Investec Property to sell UK equity

• Fund will offload 38.04% equity interest in UK real-estate company and focus on opportunities in SA and Europe

Investec Property Fund (IPF) will sell its equity in specialised UK real estate company Argo Property Fund in order to focus its investments on SA and industrial logistics assets in Western Europe and Poland. IPF will sell its 38.04% interest to Argo Real Estate for cash of £35m (R748m).

Investec Property Fund (IPF) will sell its equity in specialised UK real-estate company Argo Property Fund so that it can focus its investments on SA as well as industrial logistics assets in Western Europe and Poland.

IPF will sell its 38.04% equity interest in the fund to Argo Real Estate for a cash consideration of £35m (R748m).

The selling price represents a £12.7m impairment against the investment’s carrying value of £47.7m as at September 30 2020.

The deal follows on from IPF’s selling its interests in Investec Australia Property Fund (IAPF) in June.

IAPF is now called Irongate Group.

“Last year we exited Australia so that we could focus on SA where we own a diversified portfolio of assets as well as our pan-European logistics platform. We believe there are many opportunities in our home market as well as in Europe where we have developed an attractive portfolio which benefits from the growth of online shopping services,” co-CEO Andrew Wooler said.

Wooler said that the UK’s online retail penetration tended to be higher than Europe’s and there were more opportunities for IPF in that continent given how much capital IPF had spent there already.

IPF had investments in warehousing and distribution in the region.

“Right now capital is scarce especially as we want to get funds from JSE investors. It’s very expensive to raise capital in SA while equity prices are so low.

“We want to operate where we have scale and relevance and we don’t really have that in the UK, hence our decision to exit,” Wooler said.

IPF is a real estate investment trust (Reit), which was listed on the JSE by Investec Property, a division of Investec Bank, in 2011.

Investec Bank held a stake in IPF, which listed with a portfolio of 29 properties valued at R1.77bn located in SA.

IPF later invested in IAPF which was listed by the Investec group in 2013. It then formed a pan-European investment platform with other investors in 2017. It also invested in the UK in partnership with Argo Real Estate.

After the deal, IPF’s investment portfolio will comprise about R27bn of direct and indirect real estate investments in SA and Europe, with about 55% of the portfolio being in SA by value.

“The UK was about 4% of our business and we are happy to move to a situation where we are focused on fewer geographies and platforms. There are many opportunities in Europe and want to capitalise on these in 2021,” Wooler said.

IPF recognised a loss of R92m attributable to its UK investment in the income statement for the six months ended September 30. This loss was largely attributable to impairments of the UK Fund’s property portfolio.

Meanwhile, Argo Real Estate comprises three distinct realestate platforms: The Argo Property Portfolio, a partnership with Westbrooke Alternative Asset Management and “opportunistic value-add transactions”. The company has done business with the Investec group in general for a number of years.

IPF’s loan-to-value would be 39% after the sale of the Argo stake. Loan-to-value ratios measure a company’s debt relative to the value of its assets.

SA fund managers tend to prefer loan-to-value ratios to be below 40%; otherwise, they perceive a fund to be in financial distress.