September 19, 2018 / 6:39 AM / in a month

Breakingviews - Aussie office bid war offers easy investor exit

HONG KONG (Reuters Breakingviews) - A bidding war over Australian offices is providing shareholders with an opportunity to move out. U.S. private equity giant Blackstone and the real estate arm of Canadian pension giant OMERS are fighting over Investa Office Fund, a commercial property group with a A$4 billion ($3 billion) portfolio. They are betting on squeezed supply and yields Down Under that remain compelling by global standards. But the target, a lacklustre performer to date, has already climbed by a fifth since the frenzy began. Investors may want to consider relocating.

The logo for Australia's Investa Office Fund (IOF), a real estate investment trust, adorns the front of their office building in central Sydney, Australia, May 28, 2018. REUTERS/David Gray

Investa manages an attractive portfolio of largely fully-let offices, mostly in Sydney and Melbourne - two markets that have been outperformers over the last six months, according to Colliers, with ever-smaller vacancy numbers. Those low rates are expected to continue, the property consultancy reckons, thanks in part to growth in both population and white-collar jobs.

But while the cities have been on a tear, Investa has not: it slightly underperformed the S&P/ASX 200 index of real estate investment trusts (A-REITs) in the year leading up to Blackstone’s first A$5.25 per share offer in May. The property group did some independent valuation work of its own and KPMG in July gave it a price tag of A$5.38 to A$5.41 - though it also said that while the offer was below the net tangible assets of the landlord, it was reasonable and in shareholders’ best interests.

Still, OMERS’ Oxford Properties Group then trumped that, pushing its rival higher. Blackstone’s current proposal values Investa at as much as A$5.52 a share. OMERS’ has hit A$5.60. The shares, meanwhile, are changing hands at A$5.54 apiece – above analysts’ average target price of A$4.82, according to Eikon.

It’s tempting to hold on for even higher bids from both parties – but that is far from certain. Past bids, after all, have come and gone. Last week, Oxford agreed a pact with one of Investa’s major shareholders that could see it take almost 20 percent of the company. That may hurt Blackstone’s chances of success, as a deal would likely require the approval of 75 percent of shareholders. Oxford, meanwhile, was only just granted due diligence, for four weeks. Anything could happen in that time.

Breakingviews

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