Investec Property Fund clinches R3bn deal in pan-European logistics platform

Andrew Wooler, Joint CEO of Investec Property Fund, says the platform will give South African investors the opportunity to gain even more exposure to a focused Pan European Logistics offering on the JSE

Investec Property Fund (IPF) said on Tuesday that it is finalizing agreements to increase its interest in the “pan-European logistics platform” (PEL) from funds managed by the real estate group of Ares Management Corporation.

Recently, IPF announced that it will sell its stakes in the Musina Mall in Limpopo and the Boitekong Mall in Rustenburg, for R727m - which it wanted to invest in Europe.

In a new deal worth more than R3 billion, IPF currently holds 42.9% in PEL and will look to increase its stake to 75% and introduce a new equity partner for the remaining 25% of the platform.

The current portfolio consists of 45 logistics properties and will be valued at c. EUR 900 million (approximately R15bn) with a total GLA of over 1 million square meters across six European countries. Ares’ interest in the PEL portfolio will be acquired for a price of EUR 277 million and will deliver an equity yield to IPF of c. 9% in Euros.

The proposed transaction is expected to be closed on 14 February 2020.

The proposed acquisition aligns with IPF’s stated intent to navigate the South African portfolio through the current domestic economic slowdown, while deploying capital into its offshore portfolios that are capturing growth stemming from positive underlying property fundamentals.

The transaction is set to take IPF’s offshore exposure to just below 30% (45% on a look-through basis).

Commenting on the announcement Andrew Wooler, Joint CEO of Investec Property Fund, said: “This is a unique opportunity to execute on our intended strategy, outlined at the outset of the initial investment, to gain control of a property platform that has a demonstrated track record. In this case delivering total returns in excess of 40% since our initial investment two year ago, with further opportunities still evident. Importantly, this will give South African investors the opportunity to gain even more exposure to a focused Pan European Logistics offering on the JSE.”

“Strategically, IPF remains committed to South Africa, and is focussed on repositioning its domestic assets and actively identifying opportunities to unlock greater value for tenants and shareholders alike. In parallel, we are deploying capital into strategic offshore platforms to exercise greater influence over our investments. Similarly, over the past 12 months we have exited minority positions, such as those held in Ingenuity, and sold down our holding in Investec Australia Property Fund. This is in line with our disciplined approach to capital allocation and asset recycling and, furthermore, aligns with our thinking to identify best-of-breed assets and creating long-term value for our stakeholders,” added Wooler.

The new equity partner is a consortium of family offices that are well versed in the EU real estate sector and share IPF’s long-term interests. The in-country asset management team - locally based and experienced professionals with a strong track record of managing portfolios of this nature - will also be retained, ensuring consistency in unlocking value via opportunities available in the portfolio, as well as pipeline opportunities.

The accelerated adoption of e-commerce as well as shifting supply-chain dynamics combined with constrained levels of supply of new stock across the core Western European geographies has resulted in significant demand driven growth in the European logistics sector.

Darryl Mayers, Joint CEO of Investec Property Fund said: “Despite this recent growth, the European logistics market remains less advanced than that of the UK, Asia and USA but is expected to grow strongly at an average in excess of 11% per annum for the next five years.”

“With increasing demand, decreasing vacancy levels and tightening supply, rent levels are expected to experience a structural increase in the near term. These favourable supply and demand dynamics have been driving rental growth across European logistics and the PEL platform is well positioned to capture this growth and resultant value creation for shareholders,” concluded Mayers.