Australian Unity Diversified Property Fund backs $1.1 billion merger proposal with Cromwell Direct Property Fund
Australian Unity Property Limited (AUPL), as the responsible entity of Australian Unity Diversified Property Fund (AUDPF), has today announced it has entered into a Merger Implementation Deed with Cromwell Funds Management Limited (CFML), as the responsible entity of the Cromwell Direct Property Fund (CDPF), to merge AUDPF and CDPF via a trust scheme.
Overview of proposed merger
If AUDPF unitholders approve the proposed merger and it is implemented, AUDPF unitholders will receive new CDPF units in exchange for their AUDPF units. The number of new CDPF units received for each AUDPF unit held will be based on AUDPF’s and CDPF’s respective audited Net Tangible Assets (NTA) per unit as at 30 June 2023, subject to certain adjustments1, and will be determined on an ‘NTA-for-NTA’ basis.
For indicative purposes, if the consideration was based on each fund’s respective pro forma NTAs per unit as at 31 May 20232, AUDPF unitholders would receive 1.028x new CDPF units for each AUDPF unit held. On implementation, the unlisted merged fund’s unit price is expected to be at a ~4.5% premium to AUDPF’s standalone unit price3, based on the indicative merger ratio as at 31 May 2023.
AUDPF unitholders will also have an opportunity to participate in a one-off, cash withdrawal facility of up to $20 million as part of the proposed merger if it is approved and implemented.
Summary of proposed unlisted merged fund:
| AUDPF4 | CDPF4 | Unlisted Merged Fund5 | |
|---|---|---|---|
| Gross Asset Value | ~$572m | ~$695m | ~$1.1bn |
| Gearing6 | 46.8% | 38.8% | 38.2% |
| Net Asset Value | ~$300m | ~$386m | ~$645m |
| Interest in Properties | 97 | 9 | 158 |
| WALE9 | 7.9 years | 4.3 years | 5.8 years |
| Capitalisation Rate | 5.7% | 6.2% | 5.9% |
| Occupancy by NLA | 98.7% | 91.5% | 94.1% |
| Base Management Fee | 0.65% of gross asset value | 0.60% of gross asset value | 0.60% of gross asset value |
Jonathon Senior, AUDPF Fund Manager, said the proposed merger with Cromwell’s Direct Property Fund represents a compelling opportunity to create material value for AUDPF unitholders.
“If approved, the unlisted merged fund is expected to provide AUDPF unitholders with a premium to the unit price and higher forecast FY24 earnings and distributions per unit, a lower gearing profile, lower base management fees and access to an increased amount of liquidity, including a periodic uncapped withdrawal opportunity in 2025 and every five years thereafter.”
Mr Senior said the merged fund would have an aligned unlisted investment mandate and strategy with AUDPF.
“Importantly for AUDPF unitholders, the asset quality, and diversified core investment mandate following the implementation of the proposed merger will be aligned, allowing AUDPF investors to retain their exposure to an unlisted portfolio of diversified high-quality Australian properties.
“The proposed merger is also expected to enhance the ability to finance AUDPF’s future development and acquisition opportunities, increase scale,
diversify the portfolio and reduce risk through lower gearing which is particularly important as the economy continues to navigate higher interest rates.”
Dr Joe Fernandes, Chief Investment Officer and Executive General Manager, Funds Management at Australian Unity, said the proposed merger demonstrated the business’s continued focus on preserving and enhancing value for unitholders.
“Cromwell Funds Management is a highly experienced investment and property manager with a strong track record managing unlisted property funds for retail unitholders.”
A notice of meeting and Unitholder Booklet is expected to be issued to AUDPF unitholders in early October 2023 to consider the proposal to merge the two funds.
The Board of AUPL, as the responsible entity for AUDPF, unanimously recommends that AUDPF unitholders vote in favour of the proposed merger in the absence of a superior proposal and subject to an Independent Expert concluding and continuing to conclude that the proposed merger is in the best interests of AUDPF unitholders.
AUPL’s parent company, Australian Unity Limited (AUL), and CFML have informed AUPL that AUL and Cromwell Corporation Limited (CCL) have entered into a share sale agreement pursuant to which CCL has agreed to acquire all of the issued shares in AUPL in connection with the proposed merger (AUPL Sale) for a total consideration of $17 million, payable in instalments.
Further details in relation to the AUPL Sale will be set out in the Unitholder Booklet.
Following implementation of the proposed merger, members of the AUDPF management team have agreed to transition to the Cromwell Property Group.
AUDPF currently owns a portfolio of nine properties diversified across convenience retail, office and industrial property sectors with its largest assets including the $144 million Caltex Twin Service Centres on the M1 in Wyong NSW and the $125 million Blackburn Square Shopping Centre in Blackburn, Victoria which is currently being developed and expanded.
1AUDPF’s NTA will be adjusted for transaction costs, the proceeds received from the sale of Osborne and Williamtown (in certain circumstances), and any special distribution made to fund net capital gains prior to implementation. See clause 4.2(b) of the Merger Implementation Deed for further details of the NTA adjustments
2Based on NTAs as at 31 May 2023, adjusting for fair market value adjustments to property revaluations that occurred in June 2023 and transaction costs up to 31 May 2023
3The premium results from the different unit price methodologies used by AUDPF and CDPF. Where CDPF’s unit price methodology capitalises transaction costs and amortises them over five years, AUDPF’s does not. The premium arises from prior acquisition costs capitalised in CDPF's unit price
4As at 31 May 2023, adjusting for fair market value adjustments to property valuations that occurred in June 2023
5As at 31 May 2023, adjusting for fair market value adjustments to property revaluations that occurred in June 2023, including the sale of Woodvale, Osborne and Williamtown at book value (net of anticipated costs) with the proceeds of sale being used to repay debt, also inclusive of proposed merger transaction costs
6Calculated as per RG46 methodology (Total interest-bearing liabilities / Total assets) as at 31 May 2023
7Excludes indirect interest in Australian Unity Office Fund (AOF)
8Includes indirect interests in two properties that CDPF holds via investments in other managed investment schemes and excludes AUDPF’s AOF stake, and Woodvale, Williamtown and Osborne properties
9Based on gross passing income as at 30 June 2023
-ENDS-
Media contact:
T: 1300 408 776
E: media@australianunity.com.au
About the Australian Unity Diversified Property Fund
The Australian Unity Diversified Property Fund is an unlisted property fund that owns properties across Australia, diversified across retail, office and industrial sectors. The Fund’s tenant base is diverse and includes many of Australia's most successful companies and brands.
More information about the fund is available here.
About Australian Unity
Established in 1840, Australian Unity is a member-owned wellbeing company with more than 385,000 members and more than 700,000 customers. Our range of health, wealth and care products and services provides member, customer and community value that is supportive of personal and community wellbeing.
About Cromwell Property Group
Cromwell Property Group (ASX:CMW) is a real estate investor and fund manager with operations on three continents and a global investor base. Cromwell is included in the S&P/ASX200. As at 31 December 2022, Cromwell had a market capitalisation of $1.8 billion, an Australian investment portfolio valued at $3.0 billion and total assets under management of >$12.0 billion across Australia, New Zealand and Europe.