity issuances 263 538 084 4 036 748 71 113 455 1 031 604
700 228 202 9 714 108 436 690 118 5 677 360
Reviewed Audited
R'000 31 March 2016 31 March 2015
7 RELATED PARTIES
The Fund has entered into the following significant related party transactions during the year
with Investec Limited and its subsidiaries.
Investec Property (Pty) Ltd
Asset management fees paid (39 453) (35 872)
Letting commissions paid (3 108) (4 105)
Rental guarantees received 8 741 6 155
Transaction fees paid(1) (43 000) –
Capital expenditure(2) (46 182) (32 859)
Investec Bank Limited Group
Cash and cash equivalents(3) 44 715 60 995
Borrowings3 565 819 14 000
Fair value of derivative instruments3 (3 746) 15 240
Rentals received 52 918 45 485
Interest received 6 357 8 096
Sponsor fees paid (191) (180)
Corporate advisory and structuring fees paid (35 633) (7 585)
Interest paid – related party borrowings (18 331) (1 618)
Interest paid – swap derivatives (23 538 ) (14 829)
(1) Transaction fees relate to the Zenprop & Griffin transactions. Investec Property agreed to waive its upfront entitlement to an ongoing management
fee of 50bps on the value of the Zenprop acquisition until 31 March 2021. The ratcheted fee structure of the Zenprop acquisition represents
R102 million of management fees payable foregone by Investec Property over a five-year period.
(2) Capital expenditure for the Dihlabeng extension.
(3) Included in the carrying value as per the statement of financial position.
Commentary
INTRODUCTION
Investec Property Fund Limited ("The Fund") is a South African Real Estate Investment Trust and currently comprises a portfolio of
122 properties in South Africa with a total gross lettable area ("GLA") of 1 300 278m² valued at R16.5 billion (2015: R8.2 billion) and a
R0.5 billion (2015: R0.5 billion) investment in Investec Australia Property Fund ("IAPF").
2016 has been an acquisitive year for the Fund with acquisition activity amounting to R8.0 billion through the acquisition of the Zenprop and
Griffin portfolios ("The Acquisitions"). The Acquisitions consist of a diverse portfolio of office, industrial and retail properties that enhance the
real estate fundamentals of the Fund and are in line with the Fund's objective to optimise long-term income and capital returns for investors.
Both portfolios provide strong visibility of earnings and cash flows and will enhance the prospects of the Fund over time.
FINANCIAL RESULTS
The board of directors is pleased to announce a full year dividend amounting to 124.66 cents per share for the year ended 31 March 2016
(31 March 2015: 117.50 cents per share normalised). This represents growth of 6.1% for the full year.
The Fund's performance, which exceeds market consensus and guidance, and has been achieved in an acquisitive and transformative year
where total investments almost doubled to R17 billion, is attributable to the following:
- Strong underlying net property income growth of 8.2% generated by the base portfolio1;
- 21.3% increase in earnings from IAPF on a like for like basis;
- Efficient balance sheet and interest rate management;
- Cost containment at both a property and fund level; and
- Later than expected date of transfer of the Zenprop portfolio, mid December 2015 versus 1 November 2015.
The impressive performance of the base portfolio1 partially shielded the dilutionary impact of the acquisition of the Zenprop portfolio.
The acquisition, which is dilutive in the short term, was a strategic decision undertaken by the Fund's board and its shareholders to acquire a
quality portfolio, which will enhance the long-term value and prospects of the Fund.
The Fund also reported an increase in normalised net asset value per share of 5.9% to 1605 cents per share. The combined equity
issuances of R4 billion at a blended issue price of R15.31, the increase in property portfolio valuations of R334 million, and the increase in
the Fund's gearing from 23.6% to 34.1% all contributed to the increase in net asset value per share.
The Fund's base portfolio continued to deliver consistent growth with like for like net property income growth of 8.2%, despite a challenging
economic environment. The Fund achieved this like for like net property income growth from:
- a reduction in vacancy to 1.1% (2015: 2.8%);
- reletting of space that became available during the period at a positive reversion of 3.0%;
- defensive WALE of 3.7 years; and
- cost containment resulting in a reduction in the net cost to income ratio.
The low vacancy, letting performance, and positive renewal growth is testament to the quality of the property portfolio and the desirability of
the product and service offered to existing clients and the occupier market. These robust measures of real estate fundamentals emphasise
the success to date of our acquisition strategy and the quality and defensiveness of the underlying portfolio.
(1) Base portfolio refers to properties to the value of of circa R6.5 billion that have been held by the Fund for comparative periods.
PROPERTY PORTFOLIO
The Fund's current property portfolio consists of a diverse base of 122 quality properties with an average value per property of R135 million.
The Fund is actively assessing its capital allocation to assets. Annual analyses will be conducted on the potential future performance of the
Fund's portfolio, and those assets or investments that are not expected to deliver value enhancing returns will either be disposed of, with
capital being redeployed into existing assets, value enhancing acquisitions or potentially being returned to shareholders.
The portfolio's income stream is underpinned by contractual escalations of 7.8% and a strong tenant base, which is demonstrated by its
base net property income growth of 8.2%. During the year, the Fund reduced its overall vacancy to 1.1% through the active leasing. The vacancies
across the office, industrial and retail portfolios are all significantly below the IPD sector
performance and one of the lowest in the sector overall.
Whilst approximately 52 410m2 (53%) of the expiring leases in FY2017 have already been renewed or let to new tenants, maintaining a
vacancy of 1.1% will be challenging in the medium to longer term considering the tough letting and economic environment.
Portfolio Total Office Industrial Retail
Number of properties 122 34 49 39
Asset value R16.5bn R6.6bn R3.8bn R6.1bn
Base growth 8.2% 12.0% 3.2% 7.5%
GLA 1 300 278 271 115 608 725 420 436
Vacancy 1.1% 0.6% 1.4% 1.1%
WALE (years) 3.7 years 4.0 years 3.7 years 3.3 years
In-force escalations 7.8% 8.0% 8.0% 7.6%
SECTORAL PERFORMANCE
Office
Office base growth of 12% was driven by improved utility recoveries, as well as reduced vacancy from 5.2% to 0.6%, primarily due to the
sale of a non-core vacant building in Midrand.
During the year, 89% of available space was let but this only amounted to 12 188m2 or 4.5% of office GLA. This is representative of the
Fund's long office WALE and defensive single tenanted nature. The limited expiry does not necessarily provide a true reflection of the
current office market dynamics where vacancies in major nodes in A&B grade properties are at all time highs and tenant incentives are more
prominent. The office portfolio's in-force escalations remained static at 8.0%.
The Acquisitions added 13 properties valued at R3.2bn and 114 316m2 GLA to the office portfolio, increasing the value to R6.6 billion,
representing 40% of the total portfolio.
The Fund's strategy is to acquire office properties in strategic sought after nodes. Examples of these high demand office nodes, where
the Fund has approximately 38% of its office portfolio located, are Bryanston (specifically around the Nicolway Shopping Centre fronting
Main and William Nicol), Rosebank and Umhlanga. The Fund's exposure to Sandton, which is arguably the most saturated office market in
the country, consists of 62 060m2 representing 27% of the value of the office portfolio. These are defensive assets and well positioned to
weather the current over supply with 0% vacancy and a 4.1 year WALE.
Industrial
During FY16, the industrial portfolio demonstrated its resilience and attractiveness to occupiers by letting 45 794m2 of available space as
well as decreasing the portfolio vacancy from 3% to 1.4%. This tenant demand can be attributed to a combination of the suitable locality
and functional design of the Fund's industrial portfolio in sought after industrial nodes. A thorough understanding of existing tenants
requirements as well as those of the general occupier market and innovative broker incentives also contributed to the strong letting
performance.
The expiring space was let to majority of A grade tenants with marginal positive reversion of 0.7% to expiry rental, with a WALE of 3.7 years
and contractual escalations of 8%.
The overall base growth of 3.2% was hindered by the marginal reversion, short-term vacancy of some of the expiring space that was
subsequently relet and a specific bad debt provision. A payment plan has been agreed with the tenant representing the majority of the
provision and is expected to be recovered in full in the next 12 months.
The Acquisitions added a further 28 properties valued at R2.4 billion and 267 768m2 GLA to the portfolio increasing the total industrial
portfolio value to R3.8 billion. In line with the strategy of recycling capital from non-core, five assets with a total value of R113.7 million were
sold during the period, with a further two assets valued at R30 million under contract and awaiting transfer.
Retail
The Retail portfolio comprises retail assets that are either dominant in their respective node or are niche in relation to a specific product
offering or category.
There is a focused strategy of maintaining a minimum average of national tenants to ensure the assets are able to trade through periods of
subdued economic and consumer spend. The current percentage of national tenants across the portfolio is 80%.
The base retail portfolio delivered growth of 7.5% for the 12-month period, which is in line with its annual contractual escalations.
The Fund's focused strategy has paid off in the current year, with average turnover growth across the Fund's shopping centres increasing
by 8.5% year on year. Whilst the overall trading growth is impressive, it has been diluted by the performance of Kriel Mall and Balfour Mall.
Kriel is exposed to the coal mining sector in Mpumalanga and with the temporary closure of the Optimum and Malta coal mines, the trading
of the centre has been affected. The centre remains 97% occupied with a long WALE of 2.3 years and is let to 72% nationals. Balfour is
nearing the completion of its two phase refurbishment and tenant repositioning which has disrupted certain trade in the short term during
the construction period. This defensive spend is already reaping benefits through the securing of additional national tenants and increased
tenant interest. Turnover is improving and current year on year turnover growth reflects a 5.5% increase.
The consistent year on year renewal and letting activity has resulted in positive reversions of 9.4% over 19 892m2 and reduced overall
vacancy to 1.1%.
Receivables continue to be tightly managed and represent 0.7% of total collectables at 31 March 2016 (2015: 0.6%). Asset managers
continue to work with tenants and strive to reduce the overall cost of occupation where possible. Provision for bad debts covers all debtors
greater than 60 days.
The Fund continuously looks to improve its retail property offering to its patrons by monitoring and optimising tenant mix, and pursuing
redevelopment or extension opportunities to secure new tenants or offerings not currently represented. The spend required to maximise this
offering is not always earnings enhancing on day one, however, it is critical to protecting the value of the centre, thereby reducing the threat
of competition. Successful retail properties in today's environment offer an experience which maximises the length of the customers stay at
the centre and therefore spend, by focusing on and offering innovative customer experiences which is critical to the continued success of
retail in the current competitive environment.
Projects in progress to this effect include:
- the completion of the Balfour refurbishment;
- the completed extension at Dihlabeng to accommodate Woolworths, Spitz, Cape Union Mart and others;
- a joint venture with the Moolman Group for the 20 478m2 extension at Musina Mall; and
- a 5 000m2 extension at Fleurdal Mall.
Further details of these initiatives are detailed below.
Significant mention has been made of the Edcon Group in the press over the last 12 months and the concerns as to the viability of the
business due to its current onerous and overleveraged capital structure. The Fund's current exposure to the Edcon Group across all its
brands is less than 1.5% of the Fund's total revenue (GLA of 20 194 m2). Of this, 60% (GLA 12 140m2) relates to the Edgars and CNA
brands. The Fund has undertaken a thorough analysis of this space and is confident that if necessary, the space could be relet and in some
instances at a higher rental albeit tenant installation may be required.
ACQUISITIONS
The Fund has enjoyed a transformative year from an acquisition perspective with the Fund's asset base almost doubling to R17.0 billion.
Two large acquisitions were concluded during the year namely the Griffin acquisition ("Griffin acquisition") and the iconic Zenprop acquisition
("Zenprop acquisition"). Full details of both transactions have been disclosed in the Zenprop circular dated 11 September 2015 and the
Griffin Sens announcement dated 5 June 2015.
The Zenprop portfolio contains award-winning properties, with exceptional and striking architectural designs, along with strong property
fundamentals and consists of 12 office properties, 11 industrial properties and 3 retail properties. The portfolio is underpinned by strong real
estate fundamentals and contractual cash flows. The Zenprop Acquisition was purchased for an aggregate acquisition value of R7.1 billion
at a blended yield of 7.5%. The properties transferred during December 2015 and January 2016.
The Griffin acquisition contained 22 industrial properties acquired at an aggregate value of R826 million and a blended yield of 9.3%.
The properties are well located, with contractual in-force escalations of 8.6%. AGCO (R80m), an industrial property in Pomona is the last
remaining property and is in the process of being transferred to the Fund.
The combined yield of the acquisitions as at the reporting date is 7.8%.
TOP 10 PROPERTIES – PORTFOLIO
Book value % of portfolio Total area % of portfolio
Building Sector (R'm) by value (m2) by area
1 & 1A Protea Place* Office 813.9 4.9 20 066 1.5
Zevenwacht Mall* Retail 788.2 4.8 39 956 3.0
Newcastle Mall* Retail 785.3 4.8 39 360 2.9
Design Quarter Mall* Retail 573.6 3.5 25 743 1.9
2929 on Nicol* Office 506.1 3.1 16 149 1.2
Dihlabeng Mall Retail 498.5 3.0 26 508 2.0
Balfour Mall Retail 491.2 3.0 32 647 2.4
The Firs Office 442.2 2.7 13 085 1.0
Brandhouse* Industrial 418.6 2.5 36 800 2.7
30 Jellicoe Office 373.7 2.3 10 749 0.8
Total 5 691.3 34.6 261 063 19.4
* Properties acquired as part of the Zenprop acquisition.
SECTORAL SPREAD SECTORAL SPREAD GEOGRAPHICAL SPREAD
Revenue Asset value Revenue
38% Office 40% Office 8% Free State
23% Industrial 23% Industrial 68% Gauteng
39% Retail 37% Retail 7% KZN
3% Limpopo
3% Mpumalanga
10% Western Cape
1% Other
LETTING ACTIVITY
The Fund began the period with an opening vacancy of 23 546m2; which increased by a further 78 830m2 due to expiries in the current year.
The Fund has renewed or relet 86% of the GLA that became available in the year. In addition 10 080m2 of opening vacancy was let during
the year. The Fund's closing vacancy after disposals amounted to 14 738m2 or 1.1%.
Expiries & Expiry New lets & New Rental Average
cancellation gross rental1 renewals gross rental1 reversion escalation
GLA R/m2 GLA R/m2 % %
Office 12 593 176.14 12 188 173.12 (1.7) 8.3
Industrial 48 492 51.81 45 794 52.19 0.7 8.1
Retail 17 745 143.11 19 892 156.51 9.4 8.0
Total 78 830 77 874 3.0 8.1
The majority of the letting occurred in the industrial sector, which let 45 794m2 of the 48 492m2 that became available. This was despite a
tough economic environment. The industrial sector has seen occupier's requirements for warehousing and manufacturing facilities contract
and consolidate in the last few years. Occupiers also now require a lot more flexibility in their commitments, due to the tenor of their
contracts with clients reducing. Therefore, client retention in the industrial sector is very dependent on the clients' underlying contract base
and performance. The ability to let premises whether by way of a renewal or relet is highly dependent on location, functionality, access and
being able to be flexible with space and contract terms.
The Fund's lease expiry profile remains robust and defensive with a WALE of 3.7 years by revenue. In the next financial year 93% of income
is contractual.
Of the 99 506m2 of GLA expiring for the next 12-month period ending 31 March 2017, 52 410m2 (53%) has already been renewed or let at a
positive reversion of 4.2%.
(1) Gross rental includes rental, operating cost recoveries, recovery of assessment rates but excludes parking, utility and other recoveries.
CAPITAL EXPENDITURE AND REDEVELOPMENT
The Dihlabeng extension
During the year, the Fund completed a 4 615m2 extension of R85m at Dihlabeng Mall and held a successful opening in July 2015.
The extension was anchored by Woolworths and cements the Mall's position as the dominant retail centre in the area. Pre-opening, the
Fund had signed leases with Woolworths, Spitz and Cape Union Mart and subsequently has secured leases with several other prominent
retailers. The 31 123m2 centre (including extension) is now 98% let and is represented by circa. 90% nationals. Although the extension was
developed on an initially dilutive yield; it brought with it the introduction of new brands. The demand for the space has locked in the strength
of the node, increased feet to the mall and improved retail turnovers. The extension has categorised the centre into a sub-regional and will
see enhanced returns over time as the centre's strength takes effect.
The Musina extension
IPF acquired Musina Mall in June 2012 at a forward yield of 9.2%. Musina is a vibrant commercial and trading centre in the northern part of
the Limpopo province, servicing both the surrounding agricultural sector and in particular the cross-border trade from Zimbabwe.
The Moolman Group ("Moolman") and the Fund will partner (2/3 IPF/1/3 Moolman) to extend the centre by a further 20 478m2. IPF has
sold one third of the existing centre to Moolman at a forward yield of 8.2% realising a 61% capital return to the Fund since the acquisition in
June 2012.
The proceeds from the sale will be reinvested into the extension which will cost R324.6 million (IPF share R216.4 million) and has an
expected blended return in year 1 of 9.3%. The expected completion date of the extension and commencement of trading is 1 April 2017.
The project offers the Fund the ability to expand Musina Mall and recycle its capital to increase the yield of the centre from 8.2% to a
blended 8.8%. It provides the Fund a two thirds share of what is to become the dominant semi-regional centre in Musina. It has resulted
in an attractive capital profit on the one third sale as well as the yield enhancement through the two thirds investment in the development.
There are minimal opportunities to acquire assets of this type of quality and size at the development yield.
The Fleurdal extension
The Fund has completed an initial feasibility to extend the existing mall by approximately 5 000m2. The Fund is in discussions with a number
of national tenants who have expressed significant interest.
CAPITAL ALLOCATION
As mentioned previously, the Fund is focused on ensuring that it is optimising long-term shareholder returns by allocating and investing
capital into value enhancing assets.
The sale of the non-core assets realised sale proceeds of R161 million at an average sale yield of 8.2%. The majority of these proceeds are
being reinvested into the Musina extension at a 9.3% yield.
There are also three pending sales totalling circa R135 million, which are subject to contract. These sales were opportunistic and are all to
private buyers, who remain very active in the market and are willing to pay attractive pricing versus the listed sector who remain sensitive to
the current negative yield spread.
INVESTMENT IN IAPF
The Fund's investment in IAPF amounts to R532 million, representing 12.3% of IAPF (2015: 18.6%).
Whilst the absolute value of the Fund's holding in IAPF remained at similar levels to last year there was significant activity during the year,
which comprised of:
- the sale of 17 271 160 units (R200 million) in IAPF to Zenprop as part of the Zenprop acquisition consideration;
- the participation in the distribution re-investment programme ("DRIP") for 1 746 458 units; and
- the following of rights in the IAPF rights offer (8 261 009 units).
The Funds currently holds 38 506 307 units in IAPF.
IAPF delivered annualised full-year distribution growth of 13.2% post withholding tax in AUD which translates into like-for-like ZAR growth
of 21.3%. Including a capital return on the investment of 25.9%, this results in IAPF delivering a total return of 34.3% in ZAR to the Fund
for the 12 months to 31 March 2016. IAPF has been successful in executing its communicated strategy of deploying its capital into quality
Australian real estate. The attractive hard currency growth in distribution is evidence of the broadened quality and diversity of the portfolio
and geared growth effect of the increase in leverage of IAPF. Total return to investors in ZAR since listing is 67.9%.
The Fund manages its exposure to exchange rate risk on its distributions received from IAPF by actively hedging future income from IAPF
through taking out forward exchange rate cover. The Fund has hedged approximately AUD$3.2 million of income to June 2018 at exchange
rates ranging between R10.49 and R13.27 /AUD $.
IPF continues to find Australia an attractive investment destination and IAPF a compelling investment case for the following reasons:
- Australia offers more attractive growth prospects than many of the other developed markets;
- GDP growth > 2% and has delivered positive GDP growth for 24 consecutive years
- The AUD is a cheaper entry point into a developed market considering its depreciation against the USD over the last 24 months
- Government with flexible and proactive policies
- Relative attractive pricing of real estate, quality stock still available at above 7% yield
- Funding costs below 4%, resulting in positive spread in excess of 3%
- Contractual escalations of approximately 3.2% per annum, compounding the growth in the 3% yield spread
- Attractive existing portfolio acquired through well executed strategy underpinned by strong property fundamentals.
OTHER OFFSHORE EXPOSURE
The Fund continues to actively consider and view opportunities in offshore jurisdictions other than Australia. Whilst the positive yield spread
and short-term accretion as a result of the very attractively priced long-term debt is appealing, investment decisions will be driven first and
foremost by property fundamentals followed by capital structure and funding.
In order to be able to make an informed investment decision and assess the property fundamentals, on the ground knowledge is key and
will need to be supported through a local Investec management team on the ground or made alongside long standing partners with local
knowledge.
CAPITAL MANAGEMENT
The active and efficient interest rate risk management strategy is evident in the Fund's current average cost of funding of 9.0% which is
underpinned by a current hedged position of 75% and a debt and swap maturity of 3.9 years and 3.6 years respectively. This was achieved
in a volatile and unpredictable market when the Zenprop properties transferred in mid December 2015.
The Fund's all in cost of funding has shifted from 8.5% to 9.0% at the end of 2016 as a result of the:
- increase in three-month JIBAR of 113bps since March 2015, affecting the unhedged portion of the loan book (between 17% – 25%);
- significant upward shift in the swap curve year-over-year impacting R2.6 billion of new swaps linked to acquisition activity. (212 basis
point movement in peak and trough of five-year swap curve in last 12 months); and
- longer dated debt and swaps locked in as part of Zenprop transaction.
During the year, the Fund entered into R2.6 billion of interest rate swaps at a blended rate of 7.9% and an average expiry of 4.2 years.
This has taken the Fund's weighted average swap expiry to 3.6 years (2015: 3.8 years). The Fund continues to monitor the market and
restructure its interest rate swap book when the opportunity presents itself.
The Fund has always maintained flexibility in its sources of funding without committing to predetermined funding ratios, ensuring banking
lines are well maintained and changes in the debt capital markets fully understood. There is a continued strategy to fund long-term assets
with long-term funding and to conservatively manage refinancing and credit risk.
The Fund engaged both banks and debt capital market investors to pre-commit R3.6 billion of funding for the debt portion of the Zenprop
purchase consideration. The Fund received significant levels of interest from all funders approached. The weighted average debt expiry of
the Zenprop debt funding package was 5.4 years at an average credit margin of 1.75% above 3-month JIBAR. The Fund was able to raise
52% of the debt on an unsecured basis. The Fund's gearing ratio is now 34.1%.
Despite a volatile environment, the Fund has been successful in raising R7.8 billion of new funding during the year. This has been raised in
the form of:
- R2.5 billion new bank debt facilities on a 55% unsecured basis – average margin of 177bps above three-month JIBAR and average
tenor of 5.4 years;
- R1.2 billion of corporate bonds on a 32% unsecured basis – average margin of 168 bps above three-month JIBAR and average tenor
of 4.1 years;
- R200 million three-month commercial paper – rolled several times during the year at an average rate of 43bps above three-month
JIBAR, and
- R2.6 billion of equity was raised through the Zenprop rights offer at R15.00 per share;
- R0.8 billion of equity was raised via vendor placements for the Zenprop transaction at R16.51 per share; and
- R0.5 billion of equity was raised via vendor placements for the Griffin transaction at R15.70 per share.
DEBT FACILITIES
Weighted
average
expiry at
Facilities Drawn Available Margin 31 March
Debt facilities R'm R'm R'm % 2016
Balance at 31 March 2015 2 936 (2 059) 877 1.66 1.7
Added during the year:
Corporate bonds 1 170 (1 170) – 1.68 4.1
Bank debt 2 460 (2 240) 220 1.77 5.4
Existing bank debt (324) (324)
Balance at 31 March 2016 6 566 (5 793) 773 1.75 3.9
Facilities added post year-end 300 – 300 1.62
Facilities added post year-end 300 – 300 (1.60)(1)
Post-balance sheet debt 7 166 (5 793) 1 373
Post year-end the Fund has rolled the commercial paper for a further three months at an attractive margin of 45 basis points and repaid
R40 million of corporate bonds with cash. The Fund has also entered into a new debt facility with Standard Bank for R300 million,
unsecured debt at a margin of 162 basis points above three-month JIBAR and refinanced the Investec bridge facility with an unsecured
R300 million headroom facility with Standard Bank at prime less 160 basis points.
(1) Margin is calculated at prime less 160 basis points. All other facilities are calculated above three-month JIBAR.
SWAP FACILITIES
Weighted
Swaps Rate average
Swap facilities R'm % expiry
Balance at 31 March 2015 1 884 6.57 2.8
Added during the year:
Swaps (including CCS) 2 640 7.90 4.1
Balance at 31 March 2016 4 524 7.72 3.6
The Fund has R212 million cross currency swap ("CCS") in place which equates to 41% of the value of investment in IAPF.
CORPORATE RATING
The Fund's corporate rating was upgraded in August 2015 to A with a positive outlook whilst the secured rating was reaffirmed and released
in April 2015 as AA-, with stable outlook reinforcing the Fund's balance sheet strength. The Fund's rating is currently under review and the
revised rating is due at the end of May 2016.
SUSTAINABILITY
As a continued commitment to sustainability, the Fund has appointed a dedicated resource to focus on utility management and sustainability
with a view to further unlock value for tenants and shareholders alike.
The Fund has completed an energy and water benchmarking exercise across its base portfolio. Over the next 24 months the Fund will be
implementing energy and water efficiency initiatives in buildings where feasible, with a view of reducing the utility cost and thereby reducing
the "Total Cost of Occupation" within these buildings.
The Fund has obtained approval for a pilot solar project to be introduced on the rooftop at Fleurdal Mall in Bloemfontein. The project aims to
reduce the cost of electricity by creating its own solar power. This project offers an attractive yield over its repayment profile and if successful
will be rolled out across feasible buildings and assist in reducing the cost base of the Fund as well as the cost of occupation for tenants. It
also provides grid stability and energy security and will alleviate down time for tenants in the event of load-shedding.
CHANGES TO THE BOARD
Since the interim results announcement on 19 November 2015, no changes to the Board have been announced or implemented.
PROSPECTS AND GUIDANCE
The full year dividend of 124.66 cents per share exceeded market consensus and the guidance provided in the FY15 results
announcement when adjusted for the dilutionary impact of the Zenprop transaction as per the information included in the circular dated
11 September 2015.
This outperformance was generated by the base portfolio, prior year acquisitions, the Griffin Acquisition, the significant growth from IAPF
year on year and the marginal benefit from the delay in the transfer of the Zenprop portfolio.
The H2 dividend of 65.03 cps, which delivered growth year on year of 0.8% reflects the dilutionary impact of the Zenprop transaction. The
dilution will continue to impact H1 of FY17 and part of H2 2017.
As a result the Fund expects the dividend per share for the year ending 31 March 2017 to be similar to the dividend per share reported for
the year ended 31 March 2016.
The aggregate of the dividend per share for FY16 and the guidance for FY17 similarly exceeds the previous guidance and current market
consensus for this comparable period.
The growth In dividend per share will normalise to historical levels in the period ending 31 March 2018.
This forecast is based on the assumption that over the course of the next 12 months, no further local or offshore acquisitions are concluded,
the macroeconomic environment will not deteriorate markedly, no major corporate failures will occur, budgeted renewals will be concluded,
that clients will be able to absorb the recovery of rising rates and utility costs and that the ZAR/AUD exchange rate will remain at similar
levels to the current levels. Budgeted rental income was based on contractual escalations and market-related renewals.
The information and opinions contained above are recorded and expressed in good faith and are based upon sources believed to be
reliable. No representation, warranty, undertaking or guarantee of whatever nature is made or given with regards to the accuracy and/or
completeness of such information and/or the correctness of such opinions.
This forecast has not been reviewed or audited by the Fund's independent external auditors.
On behalf of the Board of Investec Property Fund Limited
Sam Hackner Nicholas Riley
Non-executive Chairman Chief executive officer
19 May 2016
BASIS OF ACCOUNTING
The reviewed preliminary condensed consolidated financial information for the year ended 31 March 2016 has been prepared in
compliance with International Financial Reporting Standards (IFRS), the presentation and disclosure requirements of IAS 34, Interim
Financial Reporting, the SAICA Financial Reporting Guide as issued by the Accounting Practices Committee and Financial Reporting
Pronouncements as issued by The Financial Reporting Standards Council, the Companies Act, (71 of 2008, as amended) of South Africa
and the JSE Listings Requirements.
The accounting policies applied in the preparation of the results for the year ended 31 March 2016 are consistent with those adopted
in the financial statements for the year ended 31 March 2015, other than the adoption of those standards that became effective in the
current period, which had no impact on the financial results. These reviewed preliminary condensed consolidated financial statements
have been prepared under the supervision of Andrew Wooler, ACA.
REVIEW CONCLUSION
Ernst & Young Inc., the Fund's independent auditors, have reviewed the consolidated statement of comprehensive income, consolidated
statement of financial position, condensed consolidated statement of cash flows, condensed consolidated statement of changes in
equity, condensed consolidated segmental information and notes to the consolidated condensed financial results, as set out on pages 2
to 6 of the preliminary condensed consolidated financial results, and have expressed an unmodified review conclusion. A copy of their
review conclusion is available for inspection at the company's registered office.
FINAL DIVIDEND
Notice is hereby given of the declaration of final gross dividend number 11 ("Cash dividend") of 35.34835 cents per share for the period
22 December 2015 to 31 March 2016.
Other information:
- The dividend portion has been declared from income reserves.
- A dividend withholding tax of 15% will be applicable on the dividend portion to all shareholders who are not exempt.
- The issued share capital at the declaration date is 700 228 202 ordinary shares of no par value.
In accordance with Investec Property Fund's status as a REIT, shareholders are advised that the dividend meets the requirements of a
‘qualifying distribution' for the purposes of section 25BB of the Income Tax Act, No. 58 of 1962 ("Income Tax Act"). The dividends on the
shares will be deemed to be dividends for South African tax purposes in terms of section 25BB of the Income Tax Act.
TAX IMPLICATIONS FOR SOUTH AFRICAN RESIDENT SHAREHOLDERS
Dividends received by or accrued to South African tax residents must be included in the gross income of such shareholders and will
not be exempt from the income tax in terms of the exclusion to the general dividend exemption contained in section 10(1)(k)(i)(aa) of the
Income Tax Act because they are dividends distributed by a REIT. These dividends are, however, exempt from dividend withholding tax
(Dividend Tax) in the hands of South African resident shareholders provided that the South African resident shareholders have provided
to their CSDP or broker, as the case may be, in respect of uncertificated shares, or the Fund, in respect of certificated shares, a DTD(EX)
(Dividend Tax: Declaration and undertaking to be made by the beneficial owner of a share) form to prove their status as South African
residents.
If resident shareholders have not submitted the abovementioned documentation to confirm their status as South African residents, they
are advised to contact their CSDP, or broker, as the case may be, to arrange for the documents to be submitted prior to the payment of
the dividend.
TAX IMPLICATIONS FOR NON-RESIDENT SHAREHOLDERS
Dividends received by non-resident shareholders from a REIT will not be taxable as income and instead will be treated as ordinary
dividends which are exempt from income tax in terms of the general dividend exemption section 10(1)(k) of the Income Tax Act. It should
be noted that up to 31 December 2013 dividends received by non-residents from a REIT were not subject to Dividend Tax. With effect
from 1 January 2014, any dividend received by a non-resident from a REIT will be subject to Dividend Tax at 15%, unless the rate is
reduced in terms of any applicable agreement for the avoidance of double taxation (DTA) between South Africa and the country of
residence of the non-resident shareholder. Assuming Dividend Tax will be withheld at a rate of 15%, the net amount due to non-resident
shareholders is 30.04610 cents per share. A reduced dividend withholding rate in terms of the applicable DTA may only be relied on if
the non-resident shareholder has provided the following forms to their CSDP or broker, as the case may be, in respect of uncertificated
shares, or the Fund, in respect of certificated shares:
- a declaration that the dividend is subject to a reduced rate as a result of the application of the DTA; and
- a written undertaking to inform the CSDP, or broker or the company, as the case may be, should the circumstances affecting the
reduced rate change or the beneficial owner cease to be the beneficial owner, both in the form prescribed by the Commissioner of
the South African Revenue Services.
If applicable, non-resident shareholders are advised to contact the CSDP, broker or the Fund, as the case may be, to arrange for the
abovementioned documents to be submitted prior to payment of the dividend if such documents have not already been submitted.
Summary of the salient dates relating to the Cash Dividend:
2016
Last day to trade ("LDT") cum dividend Friday, 3 June
Shares to trade ex dividend Monday, 6 June
Record date Friday, 10 June
Payment date Monday, 13 June
Notes:
1. Shares may not be dematerialised or rematerialised between commencement of trade on Monday, 6 June 2016 and close of trade on
Friday, 10 June 2016.
Investec Bank Limited
Company Secretary
19 May 2016
Company Information
DIRECTORS
S Hackner (Chairman)#
SR Leon (Deputy Chairman)#
N Riley (Chief Executive Officer)
A Wooler (Financial Director)
LLM Giuricich#
S Mahomed#*
CN Mashaba#*
MM Ngoasheng#*
GR Rosenthal#*
KL Shuenyane#*
#
Non-executive
* Independent
REGISTERED OFFICE
C/o Company Secretarial, Investec Limited
100 Grayston Drive, Sandown, Sandton, 2196
TRANSFER SECRETARY
Computershare Investor Services Proprietary Limited
(Registration number 2004/003647/07)
Ground Floor, 70 Marshall Street, Johannesburg, 2001
SPONSOR
Investec Bank Limited
100 Grayston Drive, Sandown, Sandton, 2196
Date: 19/05/2016 07:58:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
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