Investec Property Fund has entered into separate binding agreements in respect of three individual transactions as part of its growth and diversification strategy.
The transactions include the internalisation of its asset management function in SA and Europe for R975 million which will be settled via an asset consideration of R390 million; an upfront cash payment of R260 million and a deferred consideration of R325 million; the acquisition of an additional 19% stake in the Pan European Logistics (PEL) Platform for R1.860 million with the Entrepreneurship Development Trust acquiring the remaining 6% stake to fully exit the existing joint venture partner and entering into a joint venture with Australian-based real estate manager, Irongate Management Fund, with the original management team led by Graeme Katz, and the acquisition of a stake in one of the related property funds.
These transactions, which will result in a fully integrated international real estate fund and asset management company will, on a consolidated basis, be earnings accretive and keep its loan-to-value (LTV) below 40%.
“As part of our growth strategy this announcement sees IPF become even better aligned to becoming an international fund and asset management business that is able to generate returns through the property life cycle, leveraging both its capital and people in a more efficient and effective way,” commented Investec Property Fund CEO, Andrew Wooler.
The combined entity, 53% of which will be offshore and 47% in SA, and which will have R35 billion in gross asset value (GAV) across 9 countries, and A$450 million of equity under management, will provide IPF with new avenues for growth and even greater flexibility to unlock further value for its stakeholders.
Acquiring an additional 19% stake in PEL
Despite global macro-economic volatility and rising European interest rate outlooks, the PEL platform continues to provide superior growth with increased economic exposure to the market. This allows IPF to continue to execute on its intended strategy of investing in long-term, geographic specific, structural real estate opportunities.
Furthermore, the additional stake also enables IPF to make more direct strategic decisions about the direction of the business.
“Whilst global interest rates remain uncertain, the decision to increase our exposure to the PEL platform was premised on the strength of the underlying real estate fundamentals that continue to underpin the valuation and long-term returns. The PEL portfolio continues to outperform with rental growth accelerating over recent months. Over the last 12 months, the PEL platform has delivered c. 8% NOI growth on the back of 6-7% positive rental reversions, with top line contractual rentals growing by 10.5% over the same period.”
“We are also excited to be able to work with Paul Rodger and the team on the ground in Europe as we explore capital light opportunities together with further strategic partnerships with global capital,” continued Wooler.
Once the PEL transaction is complete, IPF will have an 84% shareholding in the PEL platform. The Entrepreneurship Development Trust (EDT) will own a 6% interest, while the remaining 10% will be a passive holding by various private clients of Investec Wealth and Investment.
Acquiring Irongate Funds Management together with management
Further, IPF has entered into a 50/50 joint venture with Irongate Australia, the management team of Irongate Australia Fund Management. The transaction will lead to a buyout of Irongate Australia Fund Management from Charter Hall. Simultaneously, IPF will acquire a 18.67% stake in the Templewater Australia property fund which is managed by Irongate Australia Fund Management.
The Irongate management team is well known to IPF, JSE and ASX investors given the exceptional performance delivered by Investec Australia Property (IAP) whilst listed in both South Africa and Australia, where it delivered a total return of 211%.
“IPF’s future strategic direction includes Fund Management and we have always been a strong supporter of the Australian real estate market. We are incredibly excited to be partnering up with Graeme Katz and the core team again, having worked so closely and successfully together since 2013. We’re looking forward to building a scalable platform together and providing meaningful balance sheet support,” remarked Wooler.
Irongate has successfully returned all capital plus profits through the cycle over the past 15 years, having built a track record for working challenging assets and unlocking value. The Irongate transaction includes a profitable real estate funds management business with c. A$450 million equity under management in assets, a gross realizable value of c. A$2,75 billion, and a reputable management team correctly incentivised and aligned with the co-owners of the new business.
“We are looking forward to this exciting next step in our journey. At its culmination we will become a standalone fully integrated international real estate company, delivering attractive returns for our investors and sustainable outcomes for the communities in which we invest,” he concluded.