Elanor Investors Group have agreed terms with Challenger on the 100% acquisition of Challenger’s $3.4 billion Australian real estate funds management business for a maximum consideration of $41.8 million, and will establish a broader strategic partnership between Elanor and Challenger.
Challenger Real Estate manages $2.7bn of real estate assets on behalf of the Challenger Life Company and a further $0.6bn for other institutions.
Though Elanor have not provided any information on the real estate portfolio, Challenger Life reported hold $3.2bn of Property Assets including approximately $350m of Japan Retail & Logistics assets (which may not form part of the deal). The remainder of the portfolio includes;
- Australian office ~$1.7bn & industrial ~$260m
- 10 office assets; 3 industrial assets
- Average cap rate 5.2% (office) & 4.7% (industrial);
- WALE 6.1 years
- ~54% of office rent from Government
- Australian retail ~$730m
- 8 grocery anchored convenience based shopping centres
- Average cap rate 6.0%; WALE2 5.3 years Australian office 55%
- >50% of rental income from supermarkets, major banks, discount department stores and essential services
As part of the consideration, Elanor will issue 27.4 million securities to Challenger and become Elanors largest shareholder, representing up to 18.2% of the unitholders. A Challenger representative will join the Elanor board. The deal is subject to claw-back provisions (of up to 50% over three years) based on certain milestones, including minimum base funds management fee targets.
Elanor and Challenger have also entered into a strategic partnership whereby Elanor will be Challengers’ real estate funds management partner in Australia and New Zealand and Fidante (Challenger’s multi-affiliate funds management business) will exclusively distribute Elanor’s real estate managed funds.
The acquisition delivers a step-change in size and scale for Elanor, increasing AUM from $3.0 billion to $6.4 billion, with the strategic partnership positioning Elanor for further strong growth.
Elanor have noted that the acquisition provides;
- Material FY24 earnings accretion
- Challanger Real Estate has been acquired on an attractive forward EBITDA multiple (after expected synergies)
- Strengthened recurring funds management income with base management fee income increasing by 60%. Pro-forma base management fees, post-Transaction, represent approximately 75% of total funds management income
- Step-change in size and scale with AUM growing to $6.4 billion
- Exclusive distribution agreement combines Elanor’s leading real estate funds management platform with Fidante’s award-winning capital raising capability positioning ENN for continued strong growth
- Alignment of interests with Challenger becoming Elanor’s largest securityholder (with a representative on the Elanor Board)
Elanor Chief Executive Officer, Glenn Willis, said: “We are pleased to have executed on a key strategic objective of the Group to grow AUM through the acquisition of a significant real estate funds management platform. This is a transformational transaction for Elanor. Combining Elanor’s real estate funds management capability with Challenger’s market leading capital raising platform delivers significant size and scale benefits, and positions us for further strong growth.”
Challenger Managing Director and Chief Executive Officer, Nick Hamilton said: “The combination of Challenger’s real estate platform with Elanor will provide a significant uplift in capability and scale. Elanor’s track record in originating high quality real estate opportunities, combined with Fidante’s award- winning distribution capability, will allow us to meet more customer needs. Challenger will benefit from both alignment and access to growth via the acquisition of a strategic stake in Elanor, and we are excited to continue to grow the real estate platform together with the Elanor team.”
The Transaction is expected to complete on 30 June 2023 and remains subject to certain conditions, including ENN securityholder approval and other regulatory approvals.
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