Will ICPF join the acquisition race for Australia's Investa Office Fund?

Ahead of an anticipated battle over the ownership of the listed Investa Office Fund (IOF), inner circles in the Australian real estate industry are now predicting an unexpected bid from its unlisted sister fund.

IOF has been subject of takeover attempts by Cromwell Property Group and Dexus Property Group, but its next prospective buyer could be Investa Commercial Property Fund (ICPF), an institutional wholesale fund that already owns its management rights.

ICPF, which bought the rights from Morgan Stanley Real Estate Investing early last year, increased its stake in IOF to see off a takeover attempt by Cromwell Property Group in November.

But while this was seen as defensive move at the time, industry insiders are now contemplating ICPF increasing its ambitions and buying IOF outright.

Market sources told IPE Real Estate this would be “logical”, especially because IOF and ICPF co-own some buildings. ICPF also has a number of large superannuation-fund investors that might have the scale to back such a move.

To lessen the required capital outlay, one source suggested that ICPF could sell some buildings to other companies, such as Dexus or GPT.

“It is doable, but there will be a number of hurdles,” said a Sydney-based fund manager with interests in IOF. “Cromwell will fight hard for it.”

One major ICPF investor told IPE Real Estate: “Cromwell’s bid is not gaining a lot of traction. So, yes, a range of possibilities could emerge. Privatisation is clearly a possibility.”

Asked if he would support an ICPF bid, the investor only reiterated his commitment to preserve the integrity of the “high-quality” Investa management platform.

He and other superannuation fund managers were key supporters when ICPF acquired the Investa management rights for AUD90m (€62.4m) last year.

He said Cromwell will either have to consider increasing its offer for a full bid, or sell the stake it bought to block an AUD2.5bn takeover attempt by Dexus.

Cromwell wants IOF’s funds management platform to bolster its Australian operations. Currently, more than half of Cromwell’s AUD10.3bn in total assets under management are located in Europe.

In November, Cromwell’s offer for IOF was described by the fund’s board as lacking “satisfactory evidence of sufficient equity funding” and “not compelling or attractive”.

One investor in IOF told IPE Real Estate that Cromwell’s bid was highly conditional on its ability to secure financing and that, to date, there has been “a lot of noise and heat, but not much light”.

Like some other IOF investors, he is waiting for a better offer. “Cromwell needs to raise the price and put its money on the table,” he said.

According to a property securities investor, given current share market momentum and improved fundamentals in Australia’s office market, IOF’s board is unlikely to accept any offer for less than AUD5 a security, which would add up to AUD3.07bn.

IOF share prices were on Friday close to their all-time-high reached in December and the AUD3.6bn fund is trading above its net tangible asset backing.

The fund expects to see a valuation uplift of AUD160m on its AUD3.6bn portfolio in its end-of-year figures.

Industry sources suggested that others, like Mirvac or even Blackstone – which bid for the Investa Property Trust when it was sold to China Investment Corporation (CIC) for AUD2.45bn last year – could be interested in IOF.

One possibility offered by a source is that CIC and Mirvac, which is currently managing the sovereign wealth fund’s acquisition of Investa Property Trust, could mount a joint bid.

There is a diminishing supply of Australian office assets coming onto the market despite strong appetite among global investors.

Most (59%) of IOF’s assets are located in Sydney and 21% are in Melbourne, the two most keenly sought-after gateway cities in Australia.

Another investor, who specialises in Australian real estate equities, said: “If I were a betting man, I would say a deal would be done by June.

“Things will come to a head by then, and the future of the vehicle will have to be resolved.”

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