Investec Property Fund has published its results for the half year ended September 2022 achieving 2.7% year-on-year growth in distributable earnings per share (DIPS) to 53.78 cents per share (September 2021: 52.39 cents per share) which reflects the strength of the REIT’s underlying asset base with South Africa and Europe delivering like-for-like net property income (NPI) growth of 8.3% and 2.7% respectively.
The stability of its portfolios, proactive asset management and the strength of its balance sheet places the fund in a good position to maintain its dividend payout ratio at 95%, resulting in the declaration of a 51.09 cents per share (R411 million) dividend for the six months ended September 2022 (September 2021: 49.77 cents per share: R401 million).
“We are exceptionally proud of the fund’s performance over the past six months. It has been a period of increasing unpredictability globally, however, our deliberate strategy to sell out of risk and recycle capital into top quality assets sees IPF well positioned to withstand the prevailing volatility. This is backed up by the hands-on efforts of our skilled management teams, all of which have first-hand experience of leading through uncertainty,” commented joint CEO, Andrew Wooler.
The company’s current loan-to-value (LTV) ratio of 38.3% has remained relatively stable since FY2022 year end, (March 2022: 38.2%). Going into H2 FY2023, the fund will have significantly reduced refinancing risk following a R5.3 billion group debt refinance that will be completed during November 2022 which will have the effect of extending its debt maturity by around two years and includes a significant ESG element.
In SA, economic activity continued to increase during the half-year, and the REIT sector progressed its recovery at a slow pace. Strong industrial performance, supported by steady retail recovery, contributed to strong base NPI growth driven by lower year-on-year vacancies (9.8% in September 2021 to 7.1%), which has reduced further to 5.2% post the half-year end, and strong letting activity which has seen 88% of all space expiring during the period being relet.
Although the Eurozone has begun to feel the impacts of the Ukraine war, energy crisis and inflation, there has been limited impact on the logistics sector to date with the strong momentum displayed in 2021 continuing into the first half of 2022. The portfolio continues to capture rental growth, supported by a resilient occupier market, positive rental reversions, robust demand, and rising indexation. With quality assets and strong tenant covenants as the foundation of the portfolio, the business is well positioned to absorb potential future impacts of inflation and cost pressures on the occupier base.
“The rising interest rate environment, both in SA but specifically in Europe, is expected to impact earnings in the second half. The pace and quantum of the increases in Europe, off the previously negative interest rate base has created pricing volatility in asset markets with a yet uncertain impact on long-term valuations in the sector. While this will undoubtedly have an impact on second half earnings, opportunity exists to take advantage of the current dislocation through the hands-on management of our on-the ground team as they seek to unlock further value,” concluded Wooler.
Looking ahead, second half net operating income (NOI) across both regions is anticipated to be consistent with H1 FY23, given the stable performance of the SA business and continued sector tailwinds underpinning the growth of the PEL portfolio’s NOI. In the absence of any external macro-economic factors, the fund would have expected to achieve its previous full year guidance of low single-digit DIPS growth. However, given the significant change in interest rates since May, H2 earnings will be adversely impacted, and the fund has tempered its full year guidance to marginally negative earnings growth.
