Offshore exposure cushions Investec Property Fund. The fund has held back on local acquisitions due to a microeconomic

environment that remains challenging and is unlikely to improve in the short

term.

Investec Property Fund says the macroeconomic environment remains challenging

and has continued to deteriorate since it last reported. And it doesn't expect

conditions to improve in the short term. With little to no growth, demand for

space has fallen, putting pressure on rentals. It also costs more to attract

and retain clients.

As a result, it has limited local acquisition activity over the past six

months to a 71.3 rand million investment into empowerment fund Izandla to finance

development opportunities.

It is, however, capitalising on offshore growth offshore, helping to support

first-half earnings. Most recently, its "71.9 million investment in May into a

Pan-European logistics portfolio has outperformed the initial acquisition

budgeted income return of 10.5%, delivering 11.6% over the period. It is also

in the process of recycling capital through the sale of seven properties

valued at 600 rand million at an average yield of 7.5% which are classified as

held-for-sale. The proceeds are earmarked to reduce debt levels, and to be

deployed into the European platform that generates cash on cash returns in

excess of 10% or other value enhancing investment opportunities.

In Australia, it said it supported plans to dual-list the Investec Australia

Property Fund on the Australia Securities Exchange by next August. It said

distributions received for its 20.9% investment in the Australian fund were

flat year-on-year, in line with guidance.

It credits the performance of its offshore property investments for a 2.9%

improvement in its net asset value over the period. While gearing increased to

36.3% at the end of September from 32.6% in March due to the increased

investment in Europe, its cost of funding has declined to 8% from 8.6% as a

result of euro funding.

For the six months to end-September, revenue rose 1.3% to 917 rand million while

operating profit fell 3.1% to 698 rand million. It increased its normalised

distribution per share by 5.4% to 68.81c per share.

Vacancies declined to 3.1% from 4% in March. That excludes space hold vacant

for development. It says the decrease in vacancy in a market that favours

tenants rather than landlords is testament to the quality of its assets and

the relationship with tenants.

While the fund is looking offshore for growth, for now, it said it had a

positive view on SA for the medium to long-term. It expects to deliver

normalised growth of between 5% and 5.5% in its distribution for the full

year.

Recent proactive reforms and initiatives by government in the form of the jobs

and investment summits are welcome and inform our positive views on South

Africa for the medium- to long-term," the fund said.

Its shares closed 0.7% higher at 15.66 rand. Investec Australia Property Fund,

which also released interim results, ended 0.5% up at 12.25 rand.

Investec Prop Fund (IPF): Vacancies at 4.8% and SA arrears at 3.6% are not a

train smash. Investec are excellent property managers and have performed well

in probably the most difficult environment in more than a decade. Highly

geared to any future uptick in the SA economy.

-- Karin Richards (@Richards_Karin) November 12, 2018