Australian Unity weighs $1.2bn funds merger play

Funds manager Australian Unity is considering a merger of its main listed office fund and its unlisted diversified fund.

Australian Unity group managing director and CEO Rohan Mead. Picture: David Caird

Funds manager Australian Unity is considering a merger of its main listed office fund and its unlisted diversified fund that could create a $1.2bn vehicle, as it chalked up a court win in defence of its main healthcare vehicle.

The office pairing would create a new diversified trust run by the company on the ASX and give it the scale to grow and fend off hostile approaches from rivals.

The company is investigating the option after a strategic review of its listed Australian Unity ­Office Fund, partly prompted by a scuttling of a $495m takeover play by Charter Hall and Abacus in late 2019.

That move was shot down by an investor revolt including the Scanlon family-backed investment house Hume Partners. Hume has since turned against Australian Unity and it is supporting Canadian group NorthWest’s $2.8bn takeover approach for Australian Unity’s health property fund.

Australian Unity also had a win in that fight, with NorthWest losing a legal challenge to a move by Australian Unity to issue units in the health trust to itself and undertake an entitlement offer as part of a $320m raising.

The listed Dexus took a $180m cornerstone stake, which could be critical at a July 19 meeting on the trust’s future.

Dexus has reserved its right to vote at a meeting to be held on July 19.“Nothing in the transaction documents restricts Dexus from voting for or against the Northwest proposal. It is a fluid and evolving situation, and in that context we have not decided whether or how we might vote. More fundamentally we do not believe the Northwest proposal represents fair value for AUHPT,” a Dexus spokeswoman said.

NorthWest challenged Australian Unity’s moves although the position of Dexus was not challenged in the NSW Supreme Court action. The court dismissed NorthWest’s interlocutory application with costs.

Judge Ashley Black said it seemed that health trust unitholders “would be significantly disadvantaged by the grant of the interlocutory relief which NorthWest seeks in respect of the entitlement offer and the cash offers, so far as they would be deprived of the opportunity to accept those offers”.

The office fund has been under pressure as the rebuffed 2019 approach was at $3.04 cash per unit and trust units bumped up on Wednesday to just $2.51.

Australian Unity's office fund owns 10 Valentine Avenue, Parramatta.

Australian Unity unveiled the review in February and examined options to maximise returns and unlock value for unit holders. They included scenarios like asset and portfolio acquisitions, mergers and corporate transactions and development-led deals.

Peter Day, independent chairman of the property fund’s board, said the review took into account the portfolio’s construction and consideration of the future of the office.

Mr Day said the group wanted to keep the office focus in metropolitan and CBD markets, to be complemented by a targeted and diversified portfolio of Australian real estate assets.

“One key initiative to deliver on the refined strategy is the consideration of a merger between AOF and Australian Unity’s ­Diversified Property Fund. The AUIREL board looks forward to working constructively with Australian Unity Property Limited, the responsible entity of DPF, to explore this option further,” Mr Day said.

The office fund owns office properties across Australian metropolitan and CBD markets in Sydney, Adelaide, Melbourne, Brisbane and Canberra. Its eight assets are valued at $639m.

Australian Unity’s Diversified Property Fund has about $622.9m worth of assets in its eleven-strong portfolio including warehouses, offices and neighbourhood shopping centres.

Mr Day said the merger — if it were to progress — would be subject to a number of conditions including mutual due diligence, financing requirements and consents, execution of a binding implementation agreement, final board approvals and unitholder approval.

“There is no certainty at this early stage that these conditions will be satisfied and ultimately the outcome will be determined by the respective investors of both AOF and DPF,” he said.

AOF has been strengthened by the appointment of property executive Nikki Panagopoulos as fund manager. Ms Panagopoulos confirmed the upper end of the funds from operations guidance range reflecting strong collections and positive leasing.