To view the PDF file, sign up for a MySharenet subscription.

INVESTEC AUSTRALIA PROPERTY FUND - Acquisition of new property

Release Date: 10/10/2016 09:45
Code(s): IAP     PDF:  
Wrap Text
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'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Share This Story