Aust Unity office fund merger torpedoed by its investorsThe office tower at 241 Adelaide Street in Brisbane: one of seven assets in the portfolio.

Aust Unity office fund merger torpedoed by its investors

Australian Unity’s plans to merge a listed office fund it manages with an unlisted fund it also controls to create a $1.1 billion portfolio have come unstuck after major investors rejected the plan.

The way forward for the $380 million ASX-listed Australian Unity Office Fund is now as uncertain as its recent past, with its manager, Australian Unity, flagging the prospect of asset sales or even a wind-up of the property trust.

Also on the cards is the dissolution of a joint venture struck with Keppel Capital in 2020, which had given the deep-pocketed Singaporean fund manager a half stake in responsible entity that controls the ASX-listed office fund.

It’s the second time in less than three years Australian Unity’s merger and acquisition plans for the office fund have been scuppered by its investors, who have not been convinced of the merits of management proposals.

This time around at least 40 per cent of the register have rejected a proposal for the listed office fund to merge its seven-asset portfolio worth close to $600 million with the unlisted Australian Unity Diversified Property Fund, to create a $1.1 billion portfolio comprising 18 properties, including convenience retail, industrial and office uses.

Among the major investors in the office fund thought to have knocked back the merger plan are the Scanlon family-backed investment house, Hume Partners, Hong Kong-based hedge fund Maso Capital, private investor Valtellina Properties and Rich Lister Sam Tarascio.

In late 2019, a proposed $495 million takeover by Charter Hall and Abacus of the Australian Unity-run office fund, also backed by the board, was up-ended by shareholders.

Investors in the listed fund, which is focused purely on office assets in Sydney, Brisbane, Adelaide and Canberra, are understood to have been unimpressed by the opportunity to diversify their portfolio with smaller, retail assets. The merger ratio also proved unpalatable to some investors, in a proposal which would have entrenched Australian Unity as manager.

The latest rebuff from its investors puts fresh pressure on the board, chaired by veteran director Peter Day. Based on proxies received and voting intentions indicated by the major shareholders, the merger proposal would not be passed at a shareholder meeting, Australian Unity said on Monday.

Adding to its woes, the fund manager revealed just before Christmas that the major tenant at its Pirie Street office tower in Adelaide, Telstra, would not be renewing after its lease expires next year.

Australian Unity said the two funds it manages have now terminated their merger implementation agreement.

Instead, the office fund would now look at initiatives including asset sales and options to return capital to its investors, including a potential wind-up of the fund. No timeline has been set for these plans, however.

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