The transaction is complementary to the Fund’s existing investment into the European logistics sector
Investec Property Fund, (“IPF” or “the Fund”) through its wholly owned subsidiary Investec Property Fund Offshore Investments Proprietary Limited (“IPFO”), is pleased to announce the acquisition of a 25% interest in an unlisted portfolio and pipeline of properties located across Europe for an initial subscription consideration of EUR10.2 million (inclusive of all transaction costs).
Although separate to the existing Pan-European logistics property platform the initial investment will again be alongside funds managed by Ares Management Corporation or its affiliates (“Ares”) and similarly, the in-country asset management will be executed by Urban Real Estate Partners (“UREP”).
The proposed portfolio is expected to comprise 21 properties, of which 4 assets located in the Netherlands have already been acquired. A further 17 properties located across France and Germany have been identified and Ares is in advanced negotiations with the sellers thereof with a view to concluding these acquisitions by end May.
At 90% let, with an initial asset yield of 7.2% that is expected to grow to a fully let ERV yield of 8.2%, the proposed portfolio is consistent with the Fund’s investment strategy of identifying assets with strong property fundamentals and attractive risk-adjusted return profiles in different geographies. The gross asset value attributable to the proposed portfolio is EUR116 million and once leveraged at a holding company level, the initial investment is anticipated to deliver an average Euro-denominated investment return of approximately 9.6% to the Fund and total returns that significantly exceed the Fund’s cost of capital.
The decision to invest was driven by the Fund’s desire to capitalise on numerous positive macro fundamentals, including the scarcity of available land due to urbanisation which is resulting in many industrial infill locations in cities being redeveloped for higher value residential or mixed office/retail usage. The acquisition provides access to the liquid and transparent property markets in the Northern corridor of Western Europe, where there has been evidence of rental growth after a period of stagnation.
The portfolio assets are specifically selected based on factors such as their close proximity to cities with high concentrations of industry and consumers, building sizes that are typically less than 10 000 m2, quality of the asset with strong property fundamentals, pricing that reflects a discount to replacement cost or offers active asset management opportunities, and cash generation ability with good occupancy history that offers potential for attractive cash on cash yields.
Commenting on the investment, Investec Property Fund’s joint CEO Andrew Wooler said: “Complementary to our existing Pan-European logistics investment, this acquisition enhances the Fund’s exposure to an asset strategy that is well suited to the current macro environment and which will allow us to capitalise on the growing e-commerce market in Europe and its expected impact on last mile logistics.
In addition to the robust cashflows offered by the portfolio, the transaction also represents the continuation of our partnership with Ares and UREP. As our on-the-ground partners, their management team have a proven track record in this asset class and will facilitate the unlocking of further value through intensive asset management initiatives.”
The Fund has committed a total of EUR64.5 million into this light industrial platform which is expected to be deployed within the next two years on a ratcheted equity participation basis.
At full deployment, total equity contributed to the platform by the consortium will amount to EUR150 million with IPF equity participation representing 42.9%. The Platform’s gross asset value will amount to between EUR375 million and EUR500m, leverage dependent.
“In addition to being earnings accretive on day one, the transaction immediately creates scale and presents the Fund with a viable pipeline of offshore opportunities, also enhancing our foreign exposure”, added Wooler.
The Fund will hedge out all the income from the Initial Investment that is not naturally hedged by way of the Euro funding by entering into forward exchange contracts (“FEC’s”) over a period of three to five years. It is anticipated that these FEC’s will provide the Fund with between 6% to 7% growth on the hedged income over the hedged period.