Charter Hall has Support of Irongate for Takeover

A Charter Hall managed partnership comprising Dutch pension fund PGGM and Charter Hall has entered into a Scheme Implementation Agreement (SIA) with Irongate Group to acquire all IAP stapled securities via trust schemes of arrangement.

Under the terms of the SIA, IAP securityholders will receive $1.90 cash per IAP stapled security and be entitled to retain the distribution for the period ending 31 March 2022 of up to 4.67 cents per IAP stapled security.

The IAP Board has unanimously recommended that IAP securityholders vote in favour of the Transaction, subject to no superior proposal emerging and an independent expert concluding that the Transaction is fair and reasonable, and therefore in the best interest of, IAP securityholders.

Under the Transaction:

• Charter Hall will own a 12% stake in the Partnership, with PGGM owning the remaining 88% interest;
• The Partnership will fund the initial acquisition of IAP and post the asset sales (discussed below), will own a $1.6 billion portfolio of IAP’s industrial and office properties;
• Pursuant to the Memorandum of Understanding (MOU) entered into with 360 Capital, the Partnership has agreed to sell three IAP properties to 360 Capital (TGP) for aggregate consideration of $256.7 million shortly after implementation of the schemes. The Transaction is not conditional upon 360 Capital completing the acquisitions, meaning that the Partnership will retain responsibility for funding the Transaction; and
• Charter Hall has agreed to acquire IAP’s funds management business for $5.0 million and associated co-investment stakes for $22.5 million. The Partnership will nominate Charter Hall as the acquirer of all of the units in Irongate Property Fund II on implementation of the Transaction.

The Consideration of A$1.90 per IAP stapled security reflects a:

• 21.0% premium to the closing price of A$1.57 per IAP stapled security on 28 January 2022, being the last trading day prior to announcement of the Proposal;
• 11.8% premium to the pro forma 31 March 2022 net tangible assets (NTA) of A$1.70 per IAP stapled security taking into account the revised preliminary independent valuation update described in more detail below;
• 10.5% premium to the highest of three non-binding indicative offers (NBIO) from 360 Capital Group of A$1.72 per IAP stapled security announced 14 December 2021; and
• 22.6% premium to the 9 December 2021 equity raising price of A$1.55 per IAP stapled security.

For its involvement in the deal, Tony Pitt’s 360 Capital Group will receive an cash consideration of $92.0 million for its 48.44 million IAP stapled securities, equating to a pre-tax realised profit of $23.6 million. Under the MOU, TGP had the option to acquire IAP’s third party funds management platform and an interest in IAP’s Wellington asset, however the Group has decided not to proceed with those acquisitions.

360 Capital FM Limited as Responsible Entity for 360REIT has will progress the acquisitions of the three IAP properties for $256.7 million. The three modern buildings to be acquired are:

• 38 Sydney Avenue, Forrest, ACT: 100% interest for $81.7 million
• 34 Southgate Avenue, Cannon Hill, QLD: 100% interest for $40.0 million
• 510 Church Street, Cremorne, VIC: 50% interest for $135.0 million

Charter Hall Managing Director and Group CEO, David Harrison said, “We are pleased to continue our partnership with PGGM with the expansion of our industrial and logistics mandate. This Transaction
further demonstrates Charter Hall’s track record of structuring and executing take private transactions alongside our wholesale capital partners, following the successful acquisition of ALE Property Group by Charter Hall Long WALE REIT and Hostplus in 2021.”

The Transaction is conditional upon a number of matters set out in the SIA, including IAP securityholder approval of the trust schemes of arrangement and other customary conditions.

IAP chairman, Richard Longes, stated “the Proposal is attractive for IAP securityholders, as it reflects a premium to IAP’s historic trading prices and the revised updated independent valuation of IAP’s portfolio. After careful consideration, the directors of IAP have concluded that the Proposal is in the best interests of IAP securityholders and unanimously recommend that securityholders vote in favour of the Schemes, subject to no superior proposal and the independent expert concluding that the Schemes are fair and reasonable to, and therefore in the best interests of IAP securityholders.”

The Partnership has engaged Barrenjoey Advisory Pty Limited and Morgan Stanley Australia Limited as its financial advisors and Allens as its legal advisors in relation to the Transaction.

The indicative implementation timetable is subject to approval by the Johannesburg Stock Exchange and will be published in the scheme booklet to be sent to IAP securityholders (expected to be in May 2022). The parties currently anticipate targeting implementation of the Transaction in late July 2022.

Background to the Schemes

On 15 October 2021, IAP received an initial 360 Capital NBIO which contained a proposal to acquire 100% of IAP stapled securities via an agreed trust scheme for $1.65 per IAP stapled security.

The IAP Board, having consulted with its legal and financial advisers, unanimously rejected the initial 360 Capital NBIO. Subsequently, 360 Capital submitted an improved NBIO on 11 November 2021 for A$1.70 per IAP stapled security, and a further improved NBIO on 14 December 2021 for A$1.72 per IAP stapled security. In each instance, the IAP Board rejected the 360 Capital NBIOs.

On 29 January 2022, the IAP Board received the Proposal, and in conjunction with its advisers, assessed the Proposal and determined to grant the Partnership a period of due diligence in order to advance the Proposal, including the negotiation of the SIA.

In connection with the Proposal, the Partnership also entered into a memorandum of understanding with 360 Capital ( MOU), which provided the Partnership with a call option over 360 Capital’s existing 19.9% securityholding in IAP. The MOU also provided 360 Capital with a call option to acquire certain IAP property assets. Notwithstanding the call option granted to 360 Capital under the MOU, the Proposal is not conditional upon 360 Capital completing the acquisitions contemplated in the MOU, meaning the Partnership will retain responsibility for funding the Proposal.

Preliminary independent property valuation update

To assist in evaluating the Proposal, IAP has undertaken external valuations for 34 of its properties, representing 92% of IAP’s properties by number. IAP will adopt these valuations as part of the year-end reporting process for 31 March 2022. Two investment properties as well as one investment property under development have been internally valued as at 31 March 2022.

The preliminary draft valuations (including both external and internal valuations) have resulted in a portfolio uplift of A$105.4m, representing an increase of 7.0% over the pro-forma property valuations as at 9 December 2021. The unaudited valuations are expected to increase IAP’s pro-forma NTA to A$1.70 per IAP stapled security, an increase of 10.4% over the pro-forma NTA as at 9 December 2021.

Unaudited

All preliminary valuations are subject to finalisation and audit, and also assume no material change in market conditions prior to 31 March 2022. The final audited valuations and NTA per IAP stapled security will be available upon release of IAP’s FY22 full year results in early May 2022.

Independent expert

An independent expert will opine on whether the Schemes are fair and reasonable and therefore in the best interests of IAP securityholders.

The independent expert’s report will be provided to IAP securityholders as part of the scheme booklet.