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Cautionary Announcement - Strategic Partnership to Acquire The Entire Pan European Logistics Platform
INVESTEC PROPERTY FUND LIMITED
Approved as a REIT by the JSE
(Incorporated in the Republic of South Africa)
(Registration Number 2008/011366/06)
Share code: IPF ISIN: ZAE000180915
(“Investec Property Fund” or “the Fund” or “IPF”)
CAUTIONARY ANNOUNCEMENT - STRATEGIC PARTNERSHIP TO ACQUIRE THE ENTIRE PAN EUROPEAN LOGISTICS PLATFORM
1. INTRODUCTION
Shareholders are advised that Investec Property Fund, through its wholly owned subsidiary Investec Property
Fund Offshore Investments Proprietary Limited (“IPFO”), is finalising the agreements to increase its interest in
the Pan European Logistics (“PEL”) platform from funds managed by the Real Estate Group of Ares
Management Corporation or its affiliates (“Ares” or the “Vendor”). The Fund currently holds 42.9% in the
PEL platform and will increase its stake to approximately 75.0% for an additional equity investment of c. EUR
191 million (the “Proposed Transaction”). Furthermore, as part of the Proposed Transaction, the fund would
concurrently introduce a new strategic equity partner (“Co-Investors”) for the remaining 25.0% stake in PEL,
with the PEL platform being operated on a joint control basis going forward. Signing and completion of the
Proposed Transaction is anticipated on or about 14 February 2020.
The current portfolio consists of 45 logistics properties and is valued at c. EUR 900 million, with a total GLA of
1,034,952sqm across six European countries (the “PEL Portfolio”). Ares’ interest in the PEL Portfolio will be
acquired for a price of EUR 277 million and will deliver an equity yield to Investec Property Fund (“IPF”) of c.
9% in Euros.
2. KEY INVESTMENT HIGHLIGHTS
• Exceptional performance to date having delivered:
o More than 20% like-for-like net operating income growth since inception in March 2018
o Positive rental reversions achieved in the 6 months to 30 September 2019 of 8%
o Reduction in vacancies to 1.8% and an increase in WALE from 3.5 years to 4.8 years
o 2.0x gross money multiple on IPF’s initial investment at the Proposed Transaction value
• Expected to deliver:
o Earnings and NAV accretion from day 1, with NAV uplift of c. R1bn (7%) based on the Proposed
Transaction Value
o Proposed Transaction Value pricing remains below recent comparable transactions leaving
value in the bid
o Rental growth resulting from industry wide trends
o c.9% equity yield in Euros
o Further value unlock through:
i. Development opportunities within the PEL Portfolio
ii. Demand outstripping supply
iii. Continued vacancy reduction and accelerating rental growth
• Consolidation of the Belgium acquisitions, announced on SENS on 12 December 2019, into the PEL
platform post completion of the Proposed Transaction.
• Increases IPF’s offshore exposure to c.30% of assets (c.45% on a look-through basis)
• Highly experienced on the ground management team in place who have:
o To date delivered significantly ahead of the original investment case; and
o A track record evidenced by the performance of IPF’s investment to date and Hansteen’s
portfolio sold to Blackstone for EUR 1.3 billion in 2017
3. RATIONALE
The Proposed Transaction is a unique opportunity for the Fund to execute on its intended strategy outlined at
the outset of the initial investment, by gaining joint control of the European property platform that has
demonstrated a track record of growth. The PEL Portfolio continues to provide superior growth, with further
opportunities still evident.
The Proposed Transaction provides the Fund with:
a. Sizeable, unique offshore exposure
An opportunity for the Fund to significantly increase its offshore exposure. Post the Proposed
Transaction, the Funds’ offshore exposure will be 30% of gross assets on a reported basis, and 45%
on a look-through basis. Furthermore, this will give South African investors the opportunity to gain
sizeable exposure to a focused Pan European Logistics offering on the JSE.
There has been significant growth in the European logistics sector boosted by retail sales and
consumer spending despite on-going economic and political uncertainties. However, despite this
recent growth, the European logistics market remains less advanced than that of the United Kingdom,
Asia and the United States of America, but is expected to grow strongly at an average of 11.3% per
annum over the next 5 years, and therefore continues to present an attractive opportunity. The rapid
growth of e-commerce across Europe is further driving demand in the logistics sector as e-commerce
is quickly becoming as important as physical store networks, specifically given the fact that sales
generated through e-commerce require approximately three times more logistics space than those
generated through traditional retail stores.
Supply remains insufficient to meet end-user requirements with lack of available industrial land and
competition with other land uses constraining new development projects. While overall completions
are increasing, contrary to the years before the global financial crisis, developers are exercising
restraint and mainly developing on a pre-let basis. With increasing demand, decreasing vacancy
levels and tightening supply, rent levels are therefore expected to experience a structural increase in
the near term.
b. The platform strategy
The PEL Portfolio is located across six countries (Germany, France, the Netherlands, Spain, Italy
and Poland), providing access to core logistics markets across Europe.
The core investment strategy remains centered around following key principles:
• Major Western European geographies which are liquid and transparent markets
• Micro-location – target assets in established logistics hubs with high concentrations of industry
and consumers
• High quality assets and strong property fundamentals - assets below 20 years of age with asset
management opportunities and assets which provide maximum occupational flexibility and
attractiveness such as high eaves, large turning circles and expansion potential
• Target assets with pricing that reflects a discount to replacement cost and / or competing assets,
as well as providing positive positioning to benefit from the secular trend of increased demand
for logistics and resulting rental growth
• Target buildings typically ranging in sizes from 10,000 sqm to 40,000 sqm
• Robust cash flows – target cash yielding assets with good occupancy history that offer potential
for attractive cash-on-cash yields
• Off-market situations – target transactions where the UREP is able to capitalise on its network to
unlock off-market or complex mispriced opportunities
• Identify “core plus” assets with value-add opportunities – shorter leases with relatively low
contractual rental terms and asset management upside, compared to prime core assets where
pricing is considered to be at unsustainable levels; and
• Diversified tenant base with the majority of rental income derived from tenants operating in the
transportation and logistics sector.
The Fund believes that the strategy is still well suited to the current global macro and investment
environment. After 10 years of quantitative easing and relaxed monetary policy, asset pricing in
developed markets has enjoyed significant appreciation. While yield curves in these markets have
provided a strong tailwind, the real value creation going forward will be driven by real estate
fundamentals. This aligns to the shift from a cap rate tightening cycle to the early stages of a rental
growth cycle. Management have positioned the business to unlock the benefits of this shifting growth
fundamentals.
c. New Strategic partner
As part of the Proposed Transaction, IPFO will introduce a new 25% strategic equity partner into the
PEL Platform, in which it will share joint control post completion of the Proposed Transaction. The
proposed new equity partner is a consortium of family offices including investors with in-depth
knowledge and an established track record in EU real estate sector. Furthermore, the equity
partnership has a long-term interest in growing the platform and broadens the potential sources of
access to capital in order to unlock future growth opportunities.
In addition, IPFO may introduce another consortium of investors to acquire up to a 10% stake in the
platform, which will reduce IPFO’s stake to 65%. This will provide an additional source of capital to
support the future growth of the platform in line with the envisaged strategy.
d. Strong, in country asset management team in place
The in-country asset management will be undertaken by Investec Property Proprietary Limited in due
course and will continue to be executed by Urban Real Estate Partners (“UREP”), a dedicated
management platform led by Paul Rodger (Managing Director of UREP). This creates consistency in
unlocking value through asset management opportunities available in the PEL Portfolio.
UREP has established a team of experienced and locally based real estate professionals with a
strong track record in managing portfolios of this nature. The UREP team consists a team of dedicated
asset managers for each major investment geography. In order to align long-term interest between
the external Management Committee and PEL, UREP’s core management will invest equity
alongside IPFO and the co-investor.
4. DESCRIPTION OF PROPERTIES
By property value, c.75% of the PEL Portfolio is situated in Germany, France and Netherlands with the
remaining properties situated in Spain, Italy and Poland. There is a diversified tenant base with the majority of
rental income derived from tenants operating in the transportation and logistics sector, including inter alia DHL,
Nippon Express, CHI, Rhenus and P&G.
The properties are well located in primary and secondary logistics nodes, with the majority of locations being
classified as A and A-. The buildings are generally purpose built, high bay warehouses of a high-quality grading
and an average lease expiry of 4.8 years. The PEL Portfolio has performed exceptionally well to date, with
stronger leasing activity, better rentals, shorter void periods, quicker leasing of vacant space and lower
incentives.
5. SALIENT PROPERTY INFORMATION
Details of the PEL Portfolio, which are all classified as logistics assets, are set out in the table below.
Vacancy
Country Property GLA (m2) WAULT (years)
(%)
France Belfort 30,591 0% 5.8
France Le Havre 28,595 0% 5.1
France Rennes 19,158 0% 3.2
France Orleans 20,509 0% 2.8
France Saint Fargeau 20,426 0% 5.7
France Bourg en Bresse 34,999 1% 4.1
France Toussieu 38,840 22% 5.1
France Combs-la-Ville 23,262 0% 7.8
France Rouen 9,649 0% 7.0
France Marseille 65,473 1% 8.7
Germany Frankfurt 26,584 0% 9.0
Germany Koelleda 16,064 0% 2.0
Germany Wetzlar 23,171 11% 1.6
Germany Solingen 52,050 0% 2.0
Germany Hoppegarten 75,463 0% 3.5
Germany Dortmund 25,783 0% 2.7
Germany Mönchengladbach 10,618 0% 1.0
Germany Hanover 24,551 5% 1.0
Italy Carpiano 76,405 0% 4.1
Neth. Hordijk 13,268 0% 6.5
Neth. Maasvlakte 67,390 0% 3.9
Neth. Schiphol 28,733 0% 4.8
Neth. Bergen op Zoom 20,958 25% 5.7
Neth. Venlo Marco Poloweg 25,704 0% 3.8
Neth. Tiel 9,822 0% 4.3
Poland Sochaczew 101,538 0% 7.6
Poland Lodz 19,422 0% 2.1
Poland Poznan 31,875 0% 3.6
Poland Krakowska 11,045 0% 2.0
Spain Tarancon 83,005 0% 6.7
Total 1,034,952 1.8% 4.8
Notes:
1. As the Fund is acquiring an equity interest, no purchase consideration per property can be ascribed.
Capital deployed as part of the Proposed Transaction will be equal to the net asset value acquired.
6. FINANCIAL INFORMATION
Set out below are the forecast revenue, operating profit, net profit after tax and earnings available for
distribution in respect of the Proposed Transaction (“the Forecast”) for the six weeks ending 31 March 2020
and the year ending 31 March 2021 (“the Forecast Period”).
The Forecast has been prepared on the assumption that the Proposed Transaction is effective from
14 February 2020.
The investment is accounted for as a joint venture. As such there is no impact on the Fund’s revenue and
operating profit. The Forecast net profit after tax includes equity accounted earnings and interest income, net
of finance costs and management fees.
The Forecast, including the assumptions on which it is based and the financial information from which it has
been prepared, is the responsibility of the directors of the Fund. The Forecast has not been reviewed or
reported on by independent reporting accountants.
The Forecast presented in the table below has been prepared in accordance with the Fund’s accounting
policies, which are in compliance with International Financial Reporting Standards.
Forecast for the Forecast for the
6 weeks ending year ending
31 March 2020 31 March 2021
ZAR’000 ZAR'000
Revenue - -
Operating Profit - -
Net profit after tax 24,800 166,500
Earnings available for distribution 24,800 166,500
The Forecast incorporates the following material assumptions in respect of revenue and expenses:
1. The Forecast is based on information derived from cash flow forecasts prepared by the Fund.
2. The forecasts is based on the incremental impact of the 32.1% additional equity share in PEL.
3. The Forecast has been prepared in ZAR, based on a conversion rate of 16.78 for the six weeks ending
31 March 2020 and ZAR/EUR 18.00 for the year ending 31 March 2021.
4. Assumptions regarding lease expiration and new leases during the forecast period is based on
historical evidence and current market dynamics. Where it has been assumed that vacant space will
be let in future, the rental income for that space is based on an ERV rate and rent-free periods have
been applied based on market convention.
5. Of the rental income for the 6 weeks ending 31 March 2020, 98% relates to contracted rental income,
with 2.0% attributed to uncontracted rentals.
6. Of the rental income for the year ending 31 March 2021, 92% relates to contracted rental income and
8.0% attributed to uncontracted rentals.
7. No material expenditure items are assumed to increase in the Forecast Period by more than 15% over
the previous financial period.
8. No fair value adjustment is recognised for the Forecast Period.
9. The blended funding cost is anticipated to be approximately c.5.0%.
7. CAUTIONARY ANNOUNCEMENT
Shareholders are advised to exercise caution when dealing in the Fund’s securities until a further
announcement is made, which is anticipated to be on or about 14 February 2020.
8. CATEGORISATION OF THE PROPOSED TRANSACTION
The Proposed Transaction is classified as a category 2 transaction in terms of the JSE Listings Requirements.
Accordingly, it is not subject to approval by the Fund’s shareholders.
9. DIVIDEND GUIDANCE
Reference is made to the previous dividend guidance of 3% to 5% provided by the Board of Directors in
November 2019, with the upper end being achieved through the deployment of capital into the offshore
platforms. Although the Proposed Transaction is highly accretive to earnings from day one, it will only impact
the current year’s distribution for six weeks with the full impact of the Proposed Transaction impacting the
financial year ending 31 March 2021. As a result, the dividend guidance for the financial year ending 31 March
2020, as provided in the financial results 2019 announcement published on 13 November 2019, remains
unchanged.
Johannesburg
11 February 2020
Financial Advisor and Sponsor
Investec Bank Limited
Date: 11-02-2020 10:15:00
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