ICPF launches $500 million capital raising

ICPF launches $500 million capital raising

4 October 2019

Investa’s unlisted wholesale office fund — Investa Commercial Property Fund (ICPF) — has taken advantage of strong offshore demand for Australian property by seeking to raise $500 million in capital to finance development projects and new acquisitions and to replenish the fund’s balance sheet.

ICPF has a proven track record, outperforming all peer funds on the MSCI/Mercer Australia Core Wholesale Property Fund Index over 1, 2, 3 and 5 years. In FY2019 the fund delivered an impressive net total return of 15%.

ICPF’s portfolio currently comprises interests in 15 prime grade office buildings primarily located in Sydney and Melbourne valued at $5.6 billion.

“It is our expectation that existing investors will participate in the offer and any securities not taken up by existing investors will be made available to new investors, where we have strong demand,” said Jason Leong, ICPF fund manager.

The low interest rate environment – with the RBA cutting rates on Tuesday to just 0.75 per cent – would spur further investment in the office markets and drive current cap rates even lower, he said.

Peter Menegazzo, Investa’s chief investment officer, said the new capital would help fund recent acquisitions, including the recent 50 per cent stake in 135 King Street in Sydney’s CBD, the nearby Glasshouse complex for $340 million and the strategic purchase of a carpark adjoining Investa’s 567 Collins Street site in Melbourne. The capital would also bring down the fund’s level of gearing.

“With low vacancy and limited supply we expect [Sydney and Melbourne] to continue to perform strongly,” said Mr Menegazzo.

The fund’s focus is on developing new office buildings to own for the long term. It recently reached practical completion on its 31-storey tower at 60 Martin Place and in 2020 will start construction on a 55,000 sq m office project at 360 Queen Street in Brisbane.

Mr Menegazzo said there were no concrete plans for Investa’s latest off-market acquisition of a 10-storey car park at 522 Flinders Street but that there was “an opportunity to develop a fairly significant new tower given the footprint”.

Other executives at some of Australia’s top property groups have said there has been record demand from both retail and institutional investors looking for commercial real estate opportunities given falling bond yields and low interest rates.

“We are in an extraordinary period where it is not only the listed sector but our direct unlisted business, which is effectively mums and dads investing directly into those funds. We’ve seen record activity there,” Sean McMahon, chief investment officer at ASX-listed property manager Charter Hall, recently said.

ICPF recently reached practical completion on the premium grade 60 Martin Place Sydney, achieving record rentals with leasing commitments in excess of 90% delivering the project a 7.5% yield on cost.

It is also planning to commence construction of 360 Queen St Brisbane, a 55,000m² prime grade commercial office project in 2020.

ICPF has been active recently, selling its interest in 242 Exhibition St Melbourne for $830 million, along with its co-owner Oxford Investa Property Partnership (OIPP) at a 20% premium to valuation.

Mr Menegazzo said, “The ICPF management team has been disciplined in its investment execution, divesting assets no longer aligned with its strategy and focussing on building a pipeline to develop new generation buildings.

“These actions have enhanced the portfolio and will ensure that ICPF retains its position as Australia’s premier unlisted office vehicle.

“Australia continues to screen well globally as an investment destination. This, along with the positive positioning and outlook of the Australian office markets and ICPF’s strong investment track record are all ingredients that form a compelling investment proposition.

“We expect that these factors will result in solid support for the capital raising, and in turn, will set a sound foundation to deliver ongoing investment performance.”