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Investec Property Fund delivers

The Investec Property Fund announces solid maiden financial year-end results for the year ended 31 March 2012, boosted by strategic acquisitions and a strong focus on client retention.

The Fund achieved an operating profit of R191.7 million, successfully growing its asset base from 29 to 34 properties with the acquisition of five high-quality properties during the year.

Although not all acquisitions are included in the final results due to the timing of their transfer, the total acquisitions of R490 million represent a total 28.9% increase in asset value from the acquired cost of the initial portfolio – equivalent to a R490 million increase in the property portfolio.

Highlights:

- Final distribution of  49.29 cents per unit (interim distribution of 43.73 cpu) - total distribution 93.02 cpu
- Distributions exceeded initial estimate by 3.5%
- Operating profit of R191.7 million
- Portfolio value of R2.1 billion at year end, an increase of 21.7%
- Portfolio value of R2.3 billion including pending acquisitions, an increase of 37.3%
- 32 properties in the South African office, retail and industrial sectors comprising a  gross lettable area of  406 706m2
- Improvement in vacancies from 3.4% a year ago to 2.7%
- Total return of nearly 28% factoring in the increase in the unit price since listing and the interim distribution paid.

With three of the acquisitions totalling R225.9 million effective in the year under review, the year-end valuation of 32 properties represents a total GLA of 406 706m2 with a value of R2.1 billion. The remaining two acquisitions totalling R264.1 million are expected to be finalised in the first quarter of the next financial year. All of the acquisitions are expected to contribute positively to the results and distributions of the Fund in the forthcoming year.

Investec Property Fund CEO Sam Leon commented:

“The Fund has produced a solid set of full year results. Our positive performance as a defensive portfolio has been underpinned by strategic acquisitions and a focus on client retention and renewals. We remain committed to growing the Fund by the acquisition of good real-estate rather than balancing the portfolio by sector or geography. The acquisitions to date have enhanced the portfolio financially and bolstered the retail portfolio which was underweight at listing. Our philosophy around growth is to get to a competitive fighting weight and to decrease risk. We continue to emphasise that we are real estate focussed and may make acquisitions that may be initially dilutive if we believe they will provide long term benefits to the Fund.”

Following an interim distribution of 43.73 cents per unit, the Fund will pay a final distribution of 49.29 cents per unit for the year ended 31 March 2012, bringing the total distribution to 93.02 cents per unit.

The Fund’s portfolio comprises approximately 55% (by income) of single tenanted properties with high quality clients.

“Our strategic focus on client retention and renewals has paid off in a difficult economic climate, with the Fund delivering a vacancy rate of 2.7% from 3.4% a year ago. We have been successful at letting vacant space as well as re-negotiating expired leases for renewal while also achieving positive rental reversions,” Leon added.

The Fund was ungeared at listing to provide a strong platform for acquisition. With this advantage, there was an ability to finance the acquisitions by raising a bridge loan of R500 million and a working capital facility of R20 million to fund capital expenditure items. Both facilities have been provided by Investec Bank Limited at a margin of 225 basis points above Jibar. There are no commitment or facility fees on the undrawn facilities. Total borrowings for the year were R132.1 million, including the fair value adjustment of R1.2 million on the fixed for variable interest swap derivative instrument. After all acquisitions have been concluded the loan to value ratio of the Fund will be approximately 20.4%.

After year-end, Investec Property Fund registered a R1 billion domestic medium-term note programme and successfully placed R450 million of secured notes. The proceeds will be used to repay the outstanding borrowings and the balance of the acquisitions, other than BAT. The notes were placed at a competitive all-in rate of 8.3%, providing an attractive medium-term debt facility for the Fund.

Commenting on the Fund’s prospects, Leon concluded: “Sustainable growth and client retention remain the key imperatives with renewals of tenancies expected to be challenging in the year ahead. Despite this, the Board of Directors is confident the Fund will deliver growth in distributions for the next financial year in the region of 8%.”



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