This article is from the Australian Property Journal archive
Australian investors are set to add another foreign property market into their diet with ING Industrial Fund leading the way into Canada with the purchase of Canadian listed real estate investment trust Summit REIT for $C3.37 billion ($A3.96 billion).
Yesterday, IIF and ING Real Estate N.V will jointly own the Summit REIT, Canada’s largest owner of industrial investment property and the fourth largest REIT by market cap listed on the Toronto Stock Exchange.
Summit’s portfolio comprises approximately 33.3 million sq ft of space. The assets are located across eight major industrial markets in Canada, with the portfolio having significant exposure to the strongly performing provinces of Western Canada. These regions have benefited substantially from improved commodity prices, which has been a key driver of demand for industrial space throughout the region.
The portfolio has an occupancy level of 96% with a weighted average lease term to expiry of 4.5 years.
The offer for Summit units of $C30 ($A35.30) per unit reflects a premium of 17.9% to the closing price on August 30, 2006.
IIF intends to finance its investment with a combination of increased borrowings, raising $300 million in Convertible Loan Securities and approximately $225 million in equity/hybrid security financing to be undertaken following completion of the transaction. Following completion of the transaction IIF’s look through gearing ratio is forecast to be 49.6%.
The acquisition, once completed, is forecast to increase IIF’s DPU by 7.4% for the six month period to June 2007, and 10.2% for the first full year ending 30 June 2008.
The offer has the unanimous recommendation of the Summit REIT Board and IIF currently owns 1.1% of the issued units of Summit and ING separately managed funds own a further approximately 8.1% of the units
IIF’s chief executive Paul Toussaint said the acquisition marks a continuation of IIF’s strategy to invest in international property markets with attractive fundamentals.
“The Canadian industrial real estate market represents a significant growth opportunity for IIF given its low vacancy levels and expected strong tenant demand, setting the conditions for future rental growth.
"This transaction represents a unique opportunity for IIF to invest in a well established market with strong economic and property fundamentals. The acquisition is forecast to deliver attractive earnings and distribution growth for IIF unitholders of 10.2% in the first full year to 30 June 2008 and further improve the fund’s future distribution growth profile,” he added.
Following completion of the transaction, the fund’s property portfolio will extend across five countries and three continents.
ING Real Estate Investment Management’s global chief executive David Blight said the acquisition positions INGRE as Canada’s largest industrial investor and provides IIF with access to the pre-eminent industrial portfolio in Canada.
JPMorgan acted as financial adviser to the ING Group, and is sole book runner in relation to the issuance of Convertible Loan Securities.
Meanwhile, IIF has booked a net profit under AIFRS of $370.3 million for the year ended June 30, 2006 – up from $157.6 million in 2005.
Distributable income (which excludes the impact of AIFRS) increased by 20.5% to $128.8 million from $106.9 million in the previous corresponding period.
Toussaint said contributing significantly to this increase is the completion of nine development projects and acquisition of 10 properties during the period, along with profit on sale of three non core properties.
Earnings per unit increased 5.7% to 15.56 cents per unit from 14.72 cents per unit in FY2005.
“IIF has had a very successful year, and has again provided unitholders with a strong result in terms of earnings and distribution growth.
“We are pleased to have sourced and secured accretive acquisitions totaling $345 million during the past 12 months in an increasingly competitive investment climate, both locally and in Europe,” he added.
Toussaint said the outlook for the industrial property market has remained strong both in Australia and across major global markets, with most markets experiencing yield compression over the past 12 months.
In addition, he said investor demand has remained strong in all key markets despite rising interest rates in most markets.
“Investment in Europe over the past year has resulted in increased returns for unitholders and enhanced diversification for IIF. ING Real Estate’s global platform will continue to enable IIF to invest in some of the world’s largest industrial real estate markets with the benefit of local management expertise in each location,” Toussaint said. “The fund’s development pipeline is delivering excellent results, with over 120,000 sqm currently under construction and due for completion in FY2007. The fund has existing and immediate development capacity in excess of 550,000 sqm, with a further medium term capacity from existing income producing sites. The fund’s forecast takeup of new space over the next five years is greater than 120,000 sqm per annum.”
“With consistently high occupancy level and tenant retention rates and a high quality portfolio with the sector’s longest average lease term to expiry, IIF offers unitholders a secure income stream and excellent prospects for future growth,” he concluded.
By Nelson Yap and Adam Parsons
