Dexus Property Group chief Darren Steinberg is right at home at the negotiating table -- but his latest mega-deal, to merge with the Investa Office Fund, has some way to go. After a pursuit of more than a year, Dexus is poised to walk away with a key piece of the Investa empire.
Although the latest talks are said to have been rekindled just weeks ago, Dexus has long angled to buy key Investa assets.
Getting IOF would be no second prize. Dexus and partner the Abu Dhabi Investment Authority narrowly missed out on the $2.45 billion Investa Property Trust portfolio in July. That went to China’s deep-pocketed sovereign wealth fund China Investment Corporation, in a benchmark-setting sale handled by UBS and Morgan Stanley.
Not securing that prize may have been a blessing as Dexus had faced near insurmountable conflicts in owning the entire Investa Office platform.
Dexus was unsighted as the battle for that business was fought out between Mirvac and LaSalle Investment Management. But the convoluted process, which saw the unlisted Investa Commercial Property Fund put forward its own internalisation plan, and IOF apparently left out in the cold, left the door ajar for Dexus.
A late approach came from IOF, just ahead of the trust’s tumultuous annual general meeting where heavyweight investors, including CBRE Clarion Securities, called for a full sale to be explored.
Steinberg, with counsel from many of the same advisers he called upon for the $3bn CPA takeover, pounced. Greenhill & Co, Goldman Sachs and Deutsche Bank led the charge while Fort Street and Macquarie Capital acted for IOF.
The move by Dexus both capitalises on the instability in the Investa Office platform, which has emerged as Morgan Stanley’s extended sales process has taken its toll, and is also being proffered as a solution to these concerns.
On the face of it, the Dexus bid ticks the boxes, with a near 6 per cent premium to net tangible assets and Steinberg is also capitalising on the fact that his stock also trades at a large premium in an environment in which values are rising, despite tough leasing markets, to which the Dexus portfolio is not immune.
IOF is in something of a sweet spot for Dexus as mainly A-grade assets are not of interest to the sovereign funds that are hunting trophy towers. And they play to the group’s operational strength.
If Dexus wins over IOF investors, its underlying funds from operations will edge up next financial year, but the longer-term import may be greater.
UBS analysts noted the proposed deal breaks up a major competitor. But hurdles related to IOF’s debt book and, critically, the potential need to strike a deal with the owner of the responsible entity, Morgan Stanley, remain.
Dexus will certainly be running hard in its two weeks of exclusive due diligence. Meanwhile it will keep a weather eye on powerful stablemate ICPF.
While IOF has, at last, dealt itself into contention in the Investa break-up, the desire of ICPF’s backers to set their own course via an internalisation cannot be underestimated. These funds, which hold the capacity to make a more cash-heavy bid than the Dexus proposal, could prove the wildcard as Investa heads towards a break-up.