Investa Office Fund (ASX:IOF) (IOF) refers to Cromwell Property Group’s (Cromwell) media release on 18 May 2017.
The Independent Directors of Investa Listed Funds Management Limited, the responsible entity of IOF, have unanimously recommended that IOF unitholders vote in favour of the proposal to acquire a 50% shareholding on a joint venture basis in Investa Office Management Pty Limited (IOM or the Management Platform) for $45 million (Proposal) as set out in the Notice of Meeting dated 8 May 2017. In addition, an Independent Expert has determined that the purchase price for the Proposal is fair and reasonable to IOF unitholders that are not associated with IOM, and is on arm’s length terms.
In response to the inaccuracies made in Cromwell’s media release, the Independent Directors note as follows:
1. Return on investment – IOF will benefit from the value generated by the Management Platform and the Independent Directors have no reason to believe that Investa Commercial Property Fund (ICPF) would cease to exist or change manager as a result of liquidity withdrawal rights in 2020 or otherwise. Further, in the event that ICPF were to be wound up or fell beneath $1.5bn of gross asset value, IOF would have the right to secure ICPF’s 50% interest in the Management Platform. As a part owner of the Management Platform, ICPF is equally committed to the success of the Management Platform.
2. Positive value impact for IOF units – The negotiated position is a true 50/50 joint venture between two equal parties with a common interest that the two portfolios of properties (ICPF and IOF) are managed with the professionalism which has given IOF superior returns. Under management by IOM, IOF has outperformed the S&P /ASX 200 A-REIT index (18.3% versus 14.9% on an annualised basis) since April 2011. The aim of the Proposal is to ensure this advantage and alignment continues for the benefit of IOF unitholders.
The terms of the proposed joint venture provide that the records and data of the Management Platform relating to IOF are effectively owned by IOF unitholders. The Independent Expert acknowledged that on a change of control this value would be available for the benefit of IOF unitholders.
3. NTA impact – The Independent Directors believe that the wider benefits offered by way of enhanced governance practises and alignment (refer paragraph 4 below) and financial benefits to IOF unitholders (refer paragraph 5 below) outweigh any NTA dilution, which are not deemed to be material. Whilst there is an anticipated impact on NTA as a function of the investment in the Management Platform being accounted for as an intangible asset, IOF’s pro-forma Net Asset Value post acquisition of the interest in the Management Platform is not expected to be materially impacted.\
4. Enhanced governance practises and alignment - IOF and ICPF will be equal 50% shareholders of IOM and will have equal representation on the Board of IOM. In addition, under the terms of the proposed joint venture, key decisions of the Management Platform (known as Shareholder Reserved Matters) may only be passed with the unanimous approval of both IOF and ICPF. These are transparent and appropriate governance arrangements that do not benefit any one party. The Shareholder Reserved Matters are set out on page 112 of the Notice of Meeting for the joint venture proposal.
5. Financial benefits to IOF unitholders – The Proposal is expected to be accretive to IOF investors, however the main purpose of the Proposal is to achieve enhanced governance practises and alignment.
6. Independent Expert opines the Proposal is “fair and reasonable and on arms’ length terms” - The Independent Directors of ILFML requested Deloitte Corporate Finance to provide an opinion as to whether the Proposal is fair and reasonable to unitholders that are not associated with IOM, and on arm’s length terms. The form of the Independent Expert's opinion is consistent with ASIC's expectations for an expert who is asked to analyse a related party transaction as set out in ASIC's regulatory guidance. An Independent Expert’s report was not required to meet any statutory obligations. It is not usual market practice for a related party opinion to include a 'best interests' conclusion. Cromwell has confused that opinion with an expert's report for a scheme of arrangement control transaction, which the Proposal is not.
Notwithstanding recent press commentary, Cromwell has yet to put forward any proposal capable of consideration by the Independent Directors. Mr Richard Longes, Independent Chairman of IOF commented “Discussions with Cromwell have been ongoing since November 2016 and IOF has still not received a binding proposal capable of acceptance despite having granted Cromwell access to due diligence more than 5 weeks ago. The Independent Directors believe it is time for Cromwell to prove up its repeated statements of intent by announcing its intentions to ensure IOF investors are fully informed.”
The Independent Directors reiterate that there is nothing in the Proposal being put to IOF unitholders which would preclude Cromwell or any other party putting forward a proposal for consideration prior to the IOF unitholder meeting, or even following implementation of the Proposal. The Independent Directors would consider any proposal received and provide information to IOF unitholders as necessary.