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Investec Property Fund (IPF) will be the stock in focus: (Price at time of writing: R14.97 (1 June 2016))
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Background and overview of Investec Property Fund (IPF)
Investec Property Fund Limited is a South African Real Estate Investment Trust (REIT) and currently comprises a portfolio of 122 properties in South Africa with a total gross lettable area (“GLA”) of 1.3 million square meters. IPF also has a R500million investment in Investec Australia Property Fund. While some of the other REIT's we have looked at have crown jewels in their property portfolio, Investec's properties might not be seen as as glamorous as some of the other REIT's properties, they do have major businesses occupying the
Scroll over or click on the funnel chart to get more details of IPFs latest financial results
Financial review:
From the funnel chart its clear to see that their net profit is more than their turnover. This is due to large scale fair value adjustments made to the value of their properties that is coming through the income statement. If the fair value adjustments are excluded from their profits, IPF's net profit margin amounts to, 80.1% (which is a lot higher than the net profit margin achieved by Growthpoint and Hyprop).
A nice feature of IPF is the exposure in not only Africa, but also some exposure to Australia. In addition to this the assets are evenly spread across office, industrial and retail space (see the pie charts below). They are also present in six of South Africa's provinces.
Investec Property Find is currently trading at a distribution/dividend yield of 8.3% which is extremely healthy.
A nice feature of IPF is the exposure in not only Africa, but also some exposure to Australia. In addition to this the assets are evenly spread across office, industrial and retail space (see the pie charts below). They are also present in six of South Africa's provinces.
Investec Property Find is currently trading at a distribution/dividend yield of 8.3% which is extremely healthy.
The pie chart below shows the contribution of some of IPF's biggest properties to their revenue and distributable income.
Based on the pie charts above its clear that there is a even spread between Office, Retail and Industrial space, and that their asset value contriutions is very similar to their turnover contribution. Below a pie chart representing their geographical representation.
From the above its clear that the major source of IPF's revenue's comes from properties in Gauteng, then the Western Cape, and suprisingly in 3rd place the Free State ahead of that of KwaZulu-Natal.
Headline earnings per share (HEPS) came in at R1.65 a share, putting IPF on a PE ratio of 8.8 which is much lower than competition, GrowthPoint and Hyprop. Cash generated per share came in at R1.29 a share for the period, with Net Asset Value (NAV) sitting at R15.85 per share. Essentially at the current price one is buying IPF's assets at a discount to its value.
Often the biggest problem for large property owners is their vacancy rates, as empty space means wasted space. Below a summary of IPFs vacancy rates (which in Investec's case is not a problem at all as the vacancy rates across all property types are extremely low)/
Clearly Investec is doing something right as their vacancy rates are very low. Shows you dont need fancy properties to have low vacancy rates.
Headline earnings per share (HEPS) came in at R1.65 a share, putting IPF on a PE ratio of 8.8 which is much lower than competition, GrowthPoint and Hyprop. Cash generated per share came in at R1.29 a share for the period, with Net Asset Value (NAV) sitting at R15.85 per share. Essentially at the current price one is buying IPF's assets at a discount to its value.
Often the biggest problem for large property owners is their vacancy rates, as empty space means wasted space. Below a summary of IPFs vacancy rates (which in Investec's case is not a problem at all as the vacancy rates across all property types are extremely low)/
- Retail: 1.1%
- Office: 0.6%
- Industrial: 1.4%
Clearly Investec is doing something right as their vacancy rates are very low. Shows you dont need fancy properties to have low vacancy rates.
A few financial ratios to mull over for Investec Property Fund (calculated using our Financial Ratios Calculator):
- Debt to Equity Ratio: 0.55 (more than 2 shows high levels of financial leverage).
- Current Ratio: 0.21
- Quick Ratio: 0.21
- Return on Assets (ROA): 6.46%
- Return on Equity (ROE): 10.03%
- Net Profit Margin: 80.1%
- Dividend Yield: 8.32%
Valuation:
While the retail office space in South Africa does seem to be oversupplied, IPF has a very low vacancy rate across all their property types. It is extremely encouraging to see how well the vacancy rate is managed.
Based on IPF current financial results, their vacancy rates and the quality of their assets and strong dividend yield we value HYP at between R20.98 and R21.11 a share. Placing them on a PE of 12.7 and dividend yield of 5.9%. Thus at their current price they do offer significant value for investors. We would recommend acquiring IPF ahead of both GrowthPoint and Hyprop shares at this point in time.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
Based on IPF current financial results, their vacancy rates and the quality of their assets and strong dividend yield we value HYP at between R20.98 and R21.11 a share. Placing them on a PE of 12.7 and dividend yield of 5.9%. Thus at their current price they do offer significant value for investors. We would recommend acquiring IPF ahead of both GrowthPoint and Hyprop shares at this point in time.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.