Investec buys R623.45m property in Australia

Cape Town – JSE-listed Investec Australia Property Fund (IAPF) [JSE:IAP] announced the acquisition of an A-grade nine-storey office building with ground floor retail in Newcastle for Aus$56.7m (R623.45m) on Wednesday.

The centrally located property sits in the administration hub of Newcastle, which is the second most populated area after Sydney in the Australian state of New South Wales.

Significant refurbishment work is currently being undertaken by the vendor including lift upgrades, entrance lobby refurbishment, upgrade and extension of the end-of-trip facilities and amenities upgrades to each floor. The refurbishment work, which is due for completion in March 2016, will reposition the asset to compete with newly-built assets in the market, said Investec in a statement.

The property is leased to blue chip tenants including Commonwealth Bank of Australia, the Australian Taxation Office and Employers Mutual, an insurance and management services company established in 1910.

The building is 76% leased with a 12-month vendor rental guarantee over the vacant space from April 1 2016 to March 31 2017. As the Newcastle A-grade office market has a vacancy rate of only 2.7%, the building will be attractive to tenants looking for A-grade office space and the fund is confident the vacant space can be leased up during the term of the vendor rental guarantee.  

The acquisition will be funded through the existing debt facility with Westpac Banking Corporation and the fund will be undertaking a renounceable rights offer of between $40m and $60m to existing unitholders in early 2016, it said.

The effect of the rights offer will be to reduce the fund’s gearing so that it sits within, or just under, the fund’s target range of 35% to 40% where it will provide additional capacity for future acquisitions.

IAPF CEO Graeme Katz said he was pleased to acquire such a highly-regarded and hotly contested asset, which takes the value of the fund’s total portfolio to over $460m (about R7bn).

“The acquisition aligns well to the fund’s strategy of investing in well-located, high quality assets,” he said.

“Substantial government and private sector investment of approximately $860m is anticipated to be spent on revitalising Newcastle to reunite the city with the waterfront,” he said.

“Given the Newcastle A-grade office market is very tightly held and tenant incentives are significantly lower than other office markets, we believe the building is positioned well to attract tenants looking for quality office space in the Newcastle CBD.”

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