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Acquisition of Properties, Placement and Guidance Upgrade
Irongate Group (JSE: IAP)
Comprising Irongate Property Fund I (IPF I, ARSN 162 067 736) and Irongate Property Fund II (IPF II, ARSN 644 081 309), established in Australia
and registered with ASIC as managed investment schemes
Operated by Irongate Funds Management Limited (ACN 071 514 246; AFSL 290 909) (Responsible Entity)
IPF I is registered as a foreign collective investment scheme in terms of the Collective Investment Schemes Control Act No.45 of 2002
ISIN: AU0000046005
(IAP or the Fund)
Acquisition of Properties, Placement and Guidance Upgrade Acquisitions
Not for release to US wire services or distribution in the United States
Irongate Funds Management Limited as responsible entity of the Irongate Group(1) (IAP) is
pleased to announce that it has entered into agreements to acquire:
- an industrial business park located at 16 Aspiration Circuit, Bibra Lake WA (Bibra Lake
Property); and
- a 50% interest in an office building located at 510 Church Street, Cremorne VIC
(Cremorne Property),
together, the Acquisitions.
Bibra Lake Property
IAP(2) has entered into a contract of sale with Desmar Holdings Pty Limited to acquire the Bibra
Lake Property for a purchase price of A$26,000,000(3), which represents an initial yield of 5.8%(4).
The effective date of the acquisition of the Bibra Lake Property is the settlement date under the
contract of sale which, subject to satisfaction of certain conditions precedent, is scheduled for 1
February 2022.
Cremorne Property
IAP(5) has entered into a contract of sale with Alfasi Group(6) to acquire the Cremorne Property for
a purchase price of A$130,000,000(7), which represents an initial yield of 4.7%(8).
The effective date of the acquisition of the Cremorne Property is the settlement date under the
contract of sale which is scheduled for 15 December 2021. There are no conditions precedent
to settlement of the acquisition of the Cremorne Property.
Funding of the Acquisitions
Bibra Lake Property
The purchase price and all transaction costs associated with the Bibra Lake Property will be
funded under a new tranche of the syndicated debt facility provided by Westpac and ANZ.
Cremorne Property
IAP has today launched a fully underwritten placement(9) of 32,258,065 new fully paid ordinary
stapled securities (New Securities) to raise approximately A$50 million (approximately ZAR564
million(10)) at a fixed issue price of A$1.55 (equivalent to ZAR17.50 (11)) per New Security(12))
(Placement), representing a:
- 6.3% discount to the last closing price of A$1.655 on the ASX on Wednesday, 8
December 2021; and
- 5.9% FY22 distribution yield.(13)
New Securities issued under the Placement will rank equally with existing IAP stapled securities
from the date of issue and will be entitled to the distribution for the six months to 31 March
2022. The Placement is fully underwritten by Macquarie Capital (Australia) Limited and J.P.
Morgan Securities Australia Limited.
The funds raised under the Placement will be used to partly fund the acquisition of the
Cremorne Property, with the balance funded under a new tranche of the syndicated debt facility
provided by Westpac and ANZ. Further details of the Placement are contained in the
announcement relating to the Placement lodged on SENS dated today’s date, Thursday, 9
December 2021.
Background to and Rationale for the Acquisitions
The Acquisitions are consistent with IAP’s strategy of acquiring:
- good quality industrial properties with strong tenant covenants that increase IAP’s
exposure to the strongly performing industrial sector; and
- suburban office properties located in close proximity to key infrastructure.
Bibra Lake Property
The acquisition of the Bibra Lake Property represents an attractive investment for IAP for the
following reasons:
- The Bibra Lake Property comprises 16,861m2 of lettable area across 8 warehouses with
296 car bays.
- The Bibra Lake Property's location, 16kms south of the Perth CBD, provides excellent
connectivity to several of Perth’s key transport hubs including Fremantle Port, Kewdale
Freight Terminal and Perth Airport. It is also within 4kms of Roe Highway and Kwinana
Freeway, two of Perth’s key carriageways that will benefit from the WA state
government’s A$11.7 billion road upgrade package over the next four years.
- The Bibra Lake Property is newly-built in 2015 and provides excellent industrial
accommodation ranging from circa 1,500m2 to 2,100m2 catering for a variety of uses.
- The Bibra Lake Property is 100% leased with a 3.5 year WALE, with the tenants
comprising prominent local businesses and larger national operators. Many tenants have
undertaken significant fit outs to suit their specific operations.
- The acquisition yield of 5.8% provides an attractive spread to the eastern seaboard
states, where industrial assets are currently commanding yields of 4.00% – 4.75%.
Recent transactions indicate that this spread will compress as investors shift their focus
to the higher yields on offer in the Western Australian industrial market.
- Vacancy in Perth’s southern industrial precincts continued to fall in H1 2021, sitting at
5.4%, largely because of tenants seeking quality accommodation in good locations.
- With land supply in Perth's key industrial precincts heavily constrained and the supply
pipeline at all-time lows, the Perth industrial market is set for continued vacancy
compression and rental growth. This is particularly prevalent in the southern corridor, with
the surrounding residential areas and established industrial precincts resulting in new
developments being pushed further south or to the outer east.
- The Bibra Lake Property is being acquired off-market.
Cremorne Property
The acquisition of the Cremorne Property represents an attractive investment for IAP for the
following reasons:
- The Cremorne Property is a brand new A-grade office building comprising 19,798m² of
lettable area across 9 levels of office accommodation, ground floor retail and 145 car
parks.
- The Cremorne Property is located in Melbourne’s premier fringe office market, 2kms
south-east of the Melbourne CBD, and enjoys excellent connectivity to the East
Richmond train station and the Citylink Freeway.
- The Cremorne Property was developed by Alfasi Group who will maintain a 50% interest
in the Cremorne Property alongside IAP. Alfasi Group has been in business for more than
40 years and specialises in construction, equipment hire and property development
across Australia, Hong Kong, Macau, China, South Korea, Thailand and Vietnam having
been involved in projects such as Marina Bay Sands in Singapore, Bangkok International
Airport and the West Kowloon Terminus.
- The Cremorne Property will achieve a 5.0 Star NABERS Energy Rating, 5 Star Green
Star Design Rating and provides excellent tenant amenity with first class end of trip
facilities, state of the art digital capabilities and exclusive rooftop terrace with bar.
- The Cremorne Property has a current occupancy of 76% with a 7.5 year WALE (14) and is
anchored by multinational Tokyo-listed marketing agency Dentsu Inc. (TYO:DNTUF),
Monash IVF (ASX:MVF) and the Commonwealth Government’s National Disability
Insurance Scheme, who together account for 59% of income.
- The vacant space is subject to a 12-month gross rent guarantee provided by the vendor,
the majority of which becomes non-refundable if tenants have not been secured and rent
payments have not commenced by 1 March 2022.
- There is strong interest from high quality tenants to lease the vacant space, particularly
given the quality of the Cremorne Property and its desirable location.
Specific Information Relating to the Properties
Bibra Lake Property
Registered description Lot 18 on Deposited Plan 69440, and being the whole of the
land comprised in Certificate of Title Volume 2762 Folio 691
Title Freehold
Sector Industrial
Location 16 kms south of the Perth CBD
Year built 2015
Site area 28,079m2
Lettable area 16,861m²
Net rent per m2 A$90
Vacancy(15) 0%
WALE(16) 3.5 years
Estimated transaction costs A$1,429,000
The Bibra Lake Property has been valued at A$26,000,000 as at 8 November 2021 by Savills
Valuation Pty Ltd. The valuer, Ryan Jacobs, is an independent valuer and a certified practicing
valuer (licenced valuer no.44673).
Cremorne Property
Registered description Certificates of title volume 9341 folio 525, volume 1537 folio 387
and volume 12067 folio 053
Title Freehold
Sector Office
Location 2 kms south-east of the Melbourne CBD
Year built 2021
Site area 3,026m2
Lettable area 19,798m²
Net office rent per m2 A$587
Vacancy(17) 24%
WALE(18) 7.5 years
Estimated transaction costs A$8,580,000
The interest in the Cremorne Property being acquired by IAP has been valued at
A$130,000,000 as at 15 December 2021 by Savills Valuation Pty Ltd. The valuer, Ben Koops, is
an independent valuer and a certified practicing valuer (licenced valuer no.63011).
Forecast Information in Respect of the Cremorne Property (19)
Set out below is the forecast revenue, operational net income, net profit attributable to
securityholders and earnings available for distribution from the Cremorne Property (forecast)
for the 4 months ending 31 March 2022 and the 12 months ending 31 March 2023 (forecast
period).
The forecast has been prepared on the assumption that acquisition of the Cremorne Property
will be implemented on 1 December 2021 (notwithstanding that the settlement date under the
contract of sale is scheduled for 15 December 2021) and on the basis that the forecast includes
forecast results for the duration of the forecast period.
The forecast, including the assumptions on which it is based and the financial information from
which it is prepared, is the responsibility of the board of directors of the Responsible Entity. The
forecast has not been reviewed or reported on by the independent reporting accountants.
The forecast presented in the table below relates to the Cremorne Property only and has been
prepared in accordance with IAP’s accounting policies and in compliance with International
Financial Reporting Standards.
Forecast 4 Forecast 12
months ending months ending
31 March 2022 31 March 2023
A$'000 A$'000
Revenue, including straight line adjustment 2,647 7,972
Total property expenses (447) (1,653)
Net property income 2,200 6,318
Fund operating costs (247) (741)
Net operating income before finance charges 1,953 5,578
Finance costs (1,270) (3,811)
Net profit attributable to securityholders 683 1,767
Less: straight line revenue adjustment (212) (583)
Distributable income pre-withholding tax 471 1,184
Distributable income post-withholding tax 471 1,184
The forecast incorporates the following material assumptions in respect of revenue and expenses:
1. Contracted revenue is based on existing lease agreements including stipulated increases.
2. There are no leases expiring during the forecast period.
3. Of the rental income of A$2,647,052 for the 4 months ending 31 March 2022, 100% relates to contracted rental
income and rental guarantees provided by the vendor.
4. Of the rental income of A$7,971,571 for the year ending 31 March 2023, 94% relates to contracted rental income
and rent guarantees provided by the vendor.
5. Expenditure items relate to fund operating costs.
6. No material expenditure items have been increased in the forecast period ending 31 March 2022 by more than
15% over the previous financial period.
7. The finance costs assume an all-in cost of funds of 2.75% per annum for the Cremorne Property. At least 75% of
the cost of IAP’s total debt will be fixed via interest rate swaps (in accordance with IAP’s interest rate hedging
policy) for 4, 5, 6, 9 and 10 year periods.
8. Distributions are payable to securityholders attributable to the Cremorne Property and are partially shielded by
depreciation allowances.
9. A fair value adjustment is recognised in relation to the transaction costs.
10. There will be no unforeseen economic factors that will affect the lessees’ ability to meet their commitments in
terms of existing lease agreements.
Guidance Upgrade
Including the impact of the Acquisitions and the Placement, IAP provides the following guidance:
- The Acquisitions are expected to be accretive to FY22 DPS and FFO per security, on an
annualised basis.
- FY22 FFO per security growth is expected to be 6.0% to 7.0%, in line with consensus.
- FY22 DPS growth is increased to 2.5% to 3.0%, reflecting the top end of previously
communicated guidance(20).
Post the Acquisitions and the Placement, IAP’s pro forma gearing will be 34.3% (21) (below the mid
point of IAP’s target range of 30% to 40%) and pro forma NTA will be A$1.54 per stapled
security.(22)
Categorisation
Bibra Lake Property
The acquisition of the Bibra Lake Property is not a categorised transaction in terms of the JSE
Listings Requirements. This announcement is voluntary and for information purposes only.
Cremorne Property
The acquisition of the Cremorne Property is a category 2 transaction in terms of section 9 of the
JSE Listings Requirements and accordingly does not require securityholder approval.
Footnotes:
(1) Comprising IPF I and IPF II.
(2) Through a wholly-owned sub trust, Irongate Property Sub Trust No.29.
(3) Purchase price excludes transaction costs and is subject to customary adjustments.
(4) Initial yield is pre-transaction costs.
(5) Through a wholly-owned sub trust, Irongate Property Sub Trust No.30.
(6) Through 510 Church Street Pty Ltd as trustee for the 510 Church Street Unit Trust.
(7) Purchase price excludes transaction costs and is subject to customary adjustments.
(8) Initial yield is pre-transaction costs.
(9) To be conducted by way of a vendor consideration placing in terms of section 5.62 of the JSE Listings Requirements
and in accordance with ASX Listing Rule 7.1.
(10) Based on an A$/ZAR exchange rate of 1.0000/11.2894 as at 4.00pm Sydney close on Wednesday, 8 December
2021.
(11) Based on an A$/ZAR exchange rate of 1.0000/11.2894 as at 4.00pm Sydney close on Wednesday, 8 December
2021.
(12) The Responsible Entity confirms that the issue price is within the parameters prescribed by section 5.62 of the JSE
Listings Requirements.
(13) Based on midpoint of guidance of distribution growth range of 2.5% - 3.0%. The higher end of the range dependent on
securing additional commitments and deployment for the ITAP Fund. lAP's policy is to pay out between 80% and 100%
of FFO, with an expectation for FY22 to be in the middle of the target range. This forecast is based on the assumptions
that the macro-economic environment will not deteriorate markedly, no tenant failures will occur, and budgeted renewals
will be concluded. Budgeted rental income is based on in force leases, contractual escalations and market-related
renewals.
(14) Weighted by gross property income. Includes 12-month gross rent guarantee provided by the vendor of the Cremorne
Property.
(15) Weighted by gross property income.
(16) Weighted by gross property income.
(17) Weighted by gross property income. The vacant space is subject to a 12-month gross rent guarantee provided by the
vendor, the majority of which becomes non-refundable if tenants have not been secured and rent payments have not
commenced by 1 March 2022.
(18) Weighted by gross property income. Includes the 12-month gross rent guarantee provided by the vendor.
(19) Included on the basis that the acquisition of the Cremorne Property is a category 2 transaction under the JSE Listings
Requirements.
(20) The higher end of the range dependent on securing additional commitments and deployment for the ITAP Fund. lAP's
policy is to pay out between 80% and 100% of FFO, with an expectation for FY22 to be in the middle of the target
range. This forecast is based on the assumptions that the macro-economic environment will not deteriorate markedly,
no tenant failures will occur, and budgeted leases will be concluded. Budgeted rental income is based on in force
leases, contractual escalations and market-related renewals.
(21) Pro forma based on the balance sheet of IAP as at 30 September 2021, adjusted for events subsequent to the
balance sheet date, including the Acquisitions and the Placement.
(22) Barring any unforeseen events and no material change in current market conditions and based on the same
underlying assumptions in relation to that guidance in IAP’s 2021 annual report and the property specific assumptions
set out in Appendix D of the attached investor presentation.
9 December 2021
Johannesburg
Sponsor
Investec Bank Limited
Date: 09-12-2021 08:30:00
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