This article is from the Australian Property Journal archive
INVESTA Office Management (IOM) has thrown a spanner in the works by advising Investa Office Fund unitholders to reject Dexus’ $2.5 billion bid, saying the proposal is opportunistic and undervalues IOF.
The stance by IOM management has surprised the market, which held the view that the IOF takeover was done and dusted.
The information memorandum released by IOM comes after a week after Investa bought back the funds management business from Morgan Stanley. IOM is the responsible entity of IOF and Investa Commercial Property Fund (ICPF).
Morgan Stanley had previously refused to deal with IOF and sold the funds management to IOM.
Investa CEO and managing director Jonathan Callaghan said the Dexus proposal does not offer the value that IOF unitholders should reasonably expect to receive in a change of control transaction.
“The Dexus proposal is 3.9% dilutive to NTA and heavily scrip-based, increasing uncertainty around the value IOF unitholders would receive for their units. Significant transaction costs of around $115 million also impact the value of Dexus’ offer.
“The proposal provides little or no compensation for synergies, transaction cost savings, the potential valuation upside in IOF’s portfolio and large scrip-based component of the proposal, valuing IOF well below that which would be implied by recent AREIT transactions,” Callaghan said.
“Unitholders deserve a substantial premium and they are not receiving it with the Dexus Proposal,” he added.
In the 34-page IM, Investa offered an alternative proposal.
Callaghan said there were many compelling reasons IOF unitholders should remain under Investa management including:
– IOF has outperformed Dexus by about 17% (total book value return between 1 July 2011 and 8 March 2016) since Investa assumed management of IOF in 2011,
– IOF’s management fee structure is among the lowest of its Australian Real Estate Investment Trust (AREIT) peers and is aligned with its unit price performance.
Callaghan said IOF will also have the opportunity to acquire 50% of Investa if the Dexus proposal is rejected.
Callaghan said the opportunity for IOF to acquire 50% of the IOM platform in a joint venture with the Investa Commercial Property Fund (ICPF) — owner of Investa — would provide IOF with exposure to the financial performance of the Investa platform and enable IOF unitholders to leverage the growth of the platform.
The proposed 50:50 joint venture between IOF and ICPF builds on the significant alignment already in place between the funds, through co-owning $2 billion of properties.
Callaghan said it was difficult to advance discussions with the IOF board in relation to an alternative proposal without triggering a substantial break-fee of around $23 million under the terms of the Dexus proposal, which is why it is imperative that IOF unitholders reject the bid.
“If the Dexus proposal is rejected, we are committed to immediately discussing the terms of the proposed JV with the IOF board.
“Investa has a clear vision for IOF – to continue delivering strong performance, offering a low-fee structure and a stable platform with best practice governance and alignment of interests. We are seeking to further integrate our relationship with IOF, which the joint venture will achieve,” Callaghan said.
“It is important that IOF unitholders understand that the same governance arrangements which have underpinned IOF’s strong performance will continue to apply if they remain with Investa, including a majority independent IOF board, with an independent chairperson, all of whom have been approved by IOF unitholders.
“IOF will also continue to have a separate funds management team reporting to the independent board,” he continued.
In light of the alternative, IOF’s independent board committee (IBC) said it is reviewing the IOM’s materials.
IBC said in had no involvement with in the preparation of the IOM document
“The IOM bocument has been prepared solely by the Platform and its advisers, who were not involved in the strategic review that considered the range of strategic alternatives available to IOF.
“The views expressed in the IOM Document do not reflect the views of, and are in no way endorsed by, the IBC.
“The IBC continues to recommend the Dexus proposal in the absence of a superior proposal. The IBC confirms that no superior proposal has been received,” IOF said in a statement.
A meeting of IOF unitholders will be held on 8 April.
Australian Property Journal
