Primewest (ASX: PWG) shares are up 7% after announcing an acquisition to the market.
What is Primewest?
Primewest is an Australian property fund manager with over $4.4 billion of assets under management (AUM) across all states of Australia and in the west coast of the USA. Established in 1995, it operates retail, industrial, commercial, residential and large format retail properties.
Primewest’s acquisition
Primewest has announced it has acquired the manager of the ASX listed agricultural REIT Vitalharvest Freehold Trust (ASX: VTH).
If you don’t know what Vitalharvest is, it owns berry and citrus farms, the largest aggregations in Australia, which are leased to Costa (ASX: CGC). Vitalharvest currently holds $275 million in investment properties with a market capitalisation of approximately $143 million. The portfolio has a weighted average lease expiry of 6.5 years and the tenant has the option for a further 10 year period.
The manager of the REIT is called GoFARM Asset Management. Primewest has acquired this for $10 million.
Primewest has also acquired an 11.8% strategic stake of Vitalharvest, it will become Vitalharvest’s largest unitholder.
The transaction was funded out of cash reserves and leaves Primewest with $43 million in available cash.
What will this mean for both businesses?
For Primewest it will mean a 7% increase of assets under management to $4.4 billion. Primewest likes agriculture because it has low correlation to market shocks which helps consistent returns whilst offering an inflation hedge. Primewest also said that tenants tend to stick around for the long term, there is good potential for rental growth and there are other tailwinds like changing consumer preferences.
Primewest plans to establish a pipeline of investment grade assets which could be acquired by Vitalharvest if they meet the investment criteria.
This seems exciting for both companies. Acquisitions would be attractive to diversify Vitalharvest’s current portfolio. Once we see what type of assets Vitalharvest may be looking at, it could be worth a buy for defensive income.
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Disclosure: At the time of writing, Jaz doesn’t own shares in any of the businesses mentioned.
