Wrap Text
Reviewed preliminary condensed consolidated
Financial results
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)
Reviewed preliminary
condensed consolidated
Financial results
Key highlights for the year ended 31 March 2018
8.5% Increase in DPS year-on-year
138.53
FULL YEAR
DISTRIBUTION
(cents per share)
6.1%
CORE DPS GROWTH
(excluding IAPF antecedent
dividend received)
21.5%
TOTAL RETURN TO
SHAREHOLDERS
(March 2017: 19.1%)
5.7%
BASE NET PROPERTY
INCOME GROWTH
73.0%
OF SPACE EXPIRING
in the full financial year renewed
or re-let at an average positive
reversion of 1.9%
EUR74.2m
INITIAL INVESTMENT
into a Pan-European logistics
platform post year end, with a
total commitment of EUR150m
8.6%
all in cost of funding reduced
from 8.9%
11.7%*
offshore real state investments
BALANCE SHEET
METRICS FURTHER
ENHANCED
84% hedged and swap expiry
profile extended to 3.8 years
DIVERSIFIED
INVESTMENT
PORTFOLIO
underpinned by quality local
(88.3%)* and offshore (11.7%)*
real estate investments
* Post conclusion of the investment into the Pan-European logistics platform
Key property indicators
In force escalations
7.6% (March 2017: 7.7%)
Weighted average lease expiry 3.3 years
(March 2017: 3.1 years)
Vacancy
4.8% (March 2017: 1.4%) which is reflective of the
challenging operating environment, but still below
industry norms. Excluding planned development
vacancy the ratio would be 4.0%
Net cost-to-income ratio
16.8% (March 2017: 15.2%) as a result of increases in the cost
base directly attributable to focused client retention
initiatives, impacts of longer void periods, as well as
variable costs relating to letting activity
Key financial indicators
Gearing
reduced to
32.6%
(March 2017: 33.2%)
Weighted average
debt expiry
2.7 years
(March 2017: 3.2 years)
Increase in net asset
value per share of
2.0%
to R17.29
(March 2017: R16.94)
Asset value
R19.2bn
(March 2017: R18.8bn)
Consolidated statement of comprehensive income
Reviewed Audited
Year ended Year ended
R'000 Notes 31 March 2018 31 March 2017
Revenue, excluding straight-line rental revenue adjustment 1 810 542 1 657 570
Straight-line rental revenue adjustment 52 698 122 691
Revenue 1 863 240 1 780 261
Property expenses (303 356) (251 808)
Net property income 1 559 884 1 528 453
Other operating expenses (72 604) (56 301)
Operating profit 1 487 280 1 472 152
Fair value adjustments 2 230 684 446 258
Profit on disposal of investment property 2 655 27 073
Income from investments(2) 107 530 28 581
Finance costs (590 360) (520 858)
Finance income 19 771 11 641
Profit before taxation 1 257 560 1 464 847
Taxation (9 870) (6 139)
Total comprehensive income attributable to equity holders 1 247 690 1 458 708
Distribution reconciliation
Total comprehensive income attributable to equity holders 1 247 690 1 458 708
Less: Fair value adjustments 2 (230 684) (446 258)
Profit on disposal of investment property (2 655) (27 073)
Straight-line rental revenue adjustment (52 698) (122 691)
Izandla junior facility interest not received(1) (800) -
Add: Investment dividend accrual (net of WHT)(2) 30 124 24 504
Notional cost of funding Ingenuity acquisition(3) 7 576 1 702
Deferred taxation 2 765 5 386
Antecedent dividend(4) 2 867 11 516
Less: Interim dividend paid (491 018) (426 515)
Final dividend 513 167 479 279
Number of shares
Shares in issue 731 400 437 718 150 167
Weighted average number of shares in issue 722 796 837 700 773 985
Cents
Total dividend per share(5) 138.53 127.65
Final dividend per share 70.16 66.74
Interim dividend per share 68.37 60.91
Basic and diluted earnings per share 172.62 208.16
Headline earnings per share 1 106.41 123.91
(1) To the extent that Izandla Property Fund Proprietary Limited ('Izandla') has not yet settled the accrued interest on the Izandla
junior facility, the distribution is reduced by this amount.
(2) Investec Property Fund Limited ('The Fund' or 'IPF') considers the expected future Investec Australia Property Fund ('IAPF')
dividend and the Investec Argo Property Fund ('U.K. investment') (legal entity name 'Nestor Investment Holdings Limited')
dividend, relating to the earnings from the current period, to be part of the distributable earnings for the current period.
Accordingly an adjustment is made to match the anticipated income of the distribution to the period to which the distribution relates.
(3) The Fund's investment into Ingenuity Property Investments Limited ('Ingenuity') was made on a total return basis. From a
distribution perspective, the Fund's policy in relation to total return is to add back the funding cost of the investment, net of
dividends received.
(4) Antecedent dividend relating to the issue of 13 250 270 shares in November 2017.
(5) Excluding the once-off antecedent dividend received from IAPF of R22.3m, the core dividend per share is 135.43 cents, resulting in
growth of 6.1% year-on-year.
Consolidated statement of financial position
Reviewed Audited
31 March 31 March
R'000 Notes 2018 2017
ASSETS
Non-current assets 19 085 578 17 997 472
Investment property 5 17 004 260 16 176 214
Straight-line rental revenue adjustment 476 955 424 663
Equity accounted investment in and loans to associate 4 207 235 -
Other investments 3 1 357 987 1 391 573
Derivative financial instruments 3 39 141 5 022
Current assets 749 642 316 633
Trade and other receivables 218 866 153 967
Cash and cash equivalents(1) 507 338 159 377
Current portion of derivative financial instruments 3 23 438 3 289
Non-current assets held-for-sale 7 117 654 770 618
Total assets 19 952 874 19 084 723
EQUITY AND LIABILITIES
Shareholders' interest 12 643 769 12 167 927
Stated capital 10 186 582 9 999 838
Retained earnings 2 457 187 2 168 089
Non-current liabilities 6 032 267 5 714 018
Long-term borrowings 8 5 917 743 5 630 885
Derivative financial instruments 3 106 373 77 747
Deferred taxation 6 8 151 5 386
Current liabilities 1 276 838 1 202 778
Trade and other payables 401 397 422 252
Current portion of non-current liabilities 8 839 000 759 432
Current portion of derivative financial instruments 3 36 441 21 094
Total equity and liabilities 19 952 874 19 084 723
Shares in issue 731 400 437 718 150 167
Net asset value per share (cents) 1 729 1 694
(1) The cash balance includes restricted cash relating to tenant deposits of R50.3m, cash received in advance for April rentals of
R55.9m, and funds raised to fund a post year-end acquisition (refer to note 11 subsequent events).
Condensed consolidated statement of cash flows
Reviewed Audited
Year ended Year ended
R'000 31 March 2018 31 March 2017
Cash generated from operations(1) 1 320 763 1 419 235
Finance income received 18 971 11 641
Finance costs paid (593 255) (521 970)
Income from investment (net of WHT) 100 425 46 845
Dividends paid to shareholders(2) (979 167) (673 614)
Net cash (outflow)/inflow from operating activities (132 263) 282 137
Net cash outflow from investing activities(3) (68 731) (1 026 477)
Net cash inflow from financing activities(4) 548 955 850 256
Net increase in cash and cash equivalents 347 961 105 916
Cash and cash equivalents at the beginning of the year 159 377 53 461
Cash and cash equivalents at the end of the year 507 338 159 377
(1) The decrease in cash generated from operations compared to prior year is largely driven by an increase in working capital.
(2) Comprises the final dividend relating to the prior year and the interim dividend relating to the current year.
(3) Investing activities include investment properties acquired, additions and improvements to investment properties, proceeds
from the sale of investment properties, the acquisition of equity in and loans receivable from Izandla and the acquisition
of shares in Ingenuity and the U.K. investment.
(4) Financing activities include equity issued, term loans raised and corporate bonds issued and repaid.
Condensed consolidated statement of changes in equity
Reviewed Audited
Year ended Year ended
R'000 31 March 2018 31 March 2017
Balance at the beginning of the year 12 167 927 11 097 103
Total comprehensive income attributable to equity holders 1 247 690 1 458 708
Shares issued net of costs(1) 207 319 285 730
Dividends declared and paid (979 167) (673 614)
Balance at the end of the year 12 643 769 12 167 927
(1) 13 250 270 shares issued in November 2017 at a price of R15.75 less costs.
Condensed consolidated segmental information
For the year ended 31 March 2018
R'000 Office Industrial Retail Total
Statement of comprehensive income extract
Revenue, excluding straight-line rental revenue
adjustment 699 193 431 003 680 346 1 810 542
Straight-line rental revenue adjustment 9 056 22 121 21 521 52 698
Revenue 708 249 453 124 701 867 1 863 240
Property expenses (118 990) (60 414) (123 952) (303 356)
Net property income 589 259 392 710 577 915 1 559 884
Statement of financial position extracts
Investment property opening balance at 1 April 2017 6 362 854 3 735 045 6 502 978 16 600 877
Net additions, acquisitions and disposals 18 512 230 476 109 561 358 549
Fair value adjustment and straight-lining 55 346 96 377 391 100 542 823
Transfer to non-current assets held-for-sale (21 034) - - (21 034)
Fair value of investment property at 31 March 2018 6 415 678 4 061 898 7 003 639 17 481 215
For the year ended 31 March 2017
R'000 Office Industrial Retail Total
Statement of comprehensive income extract
Revenue, excluding straight-line rental revenue
adjustment 653 628 398 104 605 838 1 657 570
Straight-line rental revenue adjustment 42 978 36 241 43 472 122 691
Revenue 696 606 434 345 649 310 1 780 261
Property expenses (93 121) (54 474) (104 213) (251 808)
Net property income 603 485 379 871 545 097 1 528 453
Statement of financial position extract
Investment property opening balance at 1 April 2016 6 552 959 3 847 683 6 059 071 16 459 713
Net additions, acquisitions and disposals (103 103) (50 659) 384 369 230 607
Fair value adjustment and straight-lining 176 140 137 440 367 595 681 175
Transfer to non-current assets held-for-sale (263 142) (199 419) (308 057) (770 618)
Fair value of investment property at 31 March 2017 6 362 854 3 735 045 6 502 978 16 600 877
Notes to the reviewed preliminary condensed consolidated financial results
Reviewed Audited
Year ended Year ended
31 March 31 March
R'000 2018 2017
1. Headline earnings per share
1.1 Reconciliation of basic earnings to headline earnings
Total comprehensive income attributable to equity holders 1 247 690 1 458 708
Less: Fair value adjustments on investment property (475 868) (563 273)
Profit on disposal of investment property (2 655) (27 073)
Headline earnings attributable to shareholders 769 167 868 362
Headline earnings per share 106.41 123.91
1.2 Reconciliation of total dividend per share to core dividend
per share
Interim dividend 491 018 426 515
Less: IAPF antecedent dividend (22 277) -
Core interim dividend 468 741 426 515
Shares in issue at interim reporting period 718 150 167 700 228 202
Core interim dividend per share 65.27 60.91
Final dividend per share 70.16 66.74
Total core dividend per share 135.43 127.65
2. Fair value adjustments
Fair value adjustments on derivative instruments(1) (12 610) (86 619)
Fair value adjustments on investment property 475 868 563 273
Fair value adjustments on investments(2) (232 574) (30 396)
230 684 446 258
(1) Fair value adjustments on interest rate swaps amounts to a loss of R74.8m and on cross-currency swaps and forward exchange contracts
('FEC's') a gain of R62.2m.
(2) Comprises a loss of R244.9m on IAPF, a loss of R6.1m on Ingenuity and a gain of R18.4m on the U.K. investment.
3. Financial instruments
Financial instruments held at fair value by the Fund include the investment in IAPF, the investment in Ingenuity, the U.K. investment
and derivatives. The valuations of IAPF and Ingenuity are based on the closing share price times the number of shares held at the
reporting date, which is a level 1 valuation. The U.K. investment valuation is based on the fair value, which is a level 3 valuation,
translated at the closing GBP spot price.
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. Refer to note 3.3 for detail
on the fair value hierarchy.
Cash and cash equivalents, trade and other receivables, trade and other payables and variable rate loans are carried at amortised
cost and the carrying value is a reasonable approximation of fair value.
Reviewed Audited
31 March 31 March
R'000 2018 2017
3.1 Listed investments
Investment in IAPF 1 051 544 1 292 426
% holding 20.9% 22.9%
The reduction in holding results from a dilution due
to an IAPF placement, not a
sale of shares
Investment in Ingenuity 114 643 99 147
% holding 9.2% 8.0%
Total fair value 1 166 187 1 391 573
The Fund carries its investments in IAPF and Ingenuity at fair value. IAPF is classified as an associate and Ingenuity is classified
as an investment.
Reviewed Audited
31 March 31 March
R'000 2018 2017
3.2 Unlisted investments
U.K. investment 191 800 -
% holding 10.0% 0.0%
The Fund carries the U.K. investment at fair value and classifies it as an investment.
Carried at
Reviewed 31 March 2018 Carried at amortised
R'000 fair value Level 1 Level 2 Level 3 cost
3.3 Fair value hierarchy
Investments 1 357 987 1 166 187 - 191 800 -
Equity accounted investment in and
loans to associate(1) - - - - 188 988
Derivative financial instruments 62 579 - 62 579 - -
Trade and other receivables(2) - - - - 133 456
Cash and cash equivalents - - - - 507 338
Total financial assets 1 420 566 1 166 187 62 579 191 800 829 782
Derivative financial instruments 142 814 - 142 814 -
Long-term borrowings (including current) - - - - 6 756 743
Trade and other payables(3) - - - - 332 454
Total financial liabilities 142 814 - 142 814 - 7 089 197
Carried at
Audited 31 March 2017 Carried at amortised
R'000 fair value Level 1 Level 2 Level 3 cost
Fair value hierarchy
Investments 1 391 573 1 391 573 - - -
Derivative financial instruments 8 311 - 8 311 - -
Trade and other receivables(2) - - - - 153 967
Cash and cash equivalents - - - - 159 377
Total financial assets 1 399 884 1 391 573 8 311 - 313 344
Derivative financial instruments 98 841 - 98 841 - -
Long-term borrowings (including current) - - - - 6 390 317
Trade and other payables(3) - - - - 422 252
Total financial liabilities 98 841 - 98 841 - 6 812 569
(1) Equity accounted investment in and loans to associate excludes the equity portion which is a non-financial instrument.
(2) Trade and other receivables exclude prepayments which are non-financial instruments.
(3) Trade and other payables exclude revenue received in advance and value added tax as these are non-financial instruments.
Reviewed Audited
31 March 31 March
R'000 2018 2017
3.4 Level 3 valuations
The level 3 valuation of the U.K. investment is reconciled as follows:
Opening balance - -
Acquisition 173 329 -
Fair value gain* 18 471 -
Closing balance 191 800 -
* Reflected in fair value adjustments in the consolidated statement of comprehensive income, comprising a fair value gain of
R25.6m and a fair value loss relating to exchange rate changes of R7.1m.
Valuation techniques used to derive level 3 fair value
The significant unobservable inputs used to derive the fair value measurement are those relating to the valuation of
underlying investment properties. The table below includes the following descriptions and definitions relating to key
unobservable inputs made in determining fair value:
Expected rental value The rent at which space could be let in the market conditions prevailing at the date of
('ERV') valuation.
The equivalent yield is defined as the internal rate of return of the cash flow from the property,
Equivalent yield assuming a rise to ERV at the next review, but with no further rental growth.
The ERV of the expected long-term average structural vacant space divided by ERV of the
whole property. Long-term vacancy rate can also be determined based on the percentage of
Long-term vacancy rate estimated vacant space divided by the total lettable area.
Significant
unobservable inputs Relationship between unobservable inputs and fair value measurement
Expected rental value
('ERV') Increases in ERV would increase estimated fair value.
Increases/decreases in the equivalent yield would result in decreases/increases in the
Equivalent yield estimated fair value
Increases/decreases in the long-term vacancy rate would result in decreases/increases in the
Long-term vacancy rate estimated fair value.
The fair value of the underlying property portfolio has been determined using the income capitalisation method.
If the fair value of the underlying properties was 10% higher/lower, due to a change in the underlying unobservable inputs,
the fair value of the U.K. investment would be R34m higher/lower than the reported closing balance.
Reviewed Audited
31 March 31 March
R'000 2018 2017
4. Equity accounted investment in and loans to
associate
Equity investment in Izandla 18 247 -
Mezzanine facility (prime + 3.5%) 110 786 -
Junior facility (prime + 5.5%) 78 202 -
207 235 -
The Fund holds a 35% interest in Izandla and has advanced senior and junior mezzainine facilities to facilitate the initial set up of
Izandla. The investment is accounted for as an associate using the equity accounting method. During the current year the Fund
earned R2.3m of interest income on the Izandla borrowings.
5. Fair value of investment properties
The Fund's policy is to assess the value of investment properties at each reporting period. During the year ended 31 March 2018
the assessment resulted in a net upward revaluation of R475.9m (March 2017: 563.3m). The directors' valuation method is the
income capitalisation method which is a generally accepted methodology used in the industry. Each property is externally valued
every three years on a rotational basis by MRB Gibbons of Mills Fitchet Magnus Penny Proprietary Limited, who is registered
in terms of Section 19 of the Property Valuers Professional Act, no 47 of 2000. In the current year 47% of the properties were
externally valued.
Reviewed Audited
31 March 31 March
R'000 2018 2017
6. Deferred taxation
Balance at the beginning of the year 5 386 -
Cumulative gain on fair value of investments 2 765 5 386
Balance at the end of the year 8 151 5 386
Deferred taxation is recognised for temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes.
Section 25BB of the Income Tax act allows for the deduction of the qualifying distribution paid to shareholders, but the deduction is
limited to taxable income. To the extent that no tax will be payable in future as a result of the qualifying distribution, no deferred tax is
raised on items such as the straight line rental revenue adjustment and revenue received in advance.
As the Fund is a Real Estate Investment Trust ('REIT'), capital gains tax ('CGT') is no longer applicable on the sale of investment
property in terms of section 25BB of the Income Tax Act. The deferred tax rate applied to investment property at the sale rate will
therefore be 0%. In addition, in the event that the fund holds greater than 20% of an investment, this investment is a 'property
company' as defined in section 25BB of the Income Tax Act and therefore the sale is not subject to CGT, however those
investments with holdings less than 20% are subject to capital gains tax. These tax consequences are taken into account in
determining the extent of deferred tax that is required to be recognised.
A deferred tax liability arose on the fair value gain through profit and loss on Ingenuity and the U.K. investments as a result of these
investments not being classified as REITs. On disposal of the investments the Fund would be subject to capital gains tax, as such deferred
tax has been recognised on the unrealised fair value gains.
Reviewed Audited
31 March 31 March
R'000 2018 2017
7. Non-current assets held-for-sale
Non-current assets held-for-sale 117 654 770 618
The Fund intends to sell 6 buildings with settlement expected to be within 12 months of reporting date and has presented those
assets as non-current assets held-for-sale.
Reviewed Audited
31 March 31 March
R'000 2018 2017
8. Long-term borrowings
Movements in the long-term borrowings (including short-term portion) are reconciled as
follows:
Balance at the beginning of the year 6 390 317 5 792 601
Long-term borrowings 5 630 885 5 093 477
Short-term borrowings 759 432 699 124
Corporate bond and commercial paper raised 812 000 562 000
Corporate bond repaid (526 000) (125 000)
Term loan raised 200 000 500 000
Revolving credit facilities repaid (121 431) (342 744)
Amortisation of transaction fees 1 857 3 460
Balance at the end of the year 6 756 743 6 390 317
Long-term borrowings 5 917 743 5 630 885
Short-term borrowings 839 000 759 432
Accrued interest (included in trade payables) 57 951 62 731
Balance at the end of the year including accrued interest 6 814 694 6 453 048
Reviewed Audited
31 March 31 March
R'000 2018 2017
9. Capital commitments 11 530 310 252
Authorised and contracted 11 530 310 252
At 31 March 2018, the Fund had committed to capital expenditure of R11.5m.
Reviewed Audited
31 March 31 March
R'000 2018 2017
10. Related parties
The Fund has entered into the following related party transactions during the year:
Investec Property Proprietary Limited
Asset management fees (60 702) (43 061)
Letting commissions (14 078) (12 339)
Property acquisitions (154 949) -
Rental guarantees received - 870
Capital expenditure - (1 889)
Investec Australia Property Fund
Underwriting fees - 7 203
U.K. Investment
Acquisition of 10% of the equity of a joint venture within the Investec Group (173 329) -
Izandla Property Fund
Net proceeds from sale of properties 314 111 -
Equity investment 18 247 -
Loans receivable 188 988 -
Finance income 2 338 -
Investec Bank Limited Group
Cash and cash equivalents(1) 128 083 115 127
Borrowings(1) (441 615) (493 075)
Fair value of derivative instruments(1) (60 292) (85 376)
Nominal value of swap derivatives (4 678 057) (4 978 276)
Nominal value of FEC's 515 232 162 178
Rentals received 61 724 57 152
Interest received(2) 7 859 7 631
Sponsor fees paid (170) (170)
Corporate advisory and structuring fees paid (1 250) (743)
Interest paid on related party borrowings (52 881) (46 297)
Interest paid on swap derivatives (21 825) (15 716)
Settlement of swap derivatives (16 933) -
(1) Included in carrying values as per the statement of financial position.
(2) Interest is earned at the overnight safex call rate of 6.55% (FY2017: 6.80%).
11. Subsequent events
On 13 April 2018, the Fund invested a further GBP0.7m in the U.K. Fund to fund its pro rata share of an acquisition of an industrial
property in North London.
On 26 April 2018, the Fund has rolled R274m of 3-month commercial paper at margin of 45.5 basis points.
On 2 May 2018, the Fund announced a 42.9% shareholding in a Pan-European logistics platform for an initial equity contribution of
EUR74.2m (R1.1bn). On 3 May 2018, the Fund raised a EUR40m (R0.6bn) secured term loan from Standard Chartered. Refer to the Pan-
European Logistics portfolio paragraph on page 17 for further details.
Introduction
Investec Property Fund Limited ('the Fund' or 'IPF') is a South African Real Estate Investment Trust and currently comprises an investment
portfolio of direct and indirect real estate investments in South Africa, Australia, the U.K. and Europe. The direct investments comprise
105 properties in South Africa with a total gross lettable area ('GLA') of 1 240 851m� valued at R17.6bn (March 2017: R17.4bn). The Fund's
local investment portfolio also comprises a R0.1bn (March 2017: R0.1bn) investment in Ingenuity Property Investments Limited ('Ingenuity')
and a R0.2bn (March 2017: nil) investment in Izandla Property Fund Proprietary Limited ('Izandla'). The Fund's offshore investments include
Investec Australia Property Fund ('IAPF') of R1.0bn (March 2017: R1.3bn), Investec Argo U.K. Property Fund ('U.K Investment/U.K. Fund'
registered as Nestor Investment Holdings Limited) of R0.2bn (March 2017: Rnil) and post year-end an investment into a Pan-European
logistics portfolio of R1.1bn providing the Fund with geographic diversification and exposure to quality real estate in developed markets
(details are given in the 'Investments' section of this announcement).
This year, the Fund has focused on four strategic pillars and has achieved progress in each area, however there remains room for
improvement and these continue to be of strategic priority:
Strategic pillar The Fund's progress
1) Revenue security and growth Revenue on the base portfolio(1) has grown by 8.0% year-on-year driven by a 5.9% increase
in rental income with the remaining increase attributable to an increase in rates and operating
cost recoveries (effectively a recovery of the increases in the underlying rates and operating
cost expenses). The Fund has contracted income of circa 90% for the next 12 months (1H18
93%) and, whilst vacancies have increased off a historically low base, they remain below
sector averages.
2) Client service excellence The Fund's continual client engagement strategy and formal client feedback programme
aims to ensure clients' needs are timeously addressed and service delivery remains relevant,
enabling us to continue to try and differentiate ourselves in an otherwise commoditised market.
The Fund's feedback programme and scoring mechanisms provide measurable, actionable
objectives and ensure ongoing improvement and delivery of service to clients.
3) Value add asset management and The Fund's strategy continues to focus on providing a relevant and differentiated level of service
capital allocation and ensuring efficient capital allocation to maximise long-term risk adjusted asset returns.
The Fund's objective of increasing its offshore balance sheet exposure to 20% remains a core
objective. Following the conclusion of the Pan-European logistics transaction announced on
2 May 2018 the Fund's balance sheet now comprises 11.7% offshore exposure in developed
markets. The Fund continues to explore opportunities to allocate up to 10% of the balance
sheet into 'broken core' and value add opportunities.
4) Cost efficiency and system The Fund's focus on cost measures remains a primary focus in the current environment. Whilst
optimisation the majority of the fixed operating costs of the property portfolio and fund level expenses
remained below inflation, the Fund committed to additional spend in areas that benefited client
service and/or enhanced the safety and security of our offering.
(1) Base portfolio refers to R16.4bn of properties that have been held by the Fund for the full comparative periods.
Financial results
The board of directors is pleased to announce a final dividend of 70.16 cents per share ('cps') for the six months ended 31 March 2018
(March 2017: 66.74 cps). This takes the full year dividend to 138.53 cps (FY2017: 127.65 cps). The full year dividend represents year-
on-year growth of 8.5%. Included in the interim dividend was a one-off antecedent dividend received from IAPF. On a normalised basis,
excluding this antecedent dividend, the year-on-year dividend per share ('DPS') growth is 6.1%.
Despite an extremely challenging operating environment, the base property portfolio delivered net property income ('NPI') growth of 5.7%.
All three sectors delivered positive like-for-like NPI growth with retail being the strongest performing sector at 7.8% growth.
The Fund's cost to income ratio has deteriorated from 15.2% to 16.8% in the current year as a result of:
1. an increase in core rental (contractual rental, parking rental and turnover rental) of 6.3%;
2. an increase in gross recoveries of 6.0%,
3. offset by an increase in gross costs of 7.6%. The growth of the cost base in excess of the growth in revenue results in the increase of
the cost to income ratio. The increase in costs is largely driven by an increase in rates attributable to increased municipal valuations,
increased property management fees, security and costs relating to letting activity (letting commission and incentives).
Vacancies have increased from 1.4% last year to 4.8% at 31 March 2018. Office (5.4%) and retail (3.3%) vacancies remain well below
industry averages with the portfolio vacancy driven largely by the industrial portfolio as a result of a 22 057m2 vacancy arising in February
2018 and a tenant occupying 10 517m2 going into liquidation in the final quarter. In the retail portfolio approximately 8 636m2 is being held
vacant due to development. If these planned vacancies are excluded the portfolio vacancy ratio drops to 4.0% and the retail vacancy drops
to 1.2%.
Fund expenses have increased by 28.9% due to the increase in asset management fees arising from the decrease in the Zenprop fee waiver
and an increase in the share price to which the management fee is linked. The Fund's other administrative expenses have decreased year-
on-year by 6.2%.
Income from the Fund's offshore portfolio represented 6.7% of FY2018's total revenue and dividend income, as well as making up 6.5%
of balance sheet investments at 31 March 2018. IAPF delivered post withholding tax ('WHT') distribution growth of 0.6% in AUD, which
translated into 3.7% growth in ZAR. 11.2% of FY2018's income from IAPF was unhedged and was adversely impacted by a strengthening
Rand in Q4. The Fund's initial investment into the U.K. of GBP10m has performed well, delivering a GBP income return of 7.2% and total return
of 22.9% during the year.
The Fund places a continual focus on optimising balance sheet metrics through active treasury and risk management. At 31 March 2018,
the gearing ratio is marginally down from the prior year of 33.2% to 32.6%. The percentage of debt hedged is 84% which is well above
the targeted minimum of 75%, the weighted average swap expiry was extended from 3.2 years to 3.8 years, with the average swap rate
reducing from 7.73% to 7.56%. This led to a reduction in the all in cost of funding to 8.6% from 8.9%.
Sector update
The South African economy's lack of growth has had an adverse effect on South African companies and consumers alike. The recent shift in
sentiment is encouraging, which the Fund hopes will lead to longer term economic growth. Immediate relief from a challenging environment,
however, is not expected to materialise, at least for the next 12 to 18 months.
At the same time, the South African real estate market has also seen over supply in most metropolitan sectors and markets, combined
with anaemic demand which has led to pressure on occupancy and rental levels. Over the last 12 to 24 months, the industry has been
characterised by negative reversions, reduced escalations and increased incentives required to attract and retain tenants.
It is against this backdrop that the Fund is pleased with the 12-month performance to 31 March 2018, with the underlying portfolio delivering
5.7% NPI growth on its base portfolio during the year. The portfolio's income stream is underpinned by contractual escalations of 7.6%,
(March 2017: 7.7%) a weighted average lease expiry ('WALE') of 3.3 years (March 2017: 3.1 years) and a strong client base. The retail
portfolio comprises 77% national clients which further underpins the stability of the portfolio.
The table below presents a snapshot of the property portfolio as at 31 March 2018:
Total Office Industrial Retail
Portfolio FY18 FY17 FY18 FY17 FY18 FY17 FY18 FY17
Number of properties 105 119 31 33 40 46 34 40
Asset value (Rbn) 17.6 17.4 6.5 6.6 4.1 3.9 7.0 6.9
Base growth 5.7% 8.7% 4.7% 5.9% 4.4% 10.2% 7.8% 10.6%
Cost to income 16.8% 15.2% 17.0% 14.2% 14.0% 13.7% 18.2% 17.2%
GLA 1 240 851 1 274 323 251 678 266 700 574 262 582 172 414 911 425 451
Vacancy 4.8% 1.4% 5.4% 2.2% 5.7% 1.0% 3.3%(1) 1.3%
WALE (years) 3.3 3.1 3.3 3.4 3.7 3.1 3.0 2.9
In-force escalations 7.6% 7.7% 8.0% 8.0% 7.9% 7.9% 7.3% 7.4%
(1) Includes planned vacancy for development of 8 636m2.
Letting activity
The table below reflects the letting activity for the full year:
Renewals Gross Gross
Expiries and and new expiry new Rental Average Incentive
cancellations lets rental rental reversion escalation Wale Retention % lease
GLA GLA R/m2 R/m2 % % years % value
Office 29 186 18 519 168.90 176.02 4.2% 8.1% 4.3 48% 5.0%
Industrial 148 057 106 270 61.89 59.55 (3.8%)(2) 7.7% 5.3 28% 3.1%
Retail 78 339 68 125 130.17 137.10 5.3% 7.3% 4.0 78% 0.7%
Subtotal 255 582 192 914 96.24 98.07 1.9% 7.5% 4.7 46% 2.5%
Early letting(1)-
effective FY18 41 537 41 537 83.14 83.32 0.2% 7.8% 4.4 59% 2.7%
Total 297 119 234 451 93.94 95.49 1.6% 7.5% 4.7 48% 2.5%
(1) Early letting has been concluded with eight tenants across the portfolio on leases that were due to expire in FY2019, effective in FY2018
and therefore no longer form part of the FY2019 expiries balance.
(2) The negative reversion in industrial is largely as a result of the decrease in rental at a property in Longmeadow (7 640m2) which was
acquired at an above market rental, for which a price adjustment was made.
The Fund began the period with an opening vacancy of 17 278m2 (1.4%) with 245 211m2 expiring and a further 10 371m2 being cancelled
during the year. The Fund has renewed or re-let 184 940 (73%) of the expiring space and let a further 7 974m2 of opening vacancy at a
positive reversion of 1.9%. This has resulted in the Fund's closing vacancy increasing to 4.8%. The increase is largely as a result of the two
industrial properties totalling 32 574m2 mentioned on page 12.
A WALE of 4.7 years was achieved on the renewed and newly let space, which is enhancing to the overall portfolio WALE. A total of
41 537m2 of space was renewed prior to expiring in FY2019 and has become effective in the financial year, which has resulted in a de-
risking of future expiries.
A total of 214 024m2 expires in FY2019 with circa 90% contractual income in the portfolio. Of this, approximately 61 228m2 (22%) has
already been renewed or re-let. The asset management team continue to reduce this letting risk by engaging with clients well ahead of
expiry dates. The Fund's focus has been on ensuring stability of cash flow, reducing potential void periods through active and early
engagement with existing clients and structuring renewals and new lets to ensure a competitive offering. In some sub-markets, the Fund has
offered shorter term leases with lower rentals and more aggressive incentives to protect income and the underlying value of the portfolio
during this period of imbalance.
Lease expiry profile by revenue
2019
Office 3%
Industrial 8%
Retail 4%
Total 15%
2020
Office 3%
Industrial 6%
Retail 6%
Total 15%
2021
Office 3%
Industrial 6%
Retail 5%
Total 14%
2022
Office 5%
Industrial 2%
Retail 4%
Total 11%
April 2022 onwards
Office 7%
Industrial 23%
Retail 15%
Total 45%
Sectoral performance
Office
The Fund's office portfolio has remained relatively defensive in the current market. Key challenges have been, and remain, the oversupply
and decreased demand in the sector. These conditions are expected to continue, resulting in further pressures on reversions and increased
costs and incentives to ensure that the Fund is competitive in attracting and retaining tenants.
The office sector achieved base NPI growth of 4.7% as a result of income growth of 8.1% offset by an increase in the cost base of 28.9%.
Revenue growth comprises contractual rental growth of 5.7% and an increase in rates and operating cost recoveries which increased by
25.7%. The increase in costs results primarily from the increase in rates expense (recovered in revenue), letting related costs, property
management fees and security costs. Additional repairs and maintenance costs were also incurred on several properties. Gross electricity
costs across the office portfolio were flat year-on-year whilst recoveries reduced marginally. The net cost to income ratio increased from
14.2% to 17.0% as a result of the increased cost base and was also impacted by lower recoveries as a result of longer void periods and an
increase in vacancy.
The Funds office vacancy has increased to 5.4% from 2.2% a year ago. The largest contributors being International SOS at Grand Central
vacating (3 604m�) as well as increased vacancy in Randburg and Fourways properties.
The Fund's exposure to Sandton, which accounts for 21% of the office GLA, is defensive with a WALE of 3.8 years and a nodal vacancy of
5.3% which is substantially lower than the overall vacancy in Sandton of 13%. There is 17 145m2 of space expiring in this node in FY2019
of which 47% (8 095m2) has already been renewed and the remainder is under negotiation with potential clients.
Despite the increase in vacancy rates, Sandton still remains a sought after office destination for many blue-chip corporates.
Bryanston has grown into a core commercial hub and is the fourth largest office node in Johannesburg. Bryanston offers more spacious
solutions compared to other major nodes owing to the varying nature of density and amenity planning. The Fund has four properties in
Bryanston, which make up 14% (33 965m�) of the office portfolio. The properties are well located with frontage onto the major arterials
and close proximity to the Nicolway shopping centre. The Fund has 21 883m� in Bryanston expiring during FY2019 with 10 291m� already
renewed and 2 500m2 currently under negotiation.
Industrial
The industrial sector continued to face a tough operating environment with the lack of business confidence negatively impacting certain
sectors of the Fund's industrial client base. Clients in the manufacturing sector have experienced the most pressure with the smaller clients
being the worst affected. In spite of this the base portfolio NPI increased 4.4% year-on-year.
Clients have been looking to consolidate their facilities and are reluctant to commit to long-term leases. Competition in the sector from
new developments continues to increase with developers willing to conclude deals at sub-economic rentals in order to convert vacant land
holdings into an income stream.
Base gross income has increased by 6.0% which is lower than contractual escalations due to negative average reversions on renewals
and increased vacancies. The cost base increased 16.3% due to an increase in bad debts, property management fees, security and letting
related costs.
The sector's cost to income ratio has increased marginally year-on-year despite the increase in the cost base and lower income growth.
This is largely attributable to the acquisition of two single tenanted, triple net properties that reduce the portfolio ratio.
The Fund continues to display it defensiveness and desirability of product fundamentals, with 143 996m� of space being let during the year.
The leasing activity comprised renewals of 41 307m�, 61 486m� of new lets and letting of 3 477m2 of opening vacancy, at an overall negative
reversion of 3.8%. Contractual escalations of 7.7% were achieved which is slightly below the existing contractual escalations of 7.9%. The
contractual WALE of the portfolio was enhanced, with the average WALE of the current year's letting activity at 5.3 years. An additional 37
726m2 of FY2019 expiries were proactively let early, thereby de-risking 2019 expiries. The average reversion was impacted materially by one
property as mentioned under the letting table on page 14, and if excluded the average negative reversion would have been 0.4%.
The closing vacancy has increased year-on-year to 5.7% due to the two large expiries referred to on page 12.
The retention ratio is low at 28% but is not reflective of client relationships or property offering. Rather the lower retention rate was
driven by business consolidation, downsizing, moving to 'owner occupied' premises and liquidation.
Looking forward to FY2019, 96 528m� expires during the year in addition to the opening vacancy of 32 967m�. The Fund has been
engaging with current and prospective tenants in order to minimise vacancy risk. The majority of the space that is expiring is well located
with strong fundamentals and the Fund is confident of the letting prospects thereof.
Retail
The retail portfolio includes 34 properties, and comprises regional and community shopping centres, prominent in their respective nodes,
as well as standalone single tenanted properties that are niche in relation to a specific offering or category. There is a focused strategy of
maintaining a high average of national clients to ensure the assets are able to trade through periods of subdued economic growth and
depressed consumer spending. The current percentage of national clients across the portfolio is 77%.
The Fund's retail base portfolio reported NPI growth of 7.8% which is testament to the underlying quality of the portfolio. Like-for-like
gross income grew 9.2% underpinned by rental growth of 6.7% and an increase in rates recoveries of 21.6% due to increased rates valuations.
The sector's cost base increased 15.1%, largely as a result of the increase in the rates expense (23.0%), increase in property management
fees, security costs and an increase in bad debts. Net utility expenses showed further improvement as a result of solar projects introduced
at Musina Mall and Fleurdal.
The retail sectors' net cost to income ratio has increased from 17.2% to 18.2% with the majority of the increase explained by the increase in
rates expense. The increase has been recovered within gross income.
The retail portfolio renewed or re-let 84% of the 78 339m2 expiring during the year and let a further 2 489m2 of opening vacancy. Positive
average reversions of 5.3% and in-force escalations of 7.3% were achieved across the portfolio.
Vacancy remains lower than the industry average at 3.3% which is an increase from opening vacancy of 1.3% largely due to planned
vacancies at properties earmarked for redevelopment. Once normalised for these planned vacancies the vacancy falls to 1.2%.
The sector has not been immune to the difficult economic situation in the country in the last 12 months which is evidenced by lower turnover
rentals constrained by consumer spending and confidence. However, the nature of the Fund's retail properties and their strength in their
respective nodes has meant that the Fund continued to report above inflation turnover growth at the majority of its centres. Turnover growth
of the Fund's shopping centres on a normalised basis, excluding new centres and those affected by redevelopment plans or surrounding
road construction, was 6% and demonstrates the strong performance of these centres.
The Fund's regional malls performed well during the year. Zevenwacht Mall, Dhilabeng Mall and Musina Mall continue to show strong year-
on-year growth evidencing their leading positioning in the regional markets. Newcastle Mall continues to trade well, however, its performance
has been impacted by the refurbishment of the Amajuba Centre in town. Kriel Mall had an excellent year with double digit growth as the coal
mines returned to operation. Volatility in the region is expected to continue and is however being closely watched by the Fund. The above
positive performance was offset by lower trade at Balfour Mall which has been negatively impacted by the Rea Via roadworks on Louis
Botha which is significantly obstructing access to the Mall.
The Fund has 23 Edcon brands located across 10 retail properties, making up 1.9% of the total portfolio revenue. Edcon is once again in a
process to restructure its business and has approached the Fund about store portfolio rationalisation (which may include store closures). No
agreements have been reached as yet however the Fund does not expect the outcome to have a significant impact on revenue.
Sectoral spread Sectoral spread Geographical spread
Revenue (%) Asset value Revenue (%)
Office 39% Office 37% Gauteng 64%
Industrial 24% Industrial 23% KwaZulu-Natal 13%
Retail 37% Retail 40% Western Cape 10%
Free State 6%
Limpopo 3%
Other 4%
Receivables
Receivables represent 3.1% of total collectables (March 2017: 1.9%) with the increase largely a result of three clients (1.9% if excluded).
One of these clients is making good progress with payments under a payment plan. Asset managers continue to work closely with clients in
arrears. Provision for bad debts covers all debtors greater than 60 days and the Fund has adequately provided for receivables at risk.
Investments
As previously highlighted, the Fund's strategy continues to focus on efficient capital allocation to maximise long-term risk adjusted asset
returns. The Fund's objective to grow its offshore balance sheet exposure to comprise up to 20% of total asset value (currently 11.7%) has
further materialised subsequent to the European transaction. The Fund has committed a total of EUR150m to the European transaction, which
will increase the offshore exposure to 16.4% once the full committed amount is invested. The Fund continues to target an allocation of 10%
of its balance sheet into "broken core" opportunities where we believe the risk adjusted returns on these assets remain attractive.
Offshore investments
Australia (listed)
The current value of the Fund's investment in IAPF is R1.0bn (March 2017: R1.3bn). The decrease in the IAPF share price from R12.96 at
31 March 2017 to R10.50 at 31 March 2018 is largely driven by the strength of the South African Rand and is not, in our view, a reflection
of underlying value or deterioration of the portfolio in Australian Dollars ('AUD'). At current share price levels, IAPF trades at a yield of 8.0%
which the Fund believes is a discount to fair value and IAPF's Australian peer group.
IAPF's direct property portfolio increased in value by 8.0% in AUD and its NAV increased by 11.1%, driven by further cap rate compression
and value enhancing asset management. IAPF delivered pre-WHT distribution growth in AUD of 3% which was in line with market
expectations, and post-WHT growth in AUD of 0.6%. The dilution in growth between pre and post-WHT distribution is as a result of an
increase in the effective tax rate. The effective tax rate has been impacted by a reduction in the depreciation shield from 45% in FY2017 to
39% in FY2018 along with the antecedent distribution that is not subject to WHT being a larger component of the FY2017 distribution. The
Fund hedges the majority of the anticipated IAPF distributions and on a ZAR basis, recorded 3.7% like-for-like growth in distribution. The
ZAR growth in income received was materially impacted by the strength of the Rand impacting the unhedged portion of the H2 distribution.
The Fund continues to employ a conservative approach to hedging of both the income and capital risk of the investment. The Fund did
not increase its AUD cross-currency swap ('CCS') exposure during the year, with only 51% of the cost of the investment hedged by way of
CCSs. The Fund took advantage of positive mark-to-market on these CCSs to extend the expiry profile from 2.8 years to 3.8 years at a fixed
AUD rate of 4.7% (from 4.6%). In terms of income, the Fund has hedged between 38% and 89% of its distributions over a five-year period
at a range of between R10.40 and R14.16. The Fund actively manages this position on an ongoing basis.
United Kingdom (unlisted)
The Fund made a GBP10m initial investment into the U.K. Fund in June 2017, acquiring a 10% stake. The Fund entered into two CCSs for 50% of
the investment value at a fixed rate of 2.3% and weighted expiry of four years. There was no further investment activity undertaken by
the U.K. Fund during the year.
During the year, the U.K. Fund undertook a number of asset management initiatives, the most notable being the re-gear of three Sainsbury
leases for an additional lease term of 10 years (taking the total expiry of the leases to 17 years). The initial investment generated an
income return of 7.2% and a capital return of 15.7% based on an uplift in net asset value ('NAV') arising from the aforesaid asset
management initiatives.
The U.K. Fund's industrial portfolio (circa 30% of the total portfolio) provides future asset management opportunities and the Fund expects to
see rental growth across the sector of between 10% to 15% over time.
The U.K. Fund is well placed to deliver long-term sustainable income and capital growth underpinned by a property portfolio WALE of 10 years
and weighted average swap expiry of 8.9 years.
Post year-end, the Fund has committed a further GBP0.7m to fund its pro rata share of an acquisition of an industrial property in North London.
Pan-European logistics portfolio (unlisted)
On 2 May 2018 the Fund announced that it had acquired a 42.9% interest in a portfolio of 22 logistics properties located across Europe for
an initial equity investment of EUR74.2m. The investment will be held by Investec Property Offshore Investments Proprietary Limited ('IPFO'),
a wholly owned subsidiary of the Fund. The effective date of the transaction was 4 May 2018.
The asset value of the initial portfolio of 22 properties is EUR423m and generates an unlevered net income yield of 6.0%. The Fund's initial
investment yield equates to approximately 10.5% and is expected to deliver earnings accretion due to:
- attractive risk adjusted returns at an asset level;
- reduced absolute price through the recent strengthening in the ZAR (resulting in a cheaper entry into offshore assets); and
- attractive funding costs due to the continued low interest rate environment in Europe.
Inclusive of the initial investment, the Fund has committed to investing up to EUR150m into the platform over the next four years. Including
the Fund's commitment, a total of EUR350m has been committed to the platform by the investors. The investment will assist in the timely
aggregation of a scaled and diversified logistics portfolio across Europe.
IPFO's investment is held through a Delaware limited partnership, which in turn holds 42.9% of two Luxembourg holding companies that has
invested directly into a series of locally domiciled property owning companies. The Fund has invested alongside funds and other segregated
mandates managed by Ares Management, L.P. or its affiliate. Ares is a publicly traded, leading global alternative asset manager with
approximately USD160bn of assets under management, and focuses on implementing hands-on value creation initiatives to under managed
and capital-starved assets.
The investment was funded through a combination of existing ZAR debt facilities and a new EUR40m secured term loan provided by Standard
Chartered. The Euro facility is for a term of 4 years at a margin of 1.75%. The Fund has entered into a 4 year Euro interest rate swap at a
rate of 0.35% for 100% of the floating rate exposure.
The Fund has economically hedged 100% of the expected income from the transaction for a period of 5 years at a commencing spot rate of
ZAR 15/EUR 1. The average forward ZAR/EUR curve over the 5 year period has embedded growth of approximately 7%.
Local investments
Izandla Property Fund (unlisted)
Izandla, a majority black-owned property investment vehicle, was launched in May 2017. As part of the seed transaction, the Fund sold
a R521.1m property portfolio to Izandla, with all the properties transferring to Izandla during March 2018. As part of the initial
transaction, the Fund acquired a 35% shareholding in Izandla and provided a subordinated loan to facilitate the transaction, the terms
of which are set out below. The Fund received net proceeds from the sale of R314.1m. The majority shareholder (65%) of Izandla is
the Entrepreneurial Development Trust ('EDT'), a broad-based charitable trust that focuses on educational and entrepreneurial initiatives.
Programmes and beneficiaries include Raizcorp, Promaths, Young Treps and various others. The EDT is independent of the Fund and has
a substantial portfolio of private equity investments.
Post year-end, Izandla acquired a further asset for a total consideration of R80.7m. The transaction was funded with a larger equity
contribution than the initial transaction. IPF provided its pro rata share of equity funding (R11.3m) and a senior mezzanine facility
(R6.9m) on the same terms as the initial transaction.
Initial transaction Further acquisition Total
Total equity R52.1m (10%) R32.3m (40%) R84.4m
- IPF participation R18.2m (35%) R11.3m (35%) R29.5m (35%)
Total senior mezzanine debt R130.3m (25%) R8.0m (10%) R138.3m
- IPF participation R110.7m (Prime +3.5%) R6.9m (Prime +3.5%) R117.6m
Total junior mezzanine debt R78.2m (15%) Nil R78.2m
- IPF participation R78.2m (Prime + 5.5%) Nil R78.2m
Bank debt R260.5m (50%) R40.4m (50%) R300.9m
Total R521.1m R80.7 m R601.8m
In the short time since its inception in May 2017, Izandla has already identified several attractive turnkey development and sale and
leaseback opportunities with blue-chip tenants which significantly supports the strength of the Izandla business model. Izandla is looking to
acquire a sizable undivided share in 4 office assets that are underpinned by 10 to 12 year triple net leases. The total estimated value of the
transaction is R800m and negotiations with property owners are currently underway. In addition, Izandla has been appointed to undertake
a warehouse and office development of approximately 14 000m2 which will have a 15 year lease. Funding for the project has been secured
with final agreements to be signed. The intention is to strengthen Izandla's balance sheet through the acquisition of quality property backed
by strong covenants and long dated leases, resulting in an increased equity layer and a reduced need for the Fund to provide material loan
funding.
In terms of the existing loans advanced to Izandla to fund the initial transaction and the further acquisition, the Fund will only distribute
interest income to the extent it is serviced.
Ingenuity (listed)
During the year, the Fund acquired a further 21.5m Ingenuity shares for R20.7m at an average price of 96 cents per share. This brings
the total investment in Ingenuity to R114.6m (9.2%). The Fund continues to believe that Ingenuity represents an attractive investment
opportunity, underpinned by a portfolio of quality Western Cape property. The Fund's average cost of acquisition of R0.84 per share is well
below the last reported NAV of Ingenuity of R1.32 per share.
The Fund has added back to the distributable earnings the notional cost of funding the investment into Ingenuity (March 2018: R7.6m;
March 2017: R1.7m). If this interest had been capitalised to the carrying value of the investment in Ingenuity, the resulting cost per
share of R0.92 would still reflect a 30% discount to Ingenuity's last reported NAV.
Acquisitions and disposals
Since the sizable acquisitions in FY2016 and the uncertain local economic environment the Fund has been focused on integrating the assets
into the existing platform and has been less active in terms of new acquisitions. In the current year, the Fund acquired three buildings - one
in the office sector and two industrial buildings - for a total consideration of R233.5m at an average yield of 8.6%. A total of 17 buildings
were sold for proceeds of R690.7m at an average yield of 9.2%. 13 of these were sold to Izandla at an initial yield of 9.7%.
As at 31 March 2018, the Fund has six buildings valued at R118m which are earmarked for sale.
The Fund has a continual focus on capital allocation and uses its capital to invest in quality assets that deliver long-term income
and capital growth to shareholders and risk adjusted returns in excess of the Fund's cost of capital.
Balance sheet and risk management
Balance sheet and treasury management remains a fundamental focus area and the Fund continues to adopt a conservative approach to
both source and cost of funding. Maintaining long-term certainty of cost and access to adequate liquidity remains of paramount importance
in the current environment.
2018 2017
Average all in cost of funding 8.60% 8.90%
Average debt margin - ZAR 1.64% 1.65%
Average all in fixed rate - AUD 4.71% 4.60%
Average all in fixed rate - GBP 2.32% -
Average ZAR swap rate 7.56% 7.73%
Debt maturity 2.7 years 3.2 years
Swap maturity 3.8 years 3.2 years
Hedged % 84% 86%
Gearing %(1) 32.6% 33.2%
Encumbrance ratio(2) 33.5% 33.6%
% debt unsecured(3) 65.4% 66.0%
Sources of funding
DMTN 42% 40%
Bank 54% 56%
Commercial paper 4% 4%
(1) Calculated as total debt less cash, over total investments (including equity investment in and loans to associate).
(2) Secured assets as a % of total property assets valued at R17.6bn and investments valued at R1.6bn.
(3) Based on total debt facilities.
The Fund maintains a profile of diversified funding and its debt raising decisions are based on a number of factors including, but not limited
to, margin, flexibility, security, committed revolving facilities, etc. The Fund will look to maintain a diversified funding split in order to
manage liquidity risk. In FY2018, debt capital markets provided more liquidity than the banks as international investors continued to search
for yield. Banks are also looking to the bond market as a means to extend their high quality liquid assets ('HQLA') programmes. At 31 March 2018,
the Fund had not yet entered into any HQLA issuances but continues to explore the opportunity.
During the year, the Fund raised R207.3m of equity through a private placement at R15.75 per share. The Fund issued R800m of corporate
bonds at a weighted average price of three-month JIBAR plus 178 basis points ('bps') and average tenor of 5.9 years. The Fund utilised
R526m of the corporate bond proceeds to refinance maturing bonds. The remaining proceeds were utilised to part fund investment activity
and capital projects. Post year-end, the Fund again rolled R274m of commercial paper at three-month JIBAR plus 45.5bps which is
marginally better than previous funding rates.
IPF manages its cash requirements through maintaining undrawn committed facilities. At 31 March 2018, IPF had R1.4bn of available
undrawn bank facilities and R507.3m available cash. This more than covers the re-finance risk for the next 12 months. Whilst the committed
facilities were undrawn, excess cash was placed on deposit in a Deposit Note Programme earning 7.55% annualised. Post-year end, the
majority of the cash was utilised to part fund the Pan-European logistics platform acquisition. The Fund continues to engage with lenders to
maintain headroom on committed facilities. This is utilised to manage cash flow for distributions and to ensure that IPF is able to
act quickly and effectively in respect of acquisition activity.
There is a continued drive to fund long-term assets with long-term borrowings and to conservatively manage refinancing and credit risk.
As such, the Fund continually engages with lenders to re-finance and where possible will early refinance and extend its maturity profile.
IPF is already in negotiations to re-finance the R0.5bn of bank debt that matures in FY2019 and R1.5bn that matures in FY2020.
The balance sheet remains significantly unencumbered and at 31 March 2018 the Fund's encumbrance ratio was maintained at 33.5%
(March 2017: 33.6%). Unsecured debt made up 65.4% of the total debt book (March 2017: 66.0%). This provides flexibility for future
funding initiatives and allows efficiency in acquisition and disposal decisions.
The Fund is active in its treasury management and maintains a focused strategy of attaining the lowest available rate for the longest possible
tenor. The Fund began the year with R4.9bn interest swaps and R0.5bn swaps rolled off and were replaced. In order to mitigate some of
the volatility in the first half of FY2018 R0.5bn new swaps were entered into which increased the Fund's hedge percentage to circa 90% as
reported at interim. In the last quarter of FY2018 R0.4bn swaps were settled in order to benefit from lower floating rates in a potential rate
cutting cycle bringing the closing hedge percentage to 84% (R5.0bn swaps). In addition, R1.3bn swaps were restructured which improved
their weighted average tenor by 1.6 years and reduced their rate by 56bps.
Post year-end, the Fund entered into a EUR40m secured debt facility with Standard Chartered at a margin of 1.75% above three-month
Euribor, which was utilised to part fund the Pan-European transaction. A Euro interest rate swap was entered into to hedge the debt at a
rate of 0.35%. R1.2bn of South African properties were secured against the facility.
The Fund's gearing ratio is 32.6% at 31 March 2018. Post the acquisition of the Pan-European logistics portfolio it increased to circa 36%
as it was fully debt funded. The Fund calculates the gearing ratio with reference to total debt, less cash, over total investments (equity
accounted investments and other investments).
The Fund continues to maintain strong credit metrics and its corporate rating was maintained at A(ZA) with a positive outlook in August 2017,
whilst the secured was reaffirmed and released in June 2017 as AA(ZA) with a stable outlook.
Debt and swap expiry profile
2019
Swaps 2%
Debt 15%
2020
Swaps 7%
Debt 28%
2021
Swaps 20%
Debt 21%
2022
Swaps 31%
Debt 15%
2023
Swaps 13%
Debt 13%
2024
Swaps 22%
2025
Swaps 5%
Debt 5%
2026
Debt 3%
The debt expiry has reduced from 3.2 years to 2.7 years as a function of limited acquisition activity and limited re-finance requirements. The
Fund expects this to increase as it re-finances FY2019 and FY2020 expiries.
Capital expenditure
During the year, the Fund spent R65.0m on maintenance capex and R56.4m on projects delivering a return on investment ('ROI').
The significant ROI projects include:
- The refurbishment of Shoprite Vanderbijlpark which was completed in August 2017 for R42m. The refurbishment allowed for the renewal
of the Shoprite lease for 10 years at a 6% escalation and the renewal of the Shoprite Liquor lease for five years at a 6% escalation.
The redevelopment yield of the property is 8.9%.
- The completion of the Musina Mall solar plant for R8.5m.
The Fund has earmarked R239m for ROI capex projects during FY2019 (R92m for the Fleurdal extension as well as a further R147m
earmarked for sustainability projects).
The 5 881m2 extension of Fleurdal Mall is imminent and will break ground in July 2018. National retailers that have committed to the scheme
include Woolworths, Dischem, Markhams and Mr Price Sport. The Fund expects an initial development yield of 6.2%. Although initially
dilutive, the extension will further cement the centre's positioning in the South of Bloemfontein and is expected to improve long-term returns
from the property. This extension is of a very similar nature to that undertaken at Dihlabeng where the Fund added 6 000m2 of space to
accommodate Woolworths.
Sustainability and corporate social responsibility
Over the next 12 months, the Fund will continue with the roll-out of sustainability initiatives through a comprehensive programme involving
further capital investment as mentioned on page 20. The Fund is also engaging in the process of obtaining an Existing Building Performance
rating from the Green Buildings Council for certain of its office properties.
The Fleurdal Mall Solar PV plant is producing � 22% of the Mall's monthly consumption. Musina Mall's Solar PV is producing � 24% of the Mall's
monthly consumption. These projects have resulted in the Fund exploring the roll-out of Solar PV on another eight sites. The technology will
continue to be rolled out across feasible buildings and assist in reducing the cost base of IPF as well as the cost of occupation for clients.
The Fund continues to monitor the Cape Town water shortage crisis. Water usage at buildings is being limited through the use of
reduced pressure valves, installation of water tanks, usage of grey water where possible and communication with clients to increase their
awareness of the crisis.
In 2016, the Fund rolled out an Enterprise and Supplier Development initiative called AMP. The purpose of AMP is to bring together black-
owned suppliers within various disciplines of the property industry to facilitate opportunities for them to collaborate in a space that will
nurture and grow their offerings, services and projects. As part of the Fund's enterprise and supplier development offering the Fund has
provided these entrepreneurs with subsidised office space, skills, mentorship and assistance with facilitating procurement opportunities.
FY2019 will see the roll-out of the second phase of AMP where the Fund will identify additional black-owned SMMEs in the property sector
to partner and collaborate with and assist in developing and nurturing entrepreneurial talent in the property sector.
The Fund initiates CSI projects in the communities in which our retail centres are located, with a specific focus on schools. Promaths is an
acceleration programme aimed at assisting grade 10-12 learners from disadvantaged schools to achieve results in maths and science.
Through Promaths the Fund has sponsored 96 learners until they complete grade 12 (48 learners from Khayelitsha, 23 from Joe Slovo
Secondary School,13 from Masiyile Secondary School and 12 from Usasazo Secondary School).
Several entrepreneurship workshops were held at schools linked to communities near the Fund's retail centres. These impacted 319 learners
who completed the entrepreneurship workshop. The aim was to equip young people with salient skills such as: establishing a business,
improving capacity to enter tertiary level education specifically in business, management and commercial disciplines, and improving
employability.
The Fund's current BEE rating, under the revised Property Sector Charter of 2017, is a level 4, with the next verification scheduled for
October 2018.
Dividend re-investment programme
The board is considering offering a dividend re-investment alternative in which a shareholder would be entitled to elect to reinvest the cash
dividend in return for IPF shares, failing which they will receive the cash dividend in respect of all or part of their shareholdings.
A further announcement will be made in this regard on or before 29 May 2018.
Financial assistance
Shareholders are advised that at the annual general meeting of the Fund held on 21 August 2017, shareholders approved and passed
a special resolution in terms of section 45 of the Companies Act, No. 71 of 2008, as amended (the Act) authorising the Fund to provide
financial assistance to, among others, related or inter-related companies of the Fund.
Shareholders are hereby notified that in terms of S45(5)(b) of the Companies Act, No. 71 of 2008, as amended, the board of directors of
the Fund authorised the issue of guarantees and suretyships to third parties for finance and other facilities granted by those third parties to
wholly-owned subsidiaries of the Fund during the period 1 April 2017 to 31 March 2018.
The board has confirmed that, after considering the reasonable foreseeable financial circumstances of the Fund, it is satisfied that
immediately after providing such financial assistance, the Fund would satisfy the solvency and liquidity test, as contemplated in terms of
section 4 of the Act, and that the terms under which such financial assistance was given were fair and reasonable to the Fund.
Shareholders
At 31 March 2018, Investec Limited, Coronation Fund Managers, Public Investment Corporation, STANLIB Asset Management and Investec
Asset Management are the only shareholders holding in excess of 5% of the Fund's total shares in issue.
31 March 31 March
Shareholding at: 2018 2017
Investec Limited 26.75% 27.92%
Coronation Fund Managers 16.44% 23.28%
Public Investment Corporation 6.36% Less than 5%
STANLIB Asset Management 5.87% Less than 5%
Investec Asset Management 5.41% Less than 5%
Prospects and guidance
As communicated in the trading update, the short term outlook in South Africa remains challenging. This is expected to impact the
performance of the Fund's South African portfolio in the short term, resulting in the South African portfolio delivering low single digit growth
for the year ending 31 March 2019. The Fund would expect to benefit from any earlier translation of the improved sentiment in South Africa
into real economic growth.
The Pan-European logistics transaction is accretive to the Fund's dividend for the financial year ending 31 March 2019 and has the potential
to deliver further income and capital growth as further capital is deployed, the letting and asset management strategy is executed and the
attractive secular dynamics increasingly support the European logistics sector.
Taking the above into account the Fund's growth in core dividend per share (excluding the Investec Australia Property Fund's antecedent
dividend in FY2018) for the financial year ending 31 March 2019 is expected to be between 6.5% and 7.5%.
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
15 May 2018
Basis of accounting
The reviewed preliminary condensed consolidated financial information for the year ended 31 March 2018 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 2018 are consistent with those adopted in
the financial statements for the year ended 31 March 2017, other than the adoption of those standards that became effective in the current
period, which had no significant impact on the financial results. These reviewed preliminary condensed consolidated financial statements
have been prepared under the supervision of Andrew Wooler, FCA.
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 11
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.
Final dividend
Notice is hereby given of the declaration of final dividend number 15 ('Cash dividend') of 70.16228 cents per share for the period
1 October 2017 to 31 March 2018.
Other information
- The dividend has been declared from income reserves.
- A dividend withholding tax of 20% will be applicable on the dividend portion to all shareholders who are not exempt.
- The issued share capital at the declaration date is 731 400 437 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 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 the CSDP or
broker, as the case may be, in respect of uncertificated Shares, or the Fund, in respect of certificated Shares, a declaration by the
beneficial owner (in such form as may be prescribed by the Commissioner) that the dividend is exempt from dividends tax in terms of
section 64F and a written undertaking (in such form as may be prescribed by the Commissioner) to forthwith inform the CSDP, broker or
the Fund, as the case may be, should the circumstances affecting the exemption change or if the beneficial owner ceases to be the beneficial
owner.
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 date determined by
the regulated intermediary, or if no date is determined, by the date of payment of the dividend.
Tax implications for non-resident shareholders
Dividends received by non-resident Shareholders from a REIT will not be taxable in South Africa as income and instead will be treated as
ordinary dividends which are exempt from income tax in terms of the general dividend exemption in section 10(1)(k)(i) 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 22 February 2017, any dividend received by a non-resident from a REIT will be subject to Dividend Tax at 20%, 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 20%, the net dividend amount due to non-
resident Shareholders is 56.12982 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 by the beneficial owner (in such form as may be prescribed by the Commissioner) that the dividend is subject to a reduced
rate as a result of the application of the DTA
- A written undertaking (in such form as may be prescribed by the Commissioner) to forthwith inform, the CSDP, broker or the Fund, as the
case may be, should the circumstances affecting the reduced rate change or if the beneficial owner ceases to be the beneficial owner.
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 the date determined by the regulated intermediary, or if no date is determined, by the
date of payment of the dividend, if such documents have not already been submitted.
- As at the date of this announcement, the ordinary issued share capital of Investec Property Fund is 731 400 437 ordinary Shares of no
par value before any election to re-invest the cash dividend
- Income Tax Reference Number of Investec Property Fund: 9332/719/16/1
- Shareholders are encouraged to consult their professional advisors should they be in any doubt as to the appropriate action to take.
Summary of the salient dates relating to the Cash Dividend and potential dividend re-
investment alternative: 2018
Circular and form of election posted to shareholders and announced on SENS Tuesday, 29 May
Last day to withdraw the Share Re-Investment Alternative Monday, 4 June
Announcement of Share Re-Investment Alternative issue price and finalisation information ("Finalisation
Date") on SENS on Tuesday, 5 June
Last day to trade in order to participate in the election to receive shares in terms of the Share Re-Investment
Alternative or to receive a cash dividend ("LDT") Tuesday, 12 June
Shares to trade ex-dividend Wednesday, 13 June
Listing of maximum possible number of Share Re-Investment Alternative shares commences on the JSE Friday, 15 June
Last day to elect to receive the Share Re-Investment Alternative (no late forms of election will be accepted) at
12:00 (South African time) Friday, 15 June
Record date ("Record Date") Friday, 15 June
Announcement of results of Cash Dividend and Share Re-Investment Alternative on SENS Monday, 18 June
For Shareholders electing the Cash Distribution cheques posted to Certificated Shareholders and accounts
credited by CSDP or broker to Dematerialised Shareholders electing the Cash Dividend on or about Monday, 18 June
Share certificates posted to Certificated Shareholders and accounts credited by CSDP or broker to
Dematerialised Shareholders electing the Share Re-Investment Alternative on Wednesday, 20 June
Adjustment to the maximum number of shares listed on or about Thursday, 21 June
Notes:
1. Shareholders electing the Share Re-Investment Alternative are requested to note that the new Shares will be listed on LDT + 3 and
these new Shares can only be traded on LDT + 3 as the settlement of the Shares will occur three days after record date, which differs
from the conventional one day after record date settlement process.
2. Shares may not be dematerialised or rematerialised between commencement of trade on Wednesday, 13 June 2018 and close of trade on
Friday, 15 June 2018 both dates inclusive.
3. The above dates and times are subject to change. Any changes will be released on SENS.
Investec Bank Limited
Company Secretary
15 May 2018
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#*
KL Shuenyane#*
P Hourquebie #*
# 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)
Rosebank Towers, 15 Biermann Avenue
Rosebank, Johannesburg, 2196
Sponsor
Investec Bank Limited
100 Grayston Drive, Sandown, Sandton, 2196
Date: 15/05/2018 07:06:00 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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