Abu Dhabi’s ADIC Backs Elanor Buyout of Challenger Real Estate in Australia

Elanor Investors Group has received a commitment from the Abu Dhabi Investment Council (ADIC) supporting its acquisition of a real estate business managing A$3.4 billion ($2.3 billion) in assets.

As part of a deal announced two months ago for Sydney-based Elanor to acquire the real estate fund management business of local asset management giant Challenger, the ASX-listed property fund manager has granted ADIC options to purchase up to 7.5 million in securities to be issued by the company over the next three years, according to a regulatory filing on Friday.

The options are being made available in three equal tranches for 2.5 million each, with the first set to be issued in July at A$2.25 per unit – a more than 25 percent premium to Elanor’s Thursday closing price of A$1.68. As part of the transaction, the unit of Abu Dhabi’s Mubadala Investment Company has also agreed to shift its existing investment strategy with Challenger to Elanor.

“We are pleased to have secured the transfer of the ADIC mandate, and ADIC becoming a substantial investor in ENN (Elanor),” said Glenn Willis, the group’s chief executive officer. “We look forward to delivering strong investment returns for ADIC’s real estate investments and growing AUM (assets under management) for the Elanor Group.”

Ownership Plan Updated

The remaining two tranches of options will be made available at A$2.5 and A$2.75 per unit respectively over the next two years and are tied to ADIC agreeing to fresh investment mandates with Elanor, with the sovereign fund having long worked with Challenger to deploy capital in Australia.

Elanor agreed in April to pay A$42 million to acquire Challenger’s real estate fund management business, which has garnered A$3.4 billion in assets, with the termination of a third-party advisory contract having since brought that price down to A$37.7 million.

In their agreement two months ago, Elanor agreed to issue 24.8 million shares to Challenger as consideration for the acquisition, but as ADIC steps in, 4.5 million of that total will now be issued to the new investor. Initially, Challenger will have a 13.7 percent stake in Elanor, while ADIC will start out with a 3 percent interest.

Should ADIC exercise its options under the plan, it would boost its stake in Elanor to 7.7 percent by completion of the deal, which hinges on ADIC increasing its mandates with the Aussie firm by A$500 million within the period.

ADIC, which was merged into Mubadala in 2019, will soon join Singapore-based Rockworth Capital as one of the substantial foreign shareholders in Elanor. Rockworth first invested in the ASX-listed firm in 2019 and held a 14.71 percent stake in the company as of 30 June 2022, based on Elanor’s annual report.

That new cash would further enhance Elanor’s investment capital, with the Challenger deal already set to more than double its funds under management from A$3 billion to A$6.4 billion. As part of the transaction, Challenger’s Fidante funds management will raise money for the Elanor funds.

Elanor expects earnings accretion with incremental earnings before interest, taxes, depreciation and amortisation of about A$12 million from the arrangement

Abu Dhabi Likes APAC

The deal announced on Friday is the latest in a sandstorm of recent APAC real estate moves by Mubadala.

Just last week the institution announced that it was teaming up with Canadian giant Manulife and US private equity shop Proprium Capital Partners to launch a Japanese multi-family partnership with plans to assemble a rental apartment portfolio worth up to JPY 80 billion ($600 million).

That residential deal came after Mubadala in May teamed up with the management of Fortress Investment Group to strike a deal to acquire Softbank’s 90.01 percent stake in the US fund manager.

Mubadala is currently the world’s 13th largest sovereign wealth fund by total assets according to the rankings by the Sovereign Wealth Fund Institute, with independent estimates putting its assets under management at $123 million.

The Abu Dhabi Investment Authority (ADIA), a separate entity from ADIC, ranks fourth among sovereign funds globally with $853 billion in assets.