Investec Property Fund (IPF) has sold a seed portfolio to Izandla Property, its broad-based black empowerment partner, for R586.9m.
The portfolio of 17 properties represents an initial property yield of 10.4% on a fully let basis. The disposal consideration would be settled partly in cash and partly through the provision of the requisite funding to Izandla by IPF and the Entrepreneurship Development Trust. Izandla is majority owned by EDT, a broad-based charitable trust, which has 65% shareholding, while IPF owns the remaining 35%.
Izandla founder Sthembile Nkabinde said she wanted the company to grow to be a separately listed entity that could compete in the property sector within a few years.
The seed portfolio comprised properties with an average value per property of R35m.
The portfolio weighted average lease expiry (Wale) was 3.4 years with an average escalation of 7.8% per annum.
The Foschini building in the Joburg CBD presents potential future residential conversion opportunities which can be explored by Izandla
Nkabinde said the portfolio would benefit from both a strong quality of earnings and potential upside through redevelopment.
The two largest assets by value are the Union Castle Building in Cape Town’s CBD with a weighted average lease expiry of 4.8 years and Greenhill Village, which is a multitenanted office property located in Lynwood, Pretoria.
“The Foschini building in the Joburg CBD presents potential future residential conversion opportunities which can be explored by Izandla,” she said.
Given the relative size of IPF’s investment into Izandla Property compared with its total assets, the seed portfolio transaction was not expected to have an effect on IPF’s distribution per share for the year ending March 31 2018.
The net property income attributable to the seed portfolio in respect of the 12 months ended March 31 2017 was a total of R58.7m and excluded income on either currently vacant space, or space assumed to become vacant during the year.
On a fully let basis, the net property income would be R2.5m higher for the same period. IPF would guarantee the gross rental income of the Izandla portfolio to May 2018, saying that it would increase at least 8.0% a year until the end of May 2020. IPF would provide about R13m for maintenance capital expenditure, tenant installations and letting commissions during the period.