In one of the biggest transactions in the listed property sector so far this year, Investec Property Fund has acquired a 26-property portfolio from developer Zenprop for R7.1bn.
The deal nearly doubles Investec Property Fund’s asset base and places it in the top 10 biggest real estate investment trusts (Reits) by market capitalisation. Analysts said the deal was a surprise given Investec Property Fund’s relatively small size but that its CEO, Nick Riley, was appointed because of his reputation as a deal maker.
Many listed property funds are pursuing unlisted portfolios given the lack of takeover targets in the sector.
Founded in 1998, Zenprop traditionally developed, held and sold properties.
Grindrod Asset Management’s chief investment officer, Ian Anderson, said clinching the deal was an impressive move by Riley.
“It’s not every day that you can buy a high-quality portfolio from Zenprop that virtually doubles the size of your property portfolio and you’re not Growthpoint (Properties), Redefine (Properties) or Hyprop (Investments),” he said.
“Investec were successful in facilitating the rapid growth of Growthpoint after its current CEO, Norbert Sasse, left Investec Corporate Finance and appears to be doing a similar job at Investec Property Fund, after Nick Riley left Investec Corporate Finance. The similarities are quite startling. The strong institutional support they have garnered for the transaction also highlights the benefit of Investec’s large stake in the business,” Anderson said.
Riley said the deal took about two months to complete and that it was a “game changer” for the fund. “I am happy that we managed to pull this off this quickly,” he said.
“The strong relationship between the Investec group as a whole and Zenprop helped and we will look to do more deals with Zenprop in the future,” Riley added. “The deal greatly improves our liquidity and will shift our market capitalisation to just under R12bn.”
Investec Property Fund is 12th on the JSE’s SA Reit Index, as ranked by market capitalisation. Meago Asset Managers executive director Jay Padayatchi said while the deal included high-quality properties it would still initially dilute earnings. “The challenge is the dilemma for the investor of short-term earnings dilution versus portfolio quality enhancement,” Padayatchi said.
The 26-property portfolio includes 12 office properties, 11 industrial properties and three retail properties at a blended yield of 7.5%. It includes office buildings such as 1 Protea Place, Sandton, which is majority tenanted by DLA Cliffe Dekker Hofmeyr and 3 and 4 Sandown Valley Crescent, tenanted by TBWA, Standard Chartered and Boston Consulting Group.
These three properties are located in the heart of Sandton’s commercial node close to the Gautrain station.
The acquisition also brings in an industrial portfolio that includes several properties located within the well-known Riverhorse node in KwaZulu-Natal and tenanted by Discovery, Adcock Ingram and RTT, among others. The retail centres are the Newcastle Mall, a regional shopping centre; Zevenwacht Village centre, between Stellenbosch and Cape Town; and Design Quarter, a niche design and dining destination centre in Fourways, Johannesburg.
The deal sees Investec Property Fund’s asset base rise from R9.7bn to R16.4bn.
The purchase consideration of R7.1bn will be settled in three parts, with as much as R800m being settled through the issue of Investec Property Fund shares to Zenprop at R16.51. As much as R200m will be settled through the transfer to Zenprop of Investec Australia Property Fund shares owned by the fund at R11.58. The remaining R6.1bn will be settled in cash and will be funded through a combination of debt and equity.