Accelerate Property Fund has joined a host of South African funds investing in central and eastern Europe, announcing a R2.3bn property deal that includes retail assets in Austria and Slovakia.
Some property analysts have reservations about smaller funds investing in markets where they have no experience. They say South African funds should always look to establish long-term joint ventures with experienced management teams in those countries.
Chief operating officer Andrew Costa said Accelerate intended to create an investment platform with a specialist focus on single-tenant, net-long lease properties by acquiring single-tenant, net-leased properties that were strategic to blue-chip multinational, or large regional tenants, targeting countries in central and eastern Europe.
"We have been looking for opportunities and finding local expertise in central and eastern Europe for a while. We feel that we have managed to establish what can be a strong platform here, starting with Austria and Slovakia. Now, we will work through a capital raise and various regulatory approvals to conclude the deal."
The investment platform would be wholly owned by Accelerate with the possibility to introduce co-investors at a later stage.
The initial portfolio included big box retail properties, with about 80% of their value being in Austria, and about 20% in neighbouring country, Slovakia.
The portfolio was tenanted on a long lease basis by a "leading blue-chip multinational retailer operating across Europe".
All leases were denominated in euros. The portfolio is concentrated in large Austrian and Slovakian cities, and offers about 104,000m² of gross lettable area.
An acquisition yield of 7.11% for the portfolio was agreed, which equated to a purchase price of about €140m for the assets.
The total transaction size may be reduced following a final due diligence. Up to 50% of the purchase consideration for the assets would be funded from euro-denominated debt from European banks. The balance of the price would be funded initially by an equity placement. Based on the targeted capital structure, the equity requirements for the assets would be about R1.2bn.
Mr Costa said Accelerate was in a closed period and that more details about the deal would be revealed when it released financial results in June.
Evan Robins, listed property manager of Old Mutual Investment Group’s MacroSolutions boutique, said Accelerate would benefit initially from the deal, but investors wanted to know more about plans for the new offshore investment platform, as asset managers could gain foreign exposure by buying directly into funds based abroad.
"The Accelerate deal should generate a good return, but they, like other South African companies, have no offshore experience. The return looks good because funding costs in Europe are so low," Mr Robins said.
"What is so interesting is that now South African real estate investment trusts (Reits) are focusing on Eastern Europe like a herd. As an investor, we prefer SA Reits to invest where they have their expertise, while we can diversify globally ourselves."
Accelerate is the latest South African-listed property group to make a play in eastern or central Europe. New Europe Property investments owns various malls in Romania and one in the Czech Republic; Rockcastle Global Real Estate owns assets in Poland; Hyprop Investments has bought stakes in malls in Serbia and Montenegro; and Tower Property Fund has exposure to Croatia.
Recently, Redefine Properties clinched a deal worth about R20bn to acquire assets and a business platform in Poland.