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Ciref Beats Volatile Market Conditions To Deliver Strong Returns

Posted On Wednesday, 21 November 2007 02:00 Published by
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Notwithstanding volatile global markets CIREF, Corovest International’s property fund listed on the London Stock Exchange AIM Market, posted another strong performance for the year ended 30 September 2007 - its first full year listed on the exchange

Earnings rose 111,3% to R68,2 million (£4,8 million ) while net asset value per share increased 4,9% to R21.11 (150,39p) from R20.13 (143,42p) at 30 September 2006.  Delivering strong cash returns to shareholders, CIREF has declared a final dividend of R0.45 (3,18p), up 50,7% on 2006. 

In August 2007 South African Madison Property Fund Managers acquired a 40% stake in CIREF’s management company, Corovest Fund Managers, further boosting investor interest in the fund.  Following the transaction, South African property stalwarts Marc Wainer and Wolf Cesman were appointed to CIREF’s board.  All shareholders benefited from action taken to improve the liquidity of the share and a total of 4,1 million shares changed hands at an average of 340 000 per month over the financial year.

Chairman Gavin Tipper attributes the fund’s positive results to the inherent defensive quality of its assets. “Our well diversified portfolio incorporating a combination of property types across different geographic regions has enabled the fund to achieve impressive growth in challenging trading conditions.” The UK property market was negatively impacted during the year by lower rental growth prospects, turmoil in international financial markets, weak global credit markets and increased lending margins. “Shareholders received a return (share price increase plus dividends) of 16,3% over the financial year.”

Tipper explains that the European market is currently more benign than the UK market with Germany in particular showing signs of economic recovery, which has spurred the roll-out of CIREF’s European strategy. “We have established a dedicated German team to oversee acquisitions and manage existing investments in CIREF Europe Limited.” CIREF intends increasing its European investments from 15,2% to 20% of total net asset value.

Three separate portfolios in Germany were acquired during the year. The Berlin portfolio, purchased for R193,8 million (€19,8 million) with an average yield of 8%, consists of a number of retail properties on medium to long-term leases with leading food and liquor retailers including Lidl and Hol AB. A further two portfolios, acquired for R142,0 million (€14,5 million ) and R135,1 million (€13,8 million), respectively, consist of retail properties and petrol stations let on long-term leases to some of Germany’s largest supermarkets and international petrol chains, as well as retail properties under development in and around Bremen.  Tipper says CIREF is in talks with the vendor of the Bremen portfolio in regard to further acquisitions.

Corovest International CEO Mike Watters explains that in line with the fund’s focus on value-enhancing retail assets in central locations, a number of properties were added to the fund. These included 22 petrol stations located across the UK with a net initial yield of approximately 5,5% acquired for R371,9 million (£26,5 million), and a larger mixed-use development in London purchased for R91,2 million (£6,5 million).  CIREF also acquired a 40% stake in the West Orchards Shopping Centre in Coventry at a cost of R954,3 million (£68 million) and on an initial yield of approximately 5,4%.  Watters adds: “We consider all acquisitions in terms of our strategy of maintaining a balanced exposure to lower-risk income generating assets and those with potentially higher capital returns.”

Commenting on development projects currently underway Watters says that letting is progressing well. “Houndshill Shopping Centre in Blackpool is 74% let and we have secured major department store and food retailers as anchor tenants for Trinity Walk in Wakefield.” The redevelopment project at Birchwood Shopping Centre in Warrington and office and residential development, Delamere Place, in Crewe are set to commence in 2008.

Post year-end CIREF announced its intention to raise an additional R280 million – 420 million (£20-30 million) in capital. “The funding will be used to invest in a joint venture consolidating the properties currently owned with Modus Property Group,” says Watters. Modus Property Group is a Manchester-based company specialising in mid to large-sized retail projects. “The balance of the funds will be used to capitalise on excellent buying opportunities in our target markets due to increased yields and higher lending margins driven by the credit crisis.” 

Looking ahead Tipper says the outlook for the UK and European market remains mixed. “Earnings are expected to be more dependent on rental growth and active asset management – aspects which are addressed by our portfolio.” He adds that strong tenant demand in retail and offices and attractive returns available in Europe are expected to counter negative market factors in the UK.

He remains optimistic about CIREF’s growth prospects: “Our conservative financing structures and long-term value enhancement strategies in our development projects are set to deliver consistent capital growth and dividends.” 

The portfolio, valued at a gross value of R6,2 billion (£440 million) at year-end, comprises 26 investments spanning town centre developments, shopping centres, office buildings, petrol stations and supermarkets across the UK, Europe, the Channel Islands and the British Virgin Islands.

The share closed yesterday at R22,03 (159.5p) and rose to R22,30 (161.5p) in early trade this morning.

Publisher: Corovest International Limited
Source: Corovest International Limited
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