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INVESTEC AUSTRALIA PROPERTY FUND - Acquisition of new property

Release Date: 27/02/2014 08:20
Code(s): IAP     PDF:  
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Acquisition of new property

INVESTEC AUSTRALIA PROPERTY FUND
Incorporated and registered in Australia in terms of ASIC (ARSN 162 067 736)
Registered as a foreign collective investment scheme in terms of the Collective Investment Schemes Control Act
No. 45 of 2003 and operated by Investec Property Limited (ACN 071 514 246; AFSL 290 909) (“Responsible
Entity”)
Share code: IAP
ISIN: AU60INL00018
(“the Fund”)


ACQUISITION OF NEW PROPERTY


1.   ACQUISITION OF NEW PROPERTY


     1.1. Acquisition

          Unitholders are advised that the Fund has entered into the following agreements:

          (a)     a contract for sale with Griffin Development Pty Ltd (ACN 057 253 086) as trustee under
                  instrument 713571084 and Tina Danali Pty Ltd (ACN 083 706 692) as trustee under instrument
                  705919457 (“Garden City Vendor”) to acquire the property located at Building 20, Garden City
                  Office Park, 2404 Logan Road, Eight Mile Plains QLD 4112 (“Garden City Property”); and

          (b)     a contract for sale with OPD Developers Pty Ltd (ACN 077 119 110) (“Car Park Vendor”) to
                  acquire 77 car parks located at Building 5, Garden City Office Park, 2404 Logan Road, Eight Mile
                  Plains QLD 4112 (“Car Park Property”),

          together “the Acquisition”.

          The effective date of the Acquisition will be the settlement date under the contracts for sale which, subject
          to fulfillment of the conditions precedent set out in 1.5 below, is expected to be on or before 14 March
          2014.

     1.2. Purchase consideration

          The aggregate purchase consideration for the Acquisition is AUD 20,953,350, which represents an
          annualised property yield of 8.25% (7.74% post all transaction costs).

          The Fund will be required to pay stamp duty of AUD 1,185,346 on the Acquisition and there will be transfer
          lodgement fees of $61,703.

          The purchase consideration and all costs will be funded through the existing debt facility with Westpac
          Banking Corporation. The Responsible Entity intends to hedge at least 75% of the debt at fixed interest
          rates in accordance with the Fund’s stated hedging policy.

     1.3. Rationale for the Acquisition

          The Acquisition is consistent with the Fund’s strategy of investing in high-quality office assets that are well
          located in major metropolitan areas. The Responsible Entity is actively seeking opportunities to grow and
          diversify the Fund’s asset base, enhance unitholder value and contribute to sustainable income growth.
          The Acquisition represents an attractive investment for the Fund as:

          (a)     the income is underpinned by good quality tenants with contracted annual growth;

          (b)     there are medium to long term lease expiries;

          (c)     there is limited short term capital expenditure required;

          (d)     it provides for broader geographic diversification across the Fund’s portfolio; and
     
          (e)     there is substantial depreciation which will provide a tax shield on distributions payable to
                  unitholders.

          The Garden City Property is an A-grade office building providing modern architectural design and high
          quality finishes. It is located in the Garden City Office Park approximately 15 kms from the Brisbane CBD
          in one of Queensland’s fastest growing precincts and is strategically located along major road networks
          with excellent access to the Pacific Motorway (which connects Brisbane and Gold Coast), the Gateway
          Motorway and Logan Road. The Westfield Garden City Shopping Centre is conveniently located 5 minutes
          away and the Eight Mile Plains Bus Terminal, which provides public transport connections to the Brisbane
          CBD, is only 800m from the Garden City Property. The Garden City Property is 100% occupied by good
          quality tenants (including Healthscope, Australia's largest healthcare provider specialising in private
          hospital, medical centre and pathology services; and Medicare Local, a government funded health and
          community services provider) with medium to long term lease expiries and contracted annual rental growth
          of approximately 3%.

          The Car Park Property is located immediately adjacent to the Garden City Property and provides for
          additional car parks utilised by tenants of the Garden City Property.

     1.4. Specific information relating to the property

          Details regarding the Garden City Property are set out below:

          Registered description                    Lot 1 on SP 203730, County of Stanley, Parish of Bulimba,
                                                    Title reference 50773071
      
          Location                                  Garden City Office Park, 15 kms from the Brisbane CBD
             
          NLA (m²)                                  3,568m²
      
          Car parks                                 72 basement; 38 on-grade
                                   
          Weighted average rental per m²(AUD)       421 p.a
      
          Vacancy (%)                               0

          Details regarding the Car Park Property are set out below:

          Registered description                    Lot 1 on SP 266319, County of Stanley, Parish of Bulimba,
                                                    Title reference 50773075
      
          Location                                  Garden City Office Park, 15 kms from the Brisbane CBD
      
          Car parks                                 77
      
          Weighted average rental per car park      1,106 p.a
          (AUD)
      
          Vacancy (%)                               0

          The Acquisition has been valued at AUD 20,954,000 as at 14 February 2014 by CBRE Valuations Pty
          Limited. The valuer, Craig Guinane, is an independent valuer and is registered as a certified practicing
          valuer with the Australian Property Institute and the Valuers Registration Board of Queensland (Registered
          Valuer No.2731).

     1.5. Conditions Precedent

          The Acquisition is subject to the following conditions precedent:

          In respect of the Garden City Property

          (a)     the satisfactory completion of a due diligence investigation to be performed by the Fund; and

          (b)     settlement of the acquisition of the Car Park Property.

          In respect of the Car Park Property

          (a)    the satisfactory completion of a due diligence investigation to be performed by the Fund; and

          (b)    settlement of the acquisition of the Garden City Property.

     1.6. Warranties

          The Garden City Vendor and the Car Park Vendor have provided warranties and indemnities to the Fund
          that are standard in a transaction of this nature.

     1.7. Pro forma financial effects of the Acquisition

          The pro forma financial effects of the Acquisition on the Fund’s net assets and net tangible assets per
          unit, based on the pro forma statement of financial position as disclosed in the pre-listing statement dated
          25 September 2013, are not significant and have not been presented.

     1.8. Forecast information on the property

          The forecasts have been prepared on the assumption that the Acquisition will be implemented with effect
          from 1 March 2014 and include forecast results for the 1 month ending 31 March 2014 and the year
          ending 31 March 2015.

          The forecasts, including the assumptions on which they are based and the financial information from
          which they are prepared, are the responsibility of the board of directors of the Responsible Entity. The
          forecasts have not been reviewed or reported on by the independent reporting accountants.

          The forecasts presented in the table below have been prepared in accordance with the Fund’s accounting
          policies and in compliance with IFRS.


                                                                                 Forecast 1          Forecast 12
                                                                               month ending        months ending
                                                                              31 March 2014        31 March 2015
                                                                                    AUD'000              AUD'000
          Revenue, including straight line adjustment                                   166                2,060
          Total property expenses                                                       (15)                (185)
          Net property income                                                           151                1,874
          Fund management fees                                                          (10)                (126)
          Fund operating costs                                                           (7)                 (84)
          Net operating income before finance charges                                   134                1,665

          Finance costs                                                                 (91)              (1,089)
          Net profit attributable to equity holders                                      43                  576
          Less: straight line revenue adjustment                                        (12)                (125)
          Distributable income pre-withholding tax                                       31                  451
          Distributable income post-withholding tax                                      31                  451

          Notes:

          1.     All revenue for the reporting periods shown is contracted and is based on lease agreements that will
                 be in place on settlement.

          2.     The annual escalations embedded in the leases are approximately 3% on average. Escalations
                 occur between October and January each year.

          3.     Distributions payable to unitholders attributable to the Acquisition are shielded from additional
                 withholding tax in Australia as a result of interest expense on debt funding and depreciation
                 allowances on the Acquisition.

     1.9. Categorisation and cautionary

          The Acquisition is a category 2 transaction in terms of the JSE Listings Requirements and accordingly
          does not require approval by unitholders.


Johannesburg
27 February 2014

Investment Bank and Sponsor
Investec Corporate Finance

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