Heavyweight Morgan Stanley Real Estate is pressing ahead with plans to offer up the $9 billion Investa Office platform in the first part of this year with a roadshow of the business slated to be launched in coming months.
Investa’s portfolio of owned and managed assets, consisting of almost 50 buildings, is tipped to draw global interest, as many of the blue chip assets may benefit from the upswing in the leasing market, and the management platform is seen as valuable due its ability to raise funds and for its development capacity.
While the offer of the business — owned by the Morgan Stanley Real Estate Fund VI — was first flagged by The Australian last month, the complex pre-emptive rights between Investa’s balance sheet and its managed funds must be exhausted before a full-scale process can be launched.
However, this aspect of preparations is expected to be finalised soon, and investment banks Morgan Staney and UBS, as an independent house, have been nominated to advise on the future of the platform. Other investment banks are jockeying for position as any sale is likely to draw major Australian players, including Dexus Property Group, Charter Hall Group, Stockland and Mirvac Group, all of whom have ties with offshore institutions keen to boost their exposure to Australia and with plans to expand in the office sector.
While the prize overall will be keenly sought, working through the complex rights held by Investa’s managed funds, Investa Office Fund and Investa Commercial Property Fund, could hold the key to any sales process.
The group’s $3bn wholesale office fund is cashed up and well supported by global institutions, potentially giving it the capacity to acquire assets from Investa’s $2.2bn worth of balance sheet assets.
The main co-owned assets include landmark Sydney towers Deutsche Bank Place, 400 George Street, and 1 Market Street, as well as Melbourne’s pre-eminent tower, 120 Collins Street.
The largest property, the $750m Deutsche-occupied tower at 126 Phillip Street, is split three ways between half owner ICPF, with IOF and the Investa balance sheet each holding 25 per cent. The details of the co-ownership agreement are not known but are thought to give all the parties rights in the event of any changes.
In the case of 400 George St, a half interest is held by Investa’s balance sheet.
Property executives said each of Investa and its funds had different boards and The Australian had established they are taking legal advice on their responsibilities to protect the position of their investors and maximise returns in the event of any sale.
In a further complication, the group’s listed IOF has the right to buy a stake in the overall Investa platform once it hits $3.5bn of local assets.
UBS analysts said last week that an internalisation of IOF’s management rights would maximise value for the vendor, that is keen to receive a value both for the management rights and the Investa balance sheet assets.
They suggested that the rights may be sold in part or whole to IOF/ICPF or a friendly third party and valued at them at between $120-$200m. IOF had the capacity to buy up to $800m worth of assets by raising equity before hitting earnings constraints.
This article first appeared in The Australian Business Review.