Investec Property Fund battles a tough economy

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Investec Property Fund battles a tough economy

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Published Date: 2017-11-15 | Source: Stephen Gunnion | Author: Stephen Gunnion

Investec Property Fund battles a tough economy

Vacancies have risen in the office sector, but it says they are under control

Investec Property Fund has managed to hold its head above water during the first half of its financial year despite a very challenging market. Retail trading densities and turnover growth are on the decline, while the manufacturing sector faces continued economic challenges and logistics providers continue to try and navigate a very uncertain short- and medium-term environment. In the office sector, occupiers continue to feel the economic pinch from weak growth. From a landlord's perspective, the fund says this has been further exacerbated by increased supply and little or no new entrants coming into the market.

It's not surprising then that the fund's vacancies have risen to 2.6% from 1.4% on the back of weakness in the office sector. One of its industrial warehouses also became vacant but was let out following the end of its reporting period.

The fund says it's already let out two-thirds of the space that becomes vacant next march at a positive reversion of 2.4%, with the balance still to be let in the second half of the year. It says the overall letting environment remains challenging, however it expects to outperform market vacancy benchmarks due to the quality of its portfolio.

Costs are on the rise due to higher leasing-related expenses, fixed costs such as security and management fees, and non-recoverable repairs and maintenance. That's pushed its cost-to-income ration 90 basis points higher to 16.6%. There has also been a rise in bad debts linked to three clients that have all reneged on payment plans. The fund has now put all three clients into default and says management is working with them and hopes to get a favourable outcome prior to eviction and cancellation. One client has already made a significant payment and has undertaken to make ongoing instalments towards the arrears balance. While not material, the fund says had the payment been received prior to the end of the period, it would have resulted in higher net property income.

Income from the fund's offshore portfolio in Australia and UK was in line with expectations and now represents 5.9% of total investment income and 7.8% of balance sheet investments.

For the six months to end September, total revenue rose 1.3% to R905 million, while net property income declined 1% to R758 million. Attributable income fell by 3.8% to R492 million and headline earnings per share were 23% lower at 52.68c. It's raised its interim dividend by 12% to 68.37c per share. Included in the dividend is a one-off antecedent dividend received from the Investec Australia Property Fund. On a normalised basis, the dividend growth is 7.2%.

Investec Property Fund says while its diversified portfolio is not immune to the uncertain and volatile environment, it remains defensive in delivering growth.

Its shares gained 0.4% yesterday to close at R15.70.



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