Morgan Stanley has knocked back a second request to internalise the $8.9 billion Investa Property Group, as the bank closes in on an exit from the real estate office empire it acquired at the market’s peak in 2007.
This time the push to acquire the management rights stemmed from the property group’s unlisted vehicle, Investa Commercial Property Fund, which owns a stake in one of Australia’s top skyscrapers, Deutsche Bank Place.
According to sources, the $3bn-plus fund fired its demand over to Morgan Stanley last Wednesday, just as Mirvac Property Group was about to enter exclusive negotiations for the platform, in a deal worth more than $200 million.
The price tag rises to above $400m once the minority stakes in the listed Investa Office Fund and ICPF are accounted for.
While Mirvac remains the most likely buyer of the office manager, with its due diligence period set to expire next week, the late intervention from the blue chip vehicle underscores the depth of concern within the group about the looming change of control.
As The Australian reported earlier this month, Investa turfed in a similar request two weeks ago but was given short shrift by Morgan Stanley. On Friday, the fund, headed by Ming Long, reiterated its rights over 50 per cent of its manager. For Mirvac, however, the real prize is the higher-income generating ICPF with its large base of institutional investors.
Mirvac chief executive Sue Lloyd-Hurwitz, a former top executive at LaSalle Investment Management, the underbidder for the Investa platform, is leading the negotiations in an effort to secure the trust’s long-desired expansion into the funds management business.
However, Mirvac will only venture a full price for Investa Office Management, the platform that spans IOF, ICPF and the $2.45bn portfolio of skyscrapers, recently acquired by China’s CIC, if all the constituent parts remain together.
The risk for Mirvac is that once it inks a deal for the management rights, investors in the underlying funds will agitate for a new owner.
ICPF’s investor base is largely made up of domestic superannuation funds with the Victorian Funds Management Corporation, which controls $50bn worth of assets, ranked as the largest stakeholder.
According to sources, Mirvac had approached a handful of the top investors within the fund in an effort to win their backing for its bid and head off any renewed push for an internalisation.
While this strategy has always been viewed as a fallback plan for ICPF, the fund’s low gearing and solid balance sheet means it has the financial capacity to table an alternative offer.
If the deal does not unravel, Mirvac will fund the acquisition from its balance sheet, according to sources.
This article first appeared in The Australian Business Review.