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INVESTEC AUSTRALIA PROPERTY FUND - Acquisition of Industrial portfolio

Release Date: 26/09/2019 08:44
Code(s): IAP     PDF:  
 
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Acquisition of Industrial portfolio

INVESTEC AUSTRALIA PROPERTY FUND
Established in Australia and registered with ASIC as a managed investment scheme (ARSN 162 067 736) and
operated by Investec Property Limited (ACN 071 514 246; AFSL 290 909) (“Responsible Entity”)
Registered as a foreign collective investment scheme in terms of the Collective Investment Schemes Control Act
No.45 of 2003
Unit code: IAP
ISIN: AU0000046005
(“IAP” or the “Fund”)

ACQUISITION OF INDUSTRIAL PORTFOLIO

Introduction

Investec Property Limited as responsible entity of Investec Australia Property Fund (“IAP”) is pleased to advise
unitholders that it has (through wholly owned sub trusts of IAP) entered into the following arrangements:

-          a contract for sale with The Trust Company (Australia) Limited ACN 004 027 749 as custodian of Bieson
           Pty Limited ACN 110 465 168 as trustee for the Welshpool Logistics Trust ABN 37 184 989 983 to acquire
           the property located at 103 Welshpool Road, Welshpool WA (“Welshpool Property”);

-          contract for sale with The Trust Company (Australia) Limited ACN 004 027 749 as custodian of Bieson
           Pty Limited ACN 110 465 168 as trustee for the Gillman Logistics Trust ABN 79 924 994 352 to acquire
           the property located at 46-70 Grand Trunkway, Gillman SA (“Gillman Property”); and

-          a contract for sale with The Trust Company (Australia) Limited ACN 004 027 749 as custodian of Bieson
           Pty Limited ACN 110 465 168 as trustee for the CPIF Port of Darwin Logistics Trust ABN 59 786 272 447
           to acquire the property located at 16 Dawson Street, East Arm NT (“East Arm Property”),

(together, the Acquisitions).(1)

The purchase consideration for the Welshpool Property is AUD 26 500 000 (excluding transaction costs and
subject to customary adjustments). The purchase consideration equates to an initial passing yield of 6.6% (pre
transaction costs).

The purchase consideration for the Gillman Property is AUD 25 500 000 (excluding transaction costs and subject
to customary adjustments). The purchase consideration equates to an initial passing yield of 6.8% (pre
transaction costs).

The purchase consideration for the East Arm Property is AUD 29 000 000 (excluding transaction costs and
subject to customary adjustments). The purchase consideration equates to an initial passing yield of 8.4% (pre
transaction costs).

Funding of the Acquisitions

IAP has today launched an approximate AUD 84 million fully underwritten placement of 55,572,533 million new
units (“New Units”) at a fixed issue price of AUD 1.52 per New Unit (“Placement”), representing a:

-       3.8% discount to the last close of AUD 1.58 on the ASX on Wednesday, 25 September 2019

-       5.3% discount to the 5 day VWAP of AUD 1.61 on the ASX on Wednesday, 25 September 2019

-       3.0% discount to the last close of ZAR15.83 on the JSE on Wednesday, 25 September 2019                                              

-       2.2% discount to the 5 day VWAP of ZAR15.71 on the JSE on Wednesday, 25 September 2019

-       5.8% FY20 distribution yield(2)

New Units issued under the Placement will rank equally with existing IAP units on issue and will be entitled to the
distribution for the six months to 30 September 2019.(3)

No Investec group entities (including Investec Bank Limited and Investec Property Fund Limited in respect of
their principal stake) will participate in the Placement.(4) Therefore, the Placement is expected to further diversify
the Fund’s register, increase free float and facilitate improvements in the liquidity of units.

The funds raised under the Placement will be used to fund the Acquisitions and part of the associated
transaction costs, with the balance funded from undrawn capacity within the 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, 26 September 2019.

Background to and rationale for the Acquisitions

Welshpool Property

-       Located 10kms south east of the Perth CBD and 4kms south west of Perth Airport on one of the busiest
        intersections in Perth (Welshpool Road and Leach Highway intersection)
-       The site comprises three separate lots which may be sold off separately upon redevelopment or
        reconfigured
-       Low site coverage ratio of 16%
-       Occupied by Milne Feeds, a division of Milne AgriGroup Pty Ltd, one of the largest integrated agribusiness
        groups in Western Australia
-       Tenant has operated from the site for approximately 100 years
-       Location is key to the tenant given its close proximity to key ingredient providers and its distribution
        network
-       Long WALE of 8.7 years by income
-       Annual rental escalations of 3.25%

Gillman Property

-       Located 15kms north west of the Adelaide CBD and 10kms south of Flinders Adelaide Container Terminal
-       Strategic location close to the port, rail and major road transport routes to the north via the northern
        expressway
-       Improvements comprise a large warehouse facility utilised as a storage and distribution centre primarily for
        wool products with excellent accessibility and drive-around access
-       Occupied by Australian Wool Handlers, one of the world’s largest wool and independent cotton handlers
        providing storage, handling, freight forwarding and inventory management services for import, export and
        domestic distribution
-       Tenant has operated from the site for 33 years
-       Long WALE of 8.3 years
-       Annual rental escalations of 3.00% or CPI (whichever is greater)
-       No stamp duty in South Australia
-       Buying at below replacement cost

East Arm Property

-     Located 17kms south east of Darwin’s CBD and within immediate proximity to North Shell Island, Darwin’s
      main industrial freighting port and right next to the intermodal rail freight in East Arm
-     Strategic location close to the port and rail
-     Improvements comprise a newly constructed A-grade warehouse facility utilised for logistics purposes and a
      container rated hardstand
-     Occupied by Northline, one of Australia’s leading supply-chain providers, established in 1983 with 13
      locations around Australia
-     Long WALE of 7.9 years
-     Annual rental escalations of 3.00%

Property specific information

Welshpool Property

    Registered description        Lot 8 on Diagram 78445, Lot 501 on Diagram 53872 and Lot 601 on
                                  Deposited Plan 404603
    Title                         Freehold
    Sector                        Industrial
    Location                      103 Welshpool Road, Welshpool WA
    Year built                    Not specified
    Site area                     31 899m²
    Lettable area                 5 246m²
    Rent per m²                   AUD 335
    Vacancy                       0%
    WALE                          8.7 years
    Estimated transaction costs   AUD 1 431 000

The Welshpool Property has been valued at AUD 26 500 000 as at 30 September 2019 by Savills Valuation Pty
Ltd. The valuer, Ryan Jacob, is an independent valuer and a certified practicing valuer (licenced valuer
no.44673).

Gillman Property

    Registered description        Allotment 31 on Deposited Plan 90543
    Title                         Freehold
    Sector                        Industrial
    Location                      46-70 Grand Trunkway, Gillman SA
    Year built                    1986
    Site area                     65 060m²
    Lettable area                 31 589m²
    Rent per m²                   AUD 55
    Vacancy                       0%
    WALE                          8.3 years
    Estimated transaction costs   AUD 63 750

The Gillman Property has been valued at AUD 25 500 000 as at 30 September 2019 by Savills Valuation Pty
Ltd. The valuer, Alastair Johnston, is an independent valuer and a certified practicing valuer (licenced valuer
no.64222).

East Arm Property

    Registered description        Section 7105 Hundred of Bagot from plan LTO2014/100
    Title                         Freehold

 
 
    Sector                             Industrial
    Location                           16 Dawson Street, East Arm NT
    Year built                         2015
    Site area                          39 900m²
    Lettable area                      14 410m²
    Rent per m²                        AUD 170
    Vacancy                            0%
    WALE                               7.9 years
    Estimated transaction costs        AUD 1 798 000

The East Arm Property has been valued at AUD 29 00 000 as at 30 September 2019 by Savills Valuation Pty
Ltd. The valuer, Alastair Johnston, is an independent valuer and a certified practicing valuer (licenced valuer
no.64222).

Forecast information

Set out below are the forecast revenue, operational net income, net profit attributable to equity holders and
earnings available for distribution from the Acquisitions (the “forecast”) for the 6 months ending 31 March 2020
and the year ending 31 March 2021 (the “forecast period”).

The forecast has been prepared on the assumption that the Acquisitions will be implemented on 30 September
2019 (notwithstanding that the settlement date under the contracts for sale is scheduled for 10 October 2019)
and on the basis that the forecast includes forecast results for the duration of the forecast period.

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 Acquisitions only and have been prepared in accordance
with the Fund’s accounting policies and in compliance with International Financial Reporting Standards.


                                                                                   Forecast (6)        Forecast 12
                                                                                  months ending      months ending
                                                                                  31 March 2020      31 March 2021
                                                                                        AUD'000            AUD'000

    Revenue, including straight line adjustment                                         3,509              7,058

    Total property expenses                                                              (190)             (389)

    Net property income                                                                 3,319              6,670

    Fund management fees                                                                 (233)             (466)

    Fund operating costs                                                                  (57)             (113)

    Net operating income before finance charges                                         3,030              6,091

    Finance costs                                                                      (1,555)            (3,110)

    Net profit attributable to equity holders                                           1,474              2,980

    Less: straight line revenue adjustment                                               (366)             (592)

    Distributable income pre-withholding tax                                            1,108              2,388

    Distributable income post-withholding tax                                           1,009              2,167

 
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 AUD 3 508 663 for the 6 months ending 31 March 2020, 100% relates to contracted rental income.
4.     Of the rental income of AUD 7 058 307 for the year ending 31 March 2021, 100% relates to contracted rental income.
5.     Material expenditure items relate to Fund and asset management fees (approximately 11% of total expenses).
6.     No material expenditure items have been increased in the forecast period ending 31 March 2020 by more than 15% over the
       previous financial period.
7.     The finance costs assume an all-in cost of funds of 3.84% per annum for the Acquisitions. At least 75% of the cost of the Fund’s total
       debt will be fixed via interest rate swaps (in accordance with the Fund’s interest rate hedging policy) for 5, 7, 8, 9 and 10 year
       periods.
8.     Distributions are payable to unitholders attributable to the Acquisitions 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.

Conditions precedent

The Acquisitions are inter-conditional on each other. There are no other conditions precedent to settlement.

The effective date of the Acquisitions is the settlement date under the contracts for sale, which is anticipated to
be 10 October 2019.

Categorisation

The Acquisitions (taken together) are a category 2 transaction in terms of section 9 of the JSE Listings
Requirements and accordingly does not require approval by unitholders.


Footnotes:
(1)  Each of vendors to the Acquisitions is a sub trust of the Charter Hall Prime Industrial Fund. 
(2)  Based on IAP’s FY20 DPU guidance of 8.88 cents per unit (barring any unforeseen events and no material change in current market
conditions).
(3)  The record date for the 30 September 2019 distribution will post-date the allotment of New Units under the Placement, and is expected to
be announced together with the Fund’s 1H20 interim results.
(4)  The Investec group entities hold a relevant interest in IAP units in excess of 20% and are therefore prohibited from acquiring further
interests under the Corporations Act 2001 (Cth) unless an applicable exemption applies.


Johannesburg
26 September 2019

Investment Bank and Sponsor
Investec Bank Limited




 

Date: 26/09/2019 08:44:00
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