Morgan Stanley's Arena Investment Management is looking at the best way to deliver liquidity to investors in both its property and office funds, and will present its latest strategy at an investor day tomorrow.
Arena has been mulling a combined float of its office and property funds, though it could first run a selective sale of some assets to capitalise on huge demand for commercial sites in Australia.
A potential float could combine the Arena Office Fund, which has about $341m in assets under management and the Arena Property Fund, which manages about $220m in assets. Post asset sales, the property and office funds’ remaining $400m in assets under management would be rolled into a new vehicle to IPO, which would be a pure-play office fund.
While mulling its float options, Arena has been fielding unsolicited offers -- at well above book value -- for some of its assets, which has led it to consider running select asset sales ahead of an IPO. Arena would likely look to sell 280 George Street, Sydney, and a $12m office site in Dandenong, as well as two industrial sites on long-term leases to Woolworths.
Arena is understood to be working through half a dozen offers for 280 George St, a 13-storey office building with two basement car park levels, which have come in at a premium of about 20 per cent to the site’s book value of about $46m.
Valuations for commercial assets appear to be on the rise and Arena’s targeted leasing strategy is also paying off, making it a good time to deliver investors liquidity through sales or an IPO – or both, if that proves the most lucrative option.
The road to returns will have been a long one for Arena investors. Morgan Stanley took control of then-frozen Arena Office Fund in 2011 through a recapitalisation, and changed its name from Orchard Fund Management. Management has committed to delivering liquidity to investors within four years of the recapitalisation.
Arena’s office fund, which has six properties across Victoria, NSW and New Zealand, has an occupancy rate of 88 per cent. The Arena Property Fund, which has six assets in Victoria, NSW, South Australia, and Western Australia, boasts a 96 per cent occupancy rate.
(Reporting by Amanda.Saunders@businessspectator.com.au
Editing by Miranda.Maxwell@businessspectator.com.au )