The Morgan Stanley-controlled Investa platform has been the subject of constant takeover speculation for months and brokerage UBS has become the latest to weigh into the debate, saying the business, which controls $8.8 billion in property, will most likely be rolled into the flagship listed trust Investa Office Fund.
The bank’s property analysts think an internalisation of IOF’s management is the most likely path for the office landlord that is capitalised at $2.1bn, as any hostile bidder could lose control over a third of the listed vehicle’s best assets.
Between $850m and $1bn worth of IOF’s assets are subject to pre-emptive rights held by Investa’s wholesale fund and rival players Mirvac Group and Brookfield. Their moves may mean a successful bidder could end up with just the trust’s $2bn of lower quality assets.
A better course for IOF, and Investa’s executive team, would be buying the management platform, with the play to boost earnings up to 5 per cent. An internalisation is already on the cards, as IOF has an option over half of Investa’s platform. A recent splurge of about $600m worth of purchases by Investa’s unlisted fund was also seen as “quite portentous” by UBS.
But the low cost of debt could actually spoil the party. UBS warned that suitors for IOF could fund a bid for assets at a cost of debt of just 4.5 per cent.
Even though IOF’s best defence may be its surging share price, UBS reckons a deal could be “comfortably earnings accretive” at a level even 10 per cent to 15 per cent higher.
The broker sees GPT, Dexus Property and Charter Hall as the most likely interlopers.
GPT, at least, has turned its attention to making direct property deals, after some bruising takeover forays. Dexus is busy dealing with properties picked up in its CPA takeover.
But Charter Hall, and its network of local and international backers, retains a big appetite for deals.