Investec snaps up Zenprop portfolio for R7.1bn
Among the properties acquired by Investec Property Fund from Zenprop is the Design Quarter located off Leslie Avenue in Fourways Johannesburg.
Investec Property Fund has bought 26 properties from unlisted developer, Zenprop for R7.1 billion, in which it says the acquisition will double the size of the Fund’s existing portfolio to R16.4bn, the company said on Tuesday.
Considered as one of the biggest property deal in the listed property sector so far this year — the portfolio contains award winning properties consist of 12 office properties, 11 industrial properties and three retail properties at a blended yield of 7.5%.
Many listed property funds are pursuing unlisted portfolios given the lack of takeover targets in the sector. There are not many private companies around willing to let go of their assets at current prices.
Redefine Properties’ drawn-out battle to acquire Fountainhead Property Trust was finally concluded last month, with the property fund finally getting its hands on the lauded portfolio.
In fact, there is unlikely to be much more merger and acquisition activity between SA's listed property funds this year, aside from one massive deal – the takeover of Capital Property Fund by Fortress Income Fund.
The Zenprop portfolio acquisition almost doubles the size of the Investec’s existing portfolio, resulting in an increase in the asset base from R9.7 billion (post the Griffin acquisition which is expected to complete later this month) to R16.4 billion.
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.
Investec Property Fund CEO Nick Riley says the Zenprop transaction presented a rare opportunity for the Fund to acquire an iconic property portfolio that is unique in terms of location, quality and scale, underpinned by high quality tenants with very strong lease covenants and long term leases.
The portfolio includes several iconic office buildings, including 1 Protea Place, Sandton which is majority tenanted by DLA Cliffe Dekker Hofmeyr and 3 and 4 Sandown Valley Crescent, tenanted by the likes of TBWA, Standard Chartered and Boston Consulting Group. These three properties are located in the heart of Sandton’s commercial node within close proximity of the Gautrain station. The Sandton offices enjoy an average WALE of 4.7 years and are therefore well positioned to absorb the new supply coming through in the short term.
The acquisition also brings in an industrial portfolio that includes several properties located within the highly sought after Riverhorse area and tenanted by Discovery, Adcock Ingram and RTT, amongst others. The Zenprop portfolio also includes 101,332m2 of high quality industrial properties in Elandsfontein, with close proximity to OR Tambo international airport as well as other major national arterials.
The three retail centres acquired as part of the portfolio include the Newcastle mall, a regional shopping centre in Kwazulu Natal’s third most populous city and Zevenwacht Village centre, situated between Stellenbosch and Cape Town comprising 39,956m² of prominent retail trading space. Both centres derive north of 80% of income from national retailers and have less than 2.5% vacancy. Vacancies have not been paid for upfront, but rather by way of a deferred payment in the event the vacancies are filled on terms acceptable to The Fund.
The third retail property acquired is Design Quarter, a niche design and dining destination centre located off Leslie Avenue in Fourways, one of the fastest growing commercial and residential hubs in northern Johannesburg.
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," Mr Padayatchi said.
