Wrap Text
Reviewed Interim Results for the six months ended 30 September 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
INTERIM RESULTS
Key highlights
for the six months ended September 2016
9.1%
BASE NET PROPERTY
INCOME GROWTH
2.2%
INTERIM DIVIDEND PER
SHARE GROWTH
(exceeds guidance)
1.5%
LOW VACANCY
MAINTAINED
87%
of H1 expiries let
220bps
IMPROVEMENT IN
OPERATING MARGIN
KEY FINANCIAL INDICATORS
Net cost to income ratios
Sep 2016 Sep 2015
15.7% 17.9%
Vacancy %
Sep 2016 March 2016
1.5% 1.1%
In-force escalations
Sep 2016 March 2016
7.8% 7.8%
Weighted average lease expiry
Sep 2016 March 2016
3.5 years 3.7 years
Gearing %
Sep 2016 March 2016
32.6% 34.1%
Consolidated statement of comprehensive income
Reviewed Reviewed
Six months Six months Audited
ended ended Year ended
30 September 30 September 31 March
R'000 2016 2015 2016
Revenue, excluding straight-line rental revenue adjustment 814 782 438 923 1 102 579
Straight-line rental revenue adjustment 78 862 68 845 92 259
Revenue 893 644 507 768 1 194 838
Property expenses (127 969) (78 452) (177 830)
Net property income 765 675 429 316 1 017 008
Other operating expenses (27 669) (28 536) (49 328)
Operating profit 738 006 400 780 967 680
Fair value adjustments (23 897) 36 478 358 273
Profit on disposal of investment property 10 624 2 630 13 568
Income from investment 20 478 19 314 46 645
Finance costs (257 824) (89 837) (278 492)
Finance income 4 742 2 632 7 851
Profit before taxation 492 129 371 997 1 115 525
Taxation (24) (789) (2 042)
Total comprehensive income attributable to
equity holders 492 105 371 208 1 113 483
Distribution reconciliation
Profit after taxation 492 105 371 208 1 113 483
Adjusted for:
Fair value adjustments 23 897 (36 478) (358 273)
Profit on disposal of investment property (10 624) (2 630) (13 568)
Straight-line rental revenue adjustment (78 862) (68 845) (92 259)
Antecedent dividend - 2 065 27 485
Less: Interim dividend paid - - (286 665)
Less: Clean out dividend paid - - (142 683)
Interim dividend 426 516 265 320 247 520
Number of shares
Shares in issue 700 228 202 444 978 329 700 228 202
Weighted average number of shares in issue 700 228 202 441 562 857 519 535 592
Cents
Interim dividend per share 60.91 59.63 35.35
Basic and diluted earnings per share 70.28 84.07 214.32
Headline and diluted headline earnings per share 68.76 83.47 165.24
Consolidated statement of financial position
Reviewed Audited Reviewed
30 September 31 March 30 September
R'000 Notes 2016 2016 2015
ASSETS
Non-current assets 17 024 999 17 033 333 8 868 534
Investment property 16 019 422 16 129 988 8 017 017
Straight-line rental adjustment 408 588 329 725 306 311
Derivative financial instruments 9 363 41 848 14 732
Investment 3 587 626 531 772 530 474
Current assets 300 315 212 420 245 461
Trade and other receivables 156 046 158 959 101 615
Cash and cash equivalents 144 269 53 461 143 846
Total assets 17 325 314 17 245 753 9 113 995
EQUITY AND LIABILITIES
Shareholders' interest 11 342 111 11 097 103 6 857 226
Stated capital 9 714 108 9 714 108 5 813 900
Retained earnings 1 628 003 1 382 995 1 043 326
Non-current liabilities 4 950 210 5 139 422 1 815 968
Long-term borrowings 4 878 059 5 093 477 1 795 589
Derivative financial instruments 72 151 45 945 20 379
Current liabilities 1 032 993 1 009 228 440 801
Trade and other payables 371 845 310 104 200 822
Current portion of non-current liabilities 661 148 699 124 239 979
Total equity and liabilities 17 325 314 17 245 753 9 113 995
Shares in issue 700 228 202 700 228 202 444 978 329
NAV per share (cents) 1620 1585 1541
Condensed consolidated statement of cash flows
Reviewed Audited Reviewed
30 September 31 March 30 September
R'000 2016 2016 2015
Cash generated from operations 722 191 906 387 359 490
Finance income received 4 742 7 851 2 632
Finance costs paid (259 412) (261 426) (83 965)
Income from investment 19 650 44 620 17 824
Taxation paid(1) (24) (2 042) (789)
Dividends paid to shareholders (247 097) (711 403) (281 650)
Net cash inflow/(outflow) from operating activities 240 050 (16 013) 13 541
Net cash inflow/(outflow) from investing activities(2) 101 097 (6 452 745) (50 229)
Net cash (outflow)/inflow from financing activities(3) (250 339) 6 461 224 119 540
Net increase/(decrease) in cash and cash equivalents 90 808 (7 534) 82 852
Cash and cash equivalents at the beginning of the period 53 461 60 995 60 995
Cash and cash equivalents at the end of the period 144 269 53 461 143 847
(1) Withholding tax on distribution received from Investec Australia Property Fund ("IAPF").
(2) Investing activities include additions and improvements to investment properties, purchase of properties and proceeds from sale of investment properties.
(3) Financing activities include term loans raised, corporate bonds, commercial paper repaid and current borrowings raised and repaid.
Condensed consolidated statement of changes in equity
Reviewed Audited Reviewed
30 September 31 March 30 September
R'000 2016 2016 2015
Balance at the beginning of the period 11 097 103 6 615 768 6 615 768
Total comprehensive income attributable to equity holders 492 105 1 113 483 371 208
Shares issued (net of expenses) - 4 047 784 136 540
Dividends declared (247 097) (679 932) (266 290)
Balance at the end of the period 11 342 111 11 097 103 6 857 226
Condensed consolidated segmental information
For the six months ended 30 September 2016
R'000 Office Industrial Retail Total
Statement of comprehensive income extracts
Revenue, excluding straight-line rental revenue adjustment 324 500 196 149 294 133 814 782
Straight-line rental revenue adjustment 26 764 22 775 29 323 78 862
Revenue 351 264 218 924 323 456 893 644
Property expenses (45 976) (27 517) (54 476) (127 969)
Net property income 305 288 191 407 269 980 765 675
Statement of financial position extracts
Investment property opening balance 6 552 959 3 847 683 6 059 071 16 459 713
Net additions, acquisitions, disposals and re-allocations (48 556) (20 699) (41 310) (110 565)
Fair value adjustment and straight-lining 26 764 22 775 29 323 78 862
Fair value of investment property 6 531 167 3 849 759 6 047 084 16 428 010
For the six months ended 30 September 2015
R'000 Office Industrial Retail Total
Statement of comprehensive income extracts
Revenue, excluding straight-line rental revenue adjustment 166 077 93 964 178 882 438 923
Straight-line rental revenue adjustment 14 354 10 527 43 964 68 845
Revenue 180 431 104 491 222 846 507 768
Property expenses (25 272) (17 108) (36 072) (78 452)
Net property income 155 159 87 383 186 774 429 316
Statement of financial position extracts
Investment property opening balance 3 206 963 1 529 919 3 464 743 8 201 625
Net additions, acquisitions, disposals and re-allocations (5 482) 4 490 53 850 52 858
Fair value adjustment and straight-lining 14 354 10 527 43 964 68 845
Fair value of investment property 3 215 835 1 544 936 3 562 557 8 323 328
Notes to the consolidated condensed financial results
Reviewed Reviewed
Six months Six months Audited
ended ended Year ended
30 September 30 September 31 March
R'000 2016 2015 2016
1 RECONCILIATION OF BASIC EARNINGS TO
HEADLINE EARNINGS
Total comprehensive income attributable to equity holders 492 105 371 208 1 113 483
Less: Net fair value adjustment - investment property - - (241 437)
Profit on disposal of investment property (10 624) (2 630) (13 568)
Headline earnings attributable to shareholders 481 481 368 578 858 478
2 FINANCIAL INSTRUMENTS
Financial instruments held by the group include the investment in 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, fixed rate loans and variable rate loans which are
carried at amortised cost, the carrying value is a reasonable approximation of fair value.
Reviewed Audited Reviewed
30 September 31 March 30 September
R'000 2016 2016 2015
3 INVESTMENTS
Investec Property Fund Limited ("The Fund") carries its investment in
IAPF at fair value. 587 626 531 772 530 474
4 FAIR VALUE ADJUSTMENTS OF INVESTMENT PROPERTY
The Fund's policy is to value investment properties at year-end, with independent valuations performed on a rotational basis to ensure
each property is valued at least every three years by an independent external valuer. The directors' valuation methods include the
discounted cash flow model and the capitalisation model. Revaluations were not undertaken at the half year as directors are not aware
of any factors that would materially affect the valuation of the properties.
5 RELATED PARTY TRANSACTIONS
During the six months under review, there were no unusual or significant related party transactions. All related party transactions were in
the ordinary course of business and consistent with those reported in the previous set of annual financial statements.
6 SUBSEQUENT EVENTS
On 14 October 2016 the Fund repaid corporate bonds to the value of R85 million. On 25 October 2016, due to strong demand, the
Fund increased its commercial paper to R241 million for a further three months at an attractive margin of 44bps above 3-month JIBAR.
On 26 October 2016, AGCO, the last asset in the Griffin portfolio transferred to the Fund.
COMMENTARY
INTRODUCTION
Investec Property Fund Limited ("The Fund") is a South African Real Estate Investment Trust and currently comprises a portfolio of
119 properties in South Africa with a total gross lettable area ("GLA") of 1 280 711 m2 valued at R16.4 billion (March 2016: R16.5 billion) and
a R0.6 billion (March 2016: R0.5 billion) investment in Investec Australia Property Fund Limited ("IAPF").
The 2016 financial year was transformational for the Fund. It involved the acquisition of R8 billion of properties from Zenprop and Griffin,
which resulted in the doubling of the Fund's property portfolio by value and an increase in the number of assets by approximately 50%.
The focus of this interim period has therefore been on consolidating these acquisitions onto our management and reporting platforms in
order to ensure they are managed with the efficiency and intensiveness of the Fund's base portfolio.
The performance of the Fund for the interim period is once again characterised by the defensiveness of the portfolio as well as further
margin enhancement achieved through focused asset, cost and utility management.
FINANCIAL RESULTS
The board of directors is pleased to announce an interim dividend amounting to 60.91 cents per share for the period ended
30 September 2016 (30 September 2015: 59.63 cents per share). This represents growth of 2.2% when compared to the comparative
six-month period ending 30 September 2015. This growth results in an outperformance of the guidance provided to the market, which is
admirable considering the dilutionary impact of the Zenprop transaction where the larger impact is seen in the first half of FY2017.
The results reflect the Fund's hands-on asset management approach that has seen the Fund's base portfolio(1) deliver 9.1% net property
income growth year over year. The impressive performance of the base portfolio again demonstrates the quality and robust nature of the
Fund's portfolio especially given the continued low vacancy rate across the portfolio of 1.5% (March 2016: 1.1%). The Fund let or renewed
87% of space that expired or was cancelled in the period (102 010 m2) at a weighted average positive reversion of 2.7% and leaving only
38 339 m2 of rentable area to be let for the remainder of the year. The letting performance 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.
The Fund's internal focus has resulted in a further improvement of its operating margin through a reduction in its net cost to income ratio
to 15.7% (Sep 2015: 17.9%).This has been driven by a specific focus on utility and energy management. The Fund now has a dedicated
internal utility team which monitors:
- the timing and accuracy of billing by council;
- optimisation of utility tariffs; and
- efficiency of client consumption.
This initiative has resulted in improved returns for the benefit of the Fund and its clients, as well as optimising the long-term run rate of the
Fund's utility costs.
All acquisitions are broadly performing in line with budget. The Griffin portfolio is performing ahead of budget, whilst the Zenprop portfolio
is tracking slightly behind budget due to the vacancy of two restaurants at Design Quarter. A new restaurant at Design Quarter has been
secured for one of the vacant spaces, opening 1 December 2016. Zevenwacht and Newcastle Mall are both trading well with double and
high single digit turnover growth being achieved at both centres for the previous 12-month period.
(1) Base portfolio refers to R8.7bn of properties that have been held by the Fund for the entire comparative period.
PROPERTY PORTFOLIO
The Fund's current property portfolio consists of a diverse base of 119 quality properties with an average value per property of R137 million.
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 9.1% for the first half of 2017. Vacancies across the office, industrial and retail portfolios are all
significantly below the IPD sector performance and remain as arguably one of the lowest in the sector overall with the portfolio closing at an
overall vacancy of 1.5%.
Receivables continue to be tightly managed and represent 1.0% of total collectables at 30 September 2016 (31 March 2016: 0.7%). Asset
managers continue to work with clients and strive to reduce the overall cost of occupation where possible. The Fund has agreed payment
plans with two of its clients consisting of 42% of the amount provided for, and is confident the full amount will be recovered. Provision for
bad debts covers all debtors greater than 60 days.
Portfolio Total Office Industrial Retail
Number of properties 119 34 47 38
Asset value R16.4bn R6.5bn R3.8bn R6.1bn
GLA (m2) 1 280 711 270 456 603 684 406 571
Vacancy 1.5% 0.8% 2.3% 1.0%
Cost to income ratio 15.7% 14.2% 14.0% 18.5%
WALE (years) 3.5 years 3.7 years 3.6 years 3.1 years
In-force escalations 7.8% 8.1% 7.9% 7.4%
LETTING ACTIVITY
The Fund began the period with an opening vacancy of 14 763 m2 or 1.1%; with 102 010 m2 expiring in the interim period. The Fund
has renewed or relet 91 169 m2 of the GLA that became available in the year. An additional 52 354 m2 of GLA1 becomes available during
the remainder of the year of which 14 016 m2 has already been let. In addition 6 029 m2 of opening vacancy was sold during the year.
The Fund's closing vacancy after disposals amounted to 19 575 m2 or 1.5%. The Fund does not anticipate any large letting risk in the next
six months.
Expiries and Gross expiry Renewals/ Gross Rental Average
cancelations rental new lets new rental reversion escalation
YTD GLA R/m2 GLA R/m2 % %
Office 8 356 169.61 7 914 169.79 0.1 8.2
Industrial 61 463 42.11 50 428 40.38 (4.1) 8.2
Retail 32 191 64.63(2) 32 827 71.76(2) 11.2(3) 6.8
Subtotal 102 010(1) 91 169 2.7 7.5
Early renewals(4) 18 475 97.08 18 475 93.30 (3.9)(4) 7.0
Total 120 485 109 644 1.1 7.4
(1) Total expiries for FY2017 amount to 154 364 m2. At 31 March 2016, the Fund reported 99 506 m2 was expiring in FY2017. This was however shown net of
54 858 m2 of early renewals already concluded.
(2) Rent per m2 is reduced by large big box renewal of 15 497 m2 at a rental of R14.01/m2, if excluded the expiry rental and new rental would be R110.60 and
R123.59 respectively.
(3) Significant positive double digit reversion at shopping centres.
(4) During the period, the Fund has early renewed a large industrial lease that expired in FY2018, extending the lease by five years from original expiry.
The Fund's lease expiry profile remains robust and defensive with a WALE of 3.5 years by revenue. In the next financial year 93% of income
is contractual, albeit approximately 220 000 m2 becomes available in FY2018. The Fund engages its clients well in advance of any expiry to
understand their space requirements and is in ongoing discussions with them in this regard.
LEASE EXPIRY BY REVENUE
2017 2018 2019 2020 2021 April 2021 onwards
Industrial 0.6 Industrial 4.4 Industrial 3.8 Industrial 5.7 Industrial 1.5 Industrial 7.9
Office 1.0 Office 4.0 Office 8.8 Office 4.5 Office 6.4 Office 14.7
Retail 2.7 Retail 7.1 Retail 7.3 Retail 7.0 Retail 4.0 Retail 8.7
Total 4.3 Total 15.5 Total 19.8 Total 17.1 Total 12.9 Total 31.3
SECTORAL PERFORMANCE
Office
The Fund's office portfolio is well located in strategic sought after nodes and currently is 99% let with a WALE of 3.7 years and thus is well
placed to temper the oversupply in the sector; particularly in nodes such as Sandton that continue to see the new developments coming to
market at very competitive rentals.
In the first six months of the year, 8 356 m2 became available, of which 95% (7 914 m2) was renewed or let to new clients at a positive
reversion of 0.1%. A further 10 853 m2 becomes available before year-end, of which 51% has already been renewed. This demonstrates
the high contractual nature of the portfolio's income stream. The Fund's strategy to acquire office buildings in strategic sought after nodes
is becoming more evident as the Fund's portfolio is able to deliver returns in excess of the current office market with a portfolio vacancy
of 0.8%, supported by a WALE of 3.7 years. The portfolio is defensive and continues to demonstrate its resilience in nodes of particularly
high oversupply.
Looking forward to the next 12-24 months, with the increase in office supply and benign client demand, without an increase in economic
growth which will increase the depth of the office tenant market, it is going to be challenging for the Fund to maintain its current low office
vacancy performance.
Industrial
The industrial sector continues to experience tenant reluctance to commit to longer term leases as a result of the tough economic
environment that faces the sector. The manufacturing sector in particular is under significant pressure due to international competition and
high import costs due to Rand weakness and continues to see clients exit the market or consolidate their facilities.
The market has also seen a marked increase in incentives (rent free, cash and/or installation allowances) due to increased competition in
line with international trends. Competition from new developments has increased significantly as developers appear willing to conclude
deals on sub-economic returns. Clients have an increased cost focus as result of subdued revenue growth and standing clients are seeking
assistance in reducing cost of occupation (mostly driven by municipal costs).
Despite all of the above the Fund's industrial portfolio continues to demonstrate its defensiveness; in the first six months of FY2017, the
Fund was able to let 50 428 m2 of 61 463 m2 that become available with a negative reversion of 4.1% and strong contractual escalations
of 8.2%. The letting relates to the renewal and new letting of two tenants occupying 37 263 m2 at Alrode Multipark. This was a significant
milestone in the competitive market, representing total revenue of R17.8 million per annum.
Vacancy for the period increased marginally to 2.3% (March 2016: 1.4%), which is largely attributable to the vacancy of a 8 450 m2
warehouse in Epping. (This facility has now been let effective 1 November 2016). Much of the letting success in the period can be attributed
to a thorough understanding of existing clients' requirements and a willingness to work with them in order to obtain a positive outcome for
both the client and the Fund.
In FY2018 127 289 m2 becomes available. The Fund's industrial buildings are well located, functional and reasonably priced properties.
The Fund has engaged with clients early to understand their requirements and is in ongoing negotiations in respect of the space.
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 retailers to ensure the assets are able to
trade through periods of subdued economic and consumer spend. The current percentage of national retailers across the portfolio is
approximately 80%.
The Fund continued to achieve above average reversions with 11.2% on new lets and renewals despite the high percentage of
nationals and also has maintained an in-force escalation of 7.4%. This has been driven by the growth profile in trade achieved in the
Fund's shopping centres.
In FY2018 68 553 m2 becomes available, the Fund continually engages with nationals and other retailers to understand the requirements.
TURNOVER GROWTH OF SHOPPING CENTRE REGIONS AT 30 SEPTEMBER 2016
Gauteng 9%
Western Cape 13%
Kwazulu Natal 8%
Limpopo 16%
Mpumalanga -3%
Free State 13%
Despite difficult economic conditions in the last 12 months, the Fund's retail malls have performed well. Turnover growth at Musina Mall in
Limpopo remains high despite the existing challenges with border control regulations in Zimbabwe. Mpumalanga depicts low growth due to
increased consumer pressure and stagnated growth in the coal mining town of Kriel. Despite the subsued turnover growth Kriel achieved
positive reversions of 16.1%.
Subsequent to the Edcon restructure, Edcon provided landlords a more detailed plan in respect of potential store closures and capex plans.
Edcon has confirmed it intends closing 10% of its stores where cost of occupation exceeds a threshold. A capital contribution will also
be requested for certain existing stores to upgrade and revamp. The Fund is in specific discussions with the Edcon Group relating to the
status of each of its stores. The Fund has engaged these discussions on a portfolio basis and expects the outcome to have an immaterial
impact at a Fund level, with no store closures expected at this point in time.
SUSTAINABILITY
Sustainability is a key area of focus for the Fund which involves improving the stability of electricity and water supply for clients while
attempting to manage the increasing cost of occupation where possible. The focus on the accuracy of council billing and rolling out of
measurement tools for water and electricity usage in the form of bulk check meters are some of the initiatives implemented to date. 100% of
the portfolio will have bulk check metres installed by June 2017.
The Fund introduced a pilot project on the rooftop at Fleurdal Mall in Bloemfontein. The project went live on 1 November 2016. The project
aims to reduce the cost of electricity by creating its own solar power (946 kwh). It also provides grid stability and energy security and will
alleviate down time for clients in the event of load-shedding. This project offers an attractive yield over its repayment profile and has resulted
in the roll-out of a similar project at another of the Fund's retail shopping centres, namely Musina Mall. The project will continue to be rolled
out across feasible buildings and assist in reducing the cost base of the Fund as well as the cost of occupation for clients.
SECTORAL SPREAD
Revenue
39% Office
24% Industrial
37% Retail
SECTORAL SPREAD
Asset value
40% Office
23% Industrial
37% Retail
GEOGRAPHICAL SPREAD
Revenue
6% Free State
66% Gauteng
12% KZN
2% Limpopo
2% Mpumalanga
11% Western Cape
1% Other
CAPITAL EXPENDITURE AND REDEVELOPMENT
The Musina Mall extension
The Fund has partnered with The Moolman Group ("Moolman") (2/3 IPF/1/3 Moolman) to extend Musina Mall by a further 21 323 m2 for a
total value of R332 million (IPF share R221 million). The project is progressing in line with budget and is on track for opening on 1 April 2017.
The redevelopment provides the Fund a development yield of above 9% in year one and is 88% pre-let.
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 centre is located close to the Beit Bridge border and although there has
been some level of disruption due to the challenges that have arisen out of the regulation of border control in Zimbabwe, turnover growth at
the centre was only marginally affected.
The project will create a semi-regional centre in Musina and 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.
CAPITAL ALLOCATION
As highlighted at year-end, the Fund is focused on ensuring that it is optimising long-term shareholder returns by allocating and investing
capital into value enhancing assets.
To this end, the Fund has sold three buildings and 1/3 of Musina Mall during the period for R211.6 million (profit on sale R10.6 million*) with
further disposals planned this year. Two of the properties sold were industrial properties that no longer met the investment criteria and profile
of the Fund and the third was a dealership where the client exercised an early acquisition option at an attractive yield of 7%.
The Fund continuously and rigorously assesses the current portfolio and evaluates performance over the medium to long term.
* The profit on sale excludes R6.3 million of valuation uplift recognised in FY2016 of the disposal of 1/3 stake of Musina Mall.
INVESTMENT IN IAPF
The Fund continues to find Australia as an investment destination and the quality of IAPF's asset base and performance attractive. IAPF
continues to deliver on its investment objectives and the Fund will likely continue to support IAPF and increase its investment at current
pricing levels where the opportunity arises.
The Fund's investment in IAPF amounts to R588 million, representing 12.4% of IAPF (March 2016: 12.3%); and amounts to 3.5% of the
Fund's balance sheet. The Fund currently holds 39 967 734 shares in IAPF. Income growth in the hands of the Fund (in ZAR) equated to
11% for the period.
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 December 2018 at
exchange rates ranging between R10.07 and R13.76 /AUD $.
BALANCE SHEET AND RISK MANAGEMENT
Balance sheet and risk management is a fundamental focus area for the business. In the current volatile and unpredictable environment it is
paramount that the Fund has certainty on its sources of funding and cost of funding. The Fund adopts a conservative approach to both of
these measures.
The active and efficient interest rate risk management strategy is evident in the Fund's current average cost of funding of 9.1%
which is underpinned by a current hedged position of 81%, a debt and swap maturity of 3.7 years and 3.1 years respectively (March 2016:
3.9 years and 3.6 years). The Fund continues to monitor the market and restructure its interest rate swap book when the opportunity
presents itself.
During the period the Fund has:
- rolled R150 million of 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 thee-year debt facility with Standard Bank for R300 million on an unsecured basis 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.
In line with its objective of mitigating refinance risk, the Fund negotiated an early refinancing of R450 million of bank facilities that
has extended the expiry of two facilities by circa 2.5 years. The two facilities were due to mature in October 2016 (R250 million) and
August 2017 (R200 million).
Post period-end, the Fund also repaid bonds to the value of R85 million using existing cash and due to strong demand, increased its
commercial paper to R241 million for further three months at a rate of 44 basis points above three-month JIBAR. The Fund's paper
continues to be well supported.
DEBT EXPIRY PROFILE
FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26
Debt 3 Debt 15 Debt 14 Debt 22 Debt 22 Debt 12 Debt 8 0 0 Debt 4
Swaps 1 Swaps 12 Swaps 25 Swaps 28 Swaps 22 Swaps 9 Swaps 3
SOURCES OF DEBT CAPITAL
3% Commercial paper
39% Corporate bonds
58% Bank debt
CORPORATE RATING
The Fund's corporate rating was maintained at A(ZA) with a stable outlook in August 2016 whilst the secured rating was reaffirmed and
released in April 2015 as AA-, with stable outlook reinforcing the Fund's balance sheet strength.
CHANGES TO THE BOARD
Following the retirement of Graham Rosenthal from the Board on 16 August 2016, shareholders were advised that Philip Hourquebie had
been appointed as an independent non-executive Director with effect from the same date. Phillip was also appointed as Chairman to the
Audit and Risk Committee.
Phillip is a member of the South African Institute of Chartered Accountants (SAICA) with over 38 years of experience at the multinational
professional services firm, EY (formerly Ernst & Young). Between 2010 and 2014 he served as the Regional Managing Partner, Central &
South Eastern Europe, for EY and prior to that he was the Regional Managing Partner, sub-Saharan Africa and CEO South Africa.
PROSPECTS AND GUIDANCE
The interim dividend of 60.91 cents per share exceeds market consensus and the guidance provided in the FY2016 results announcement.
The dividend guidance indicated that the dividend for the full year ending 31 March 2017, would be flat. The expectation was, however, for
H1 to be slightly dilutive due to the comparative for H1 FY2016 not including any of the dilutionary impact for Zenprop. The outperformance
of 2.2% was generated by the base portfolio, IAPF and the acquisitions performing in line with budget.
As a result the Fund expects the growth in dividend per share for the full year to 31 March 2017 to be similar to growth reported in the
interim period.
The growth in dividend per share will normalise to historical levels for 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 on 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
16 November 2016
BASIS OF ACCOUNTING
The reviewed interim condensed consolidated financial information for the six months ended 30 September 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 six months ended 30 September 2016 are consistent with those
adopted in the financial statements for the year ended 31 March 2016, other than the adoption of those standards that became effective
in the current period, which had no impact on the financial results. These reviewed interim 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 1 to 4 of the interim 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.
INTERIM DIVIDEND
Notice is hereby given of the declaration of interim gross dividend number 12 ("Cash dividend") of 60.91090 cents per share for the
period 1 April 2016 to 30 September 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 51.77427 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 Monday, 12 December
Shares to trade ex dividend Tuesday, 13 December
Record date Thursday, 15 December
Payment date Monday, 19 December
Note:
1. Shares may not be dematerialised or rematerialised between commencement of trade on Tuesday, 13 December 2016 and close of
trade on Thursday, 15 December 2016.
Investec Bank Limited
Company Secretary
16 November 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#*
P Hourquebie #*+
# Non-executive
* Independent
^ Retired 16 August 2016
+ Appointed 16 August 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)
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: 16/11/2016 07:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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