The Australian Unity Office Fund is about to face off against its major investors as they call for a break-up of the business and to potentially dump Australian Unity as its manager.
Family funds and an Asian-based hedge fund are believed to be among the shareholders resisting a plan by the Australian Unity Office Fund to merge with its sister fund.
Shareholders were due to vote this month on a merger between the Australian Unity Office Fund and the Australian Unity Diversified Property Fund to create the Australian Unity Property Fund with $1.2bn of real estate.
DataRoom understands that key shareholders have already indicated their voting intentions in the past week.
The Scanlon family-backed investment house Hume Partners, which holds 20 per cent of the group, is understood to have voted against the merger.
Speculation also exists that this is also thought to be the case with the Salta family, with 5 per cent ownership of the fund, along with Asian hedge fund Maso Capital, which owns 10 per cent.
Other sources say that not all of the major investors are against the move, with property security funds keen on a deal.
The Bertalli family owns 5 per cent of the company.
Of those who vote, 51 per cent need to be in favour of the merger for it to proceed.
Should the three large family funds and Maso Capital oppose the merger, they are likely to have enough fire power to block the proposal.
It is understood that major shareholders against the merger are now keen for the company to break up the business, internalise the fund or remove Australian Unity as the manager.
The low interest rate environment means demand for real estate on the direct market is soaring, as indicated by the fund’s announced sale on Monday of its office building at 32 Phillip Street, Parramatta building for $66m.
This was a 5 per cent premium to its book value.
Based on this, they believe that the fund can realise more value through a liquidation move.
Shareholders are also said to be keen for the manager to out any buyout proposals that may have been presented to the company in recent months after rejecting offers that had come through the door in years before.
The office fund has a $375m market value while its net tangible assets is currently $2.71. Shares are trading around $2.32 and since the pandemic, it has failed to fire on the listed market.
Office landlords have been hit by investors, nervous about more company employees working from home since the onset of the global pandemic.
Starwood lobbed a $486m takeover bid for the fund before the pandemic early last year equating to $2.98 and in 2019, Charter Hall and Abacus Property Group put forward an acquisition proposal at $3.04 a share for the business that was later voted down by shareholders.
At that time, Hume Partners had been strongly opposed to a privatisation of the business.
But given where the company’s share price is now trading, the fact that the bids were knocked back at that time is now a strong point of contention among some.
Still, Australian Unity Office Fund’s share price has improved since the start of the year when the shares were about $2.13 with its market value at about $350m.
The Australian Unity Office Fund told the market on Monday that the vote was being delayed because some shareholders were not supportive of the merger in its present form.
It said it planned to engage further with the shareholders to determine if there were opportunities to make refinements to the merger proposal.
The understanding is that the merger eventuated after a strategic review that was prompted when some unitholders threatened to call an extraordinary general meeting due to a lagging share price and the buyout proposals.
The fund, which owns a raft of buildings in suburban Sydney and other state capitals, also told the market that it was looking at capital management initiatives, including the potential for an on-market buyback or a special distribution.
It is also working on “value initiatives” for other assets.
Working for Australian Unity Office on the review since the start of the year has been adviser Highbury Partnership and law firm MinterEllison.
For the year to June, Australian Unity Office Fund delivered a $23.3m net profit, up nearly 76 per cent from last year.
A merger with the Australian Unity Diversified Property Fund, which is advised by E&P Corporate Advisory, would create a portfolio with 18 office, convenience retail and industrial properties and would have average occupancy of about 96 per cent.
It is subject to due diligence and recommendations from unitholders.
Australian Unity Office unitholders would own about 60 per cent of the merged entity at the NTA of both funds.
The Australian Unity Diversified Property Fund is seen as sub scale and is understood to have been exploring options of its own at a time that its NTA is about $1.12.
The hope is the merged entity will become more defensive to the pandemic conditions and re-rate, trading at about a 5 per cent premium.
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