JSE-listed real estate investment trust (Reit) Investec Property Fund (IPF) has stabilised its South African business, while its European business delivered a solid performance during the six months to September 30.
Joint CEO Andrew Wooler reported on November 17 that the company's balance sheet was strong and that vacancy rates were reducing.
The company's distributable earnings a share increased by 11.8% year-on-year to 52.39c.
The balance sheet remains robust, with a loan-to-value ratio of 37.9%. The company faces limited refinancing risks, as the majority of refinancing risks have been dealt with and the company has R2-billion in cash and unused committed facilities, providing ample headroom and adequate liquidity to cover upcoming debt maturities if needed, he said.
The company's focus areas in South Africa were on active asset management and derisking its revenue stream, particularly from its office portfolio.
Its focus in Europe is on building its development pipeline, portfolio stability and leasing the last remaining vacancies in its portfolio. As a group, IPF is focused on active capital recycling and to further reduce gearing in the next 6 to 12 months, said Wooler.
Joint CEO Darryl Mayers individually praised the European and South African teams for their "stellar" and "exemplary" performances.
"The South African office portfolio is experiencing relatively stable demand and, although this space of the market has been impacted by remote work trends, there have been some positive indications of people and companies returning to work.
"The teams were active and 95 leases were concluded during the period, with 30 in the office sector and 23 of these were new tenants," he said.
The industrial portfolio was a strong performer. Vacancy rates in this portfolio in South Africa had declined from 17% at the end of March this year to 10% at September 30, and the company expects this to reduce to a single-digit figure by March 31, 2022.
The retail portfolio also delivered a good performance with a low vacancy rate of 3.1%, if the fully vacant Unitrans Polokwane asset that is currently classified as held for sale is excluded.
Leasing activity during the half-year was positive, with 53 new leases signed.
IPF on November 1 started refurbishment works at the Design Quarter centre and will start redevelopment of its Balfour Mall in January.
An aggregate development cost of R230-million has been committed in respect of these projects at an investment yield of 8.8%. These projects will be completed during the company's 2023 financial year.
Meanwhile, the Reit has identified R1-billion in assets that have been approved for sale. The intention is to deploy the proceeds to increase its investment in its Pan European Logistics (PEL) platform or opportunities identified in South Africa that fit its strategic asset requirements matrix.
"In Europe, we remain opportunistic and will look to trade out of sectors that we do not foresee gaining any more upside or with limited potential to extract value. The capital will be recycled back to our core markets in Europe and to the development pipeline."
The Reit has one asset that it is ready to develop in Poland and is waiting for plan approvals. It anticipates breaking ground for this project in February, which should provide a significant uplift in terms of income, he said.
Development of the remaining two European assets in the development pipeline have received board approval, but work on these is not anticipated to start before February.
IPF expects to deliver a similar performance during the remaining six months of its financial year and says distributable earnings a share are likely to growth by 10% to 12%.
"In Europe, we expect to see a consistent performance over the next six months and continuing growth in rentals and development activity.
"However, a key focus remains on the balance sheet and continuing to reduce the loan-to-value ratio to the target range of 30% and 35%. We are also looking to manage end trade risks ahead of potential rate hikes over the next 6 to 12 months, although we consider ourselves well positioned and the risk limited," Wooler noted.