The European logistics assets of Investec Property Fund (IPF) helped the real estate investment trust (Reit) pull off stronger financial results compared with most of its peers in the current reporting season.
IPF, which on Wednesday released financial results for the year to end-March, has been able to tap the well-connected Investec Group’s wide network in recent years. Investec employees helped find IPF acquisition opportunities in high-end European logistics warehouses and other assets.
Some of its competitors were unable to access assets of a similar high quality, said Jay Padayatchi, fund manager and executive director at Meago Asset Management.
IPF — which was listed on the JSE by Investec Property, a division of Investec Bank, in 2011 — first invested in Europe in 2017 as it looked to move capital to higher-growth areas.
IPF co-CEO Andrew Wooler said Western European logistics has been one of the world’s best-performing property subsectors.
“Before the pandemic, Europe was well behind the UK in terms of logistics. Covid-19 then led to a huge boost in demand for the asset class as online retail was ramped up,” Wooler said.
“We managed to achieve average rental growth of 8.5% in euro terms in this financial year, which is very solid in the current global market,” he said.
The pan-European logistics portfolio recorded like-for-like net property income growth of 1.3%, driven by a reduction in base vacancy and positive letting activity but offset by bad debt provisions linked to two tenant liquidations within the portfolio.
The group also simplified its investment portfolio in the reporting period and sold its minority stakes in specialised UK real-estate company Argo Property Fund, Australia’s Irongate property fund and in the pan-European light industrial platform.
This helped to strengthen its balance sheet position significantly, bringing its loan-to-value (LTV) to 38.3%.
LTV measures a property fund’s debt relative to the value of its asset portfolio.
A number of fund managers believe LTVs should be below 40% with the more risk adverse wanting LTVs to be close to 30%.
IPF’s SA portfolio — comprising retail, office and industrial assets — has been affected by the fallout of Covid-19, though the operating environment improved in the second half of the financial year.
In Europe, the fund owns a 65% interest in a pan-European portfolio of 47 logistics properties valued at €1.06bn and located in the major logistics corridors of seven European countries.
IPF’s distributable income per share, a key measure of its financial performance, dropped by a third as the fund granted rental concessions to struggling tenants and focused on keeping the existing client base.
It fell 33.8% to 97.08c in the year to end-March, from a year ago.
However, the company still managed to declare a final dividend of 47.71c per share, taking the total for the full-year to 92.23c, which represents a payout ratio of 95% of distributable earnings.
These were considered to be strong results as a number of IPF’s peers have delayed interim or final dividends or not paid them due to failing liquidity or solvency tests.
The value of its main SA property portfolio shrank 5%, or R899m, in the year to end-March due to a 6% reduction in net property income after negative rental reversions, or renewing leases at lower rates.
The portfolios of other Reits lost up to 15% over the same period.
Padayatchi said IPF’s results are commendable.
“This is a great set of results, reflecting the divergent performance globally between the out-of-favour traditional sectors like offices vs warehousing and logistics,” he said.
With Andries Mahlangu
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.