AUI proposes merger of property funds

Client satisfaction up but question advisers technical ability: Lifeplan
April 30, 2013
Neuberger Berman US hires 22 emerging markets debt investment professionals
May 2, 2013

Australian Unity Investments (AUI) is seeking approval from investors in its Second Industrial Trust (SIT) to merge the trust with its larger, more diversified Office Property Fund (OPF). OPF is AUI’s flagship office property fund.

Investors in SIT will be eligible to vote on the proposal, which intends to create a $360 million property fund currently holding commercial properties in Sydney, Melbourne, Adelaide, Brisbane, Canberra, and Perth.  Investors will be able to vote via proxy or by attending a general meeting of investors on Friday 24 May 2013 in Melbourne.

SIT is a fixed term trust due to terminate in 2014, which will own a single property in NSW currently valued at just over $29 million at the time of the merger if approved. AUI assumed management of SIT when it acquired Investa Funds Management Limited in September 2011.  OPF already owns eight properties throughout Australia.

Mr Mark Pratt, AUI’s head of property, mortgage and capital markets, said AUI has spent several months researching the options available for SIT.

“Australian Unity Funds Management Limited, as responsible entity, believes the proposal is in the best interests of investors in SIT.

“A number of investors in SIT have indicated to us they would like to maintain their investment in the Australian property market beyond SIT’s scheduled termination in June 2014.

“As well as allowing investors to maintain their exposure to quality commercial property investments, our analysis has shown the proposed merger would bring a number of benefits to investors, including a higher forecast distribution and total returns (over 2014 financial year compared to a continued investment in the Trust), and regular capped withdrawal opportunities currently unavailable through SIT.

“The proposal also provides diversification benefits, through investment in a fund that currently holds eight properties across Australia with a broader range of tenants than SIT.

“If investors vote in favour of the proposal, their investment will transfer to the OPF with the dollar value of their investment remaining unchanged at the implementation date,” Mr Pratt said.

If the proposal is approved, investors in SIT will be offered an initial $5.7 million capped withdrawal offer equating to approximately 25 per cent of SIT’s forecast net asset value at the withdrawal offer date.   They may also have the opportunity to defer any capital gains tax (CGT) on their investment by opting for scrip for scrip rollover relief.

Mr Pratt said bringing together investment vehicles is an approach AUI has used successfully in the past, for example when it converted five retail property syndicates and trusts into a single fund, the Australian Unity Retail Property Fund.

“Such an approach can give investors exposure to a number of quality, large-scale direct properties that their previous investment couldn’t provide. This greater diversification, compared to the existing SIT, is likely to improve cash flow stability and deliver greater access to capital to support future growth,” he said.

As at 31 March 2013, the Office Property Fund has returned 10.04 per cent over six months, 9.61 per cent over one year, 6.96 per cent over two years and 7.35 per cent over three years*. If the proposal goes ahead, the combined fund is expected to have a higher occupancy rate (93.28 per cent instead of 88.45 per cent) and longer weighted average lease expiry (4.67 years instead of 1.69 years) than the SIT. It also has a lower management fee than SIT (0.7175 per cent p.a. instead of 1.025 per cent p.a.).

Australian Unity Investments is the funds management arm of Australian Unity – a national healthcare, financial services and retirement living organisation. A mutual organisation operating for over 170 years, Australian Unity provides services to some 620,000 Australians, including 320,000 members.

Australian Unity Investments offers a range of investment funds in domestic and international equities, fixed interest, mortgages and property. Its investment approach is to use its established in-house expertise in property and mortgages while also forming joint ventures and strategic alliances with boutique asset managers. The property funds management business has over $1.6 billion in funds under management (as at 31 March 2013). Its unlisted property funds and syndicates own more than 63 properties in the healthcare, retail and commercial sectors, in Victoria, New South Wales, Queensland, Australian Capital Territory, Western Australia and South Australia.

*Past performance is not a reliable indicator of future performance. Returns are inclusive of fees and assume the reinvestment of distribution.

-oOo-

 For more information please contact:

Mark Pratt – Phone: 03 8682 4448

1 May 2013