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Dexus bid for Investa Office Fund falls short

Australia's largest landlord did not gain the 75 percent approval from IOF shareholders it needed to takeover the $2.5 billion portfolio.

Dexus Property Group's proposed takeover of the $2.5 billion Investa Office Fund (IOF), the last piece remaining to be exited in the long-running sale of the Australian real estate Investa platform, has failed.

Shareholders of the 22-property portfolio voted 60-40 to reject the offer from Australia's largest landlord at an extraordinary general meeting at Sydney's Radisson Blu Plaza Hotel on Friday. Dexus required at least 75 percent approval from IOF shareholders.

Dexus had only weeks ago sweetened its cash and scrip offer for the IOF so shareholders would receive a total consideration of A$4.24 per share, up from the previous A$4.19.

Following the improved bid however Cromwell Property Group waded into the takeover battle by acquiring CBRE Clarion’s 10 percent stake last week, sparking rumours of a potential takeover from Cromwell.

However, Cromwell has so far stated it has no plans beyond being a shareholder of IOF and dismissed media reports of a counterbid as speculation.

Yet, Cromwell's involvement is just the latest act of the long-running IOF sale saga. There are reports of a Chinese sovereign wealth fund China Investment Corporation (CIC)-led consortium plotting a counter-offer for the IOF.

According to multiple reports in the Australian press, CIC together with the listed Australian developer Mirvac and the private equity real estate giant The Blackstone Group is said to be jointly bidding for the IOF. Blackstone declined to comment on the rumored deal when approached by PERE.

Adding further confusion to the sales process was Dexus' battle with Morgan Stanley, IOF's largest shareholder, over the American banks voting rights. Last month Dexus lost a NSW Supreme Court ruling against Morgan Stanley. The court ruled that Morgan Stanley should not be precluded from voting on Dexus' takeover.

Dexus had also asked Australia’s Takeovers Panel to intervene in the takeover and prevent Morgan Stanley from voting.

The Panel found that a document issued by the fund's management company, Investa Office Management Holdings (IOMH), on March 14, 2016 was “misleading or confusing for, or has the potential to mislead or confuse, IOF unitholders” where it is not sufficiently clear that IOMH has an interest in the proposal not succeeding.

The Panel considered that the document did not disclose “readily and reasonably” the interests that IOMH had when advocating against the Dexus proposal and recommending the “No” vote. The Panel ordered that IOMH make further disclosure which makes clear: the role of the manager; the fees payable to it under the current arrangements; and the relevant effect of a Share Sale Agreement (under which a Morgan Stanley entity sold the Investa Office Management Platform, including the manager, to Investa Commercial Property Fund) if the Dexus proposal should succeed or fail.

Morgan Stanley had still maintained the management rights of the Investa Office management platform until it sold them to the Investa Commercial Property Fund in February this year. The sale price was undisclosed but the deal, which transfers the ownership of management rights of circa $8.5 billion of assets across a portfolio of 39 prime grade office buildings in Australia’s major office markets, is valued above $90 million or about 1 percent of funds under management.

The payment to Morgan Stanley for the Investa management platform had been organized into two parts. The argument that it has an incentive to vote no is the reported second payment of $45 million is only payable if IOF is still managed by Investa at December 14 this year and is not taken over or managed by another group. 

The sale of the Investa platform by Morgan Stanley Real Estate Investing has been ongoing over the past year. The major part of the platform – the prime office portfolio called the Investa Property Trust – was acquired by CIC for A$2.45 billion in July last year, which went on to appoint Mirvac as the asset manager for the portfolio in December. Investa Land, another division of Investa, was acquired by Proprium Capital Partners reportedly for $340 million.