Growthpoint sets sights on Aussie Orchard

This will be Growthpoint's first venture offshore and represents a total investment of some AUS$200 million or approximately R1,3 billion at current exchange rates.

Growthpoint CEO Norbert Sasse explains that the proposed acquisition is considered to be neutral to Growthpoint unitholders in the short term, however it presents an opportunity for the company to acquire control of a listed property company in Australia with excellent assets, underpinned by quality income streams.

The proposed acquisition has no significant effect on the pro forma net asset value, tangible net asset value or distributable income of Growthpoint.

“It is an opportune time to exploit the opportunities that global property markets currently offer and it is our intention to leverage off the secure and stable OIF property portfolio to pursue further acquisition opportunities in Australia,” says Sasse.

Buyer's market

The current global economic climate has led to a significant demand for new capital required to recapitalise international property companies' balance sheets to acceptable gearing levels. These refinancing risks are reflected in the depressed listed property equity prices which are trading at significant discounts to historic prices and net tangible asset values.

“We tracked a number of opportunities in the country over the past 12 months and identified OIF as the most suitable investment based on its tenants with strong covenants, which provide Growthpoint with a stable and secure platform to establish a foothold in Australia,” says Sasse.

Affected markets

The Australian real estate sector has been one of the most affected by the global crisis, with the A-Reit currently trading at a discount of nearly 70%, relative to valuations a year ago. There is also a ‘synergy' with Australia which has an established real estate sector and regulatory laws which are in many ways similar to those of South Africa. A key element of the transaction is the ZAR:A$ exchange rate, which is considered attractive in comparison to other currencies.

OIF is an Australian Stock Exchange, (“ASX”) listed Property Trust that is primarily invested in logistics warehouses throughout Australia. OIF listed on the ASX in July 2007 and currently has a market capitalisation of A$52 million and a property portfolio to the value of approximately A$744 million (R4.8 billion) as at 31 December 2008.

OIF owns a geographically diversified property portfolio of 24 properties, located in Victoria, Queensland, Western Australia, South Australia and New South Wales. The gross lettable area of the Property Portfolio is 671,723 m2.

“Avoiding some of the pitfalls of Australian property funds which have been severely impacted by the economic deterioration, OIF's property portfolio is 100% focused in Australia and has no offshore exposure,” points out Sasse. “In addition its size was considered appropriate as an initial investment for Growthpoint in Australia.”

OIF's property portfolio is underpinned by long leases - its weighted average lease length is 11 years - with highly-rated Australian companies. Woolworths, Australia's leading food retailer and Star Track Express, an express freight and logistics company jointly owned by Australia Post and Qantas Airlines, are two of the property trust's largest tenants. Together they account for some 71% of its annual net property income.

Management structure

Consistent with Growthpoint's own philosophy of being internally managed, as an integral part of the proposed acquisition, the agreement provides for OIF's management to be internalised and it is further proposed that OIF will change its name to Growthpoint Properties Australia.

To achieve this, new shares in a new management company will effectively be stapled to the existing OIF units in issue, creating a ‘stapled security' which will be listed on the ASX. This will give investors equal ownership of the management company and OIF.

However, OIF will enjoy continuity of management with some local expertise currently involved in the management of the fund being retained in the new company. All properties have triple-net leases, requiring only low-intensity property management and Growthpoint intends to establish an Australian satellite office to facilitate its active management of the company.

Growthpoint intends to subscribe for approximately 348 million new OIF stapled securities in a placement at a price of 16 cents per unit, for a total consideration of A$56 million. Following this upfront subscription, Growthpoint will have an interest of 50.1% in OIF.

Rights offer

In order to raise the A$200 million that is required to recapitalise the trust, a Rights Offer will be undertaken to raise an additional amount of approximately $A144 million (ZAR930 million) at 16 cents per OIF stapled security.

This Rights Offer will be fully underwritten by Growthpoint for an underwriting fee of 3% and depending on the percentage of OIF securityholders who follow their rights, Growthpoint will own no less than 60% of OIF subsequent to the Rights Offer, however its holding could be as high as 78%.

The proposed acquisition is subject to a number of conditions including, amongst others, OIF unitholder approval, Australian regulatory authorities approval and agreement with OIF's financiers to amend the terms of OIF's existing debt facilities to terms acceptable to Growthpoint.