Blackstone bets big on Australian offices with $2.3B Investa bid

SYDNEY - 28 May 2018: U.S. private equity giant Blackstone Group (BX.N) is seeking to deepen its exposure to Australian commercial property with a A$3.08 billion ($2.3 billion) bid for Sydney-focused company Investa Office Fund (IOF) (IOF.AX).

IOF’s directors said in a statement on Monday they would unanimously recommend the unsolicited and non-binding offer, which comes two years after shareholders rejected a A$2.5 billion bid from Australian firm DEXUS (DXS.AX).

Blackstone’s move is a bet on the future of commercial property across Australia’s east coast, where analysts expect strong demand to support yields even if interest rates rise from their current historic lows.

“They have seen an opportunity to get a decent slab of commercial assets, primarily in the Sydney market, which has been the best-performing market for sometime,” said Winston Sammut, managing director of Folkestone Maxim Asset Management, which invests in real estate but does not own shares in IOF.

“But they are paying a big price in an environment where interest rates are likely go up.”

The offer represents a 13.2 percent premium to IOF’s ex-distribution closing price of A$4.55 per unit on Friday, equating to A$5.15 per unit.

IOF shares surged more than 10 percent after the announcement, and by 0430 GMT were trading at A$5.11, their highest level in almost a decade.

Less than two weeks ago, Blackstone struck a NZ$635 million ($439.4 million) deal to buy an office portfolio in Auckland, New Zealand, which was co-held by Goodman Property Trust (GMT.NZ) and Singaporean investor GIC.

It was forced to call off the sale of its A$3.5 billion Australian shopping mall portfolio last year due to a lack of interest, amid the retail sector’s shift away from bricks-and-mortar stores to online shopping.

While the retail property market is struggling, analysts forecast strong demand to underpin yields on office space in Sydney, where 21 of Investa’s 36 properties are located.

Building of new office space in Sydney has slowed in recent years as developers turned to constructing high-rise apartment blocks amid record house prices.

British-based consultant Oxford Economics earlier this month forecast vacancy rates for Sydney offices to hit an all-time low of 3 percent by the end of 2019.