Investa Office Fund posts strong result, Cromwell backing off

Investa Office Fund posts strong result, Cromwell backing off

31 August 2017

Investa Office Fund (IOF) has shrugged off constant takeover speculation by posting a solid result — backed by some of the best leasing market conditions ever experienced.

Investa boasts occupancy of 97%, a WALE of 5.1 years, 116,805sqm of leasing in the past 12 months and future development upside.

The Australian reported that IOF has not been contacted by one-time takeover suitor Cromwell Property Group since it undertook due diligence on its $3.8 billion portfolio in May.

Regarding the takeover speculation, The Australian Financial Review also reported that Cromwell Property Group chief executive Paul Weightman had to defend his attempt to buy out the $2.9 billion Investa Office Fund in a fiery exchange following the company’s financial year results that came in ahead of guidance.

Regarding Cromwell’s failed attempt on Investa, Mr Weightman said it had not hurt Cromwell’s reputation and that there was still a wide range of options ranging from “keeping [the stake], to selling it, to being more hostile in a proposal”.

“It is obvious to us that a friendly transaction is unlikely to proceed, regardless of the price that we offer, and we continue to consider our options,” Mr Weightman said.

Cromwell is likely to focus its attention on a $1.49 billion real estate investment trust initial public offering it has gained eligibility for in Singapore. Cromwell’s proposed 10 per cent stake in that new trust has been fully funded.

Investa Office’s fund manager, Penny Ransom, said that the group had performed well despite the constant corporate activity.

“In the coming years, we have vacancies at 388 George when IAG departs to Darling Park, and we will take the building off the market for about a year to refurbish. 347 Kent Street, Sydney, where ANZ currently lease until January 2019, also presents an attractive opportunity to be refurbished to drive future performance,” Ms Ransom said.

In Melbourne, Investa signed an 11.5-year lease extension with Telstra for 63,372 sqm at 242 Exhibition Street. Ms Ransom said this lease provided a long-term income stream and de-risked the Melbourne portfolio.

The 5,063 sqm of leasing at 567 Collins Street increased its occupancy to 91 per cent. There are two years remaining on the income agreement with Leighton over the remaining vacant space.

IOF’s fund manager, Penny Ransom, said the spread of rents and asset prices between premium and secondary office properties in Sydney and Melbourne were tightening to the point that “we are entering unchartered waters”.

“When you see an asset sale at 4.5 per cent yield, it can be seen as toppy, but with leasing demand so strong, the market seems to be absorbing these prices,” Ms Ransom said.

“We are expecting this to continue in Sydney and Melbourne, as supply is limited. The tight markets there are also pushing investors north to Brisbane.”

Funds From Operations (FFO) increased 4 per cent to $182.6 million, with higher occupancy in the Brisbane portfolio and improving effective rents in Sydney, although this was partially offset by the sale of two office assets and the redevelopment of 151 Clarence Street in the Sydney CBD.

The full-year result equates to FFO of 29.7 cents per unit, above the group’s revised guidance of 29.5c per unit and represents an increase of 4 per cent over the previous financial year. Distributions also increased by 3.1 per cent to 20.2c per unit.