INVESTA Property Group has lifted profits as the sector undergoes a bout of consolidation that could leave the $8 billion office tower specialist well positioned to decide its future.
The Morgan Stanley Real Estate Funds-controlled property group, which owns about $4bn of towers on its balance sheet, boosted total income to almost $225 million in the last financial year.
The figure was well up from $72.4m in the 2012 financial year and profits could rise further as its management believes the value of its high-quality office portfolio is rising.
The group elevated Campbell Hanan to chief executive, Investa Office, in June. He has driven a reorganisation to make the group more tenant-focused. He emphasised the group’s executives, led by Michael Cook, had been able to strike more than 220,000sq m of leasing deals in tough markets.
Mr Hanan acknowledged that resources-linked cities were challenged but said leasing markets in Sydney and Melbourne had stabilised. He suggested the shift in capital markets would be the biggest influence in real estate markets.
“Our house view is that we will continue to see cap rate compression,” Mr Hanan said. He cited takeover activity, the sharp yields in recent direct property deals and the rising trend of residential developers buying office towers.
The group has not been drawn into the public takeover battle over the Commonwealth Property Office Fund, which has a near $4bn portfolio.
Mr Hanan was cautious about whether assembling larger portfolios would automatically deliver benefits. “As soon as you think you can overly influence markets … you do so at your own peril,” he said.
Investa also elevated Ming Long and Jonathan Callaghan to positions as joint managing directors of Investa Property Group, with Ms Long also remaining as finance director.
Scott MacDonald, who will be in Sydney next week, remains as chairman of Investa and oversaw the turnaround of the business after the global financial crisis.
Investa remains focused on investor returns rather than growing aggressively. “We still think that values are going up,” Mr Callaghan said, which put the group in “buy or hold mode”.
Investa sees most growth coming from its two managed funds – the Investa Office Fund (IOF) and the Investa Commercial Property Fund. Ms Long noted that the funds had about $600m of acquisition capacity.
Investa’s balance sheet was bolstered by the issue of $70m of notes and a $2bn refinancing. Mr Hanan emphasised the value of the group’s integrated real estate platform, which includes funds management and internal portfolio and asset management services, as well as development and sustainability capabilities.
In a potentially telling move, the group transferred the office platform business into a related entity for a net price of $128m.
The listed IOF’s local portfolio is approaching the $3.5bn benchmark that would allow it to acquire a half stake in the overall Investa management platform.
“It’s a very serious platform with a very powerful engine,” one analyst said yesterday. The partial internalisation is seen as one way forward. “I think they’re working towards that as they would like to be masters of their own destiny,” the analyst said.
But a takeover is another possibility as listed and unlisted players are attracted to Investa’s return-focused property business.
While the executives are focused on delivering for tenants and shareholders, 2014 is shaping as another year of change for Investa.
Source: The Australian
