Hume Partners Stand firm against Aliro’s takeover offer on Australian Unity Office

25 July 2022

Hume Partners appear to have stood firm against a lower price for their stake in Australian Unity’s Office Fund, forcing Aliro to end its current proposal.

Aliro was previously provided an exclusive due diligence period to enable it to confirm its proposal to acquire 100% of the Fund at a price of $2.45 cash per unit. The exclusivity period was extended twice but at the conclusion of the latest period, Aliro advised it was unable to submit an updated proposal.

Aliro noted it had completed a significant amount of work, having previously advised AUIREL that its key diligence findings did not contain any major issues. Aliro further noted a deterioration of market conditions had resulted in it being unable to arrive at an offer price that could meet its investment objectives as well as being at a level that Aliro believed would be acceptable for consideration by AOF unitholders.

The announcement effectively, brings the current action by Aliro to an end. The unit price for the Fund dropped -10.8% to $1.97/ unit shortly after the announcement.

Australian Unity subsequently issued details to the market of its latest valuations which reflected a decrease of $37.25 million from the prior independent valuations and confirmed the Funds NTA as at 30 June 2022 will be approximately $2.26 per AOF unit, however this was not enough to stop the unit price falling to $1.80 at close of trade, down 41%.

The decrease predominantly relates to AOF’s assets at 30 Pirie Street, Adelaide and 2-10 Valentine Avenue, Parramatta.

At 30 Pirie Street, Adelaide the independent valuation reflects increased capital expenditure allowances which will be required to refurbish the building following the expiry of Telstra’s lease in February 20232, resulting in a decrease of $16.0 million in the value of 30 Pirie Street, Adelaide to $73.0 million.

2-10 Valentine Avenue, Parramatta is a single allotment comprising a 14 level office building at 10 Valentine Avenue and an adjoining six level car park for a total of 282 cars at 2 Valentine Avenue. 2 Valentine Avenue currently has development approval for a ~28,000sqm A-Grade office tower across 24 levels with 117 car spaces, with the previous independent valuation valuing it as a development site. The independent valuer has considered current market conditions with respect to office development opportunities and has valued 2 Valentine Avenue as a car park with development approval. This change in valuation methodology has resulted in a $22.55 million decrease in the value of 2-10 Valentine Avenue to $98.0 million.

The REIT has been the subject of several proposals in recent years, likely the result of AOF being a medium size pure play office fund, with limited unit price liquidity arising from a concentration of unitholders on the register.

US Giant, Starwood were the first to present a proposal for the REIT in 2018 equal to $2.87/ unit. That offer was rejected and 6 months later (June 2019), Abacus & Charter Hall acquired a 10% interest and made an offer of $2.95/unit, which was subsequently improved to $3.04/unit and approved by the Board of the RE of AOF (October 2019).

Despite accepting the proposals many of AOF’s investors felt that the capital gain tax issues on the disposal of the assets eroded their value and as such there was little support for the takeovers.

AOF’s major investor, Hume Partners increased their interest to 9.5% causing Charter Hall and Abacus to offload their 19.9% interest but still half-heartedly proceed with the takeover offer without a direct interest, ruffling the feathers of ASIC in the process.

Starwood seized upon the opportunity and re-entered the auction with another bid at $2.98 (January 2020), however the onset of COVID19 brought a halt to all of the action. AOF’s unit price fell to a low of $1.50 and whilst recovering to around $2.80/unit in June 2022, the REIT since announced valuations falls and a proposal to merge with the Diversified Fund, taking the stock back down to around $2.32/unit. That proposal also feel away with a lack of support from investors.

Hume Partners currently hold 19.9% and have effectively become the key investor in the Fund.

Australian Unity will continue to progress with an expression of interest campaign by Colliers and Knight Frank for the sale all of AOF’s properties in line with the Fund strategy to either:

  • continue the the delivery of asset refurbishments and repositioning opportunities, while maintaining strong occupancy from multi-tenanted assets;
  • divesting some or all properties and returning capital to unitholders; and
  • a portfolio sale via a corporate transaction.