Investec Property Fund (IPF) is set to increase its interest in a company that buys pan-European logistics properties, in a deal worth more than R3bn.

The move is part of a strategy to increase its offshore exposure to warehousing and distribution centres used for online shopping and manufacturing as SA investment conditions remain dire.

IPF, through its wholly owned subsidiary Investec Property Fund Offshore Investments (IPFO), said on Tuesday that it was finalising agreements to increase its interest in the “pan-European logistics platform” (PEL) from funds managed by the real estate group of Ares Management Corporation.

IPFO currently holds 42.9% of the PEL and will increase its stake to about 75% for an additional equity investment of about €191m (about R3.1bn).

As part of the proposed transaction, the fund would concurrently introduce a new strategic equity partner for the remaining 25% stake in the PEL, which will be operated on a joint control basis. The transaction is expected to be completed on or about February 14.

The current portfolio consists of 45 logistics properties and is valued at about €900m, with a total gross lettable area of 1,034,952m2 across France, Germany, the Netherlands, Italy, Poland and Spain.

Ares’s interest in the PEL will be acquired for €277m. 

IPF has chosen to spend its capital abroad in 2020, saying investment conditions in Europe are more attractive than those at home. Last month, IPF co-CEO Andrew Wooler said the company needs to take advantage of opportunities its Europe-based team has located or it will miss out on double-digit returns.

“This is a unique opportunity to execute on our intended strategy, outlined at the outset of the initial investment, to gain control of a property platform that has a demonstrated track record,” he said.

Wooler said the new investment would deliver total returns in excess of 40%.

“Importantly, this will give SA investors the opportunity to gain even more exposure to a focused pan-European logistics offering on the JSE,” he said. 

IPF said the latest investment in the PEL is an opportunity for the fund to significantly increase its offshore exposure. After the transaction, its offshore exposure will be 30% of gross assets on a reported basis.

Wooler said there had been significant growth in the European logistics sector, boosted by retail sales and consumer spending, despite ongoing economic and political uncertainties.

Despite this recent growth, the European logistics market remains less advanced than those of the UK, Asia and the US. It is expected to grow strongly at an average of 11.3% a year  over the next five years, and “therefore continues to present an attractive opportunity”, Wooler said.

“The rapid growth of e-commerce across Europe is further driving demand in the logistics sector as e-commerce is quickly becoming as important as physical store networks, specifically given that sales generated through e-commerce require approximately three times more logistics space than those generated through traditional retail stores.” 

Wooler said IPF was still committed to SA. The fund was selling some of its older and weaker local assets and enhancing others so it could entice tenants to sign new leases.