In a rare move for the public market, Starwood Capital has trimmed the value of its $480.3 million takeover offer the listed Australian Unity Office Fund after extended due diligence.
The value of the revised all-cash offer has been cut by 2.7 per cent to around $467.4 million in total, prompting the property trust’s board to reverse its earlier support for the offer.
The US investment platform has maintained the headline price of $2.95 per unit but it will now be reduced by the value of any distribution or capital return declared by the target trust.
In effect, the scale-back is expected to result in a potential reduction of 7.9 cents per unit assuming the transaction is finalised after March next year.
On the board’s calculation, the revised proposal represents around $2.87 cash per unit.
The fund’s board committee described the revised bid as “a materially different offer to the original proposal” and said that its “present intention” was to recommend that the full board “reject the revised proposal”.
Established in 1991, Starwood Capital is among the world’s major real estate players, with $US60 billion in assets under management and led by its co-founder Barry Sternlicht.
It put together and then listed one of the world’s biggest hospitality companies, Starwood Hotels and Resorts, which merged with Marriott Hotels last year.
Last month, Starwood’s offer for the Australian Unity fund, at $2.95 cash per share, was the fourth approach the US giant has made to the office property trust since March, although it was the first to be disclosed publicly.
At that point after lifting its proposal by more than 20 per cent since its initial approach, Starwood gained approval to conduct due diligence from the Australian Unity fund’s board, which said then it would recommend the proposal if it is finalised.
But after extending its due diligence by two weeks, it is understood Starwood held a number of ongoing concerns with the robustness of the portfolio, especially some of the leasing arrangements.
For Starwood, those issues entailed a significant amount of risk for the assets, exacerbated by the fact that much of the portfolio lies outside the Sydney and Melbourne CBDs, according to senior sources.
From its side, the Australian Unity fund hit back at Starwood’s reduced offer, noting that before it gave the US investment platform extended due diligence it “obtained a written confirmation from Starwood that nothing had arisen in its due diligence investigations that altered its position from the proposal”.
In its view, the board committee said, “there are no matters of which they are currently aware that would materially impact the current valuation of the assets” of the fund or its earnings guidance.
Including 150 Charlotte Street in Brisbane, the office fund holds nine office towers in total, worth $636 million, with assets in Adelaide, Sydney, Melbourne and Canberra.
It made a strong debut two years ago when it floated as a listed trust after raising $155 million in new equity.
The Australian Unity fund is being advised by UBS and Ashurst Australia, while Starwood has Bank of America Merrill Lynch and King & Wood Mallesons prosecuting its cause.