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Elanor Commercial Property Fund (ASX: ECF) has struck a deal with GDI Property Group (ASX: GDI) to acquire a Gold Coast business landmark in the heart of Surfers Paradise, but will need to raise capital and draw on new debt to fund the $113.5 million purchase.
To bring 50 Cavill Avenue into its portfolio, ECF will raise $84.7 million at $1.10 per share, representing a 4.8 per cent discount to the last traded price.
"50 Cavill Avenue is the pre-eminent commercial building on the Gold Coast, a region that is very well positioned for further strong economic growth," says ECF fund manager David Burgess.
"This investment typifies ECF's strategy of acquiring assets that have strong competitive advantages in their respective markets.
"50 Cavill Avenue is a high investment quality acquisition for the Fund, acquired at a capitalisation rate of 6.8 per cent and significantly below replacement cost."
Glenn Willis, CEO of the fund's largest shareholder Elanor Investors Group (ASX: ENN), notes the acquisition follows an "exceptionally strong" FY21 for the commercial property fund despite challenging market conditions.
The fund has announced preliminary and unaudited funds from operations (FFO) of 12.54 cents per share, representing a 20 per cent rise on forecasts.
"The acquisition of 50 Cavill Avenue further enhances the fund's portfolio of high investment quality commercial office properties invested in favourably positioned markets," Willis says.
"Furthermore, this asset, in addition to ECF's other properties, presents significant opportunities to enhance value for securityholders."
The capital raise will be split between a $45 million entitlement offer and a $39.7 million institutional placement, which combined are expected to lift ENN's market capitalisation by 36 per cent to approximately $321 million.
Up to $10 million of the retail component is sub-underwritten by ENN, while the balance of the purchase will be paid by part of a new $39.7 million debt facility.
Settlement of the sale is expected to occur on or around 31 August, with GDI forecasting netting approximately $109 million from the sale after selling costs and other settlement adjustments.
GDI reports this represents an $8 million premium to the 30 June 2020 carrying value of $101 million.
The sale is worth more than double the $48.75 million paid by GDI for the property in February 2016, when 50 Cavill Avenue was 54 per cent occupied with no NABERS (National Australian Built Environment Rating System) Energy rating.
Following an extensive refurbishment and releasing programme, the Property is now approximately 97 per cent occupied and has a 4.5 Star NABERS Energy rating.
"We realised that 50 Cavill Avenue could be the preeminent business address on the Gold Coast," says GDI managing director Steve Gillard.
"We identified opportunities for capital expenditure to improve the asset's appeal, reduce its operating costs and improve its environmental performance," he says.
"We were confident that if we did this the occupier market would follow, and we are very pleased with our successes on all these facets."
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