News

Double digit growth for Investec Australia Property Fund

Graeme Katz, CEO of Investec Australia Property Fund.


Investec Australia Property Fund (IAPF or the Fund) is pleased to announce an interim distribution of 4.54 cents per unit (cpu) pre withholding tax (WHT) and 4.27 cpu post WHT for the six months to 30 September 2015. This represents distribution growth in AUD for the period of 12.7% pre WHT and 11.8% post WHT. At a conversion rate of R10.14 this equates to growth of 22.2% pre WHT and 18.1% post WHT.

Commenting on the Fund’s performance IAPF CEO Graeme Katz said: These results are underpinned by the accretive acquisitions made during the period, fixed rental escalations built into property leases, cost containment and the Fund’s efficient capital and interest rate management. The return in ZAR at the prevailing exchange rate of R10.14 is extremely attractive and confirms the benefit of investing in quality Australian real estate.

The Fund is expected to benefit further from its exposure to the Australian economy. Australia has experienced more than 20 years of uninterrupted growth and is currently characterised by low inflation, low interest rates and low unemployment. In addition there is renewed confidence in the government with the appointment of Malcolm Turnbull as prime minister.

Activity in the property sector remains strong as Australia continues to be seen as an attractive proposition for both domestic and offshore investors relative to other industrialised countries, due to the attractiveness of direct property yields and spread above funding costs, embedded contractual escalations and recent depreciation of the AUD against major currencies. Over 60% of the prime industrial stock traded this year has been acquired by offshore capital. Following the conclusion of two significant portfolio transactions earlier in the year the market has seen an increased supply of stock for sale in recent months.

The Fund completed two acquisitions during the period at a blended yield of 7.74%. In addition the Fund acquired a further property post balance sheet date at a property yield of 7.94%. These acquisitions were funded using the Fund’s existing debt facilities. These properties are of high quality, well located and have strong tenant covenants. They also reflect management’s ability to source attractive opportunities in a very competitive market.

The Fund’s current gearing post the most recent acquisition is 36.7%. IAPF has benefitted from the positive spread of property yields over its borrowing costs, leading to significant earnings accretion arising from AUD 211m deployment of rights offer capital into nine properties. The strength of the property fundamentals is evidenced by a long WALE of 6.2 years with 66% of leases expiring after five years and a vacancy rate of 0.7% underpinned by strong tenant covenants and attractive contractual rental escalations of approximately 3.2% per annum.

Commenting on IAPF’s exposure to the AUD Katz said: “For South African investors the Fund represents an opportunity to generate sustainable returns over time in a developed economy currency derived from assets in a transparent, stable and growing market. Since listing in October 2013 the AUD has depreciated 27% against the USD to levels that significantly enhance the competitiveness of the Australian market place. During the same period, the ZAR has depreciated 45% against the USD but has maintained its standing against the AUD with only 8% depreciation. Whilst the currency is a factor outside management’s control we believe that the AUD currently offers a relatively cheap entry point for ZAR investors.”

In relation to IAPF’s prospects Katz noted: “The Fund is in line to achieve double digit distribution growth in AUD for the 2016 financial year, we have a quality portfolio which has been enhanced by accretive acquisitions and management remains focused on effective and efficient capital and interest rate management for the benefit of unitholders.”