Investec Property Fund (IPF) has announced three individual transactions that form part of its growth and diversification strategy, including entering the Australian market and combining some of its businesses.

The transactions will result in a fully integrated international real estate fund and asset management company that is earnings accretive and with a loan-to-value ratio below 40%.

Particularly, the deals will provide IPF with new avenues for growth and greater flexibility to unlock value for shareholders.

IPF will soon internalise its asset management functions in South Africa and Europe for R975-million, which will be settled by way of a R390-million asset consideration, an upfront cash payment of R260-million and a deferred consideration of R325-million.

The company will then acquire an additional 19% stake in the Pan European Logistics (PEL) platform for R1.8-billion, with the Entrepreneurship Development Trust (EDT), which is a charitable trust focused on the development of the economy through educational and entrepreneurial activities, acquiring the remaining 6% stake to fully exit the existing joint venture (JV) partner.

IPF will also enter into a JV with an Australia-based real estate manager, Irongate Management Fund, and acquire a stake in one of the related property funds in the country.

The asset manager believes the deals will deliver an internalised management function across South Africa and Europe that is fully aligned with the interests of shareholders, and a geographically and sectorally diversified portfolio of assets, while paving the way for a capital-light funds management strategy.

“As part of our growth strategy, this announcement sees IPF becoming a better aligned international fund and asset management business that is able to generate returns through the property lifecycle, leveraging both its capital and people in a more efficient and effective way,” CEO Andrew Wooler explains.

The combined entity, of which 53% will be offshore and 47% in South Africa, will have R35-billion in gross asset value across nine countries, and A$450-million of equity under management.

EUROPEAN EXPANSION

Despite global macroeconomic volatility and rising European interest rate outlooks, the PEL platform continues to provide superior growth with increased economic exposure to the market, IPF states.  

This allows the company to continue to execute on its intended strategy of investing in long-term, geographic-specific, structural real estate opportunities.

Further, the additional stake also enables IPF to make more direct strategic decisions about the direction of the business.

“While 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 8% net operating income growth on the back of 6% to 7% positive rental reversions, with top-line contractual rentals growing by 10.5% over the same period,” Wooler notes.

He adds that IPF is also eager to be able to work with Paul Rodger and his team on the ground in Europe as the parties explore capital-light opportunities together with further strategic partnerships with global capital.

Once the PEL transaction is complete, IPF will have an 84% shareholding in the PEL platform. EDT will own a 6% interest, while the remaining 10% will be a passive holding by various private clients of Investec Wealth and Investment.

DOWN UNDER

IPF has entered into a 50:50 JV 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 an 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, as well as JSE and ASX investors, given the exceptional performance delivered by Investec Australia Property, while listed in both South Africa and Australia, where it delivered a total return of 211%.

“We have always been a strong supporter of the Australian real estate market. We are incredibly excited to be partnering up with Graeme Katz again, having worked so closely and successfully together since 2013. We look forward to building a scalable platform together and providing meaningful balance sheet support,” says Wooler.

Irongate has successfully returned all capital plus profits through the cycle over the past 15 years, having built a record for working challenging assets and unlocking value.

The Irongate transaction includes a profitable real estate funds management business with A$450-million of equity under management in assets, a gross realisable value of A$2.7-billion and a reputable management team correctly incentivised and aligned with the co-owners of the new business.

“We look 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,” concludes Wooler.