Investa Office Fund

Investa Office Fund is an externally managed real estate investment trust. The Company is an owner of investment grade office buildings. It consists of Armstrong Jones Office Fund and Prime Credit Property Trust (Trusts). The principal activity of the Trusts is to own investment grade office buildings, generating rental and other property income. The Group recently announced that it hasentered into transaction documents to sell 836 Wellington Street, Perth for $91.325m. The sale reflects a 20 per cent premium to IOF’s December 2017 book valueand is a $2.325m of increase on the most recent May 2018 valuation. The sale transaction is subject to the purchaser receiving FIRB approval and settlement is expected to take place in October 2018.


Lease Expiry Profile (Source: Thomson Reuters)

Further, the proceeds will be used to repay debt and there is no impact on FY18 guidance. It is expected that the Group will release its full-year financial results on or around 8 August 2018 and will be providing FY19 guidance as well. It was noted that after the lease extension to the Federal Government to February2027, the Group has been able to take advantage of strong demand for assets with long lease terms and high-quality covenants to crystalize value for Unitholders. The sale transaction represents a net passing yield of 5.6 per cent and a market capitalisation rate of 6.25 per cent.

IOF has a significant exposure of 65 per cent to regions including Sydney and leasing activity within the portfolio has been strong with progression of the Barrack Place development at 151 Clarence Street, Sydney. Meanwhile, IOF had received the unsolicited, indicative and non-binding proposal from funds managed or advised by Blackstone Singapore Pte. Ltd. or its affiliates to acquire all of the units in IOF by way of trust scheme, and the group also entered in to the scheme of arrangement with Blackstone. This is related to an offer price of $5.15 per unit with 2HFY18 distribution taken into account (to be paid in August). The scheme will also be implemented in August 2018 subject to requisite approvals.

The stock was up by 20.28 per cent in the last three months as on 17 July 2018 but started falling since one month. We give a “Hold” recommendation at the current market price of $5.17 by looking at the timing for scheme of implementation and company’s resilient growth strategy.

 
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