This article is from the Australian Property Journal archive
DEXUS Property Group has made a surprise $2.52 billion takeover bid for Investa Office Fund (IOF), in a deal which would make the group the fifth largest office REIT in the NAREIT global index.
This is the second major takeover for Dexus after it acquired the Commonwealth Property Office Fund.
IOF’s decision to merge with Dexus followed unsuccessful attempts by the board to internalise the management by buying the Investa Office Management Platform from Morgan Stanley.
Morgan Stanley declined to entertain IOF’s proposal, forcing IOF to seek alternative deals with Mirvac and the Investa Commercial Property Fund (ICPF).
Investa Listed Funds Management Limited (ILFML) independent chair Deborah Page said the independent directors are pleased that the strategic review has resulted in a proposal with an attractive value proposition for IOF unitholders.
“The strategic review has considered a wide range of alternatives, and the proposal announced today, if implemented, would deliver the best outcome of those alternatives for IOF unitholders.
“It is particularly pleasing that this proposal, if implemented, will see IOF unitholders being offered the opportunity to invest in a combined DEXUS-IOF entity that will be Australia’s pre-eminent, internally managed office platform.
“I am also pleased that if the proposal reaches implementation, our Australian office assets of approximately A$3.5bn would continue to be held in a listed format and that the enlarged entity would have the potential to offer significant earnings and distribution accretion to IOF unitholders,” she continued.
The takeover will increase Dexus’ assets under management to 79 properties valued approximately $23.4 billion with $16.6 billion in offices, which will increase from 15 to 29 buildings.
Standard & Poor’s has placed IOF’s ‘BBB+’ Rating on CreditWatch with positive implications following the takeover proposal.
The takeover proposal involves offering IOF unitholders an entitlement in
“Dexus equity securities and a cash component. Dexus is proposing to fund this offer 80% with its own scrip and 20% with cash. The offer implies an enterprise value of A$3.52 billion,” Standard & Poor’s credit analyst Craig Parker said.
“We consider the additional debt burden incurred by Dexus from the cash component of the takeover proposal and the debt supporting IOF’s balance sheet can be accommodated within the current ‘A-/A-2′ ratings on Dexus.
“Moreover, we expect IOF’s creditors will benefit from the stronger credit quality of the combined group,” he added.
“We would resolve the CreditWatch once the transaction is likely to proceed. We note that a number of necessary approvals are required for the merger to proceed, particularly the merger implementation agreement, an independent experts’ report, and a unitholder vote. If the takeover is successful in its current form, the long-term rating on the IOF entity could be raised to ‘A-‘. We will also take into account if competing bids were offered for the IOF assets,” Parker said.
Dexus has made a scrip and cash mix based transaction involving 80% scrip in Dexus and 20% in cash.
Under the proposal, IOF Unitholders would receive a premium of 7.4% using an exchange ratio based on the DEXUS 10-day VWAP on 4 December 2015 and IOF closing price on 4 December, a 6.7% premium based on the one-month VWAP of IOF and a 5.2% premium based on IOF’s Pro-forma NTA
The transaction is expected to preserve Dexus’ A- credit rating.
Dexus said the merger will introduce approximately 45,012 new customer relationships from IOF’s tenant base.
The merger would create the fifth largest A-REIT in the A-REIT 200 Index and fifth largest office REIT in the NAREIT global index.
Dexus is advised by Greenhill & Co., Goldman Sachs and Deutsche Bank as financial advisers and King & Wood Mallesons whilst Investa is advised by Macquarie Capital (Australia), Fort Street Advisers and Herbert Smith Freehills.
Australian Property Journal
