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  • Australian Unity Office Fund’s (AOF) board has floated a potential merger with the Australian Unity Diversified Property Fund
  • A merger between the two funds would create a diversified portfolio of 18 assets with a roughly $1.2 billion value
  • The fund has witnessed a $10.7 million like-for-like reduction across its eight assets which were valued at $639 million
  • The board announced a refined strategy for the fund, which will focus on metropolitan and CBD office markets
  • AOF shares are up 2.48 per cent, trading at $2.48 cents at 12:00 pm AEST.

The Australian Unity Office Fund (AOF) has floated a merger with its unlisted property fund to try to unlock value and maximise returns.

In a strategic assessment of the funds positioning and priorities, the board believes that a merger between AOF and the Australian Unity Diversified Property Fund (DPF) has financial and strategic merit.

Australian Unity Investment Real Estate Limited (AUIREL) chairman Peter Day said the potential merger is a key initiative to deliver on its refined strategy.

“The board looks forward to working constructively with Australian Unity Property Limited (AUPL), the responsible entity of DPF, to explore a potential merger of AOF and DPF,” he said.

A merger between the two funds would create a diversified portfolio of 18 assets with a roughly $1.2 billion value across the office, convenience retail and industrial sectors.

The portfolio would have an occupancy of approximately 96 per cent and a weighted average lease expiry of approximately 4.8 years.

DPF said another positive of the merger would be income from a diverse and defensive tenant base that provides income sustainability, a value-add capacity, increased scale and a relationship with the broader Australian Unity Group.

“The board notes the proposed merger of AOF and DPF is subject to a number of conditions including mutual due diligence, financing requirements and consents, execution of a binding implementation agreement, final board approvals and recommendations from AUIREL and AUPL and unitholder approval,” the company said in a statement.

Property portfolio sees a $10.7 million reduction

The fund has witnessed a $10.7 million like-for-like reduction across its eight assets which were valued at $639 million with a capitalisation rate of 5.85 per cent.

Preliminary independent valuations reported an $18 million decrease in the value for its 30 Pirie Street, Adelaide, also known as Telstra House, asset.

AOF reported that the independent valuer adopted additional allowances for management’s proposed refurbishment which hopes to position the building as “one of the leading established A grade buildings in the Adelaide market”.

The works include base building and amenities upgrades to make the asset more attractive to future tenants.

Telstra has issued a market brief that outlined its accommodation requirement of between 4500 to 7000 sqm, which would roughly represent one-third of the building.

An $8 million increase in the value of its asset at 2 Eden Park Drive, Macquarie Park offered some good news, with the building fully occupied.

Refined strategy to focus on metro and CBD office markets

Mr Day said the board initiated a strategic assessment to examine options to maximise returns and unlock value for unitholders earlier this year.

“In concluding the strategic assessment, the board has determined to maintain AOF’s office focus in metropolitan and CBD markets, to be complemented by a targeted and diversified portfolio of Australian real estate assets,” he said.

“The fund will continue to focus on delivering sustainable and growing income returns through active asset management and value-add initiatives.”

FY21 guidance update

AOF has announced an update to its FY21 funds from operation guidance range to 18.5–18.7 cents per unit, up from 18.3-18.7 cents per unit.

AOF fund manager Nikki Panagopoulos said they were pleased to confirm the upper end of the FY21 guidance range, which reflected its strong collections and positive lending outcomes.

“Our focus into FY22 will include delivering on AOF’s refined strategy and executing on our active asset management and refurbishment programs, enabling AOF’s assets to continue to meet tenant requirements,” she said.

AOF shares were up 2.48 per cent, trading at $2.48 cents at 12:00 pm AEST.

AOF by the numbers
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