IAPF reports full year financial results post successful ASX listing

Graeme Katz IAPF
IAP CEO, Graeme Katz.

Investec Australia Property Fund (IAP or the Fund) has reported its first full year financial result since its successful listing on the ASX.

Investec Australia Property Fund reported a final distribution for the six months to 31 March 2020 of 4.30 cents per unit (cpu), bringing the full year annualised distribution to 8.88 cents per unit, in line with guidance given to the market. The Fund delivered annualised FFO of 9.78 cpu and annualised AFFO of 9.17 cents per unit, both ahead of guidance.

Commenting on the Fund’s full year results, Investec Australia Property Fund CEO Graeme Katz said: “The Fund has delivered a financial result ahead of expectations. However, as we enter a period of uncertainty associated with the COVID-19 pandemic we have determined to distribute the amount previously advised to the market, which we believe demonstrates prudent cash management.”

During the period the Fund undertook a number of initiatives designed to strengthen its balance sheet. Following the successful capital raising at the time of the ASX listing, the Fund took advantage of conducive market conditions in October last year to raise further capital off the back of asset acquisitions. Shortly after, the Fund agreed to sell 757 Ann Street in Brisbane for $94 million, an 11% premium to book value. The sale of the property completed post the reporting date on 1 April, with the proceeds being used to reduce debt. In late 2019, the Fund secured $150 million of 10 year fixed rate debt from a large US financial institution, and post the reporting date in early April this year restructured the debt facilities held with its Australian-based banks.

“As a result of the initiatives we undertook during the period, the Fund’s gearing has reduced from 37.4% to 22.2%, the weighted average debt expiry has been extended from 3.6 years to 7.4 years and our all-in funding cost has reduced to 3.05%. We also have $17 million of cash on the balance sheet and $67 million of undrawn debt. We believe the Fund is well positioned to manage the challenges in the coming year and to take advantage of future acquisition opportunities,” Mr Katz said.

The Fund’s property portfolio has performed well over the past year with occupancy remaining high at 99.0% and a WALE of 4.5 years. Significant leasing activity was also undertaken with 64,335m² of space being contracted, notwithstanding that only 19,082m² of space was either vacant or expiring during the period.

Commenting on the Fund’s portfolio Mr Katz added: “The portfolio is focused on metropolitan office and industrial properties, which we believe will be relatively resilient given the current market uncertainties. The significant majority of the Fund’s tenants are government, listed or multinationals, with very limited exposure to tenants in the retail and consumer discretionary sectors. There is no doubt that some tenants have been financially impacted by the COVID-19 pandemic. We are assessing requests for rental support on a case by case basis with a view to agreeing commercially sensible outcomes with tenants where possible. It is too early to assess the full impact of this evolving situation on both the tenant base and the Fund, but our intention is to approach discussions with tenants with a view to preserving the long term sustainability of the Fund’s income.”

The portfolio now comprises 30 properties valued at $1.09 billion. A rigorous process was undertaken to determine the fair value of the Fund’s properties, involving both external valuations and directors’ valuations and utilising individual risk assessments taking into account the known and anticipated impacts of the COVID-19 pandemic. This has resulted in an underlying net asset value of $1.32 per unit, up from $1.30 per unit as at 31 March 2019.