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Investec Australia Property Fund Preliminary condensed consolidated financial results
Investec Australia Property Fund
Registered in Australia in terms of ASIC (ARSN 162 067 736)
Registered in terms of the Collective Investment Schemes Control
Act No. 45 of 2003
Share code: IAP
ISIN: AU60INL00018
Investec Australia Property Fund
Preliminary condensed
consolidated financial results
2018
Highlights
Portfolio value
AUD1 bn*
Milestone portfolio value achieved
Full year distribution growth of Asset growth since listing NAV per unit growth
3.0% 7.7x* 11 .1%
10.03 CPU 27 quality Driven by revaluation uplift
pre WHT properties
Valuable platform comprising 27* properties supported by strong underlying property fundamentals and
an established track record of delivering on strategic objectives
5.2 years*
WALE
44% of leases expiring after 5 years
98.5%*
OCCUPANCY RATE
3.9% improvement
since March 2017
3.68%*
ALL IN FUNDING RATE
Strong balance sheet management
87% hedged for 6.2 years
*Includes acquisition of 36-42 Hydrive Close, Dandenong South post-balance sheet date for AUD 19.45mn which settled on 19 April 2018
Key performance indicators
31 March 2018 31 March 2017
Financial KPIs
Distribution per unit pre-WHT 10.03 9.74
Distribution per unit post-WHT 9.29 9.24
Cost to income ratio 6.3% 3.6%
Gearing 35% 32%
Funding costs 3.71% 3.71%
Weighted average debt expiry 3.2 years 3.7 years
Weighted average swap expiry 6.2 years 7.7 years
Hedged position 91% 99%
Operational KPIs
Number of properties 26 24
Property portfolio AUD987mn AUD779mn
Gross lettable area 270 511m2 230 864m2
Weighted average lease expiry (by revenue) 5.1 years 4.6 years
Weighted average escalations 3.3% 3.4%
Occupancy rate (by revenue) 98.5% 94.6%
Units in issue 478 802 454 435 587 842
Consolidated statement of comprehensive income
for the year ended 31 March 2018
Reviewed Audited
year ended year ended
AUD'000 Note 31 March 2018 31 March 2017
Revenue, excluding straight-line rental revenue adjustment 75 451 51 705
Straight-line rental revenue adjustment 2 146 2 793
Revenue 77 597 54 498
Property expenses (13 897) (8 408)
Net property income 63 700 46 090
Other operating expenses (6 177) (4 319)
Operating profit 57 523 41 771
Fair value adjustments 1 61 225 13 645
Finance costs (10 700) (7 100)
Finance income 117 106
Other income 40 320
Total comprehensive income attributable to unitholders 108 205 48 742
Units in issue at the end of the period ('000) 478 802 435 588
Weighted average number of units in issue for the period ('000) 450 084 323 342
Basic and diluted earnings per unit (cents) 24.04 15.07
Distribution reconciliation
for the year ended 31 March 2018
Reviewed Audited
year ended year ended
AUD'000 Note 31 March 2018 31 March 2017
Total comprehensive income for the period 108 205 48 742
Less: Straight-line rental revenue adjustment (2 146) (2 793)
Fair value adjustments 1 (61 225) (13 645)
Antecedent distribution 3 216 4 660
Distributable earnings 48 050 36 964
Reconciliation of distribution per unit
Final distribution for the year to 31 March
Distributable earnings 48 050 36 964
Less: Interim distribution paid (23 723) (15 509)
Final distribution (pre-withholding tax) 24 327 21 455
Withholding tax paid/payable to the Australian Taxation Office (1 705) (1 435)
Income tax paid/payable to the New Zealand Inland Revenue Department (366) -
Final distribution (post-withholding tax) 22 256 20 020
Units in issue at 31 March ('000) 478 802 435 588
Final distribution per unit (cents) (pre-withholding tax) 5.08 4.93
Interim distribution per unit (cents) (pre-withholding tax) 4.95 4.81
Total distribution per unit (cents) (pre-withholding tax) 10.03 9.74
Final distribution per unit (cents) (post-withholding tax) 4.65 4.60
Interim distribution per unit (cents) (post-withholding tax) 4.64 4.64
Total distribution per unit (cents) (post-withholding tax) 9.29 9.24
a) The full year distribution includes the antecedent distribution associated with the unit placement which was completed in November
2017. This amounts to AUD3.2mn. The antecedent distribution is not subject to withholding tax in Australia.
Consolidated statement of financial position
as at 31 March 2018
Reviewed Audited
as at as at
AUD'000 Notes 31 March 2018 31 March 2017
ASSETS
Non-current assets 986 696 780 626
Investment property 986 696 779 350
Financial assets held at fair value 3 - 1 276
Current assets 10 976 5 906
Cash and cash equivalents 7 218 4 116
Trade and other receivables 3 758 1 790
Total assets 997 672 786 532
EQUITY AND LIABILITIES
Unitholders' interest 617 363 505 668
Contributed equity 515 203 466 879
Retained earnings 102 160 38 789
Non-current liabilities 349 647 255 876
Long-term borrowings 342 431 248 005
Trade and other payables 6 187 7 871
Financial liabilities held at fair value 3 1 029 -
Current liabilities 30 662 24 988
Trade and other payables 6 335 3 532
Distributions payable 24 327 21 456
Total equity and liabilities 997 672 786 532
NET ASSETS 617 363 505 668
Units in issue ('000) 478 802 435 588
Net asset value per unit (cents) 128.94 116.09
Consolidated statement of cash flows
for the year ended 31 March 2018
Reviewed Audited
year ended year ended
AUD'000 31 March 2018 31 March 2017
Cash flows from operating activities
Rental income received 73 395 51 529
Property expenses (14 166) (6 834)
Fund expenses (6 177) (4 319)
Security deposits (798) -
Cash generated from operations 52 254 40 376
Finance income received 117 106
Finance costs paid (10 443) (6 589)
Distribution paid to unitholders (45 179) (29 977)
Net cash (used in)/from operating activities (3 251) 3 916
Cash flows from/(used in) investing activities
Investment properly acquired (134 920) (246 163)
Aquisition costs and capital expenditure (4 379) (22 290)
Net cash outflow used in investing activities (139 299) (268 453)
Cash flows from financing activities
Borrowings raised 109 313 112 143
Repayment of loans (15 200) (6 000)
Proceeds from issue of units 52 054 162 580
Payment of transaction costs related to the issue of units (515) (1 178)
Net cash inflow from financing activities 145 652 267 545
Net increase in cash and cash equivalents 3 102 3 008
Cash and cash equivalents at the beginning of the year 4 116 1 108
Cash and cash equivalents at the end of the year 7 218 4 116
Consolidated statement of changes in equity
Total
Contributed Retained unitholders'
AUD'000 equity earnings interest
Balance at 1 April 2016 310 136 22 351 332 487
Total comprehensive income attributable to unitholders - 48 742 48 742
Issue of ordinary units 161 403 - 161 403
Distributions paid/payable to ordinary unitholders (4 660) (32 304) (36 964)
Balance at 31 March 2017 466 879 38 789 505 668
Total comprehensive income attributable to unitholders - 108 205 108 205
Issue of ordinary units 51 540 - 51 540
Distributions paid/payable to ordinary unitholders (3 216) (44 834) (48 050)
Balance at 31 March 2018 515 203 102 160 617 363
For the year ended 31 March 2018
AUD'000 Office Industrial Total
Statement of comprehensive income
Revenue, excluding straight-line rental revenue adjustment 57 453 17 998 75 451
Straight-line rental revenue adjustment 2 279 (133) 2 146
Property expenses (11 814) (2 083) (13 897)
Net property income 47 918 15 782 63 700
Straight-line rental revenue adjustment (2 279) 133 (2 146)
Acquisition costs and capital expenditure (4 420) (1 629) (6 049)
Net investment property revaluation 57 889 11 575 69 464
Total segment results 99 108 25 861 124 969
Other operating expenses (6 177)
Fair value adjustment on interest rate swap derivatives (2 305)
Fair value adjustment on foreign currency 2 261
Finance costs (10 700)
Finance income 117
Other income 40
Profit for the period 108 205
Statement of financial position extracts at 31 March 2018
Investment property balance 1 April 2017 597 151 182 199 779 350
Acquisitions 112 137 22 000 134 137
Foreign currency revaluation on purchase 3 745 - 3 745
Acquisition costs and capital expenditure 4 420 1 629 6 049
Straight-line rental revenue receivable 2 279 (133) 2 146
Fair value adjustments - investment property 51 190 10 079 61 269
Investment property at 31 March 2018 770 922 215 774 986 696
Other assets not managed on a segmental basis 10 976
Total assets as at 31 March 2018 997 672
For the year ended 31 March 2017
AUD'000 Office Industrial Total
Statement of comprehensive income
Revenue, excluding straight-line rental revenue adjustment 36 979 14 726 51 705
Straight-line rental revenue adjustment 1 866 927 2 793
Property expenses (6 690) (1 718) (8 408)
Net property income 32 155 13 935 46 090
Straight-line rental revenue adjustment (1 866) (927) (2 793)
Acquisition costs and capital expenditure (20 926) (1 107) (22 033)
Net investment property revaluation 30 645 5 600 36 245
Total segment results 40 008 17 501 57 509
Other operating expenses (4 319)
Fair value adjustment on interest rate swap derivatives 2 226
Finance costs (7 100)
Finance income 106
Other income 320
Profit for the period 48 742
Statement of financial position extracts at 31 March 2017
Investment property balance 1 April 2016 336 250 157 600 493 850
Acquisitions 230 256 18 999 249 255
Acquisition costs and capital expenditure 20 926 1 107 22 033
Straight-line rental revenue receivable 1 866 927 2 793
Fair value adjustments - investment property 7 853 3 566 11 419
Investment property at 31 March 2017 597 151 182 199 779 350
Other assets not managed on a segmental basis 7 182
Total assets as at 31 March 2017 786 532
Reviewed Audited
year ended year ended
AUD'000 31 March 2018 31 March 2017
1. Fair value adjustments
Fair value adjustments - investment property 61 269 11 419
Fair value adjustments - interest rate swaps (2 305) 2 226
Fair value adjustments - foreign currency revaluation 2 261 -
Total fair value adjustments 61 225 13 645
2. Headline earnings reconciliation
Total comprehensive income for the period 108 205 48 742
Less: Fair value adjustments - investment property (61 269) (11 419)
Headline earnings 46 936 37 323
Basic earnings per unit (cents) 24.04 15.07
Headline earnings per unit (cents) 10.43 11.54
3. Financial instruments
Financial instruments held at fair value include interest rate swaps. Interest rate swaps are classified as level 2 in the fair value
hierarchy. These are valued using valuation models which use market observable inputs such as quoted interest rates. No other
financial instruments are carried at fair value. There have been no transfers between hierarchy levels. Cash and cash equivalents,
trade and other payables are measured at amortised cost and approximate fair value. Long-term borrowings are measured at
amortised cost.
Measured at fair value
For the year ended 31 March 2018
AUD'000 Level 1 Level 2 Level 3
Interest rate swaps - (1 029) - (2 305)
Total financial liabilities measured at fair value - (1 029) - (2 305)
Measured at fair value
For the year ended 31 March 2017
AUD'000 Level 1 Level 2 Level 3
Interest rate swaps - 1 276 - 2 226
Total financial assets measured at fair value - 1 276 - 2 226
4.Fair value of investment property
The Fund's policy is to value properties at each reporting period, with independent valuations performed on a rotational basis to
ensure each property is valued as least every 24 months by an independent external valuer (in compliance with the Fund's debt
facility). At other times where directors' valuations are performed, the valuation methods include the discounted cash flow ("DCF")
method and income capitalisation method.
At year-end independent external valuations were obtained for all properties. In aggregate, revaluations net of the write-off of
transaction costs associated with acquisitions made during the year contributed AUD69.5mn to the value of the portfolio.
Fair value hierarchy - Investment property
For all investment property that is measured at fair value, the current use of the property is considered the highest and best use.
Properties are valued under the income capitalisation method and DCF method.
Under the income capitalisation method a property's fair value is estimated based on the normalised net operating income
generated by the property, which is divided by the capitalisation rate.
Under the DCF method a property's fair value is estimated using explicit assumptions about the benefits and liabilities of ownership
over the asset's life including an exit or terminal value. This involves the projection of a series of cash flows and to this an
appropriate, market-derived discount rate is applied to establish the present value of the income stream.
Measured at fair value
For the year ended 31 March 2018
AUD'000 Level 1 Level 2 Level 3 Total
Total assets
Investment property balance 1 April 2017 - - 779 350 779 350
Acquisitions - - 134 137 134 137
Foreign currency revaluation on purchase - - 3 745 3 745
Acquisition costs and capital expenditure - - 6 049 6 049
Straight-line rental revenue receivable - - 2 146 2 146
Fair value adjustments - - 61 269 61 269
Total non-financial assets measured at fair value - - 986 696 986 696
Measured at fair value
For the year ended 31 March 2017
AUD'000 Level 1 Level 2 Level 3 Total
Investment Property balance 1 April 2016 493 850 493 850
Acquisitions - - 249 255 249 255
Acquisition costs and capital expenditure - - 22 033 22 033
Straight-line rental revenue receivable - - 2 793 2 793
Fair value adjustments - - 11 419 11 419
Total non-financial assets measured at fair value - - 779 350 779 350
Fair value adjustments are processed through "Fair value adjustments" in the statement of comprehensive income.
a. Details of changes in valuation techniques
There have been no significant changes in valuation techniques during the year under review.
b. Significant transfers between level 1, level 2 and level 3
There have been no transfers between hierarchy levels.
All gains and losses recorded in profit or loss for recurring fair value measurements categorised within level 3 of the fair value hierarchy
are attributable to changes in unrealised gains or losses relating to investment property held at the end of the reporting period.
Reviewed Audited
year ended year ended
AUD'000 31 March 2018 31 March 2017
Gross investment property fair value adjustment 63 415 14 212
Less: Straight-line rental revenue adjustment (2 146) (2 793)
Total fair value adjustment - investment property 61 269 11 419
Fair value adjustment on interest rate swap (2 305) 2 226
Fair value adjustments on foreign currency transactions 2 261 -
Net fair value adjustments 61 225 13 645
5. Related party transactions
The Fund entered into the following related party transactions during the year with the Investec Group and its subsidiaries:
Reviewed Audited
year ended year ended
31 March 2018 31 March 2017
Transactions with related parties AUD'000 AUD'000
Payments to Investec Group and its subsidiaries:
Investec Property Management Pty Limited - subsidiary
Asset management fee 5 120 3 690
Property management fee* 1 282 1 087
Leasing fee 494 -
Investec Bank Limited - parent company
Sponsor fee 29 25
Capital raising fees and listing costs 473 287
Investec Property Fund Limited - subsidiary
Capital raising fees and listing costs - 731
Investec Bank plc - parent company
Interest on swaps 1 289 863
Amounts owing to related parties:
Investec Property Management Pty Limited - subsidiary
Asset management fee payable 433 982
* Investec Property Management Pty Limited (IPMPL) has been contracted to perform property management services. IPMPL has sub-contracted this
to third-party property managers who receive this fee from IPMPL.
6. Subsequent events
On 19 April 2018 the Fund completed the acquisition of 36-42 Hydrive Close, Dandenong South. The acquisition was funded with
cash using the Fund's existing debt facilities. The acquisition increased the portfolio value to AUD1 006.1mn and gearing to 35.8%.
Commentary
Introduction
Investec Australia Property Fund ("Fund") is the first inward-listed Australian REIT listed on the main board of the JSE Limited ("JSE"). It is a
revenue-producing fund that operates in a stable and developed market.
The Fund aims to provide unitholders with stable revenue and capital value uplift by investing in quality office, industrial and retail properties
in Australia and New Zealand, giving unitholders direct exposure to the Australian and New Zealand real estate markets via the JSE.
The Fund's portfolio has grown 7.7x* since listing in October 2013 and now comprises 27* properties with a total gross lettable area of
285 146m�* and a portfolio value of AUD1 006.1mn*.
Management continues to believe that the investment case for investing in good quality properties in Australia and New Zealand remains
attractive for South African investors given the region's favourable macro-economic conditions, property yield spreads over historically low
funding costs and revenue returns in a hard currency. Management believes that the Fund's current equity yield of 8.8%^ represents value for
South African investors relative to the Fund's direct peer set in the Australian market.
Market commentary
Australia's population growth continues to underpin a resilient economy displaying solid fundamentals. Low interest rates, consumption
growth, high levels of infrastructure investment, employment and trade growth together with access to the populous Asia markets have
contributed to GDP growth of 2.25% for 2017. The Reserve Bank has maintained the cash rate at 1.50% for the 19th consecutive month
and in its commentary has noted that growth for 2018 and 2019 should pick up to average over 3%. Business conditions are positive and
non-mining investment is increasing. The Australian dollar has depreciated recently but on a trade weighted basis remains within the range
that it has been for the last 2 years. The economy created 403 100 new jobs in 2017 with the unemployment rate tightening to 5.5%. This
positive employment growth has resulted in positive leasing enquiry and declining vacancy rates due to increased demand for space.
The strong economic conditions in NSW and Victoria are expected to continue in the short term off the back of significant infrastructure
spending particularly around road and rail networks. The resource based markets are starting to see a gradual recovery with a return
to positive effective rental growth although incentives remain high. There was over AUD16b of office transactions recorded in 2017 with
offshore capital responsible for over half the volume with new entrants emerging from Japan and the US. While the majority of capital was
focussed on the Sydney and Melbourne markets attracted by positive rent reversion and growth in white collar employment, the Brisbane
and Perth markets saw increased liquidity for those seeking a counter-cyclical play.
There remains diversified sources of capital chasing assets in the industrial and logistics market and the share of offshore investors for this
sector has increased over the last 5 years. The impact of large scale infrastructure projects and the consequence of stock withdrawals for
residential conversion and infrastructure projects together with a lack of stock have seen strong price growth in the Sydney market. The
Melbourne market is also benefitting from above average population growth and a major upgrade of the road network coupled with the
busiest port in Australia is driving a shortage of quality stock for lease or sale.
The economic outlook in New Zealand remains positive despite a change of government with GDP growth forecast to be close to 3%. In
Wellington, where the Fund acquired The Majestic Centre, the supply and demand dynamics following the 2016 earthquake has resulted in
a reduction in vacancy and increased pressure on rentals. There is an elevated demand for occupiers and investors in the market and this
has attracted fresh offshore capital leading to increases in capital values.
Financial results
The board of directors of Investec Property Limited ("IPL"), the responsible entity of the Fund is pleased to announce a final distribution
of 5.08 cents per unit ("cpu") pre-withholding tax ("WHT") and 4.65 cpu post-WHT (2017: 4.93 cpu pre-WHT and 4.60 cpu post-WHT).
This brings the total distribution for the year to 10.03 cpu pre-WHT and 9.29 cpu post-WHT (2017: 9.74 cpu pre-WHT and 9.24 cpu post-
WHT) and represents growth for the full year of 3.0% pre-WHT and 0.6% post-WHT which is in line with guidance given to the market.
The effective tax rate for the full year is 7.95895% compared to 6.13532% for the prior year which has impacted the lower growth rate in the
post WHT distribution. The effective tax rate has been impacted by a reduction in the depreciation shield, from 45% in FY17 to 39% in FY18
along with the antecedent distribution in FY17 being a larger component of the total distribution than the antecedent distribution in FY18.
The antecedent distribution is not subject to withholding tax in Australia.
^ 12-month forward yield, pre-withholding tax and based on the unit price at 4 May 2018 of ZAR 11.01
* Includes acquisition of 36-42 Hydrive Close, Dandenong South post-balance sheet date for AUD19.45 mn which settled on 19 April 2018
The performance of the Fund is a result of the successful implementation of the Fund's strategy, namely:
- delivering stable income growth;
- engaging in active property management; and
- efficiently managing the balance sheet and interest rates.
Properties
Strategy
Direct asset pricing remains strong off the back of continued flows of foreign capital into the Australian property market, particularly from
Asia. Despite this, management continues to explore opportunities to grow the Fund's portfolio whilst maintaining the discipline of investing
based on sound underlying property fundamentals and "the right asset at the right price".
Management's focus for the 12 months has been on seeking out and creating value for unitholders - whether in the context of exploring new
markets (such as New Zealand), making acquisitions that represent relative value compared to other available opportunities or by improving
the quality of the underlying portfolio through active asset management. These efforts have contributed to an increase in the Fund's net
asset value of 11.1% for the year ended 31 March 2018, supported by a valuation uplift of AUD73.2mn (8.0%) over the same period.
Management has also been focused on improving the weighted average lease expiry of the portfolio. This has been achieved through the
acquisition of properties with long dated lease expiries and through early engagement with tenants in an effort to understand their medium-
to long-terms occupancy requirements, and where possible, agreeing lease extensions in advance of the contractual expiry dates. This
process has been assisted by re-investment into the portfolio in the form of both offensive and defensive capital expenditure. Management is
continually looking at ways to improve the tenant experience and amenity at the Fund's properties in order to retain and attract tenants and
to drive revenue growth.
Management will consider selling properties in circumstances where it believes value creation has been maximised, to protect against
downside risk or to improve the overall quality of the Fund's portfolio.
In early 2018, following a detailed tender process, the Fund moved the majority of its property and facilities management support to
Knight Frank. Already there has been an improvement in tenant engagement and feedback and a more rigorous approach to systems and
reporting. Knight Frank has also commenced a sustainability audit across the portfolio to identify opportunities to improve building efficiency,
performance and environmental impact. Later in the year Knight Frank will also undertake a procurement review to identify cost saving
opportunities in an effort to reduce occupancy expenses for tenants.
Acquisitions
Despite the market remaining competitive, the Fund has completed the acquisition of three quality properties since 31 March 2017.
The Fund completed the acquisition of its first property located in New Zealand in December 2017. The Majestic Centre is an iconic office
building located in the heart of the Wellington CBD. The business case for acquiring the property was compelling, in particular:
- the purchase price (NZD 5 000/m2) was significantly below replacement cost and compares very favourably to equivalent properties in
Australian CBD locations;
- there is no stamp duty payable on acquisitions in New Zealand;
- 98% leased to good quality tenants, including Ernst & Young, Cigna Life Insurance, Opus International and New Zealand Trade and
Enterprise;
- less than 1% vacancy in premium and prime grade office in Wellington with no uncommitted supply coming into the market; and
- low incentives of 7% to 8%.
The Fund acquired two Melbourne industrial properties in the neighbouring suburbs of Hallam and Dandenong South, approximately
30km south east of the Melbourne CBD. Both properties provide long-term sustainable revenue for the Fund with lease expiries in excess of
seven years.
Effective Value GLA Yield WALE
Property name Geography date Sector ('000) (m2) (%) (years)
6-8 and 11 Siddons Way, Hallam Melbourne, VIC 18/10/2017 Industrial AUD22 000 15 504 6.3 7.8
The Majestic Centre, 100 Willis Street Wellington, NZ 11/12/2017 Office NZD123 175 24 440 7.1 6.6
36-42 Hydrive Close, Dandenong South Melbourne, VIC 19/04/2018 Industrial AUD19 450 14 635 6.3 7.1
Valuations
The Fund's policy is to value properties at each reporting period, with independent valuations performed on a rotational basis to ensure each
property is valued at least every 24 months by an independent external valuer (in compliance with the Fund's debt facility). At other times
where directors' valuations are performed, the valuation methods include using the discounted cash flow model and capitalisation model.
As at 31 March 2018, external valuations were obtained for all of the Fund's properties. Whilst there has been further compression in cap
rates during the 12 months to 31 March 2018 across the market which has contributed in part to the valuation uplift, the Fund's active asset
management success during the period, for example, extending the lease to Carsales.com at 449 Punt Road in Melbourne and the leases
to Horan Steel at 165 Newton Road in Sydney and 24 Spit Island Close in Newcastle, has unlocked additional value by further de-risking
future revenue.
Revaluations contributed AUD73.2mn to the value of the portfolio, which represents an increase of 8.0% for the 12 months since 31 March
2017. The majority of this uplift was attributable to the Fund's metropolitan office properties, which validates the Fund's strategy to increase
its exposure to these markets, particularly in Sydney and Melbourne.
Net asset value growth of 11.1% was achieved for the 12 months to 31 March 2018, largely attributable to the revaluation of the Fund's
properties
Geographic spread*
During the year, the Fund made its first investment in New Zealand, which accounts for 12% of the portfolio by asset value.
Post 31 March 2018, the Fund completed the acquisition of 36-42 Hydrive Close in Melbourne which increased the Fund's exposure to
Victoria. The Fund's exposure to the two best performing Australian economies of New South Wales and Victoria is now 57% by asset value
(31 March 2017: 61%).
GLA Asset value Revenue
ACT 10% ACT 7% ACT 8%
NSW 35% NSW 38% NSW 38%
QLD 16% QLD 20% QLD 21%
SA 3% SA 1% SA 1%
WA 8% WA 3% WA 3%
VIC 19% VIC 19% VIC 16%
NZ 9% NZ 12% NZ 13%
Sectoral spread*
Despite the recent acquisition of two Melbourne industrial properties, the Fund has maintained its bias towards office markets with exposure
to this sector representing 77% of the portfolio by asset value (31 March 2017: 77%).
GLA Asset value Revenue
Office 49% Office 77% Office 76%
Industrial 51% Industrial 23% Industrial 24%
Leasing activity
At the date of this report, the portfolio is 98.5% occupied by revenue, an improvement from 94.6% at 31 March 2017. The current vacancy
largely comprises acquired vacancy at 324 Queen Street in Brisbane and 20 Rodborough Road in Sydney, which has taken longer than
expected to lease.
Since 31 March 2017, the Fund has been actively engaging with tenants to understand their medium to long term occupancy requirements.
This has resulted in approximately 16% of Fund's portfolio by area being contracted since 31 March 2017 (46 393m�), notwithstanding less
than 6% of the Fund's portfolio by area was either vacant or expiring during the period. As at the date of this report only 3 035m� remains
vacant.
* Includes acquisition of 36-42 Hydrive Close, Dandenong South post-balance sheet date for AUD19.45mn which settled on 19 April 2018
Leasing activity of particular note since 31 March 2017 includes:
-the extension of the lease to Carsales.com over 6 370m� at 449 Punt Road in Melbourne, with a new expiry date of October 2024;
-the leasing of 3 742m� at Elizabeth Street in Melbourne, which became vacant in March 2017 as a result of the previous tenant being
placed in liquidation;
-the extension of the lease to Allianz over 3 769m� at 324 Queen Street in Brisbane, with a new expiry date of September 2027;
-the extension of the leases to Horan Steel at 165 Newton Road in Sydney over 12 529m2 and 24 Spit Island Close in Newcastle over
5 257m2, with new expiry dates of January 2031; and
-the extension of the lease to Kentucky Fried Chicken over 3 000m� at 20 Rodborough Road in Sydney, with a new expiry date of
July 2033, and the leasing of 2 083m� vacated by Kentucky Fried Chicken to Outotec, with an expiry date of August 2023.
A further 4 572m� is currently subject to signed heads of agreement which are expected to convert to signed leases. Of this space,
1 257m2 relates to current vacancy, 2 345m� relates to expiries in FY19 and 969m� relates to expiries in FY20. Management is committed to
managing upcoming vacancy and is actively engaged with all of the Fund's tenants on a regular basis in this regard.
Since 31 March 2017, the Fund has completed the following leasing transactions:
GLA Average initial lease term Average escalation
(m2) (years) (%)
Replacement leases/renewals
Office 21 541 7.2 3.57
Industrial 17 786 6.4 3.22
Letting of vacancy
Office 7 066 4.5 3.60
Industrial - - -
Total 46 393
The Fund's lease expiry profile at the date of this report remains strong with a weighted average lease expiry of 5.2 years* by revenue with
44.4%* of leases expiring after five years. The lease expiry profile reflects the quality and sustainability of the Fund's revenue base.
* Includes acquisition of 36-42 Hydrive Close, Dandenong South post-balance sheet date for AUD19.45mn which settled on 19 April 2018
Capital and risk management
The Fund's gearing ratio as at 31 March 2018 was 34.8% (35.8% following the acquisition of 36-42 Hydrive Close in Melbourne). The
Fund's long-term strategy is to maintain gearing between 35% and 40%, however, the Fund will manage gearing levels to take advantage
of attractive acquisition opportunities. The weighted average maturity of the Fund's debt is 3.2 years* and the Fund has fixed 87.1%*
(2017: 99.1%) of its interest rate exposure for a weighted term of 6.2 years (2017: 7.7 years) at a rate of 2.42% (2017: 2.43%). The Fund's
all in cost of funding is currently 3.68%* (2017: 3.71%).
During the year, the Fund bought back 1.5% of the units on issue at an average price of ZAR12.99, reflecting an implied yield of
approximately 8.0% and which represents relative value compared to where direct assets have been trading.
ASX listing
Management flagged at the half year that the Fund was considering a dual listing on the Australian Securities Exchange ("ASX"), subject
to favourable market conditions. Since that time there has been a shift in the price of global bonds and corresponding weakness in the
Australian REIT market. As a result, market conditions have not been conducive to a listing as yet. However, management continues to
explore the possibility of an ASX listing and work continues on preparing the Fund for listing in Australia when market conditions permit.
To this end, Macquarie Bank and J.P. Morgan have been appointed to assist the Fund with the ASX listing and a non-deal road show to
selected Australian institutional investors was completed in early 2018. Feedback from the road show was positive in terms of the quality
of the Fund's portfolio, the Fund's asset strategy and management track record. The key areas of focus for Australian institutional investors
are ensuring that the management arrangements, corporate governance and distribution policy are consistent with Australian standards.
Management will keep the market informed on progress with the ASX listing.
Australian REIT structure
The Fund allows for the tax efficient flow-through of net income to unitholders. The Fund is an uncapped and open-ended fund and existing
and future unitholders will hold a participatory interest in the Fund, which entitles unitholders to a pro rata share of the underlying income
generated by the Fund and a pro rata beneficial interest in the assets of the Fund. The Fund is registered as a Managed Investment Scheme in
Australia. The Fund is governed and operated by IPL as Responsible Entity, and is managed by Investec Property Management Pty Limited.
Unitholders
At 31 March 2018, Investec Property Fund Limited and Investec Bank Limited are the only unitholders holding in excess of 5% of the Fund's
total issued units, holding 20.92% and 15.07% respectively.
- Number of units in issue 478 802 454
- Number of unitholders 4 884
Changes to the board
There have been no changes to the board of IPL during the period.
Prospects
The board of IPL is therefore communicating expected distribution growth in FY19 of between 2% and 2.5% pre-withholding tax and 0.0%
and 0.5% post-withholding tax.
This forecast is based on the assumptions that the macro-economic environment will not deteriorate markedly, no tenant failures will occur and
budgeted renewals will be concluded. Budgeted rental revenue is based on in force leases, 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 concerning the accuracy and/or
completeness of such information and/or the correctness of such opinions.
Any reference to future financial information included in this announcement has not been reviewed or reported on by the Fund's independent auditors.
Richard Longes Graeme Katz
Chairman Chief Executive Officer
15 May 2018
* Includes acquisition of 36-42 Hydrive Close, Dandenong South post-balance sheet date for AUD19.45mn which settled on 19 April 2018
Basis of preparation
The condensed consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings
Requirements for preliminary reports. The Listings Requirements require preliminary reports to be prepared in accordance with the
framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the
SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial
Reporting Standards Council and to also, as a minimum contain the information required by IAS 34 Interim Financial Reporting. The
accounting policies applied in the preparation of the condensed consolidated financial statements are in terms of IFRS and are consistent
with those applied in the previous consolidated annual financial statements.
Review conclusion
The condensed consolidated financial statements for the year ended 31 March 2018 have been reviewed by KPMG Inc. who expressed an
unmodified review conclusion. A copy of the auditor's review report is available for inspection at the fund's registered office together with the
financial statements identified in the auditor's report.
The auditor's report does not necessarily report on all of the information contained in these financial results. Unitholders are therefore advised
that in order to obtain a full understanding of the nature of the auditor's engagement they should obtain a copy of the auditor's review report
together with the accompanying financial information from the issuer's registered office.
Final distribution
Notice is hereby given of a final distribution declaration number 9 of:
- 5.08073 AUD cents per unit pre WHT
- 4.64803 AUD cents per unit post WHT
for the six months ended 31 March 2018. Tax of 0.43270 AUD cents or 8.51655% per unit will be withheld from the distribution paid to non-
Australian unitholders.
The salient dates relating to the distribution are as follows:
2018
Exchange rate to convert the distribution to Rand and announced on SENS1 Tuesday, 29 May
Last day to trade cum distribution Tuesday, 5 June
Units to trade ex distribution Wednesday, 6 June
Distribution amount transferred to South Africa Friday, 8 June
Record date Friday, 8 June
Distribution posted/paid to certificated unitholders Monday, 11 June
(1)Exchange rate calculated on Tuesday, 29 May
Units may not be dematerialised or rematerialised between commencement of trade Wednesday, 6 June 2018 and close of trade on Friday, 8 June 2018,
both dates inclusive
This distribution includes a "Fund Payment" amount of 2.53784 AUD cents per unit, pursuant to Subdivision 12-H of Schedule 1 of the
Taxation Administration Act 1953 and relates to the period ending 31 March 2018.
The Fund declares that it is an Attribution Managed Investment Trust, and a withholding managed investment trust for the purposes of
subdivision 12-H of Schedule 1 of the Taxation Administration Act 1953, in respect of the income year ended 31 March 2018.
Total
distribution
Fund payment (subject to fund payment withholding) 2.53784
Interest income (subject to other non-resident withholding) 0.07834
Foreign income (subject to New Zealand corporate tax) 0.27334
Tax deferred 2.19120
Total cash distribution 5.08073
The above information has been included in the notice solely to assist other entities with Australian withholding tax obligations that may arise
in respect of any amounts distributed to non-Australian residents.
General unitholder tax information
The Fund and its management arrangements are structured to meet the required criteria to be classified as an Attribution Managed
Investment Trust for Australian tax purposes. As an Attribution Managed Investment Trust, the responsible entity will be required to withhold
tax on Australian sourced income at a concessional rate of 15% on distributions to individual and institutional unitholders in South Africa.
The New Zealand sourced income is subject to the corporate tax rate in New Zealand of 28%, and is not subject to Australian withholding tax.
The effect of these taxes on the Fund's distribution for the period from 1 October 2017 to 31 March 2018 has been reduced to 8.51655%,
equivalent to 0.43270 AUD cents per unit, through certain deductions such as depreciation. Thus, tax of 0.43270 AUD cents per unit will be
withheld from the distribution accruing to unitholder and will be paid to the Australian Taxation Office for Australian sourced income and the
New Zealand Inland Revenue Department for New Zealand sourced income.
South African unitholder tax information
The distribution is regarded as a foreign distribution for South African unitholders.
The distribution comprises gross income, and is to be taxed as such, in the hands of South African investors. The pre tax distribution is to
be included in an investors' taxable income and subject to normal tax in full. Tax paying unitholders will be able to claim a rebate equivalent
to 8.51655% per unit against tax paid in Australia and New Zealand. Non-tax paying unitholders will not be entitled to claim a rebate.
By order of the board
Investec Property Limited
Company Secretary
15 May 2018
Company information
Directors of the Responsible Entity Responsible Entity
Richard Longes# (Non-executive chairman) Investec Property Limited
Stephen Koseff (Non-executive) (ACN 071 514 246 AFSL 290 909)
Graeme Katz (Executive) Level 23, Chifley Tower
Samuel Leon (Non-executive) 2 Chifley Square
Sally Herman# (Non-executive) Sydney
Hugh Martin# (Non-executive) New South Wales
#Independent 2000
Australia
Directors of the Manager
Manager
Graeme Katz (Executive)
Zach McHerron (Executive) Investec Property Management Proprietary Limited
Kristie Lenton (Executive) (ACN 161 587 391)
Samuel Leon (Non-executive) Level 23, Chifley Tower
2 Chifley Square
Sydney
Investec Australia Property Fund New South Wales
2000
Registered in Australia in terms of ASIC (ARSN 162 067 736) Australia
Registered in terms of the Collective Investment Schemes Control
Act No. 45 of 2003
Share code: IAP Transfer Secretaries
ISIN: AU60INL00018
Computershare Investor Services Pty Limited
Rosebank Towers
Company Secretary 15 Biermann Avenue
of the Responsible Entity Rosebank, 2196
(PO Box 61051, Marshalltown, 2107)
Paul Lam-Po-Tang (BCom, LLB) Phone: +27 11 370 5159
Registered office and postal address Sponsor
of the Responsible Entity and date of The Corporate Finance division of Investec Bank Limited
establishment 2nd Floor
of the Fund 100 Grayston Drive
Sandown
Australia: Sandton
Level 23, Chifley Tower 2196
2 Chifley Square (PO Box 785700, Sandton, 2146)
Sydney
New South Wales
2000
Custodian
Australia
Perpetual Corporate Trust Limited
Local representative office: (ACN 000 341 533)
2nd Floor Level 12, 123 Pitt Street
100 Grayston Drive Sydney
Sandown New South Wales
Sandton 2000
2196 Australia
Established on 12 December 2012 in Sydney, Australia.
Registered as a Managed Investment Scheme with ASIC under
the Corporations Act on 6 February 2013. On 23 August 2013,
the Registrar of Collective Investment Schemes authorised the
Fund to solicit investments in the Fund from members of the
public in the Republic of South Africa in terms of section 65 of
the Collective Investment Schemes Control Act, 45 of 2002,
as amended.
Date: 15/05/2018 07:05:00 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,
information disseminated through SENS.
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