Starwood Recommits to A$485M Buyout of Aussie REIT Despite Keppel JV

Starwood Capital Group has recommitted to its A$485 million ($326 million) bid for Australian Unity Office Fund (AOF), despite a move late last week by the REIT’s sponsor and Keppel Capital that appeared to frustrate the hostile takeover attempt.

Investor Barry Sternlicht’s private equity firm said in a statement on 3 February that it will sustain its all cash, off-market takeover bid for health insurer Australian Unity’s A$688 million office portfolio, offering A$2.98 per unit in the REIT.

“Starwood remains committed to pursuing its AOF Bid, which represents an attractive opportunity for all unitholders to achieve liquidity at a certain cash value above recent trading levels and AOF’s pro forma net tangible assets,” Starwood Capital said.

Starwood’s offer represents a 4.6 percent premium to AOF’s pro forma net tangible assets (NTA) per unit of A$2.85, after adjusting for property revaluations announced by the REIT on 20 December, according to Starwood’s offer notice.

Keppel JV Not a Deterrent

The US-based investment firm’s announcement comes just three days after Keppel Capital, the real estate fund management unit of Singapore’s Keppel Corp, agreed to take a 50 percent stake in a joint venture that will acquire Australian Unity Investment Real Estate Limited (AUIREL), which manages the ASX-listed REIT.

In response to the establishment of the JV, which some analysts speculated was formed to stymie Starwood’s buyout attempt, the US private equity firm indicated that its proposal would remain in place.

“To the extent the responsible entity sale will result in the failure of a defeating condition to Starwood’s announced takeover bid for all the units in AOF, Starwood confirms, based solely on the information which AUIREL disclosed to ASX on 31 January 2020, that it will not rely on the responsible entity sale to lapse the AOF bid,” Starwood said in a statement.

In a conversation with Mingtiandi, a Starwood Capital spokesperson reiterated that the company would not regard the formation of a 50:50 JV between Australian Unity and Keppel Capital as an obstacle to Starwood’s bid for AOF.

Aussie Office REIT Continues to Be a Target

In its announcement last Friday regarding the joint venture agreement, Australian Unity had said that the transaction effectively blocked Starwood’s takeover bid by breaking one of the conditions of the investment firm’s offer.

Starwood, which has entered into pre-bid agreements with unitholders including Hong Kong fund manager Athos Capital and US fund manager Glazer Capital representing just short of 17 percent of AOF’s units, had conditioned its takeover bid on terms including that control of the REIT remain unchanged before the end of the offer period.

Starwood’s 29 January buyout offer followed an A$495 million bid for the office fund placed just over two months ago by Aussie real estate investment firms Charter Hall and Abacus, with that proposal having been rejected by unitholders including Melbourne-based multi-family office Hume Partners.

Deepening Australian Ties

In a stock exchange filing last week, Keppel Capital framed its partnership with Australian Unity as an opportunity to set up funds targeting office property in Australia in order to deepen its footprint in the country, according to a regulatory filing.

A spokesperson for the Singapore-based asset manager told Mingtiandi that the tie-up with the health insurer is unrelated to Starwood Capital’s takeover bid and is the result of a number of months of confidential detailed discussion and negotiation with Australian Unity.

“The joint venture company’s primary objective is to provide attractive income yield and total return to investors over the long term through establishing funds focused on the Australian metropolitan office sector,” Keppel Capital’s spokesperson said.

Australian Unity declined to comment following an enquiry from Mingtiandi.

Gaining Control of a A$668M REIT

First listed on the Australian Stock Exchange in 2016, Australian Unity Office Fund consists of nine office assets with a combined net lettable area of 107,668 square metres (1.2 million square feet) in Australian cities including Melbourne, Parramatta, Brisbane, and Sydney.

With a portfolio value of A$668 million, the properties generate a passing annual rental income less expenses of A$58 million.

The portfolio’s occupancy rate was 95.3 percent as of 30 June last year with a weighted average lease to expiry of 3.5 years and a weighted capitalisation rate of 6.2 percent.