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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 in terms of the Collective Investment Schemes Control Act No.45 of 2003
Operated by Investec Property Limited (ACN 071 514 246; AFSL 290 909) (“Responsible Entity”)
Share code: IAP
ISIN: AU60INL00018
(“IAPF” or the “Fund”)
ACQUISITION OF NEW PROPERTY
1. Introduction
The Fund is pleased to advise unitholders that it has entered into a contract for sale with associated entities of
Dexus Property Group and Brookfield to acquire a 50% share in the property located at 324 Queen Street,
Brisbane (Property) with Abacus Property Group (ASX: ABP) (Abacus).
Abacus, which is well known to the Fund and the Investec Group, is a leading diversified property group with a
market capitalisation of AUD 1.65 billion and specialises in investing in core plus property opportunities in
Australia.
The Property is located in a premier position at the tightly held and highly sought after junction of Queen Street
and Creek Street in the Brisbane CBD’s Golden Triangle and has a commanding street presence and strong
retail component.
The total purchase consideration is AUD 132 million, the Fund’s share being AUD 66 million. This equates to a
12 month forward passing yield of 7.2%* (pre transaction costs), with the potential to increase the yield to 8.9%
on a fully leased basis. This represents attractive value and upside at an acquisition cost per m² of AUD 6,642.
The purchase consideration including transaction costs will be funded through the Fund’s existing syndicated
debt facility with Westpac and ANZ at an expected all in funding cost of 3.35%. The initial yield spread of circa
3.85% results in significant accretion to the Fund’s earnings.
The Fund has successfully demonstrated its ability to enhance value through the acquisition of properties with
vacancy and the subsequent letting up of that space. The acquired vacancies in the Fund’s properties at
Solent Circuit and King Street are now virtually fully let resulting in a material increase to the initial yields of
those properties.
2. Rationale for acquisition of the Property
The acquisition of the Property is consistent with the Fund’s strategy of investing in well located, high quality
assets. The acquisition of the Property represents an attractive investment for the Fund for the following
reasons:
? The Property is located in a prime position within the Brisbane CBD’s Golden Triangle.
? The Property benefits from good accessibility to Brisbane’s public transport network with bus, train, ferry
and city cycle services all located in close proximity.
? Both the Fund and Abacus have an in depth understanding of the Brisbane CBD occupier market based
on recent letting and transaction activity, providing an opportunity to enhance the initial forward yield of
7.2%* to 8.9% (fully leased) through an active strategy to reposition and lease up the existing vacancy.
? The Brisbane CBD office market appears to turning with the most recent data showing an increase in
effective rents and net positive absorption.
? Significant life cycle and repositioning capital has been spent by the vendors, future proofing the Property
and providing a high quality modern office building with 17 of the 23 office floors refurbished between
2011 and 2016.
? The Property is multi-tenanted with 87% (by income) of current tenants being either global or national
operators including Allianz, ANZ, Multiplex, North Queensland Bulk Ports, Asciano, American Express
and Link Market Services.
? Average contracted rental escalations of 3.9%, enhancing the funds current portfolio escalation of 3.3%.
* Includes escalations on existing leases and leases scheduled to commence within 12 months
? The acquisition represents attractive relative value at a rate per m² of $6,642, which is below recent
comparable sales in the immediate vicinity (most notably 300 Queen Street – $9,709; 215 Adelaide Street
– $7,695; 313 Adelaide Street – $8,566).
? There is an ability to achieve reduced outgoings with a view to enhancing returns to the Fund through
improved property management.
? Signage rights are available but have not been monetised, which provides an opportunity to enhance
yield and/or assist in attracting appropriate tenants.
? The acquisition of the Property provides an opportunity to create a new investment partnership with
Abacus, who the Fund considers to be a very complimentary partner.
3. Specific information relating to the Property
Registered description Lots 1 and 2 on RP 887, County of Stanley, Parish of North Brisbane with title
references 50473645 and 50473646
Title Freehold
Sector Office
Location Brisbane CBD
Year built 1975 with extensive refurbishment in 2001
Site area 1,821m2
GLA 19,874m² (18,832m² office; 1,042m² retail)
Rent per m2 AUD 644/m² office; AUD 1,374/m² retail
Vacancy 20%
WALE 3.2 years
The Property has been valued at AUD 132 million as at 2 September 2016 (by CBRE Valuations Pty Limited
(ABN 15 008 912 641). The valuer, Tristan Gasiewski, is an independent valuer and is an Associate of the
Australian Property Institute and a Certified Practicing Valuer (registration no.2564).
4. Forecast information on the acquisition of the Property
The forecasts have been prepared with effect from 1 December 2016 and include forecast results for the
periods ending 31 March 2017 and 31 March 2018.
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 relate to the Property only and have been prepared in accordance
with the Fund’s accounting policies and in compliance with IFRS.
Forecast 4 Forecast 12
months ending months ending
31 March 2017 31 March 2018
AUD’000 AUD’000
Revenue (including straight line revenue adjustment) 2,135 7,177
Total property expenses (463) (1,427)
Net property income 1,672 5,750
Fund and asset management fees (132) (396)
Net operating income before finance charges 1,504 5,354
Finance costs (784) (2,351)
Net profit attributable to equity holders 756 3,002
Less: straight line revenue adjustment (113) (287)
Distributable income pre-withholding tax 643 2,716
Distributable income post-withholding tax 643 2,612
* Includes escalations on existing leases and leases scheduled to commence within 12 months
Notes:
1. Distributions are payable to unitholders attributable to the acquisition of the Property and are partially shielded by
depreciation allowances.
2. Material expenditure items relate to Fund and asset management fees (approximately 22% of total expenses).
3. No material expenditure items have been increased in the forecast period ending 31 March 2018 by more than 15% over
the previous financial period.
4. The finance costs assume an all in cost of funds of 3.35% with 75% of the cost of funds fixed via interest rate swaps (in
accordance with the Fund’s interest rate hedging policy) for 7, 8, 9 and 10 years.
5. Condition precedent
The acquisition of the Property is conditional on approval from the Australian Foreign Investment Review
Board (FIRB), which is expected to be received by no later than 31 October 2016.
The effective date of the acquisition of the Property is the settlement date under the contract for sale, which is
scheduled for the later of 1 December 2016 and 5 business days after FIRB approval.
6. Categorisation
The acquisition of the Property is a category 2 transaction in terms of the JSE Listings Requirements and
accordingly does not require approval by unitholders.
Johannesburg
10 October 2016
Investment Bank and Sponsor
Investec Bank Limited
* Includes escalations on existing leases and leases scheduled to commence within 12 months
Date: 10/10/2016 09:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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