DEXUS DEXUS Funds Management Limited ("DXFM"), the responsible entity of DEXUS Property Group ("DEXUS"), refers to its announcement released to the Australian Securities Exchange ("ASX") on 7 December 2015 in relation to an indicative, conditional and non-binding proposal to Investa Listed Funds Management Limited ("ILFML"), the responsible entity of Investa Office Fund ("IOF"), to acquire all of the units in IOF.1
DEXUS today announces that following the completion of due diligence under the process agreement, DXFM and ILFML have entered into a binding Implementation Agreement ("MIA") under which DEXUS will seek to acquire all of the units in IOF, subject to certain conditions, as set out in the attached MIA (the "Proposal").2,3 The MIA includes provisions customary for a transaction of this nature, including exclusivity arrangements and provisions for payment of a break fee of $23.52 million by IOF to DEXUS in certain circumstances.
If the Proposal is successfully implemented, this would confirm DEXUS‟s position as a leading Australian commercial real estate group and provide existing DEXUS Security holders and IOF Unitholders with an enhanced investment proposition.
Implementation of the Proposal will be via an IOF informal trust scheme and requires, among other things, the approval of IOF Unitholders at a meeting expected to be held in April 2016.
Board supportThe Independent Board Committee of ILFML unanimously recommends the Proposal, in the absence of a superior proposal and subject to an Independent Expert concluding that the Proposal is in the best interests of IOF Unitholders. DEXUS‟s Board unanimously supports the Proposal and believe it is in the best interests of DEXUS Security holders.
Summary of the DEXUS OfferThe Proposal provides for the following aggregate cash and DEXUS scrip consideration to IOF Unitholders (expressed per IOF Unit):
0.4240 DEXUS Securities; and
A cash payment of $0.8229.
Under the Proposal, a "Mix and Match" facility will be available whereby IOF Unitholders4 may elect to receive in exchange for their respective holding of IOF Units one of standard consideration (comprising 0.4240 DEXUS Securities and $0.8229 cash per IOF Unit), maximum scrip consideration, or maximum cash consideration, with the default option for IOF Unitholders who do not make a valid election being the receipt of standard consideration. Allocation will be subject to scale-back (if necessary) on a pro rata basis to ensure aggregate scrip consideration of 260.4 million DEXUS Securities and aggregate cash consideration of $505 million. IOF Unitholders who receive scrip consideration will gain exposure to movements in the price of DEXUS Securities. Further details will be included in the notice of meeting and explanatory memorandum ("NOM"). The NOM is expected to be despatched by ILFML to IOF Unitholders in March 2016.
DEXUS Security holders are referred to IOF‟s ASX announcement on the indicative, conditional and non-binding proposal dated 7 December 2015.
DEXUS Security holders are referred to IOF‟s ASX announcement on entry into the binding MIA dated 18 December 2015.
The Proposal arose as a consequence of an unsolicited approach to DEXUS from the advisers to the Independent Board Committee of ILFML.
Foreign IOF Unitholders will have all scrip that they otherwise would have been entitled to, sold under a sale facility and cash proceeds remitted to them (net any expenses and tax). Therefore foreign IOF Unitholders will only receive cash proceeds.
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Summary of the DEXUS Offer (cont'd)
The following table details the components of the consideration and the premium to the implied offer price:
Offer price
%
Implied value of DEXUS scrip consideration5
$3.2918
Cash consideration
$0.8229
Implied offer price per IOF Unit
$4.1147
Implied offer price represents a premium to:
- IOF undisturbed closing price on 4 December 20156
$3.83
7.4%
- IOF 1 month VWAP5
$3.86
6.7%
- IOF Pro-forma NTA7
$3.91
5.2%
- IOF closing price on 17 December 2015
$4.07
1.1%
DEXUS Securities issued as a result of implementation of the Proposal will be fully paid stapled securities and will be fully entitled to any distributions payable by DEXUS with a record date occurring after the DEXUS Securities have been issued. The issue date is expected to be in late April 2016.
IOF Unitholders will be entitled to a distribution of 9.8 cents per unit on their IOF Units prior to implementation of the Proposal, for the six month period ending 31 December 2015, payable on 29 February 20168.
As announced yesterday, DEXUS‟s distribution for the six month period ending 31 December 2015 of 23.05 cents per DEXUS Security, will be payable on 29 February 2016 to existing DEXUS Security holders on the DEXUS register at 7:00pm (Sydney time) on the record date of 31 December 2015.
Rationale for the transaction
The transaction is strongly aligned with DEXUS‟s strategy. Due diligence under the process agreement has been completed by DEXUS and its advisers, including legal, accounting, tax, financial and physical due diligence.
Darren Steinberg, DEXUS CEO said: "Our due diligence process has confirmed IOF‟s strategic fit with our existing portfolio and has also identified the potential to unlock value from properties within the IOF portfolio. The ability to acquire this portfolio in a cost and capital efficient manner enables us to create a combined entity through which we can leverage further economies of scale from a management, procurement and leasing perspective."
The Proposal offers the following benefits to new and existing DEXUS Security holders:
- Portfolio benefits - the portfolios are highly complementary, retaining a focus on Sydney and Melbourne CBDs. The combination also enhances asset and tenant diversification
Synergy benefits - improved flexibility and capacity to unlock development and repositioning potential, increased scope to action portfolio leasing strategies for customers (tenants), improved margins (Management Expense Ratio to reduce from 41 basis points to sub-35 basis points) 9. Procurement benefits are also expected to be achieved (savings averaged 14% on the DEXUS Office Partnership‟s key contracts in its first year)
Based on 10 day VWAP to 4 December 2015, being the last trading day prior to the day of announcement of DEXUS‟s indicative, conditional and non-binding proposal to acquire all of the units in IOF ("Proposal Announcement Date").
As at 4 December 2015, being the last trading day prior to the Proposal Announcement Date.
"NTA" means Net Tangible Assets and is based on unaudited IOF management estimate of $3.91 per unit as per the 30 November 2015 ASX release by IOF titled "Portfolio valuation update‟, which indicated around an 8% increase to 30 June 2015 NTA.
As announced by IOF to ASX on 14 December 2015.
Assumes the Proposal is implemented and DEXUS acquires 100% of the IOF Units.
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Efficient transaction reduces value leakage - capital and cost effective transaction that is accretive on a per security basis to Underlying Funds from Operations ("FFO")10 and Net Tangible Assets ("NTA")11 for both DEXUS Security holders and IOF Unitholders
- Capital markets benefits - increased global relevance for debt and equity investors seeking exposure to Australian office property
The investor presentation, also released by DEXUS today, details the impacts of the Proposal on DEXUS and provides key metrics for the combined entity, as well as key assumptions.
Combined group profileIf the Proposal is successfully implemented, the combined group would have a total of $24.1 billion of assets under management, $17.5 billion of which would comprise office properties12. Security holders of the combined entity would benefit from enhanced asset, geographic and tenant diversification, while remaining primarily focused on Australian CBDs. The transaction would enable DEXUS to establish over 37513 new customer engagements from within IOF‟s portfolio, representing over 85% of IOF‟s tenant base, including a number of major Australian and international corporate clients.
The combined entity would also retain a strong balance sheet with high quality credit metrics. Pro forma look-through gearing14 is expected to increase 3.7%, as a result of the implementation of the Proposal, to approximately the mid-point of DEXUS‟s target range of 30-40%.15
Implementation processThe Proposal is subject to approval by IOF Unitholders entitled to vote on the Proposal as well as other conditions including obtaining judicial advice in relation to the Proposal, no court or other government agency-ordered restraints, no material adverse change or prescribed occurrence in either IOF or DEXUS, regulatory approvals (including Australian Competition and Consumer Commission clearance) and other customary conditions.
The obligations of DEXUS and IOF regarding the implementation of the Proposal are governed by the MIA, which is attached to this ASX announcement. This includes customary "no shop, no talk‟ provisions, notification and matching rights, a break fee and the conditions to implementation of the Proposal as described above.
The Proposal relates only to the acquisition by DEXUS of 100% of the units in IOF. The Proposal does not involve the removal of the responsible entity of IOF or any change in the management arrangements of IOF.
Darren Steinberg said: "We are hopeful of reaching an agreement with Morgan Stanley Real Estate Investing in relation to the future management of IOF. This may include acquiring the shares in ILFML, the current responsible entity of IOF."
DEXUS notes, if the Proposal is implemented and an agreement with Morgan Stanley Real Estate Investing ("MSREI")16 cannot be reached, that it may exercise the rights it will have as the owner of IOF to ensure an orderly integration of the combined group.
"FFO" means Funds from Operations and is in line with the Property Council of Australia definition. Underlying FFO excludes trading profits (net of tax). Refer to the Appendices in the DEXUS Investor Presentation released on 18 December 2015.
DEXUS‟s pro forma NTA is based on 30 June 2015 balance sheet adjusted for announced valuations, transactions, development and capital spend and securities bought back. Post-implementation of the Proposal NTA is based on DEXUS pro forma NTA and IOF NTA announced on 7 December 2015 adjusted for the impact of the Proposal (purchase price, transaction costs and funding).
Based on DEXUS property portfolio as at 30 June 2015 adjusted for announced valuations, transactions, development and capital spend; the IOF property portfolio as at 30 November 2015; and the impact of the Proposal.
Based on IOF Portfolio Overview June 2015.
Pro-forma gearing is based on gearing (look-though) at 30 June 2015 adjusted for announced valuations, transactions, development and capital spend and securities bought back.
Pro forma gearing could reduce if as a consequence of certain pre-emptive rights being triggered by the implementation of the Proposal, or as a consequence of DEXUS exercising its ownership rights should the Proposal be implemented, the other co-owner(s) decide to exercise their pre-emptive rights. For example, if the Proposal is implemented it will trigger pre-emptive rights over 10-20 Bond Street, Sydney, which would then provide the co-owner with the opportunity to decide whether to exercise its pre-emptive rights or not.
IOF is managed by Investa Office Management Holdings Pty Ltd, which is ultimately owned by funds controlled by MSREI.
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As mentioned above, all IOF Unitholders will receive a NOM (which will include an Independent Expert‟s report) which will enable them to assess the merits of the Proposal. IOF Unitholders who are entitled to vote will then vote on the Proposal at the IOF Unitholder meeting (in person or by proxy) to approve the Proposal. The IOF Unitholder meeting is expected to be held in early April 2016.
Existing DEXUS Security holders do not need to take any action in relation to the Proposal. A number of expected key dates relevant to the Proposal have been outlined below:
Key milestones | Date |
Process agreement signed and announced | Monday, 7 December 2015 |
Announcement of entry into MIA | Friday, 18 December 2015 |
DEXUS HY16 results | Wednesday, 17 February 2016 |
IOF HY16 results | Thursday, 18 February 2016 |
DEXUS HY16 distribution payment | Monday, 29 February 2016 |
IOF HY16 distribution payment | Monday, 29 February 2016 |
First judicial advice hearing | Early March 2016 |
NOM despatched to IOF Unitholders | Mid March 2016 |
Cut off for receipt of proxies | Early April 2016 |
IOF Unitholder meeting to approve the Proposal | Early April 2016 |
Second judicial advice hearing | Mid April 2016 |
Effective date | Mid April 2016 |
Record date | Late April 2016 |
Implementation date | Late April 2016 |
DEXUS has retained Greenhill & Co., Goldman Sachs and Deutsche Bank as financial advisers and King & Wood Mallesons as legal adviser.
Investor presentation and conference callTo provide an overview of the Proposal in further detail, an investor presentation has also been released to the ASX today.
A conference call for investors and analysts will also be held at 10:00am (AEST) today.
Annexure A - Implementation Agreement
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DEXUS Property Group issued this content on 2015-12-18 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 2015-12-17 23:01:13 UTC
Original Document: http://www.dexus.com/upload/asxannouncements/20151218 DEXUS and IOF enter into Implementation Agreement.pdf
