Aliro pulls AOF bid, and valuations drop $37.25M

• Aliro originally made its bid for AOF at $2.45 in late May
• Aliro requested exclusivity period extensions twice in July
• Valuations decrease was partly due to different valuation methodology

Today, Australian Unity Office Fund (ASX: AOF) announced in a market update that, following the close of markets on Friday 22 July 2022, Aliro advised AOF that it was unable to submit an updated proposal at that time.

On 30 May 2022, AOF announced Aliro had made a takeover bid for the company at $2.45 per AOF unit, and on 3 June 2022, an independent board committee was formed, comprising Peter Day, Don Marples, and Eve Crestani, to consider the Aliro proposal.

After market on 30 June 2022, Aliro requested a two-week extension on the exclusivity period, and after market on 15 July, Aliro requested a further one-week extension.

In today’s AOF announcement, it was noted that Aliro had completed a significant amount of work, and previously advised Australian Unity Investment Real Estate Limited (AUIREL) that its key diligence findings did not contain any major issues.

The market announcement also said, “Aliro further noted a deterioration of market conditions had resulted in it being unable to arrive at an offer price that could meet its investment objectives as well as being at a level that Aliro believed would be acceptable for consideration by AOF unitholders.”

AUIREL said it will continue to progress with the three options previously outlined to maximise value for AOF unitholders, namely:

• the delivery of asset refurbishments and repositions opportunities, while maintaining strong occupancy from multi-tenanted assets;
• divesting some or all properties and returning capital to unitholders; and
• a portfolio sale via a corporate transaction.

Valuations down

In a separate market announcement, AOF said independent valuations were received for seven of the company’s assets. The valuations reflected a decrease of $37.25 million from the prior independent valuations. The decrease is predominantly related to the company’s 30 Pirie Street property in Adelaide and 2-10 Valentine Avenue property in Parramatta.

AOF said the independent valuation for its 30 Pirie Street property reflected increased capital expenditure allowances which will be required to refurbish the building following the expiry of Telstra’s lease in February 2023, resulting in a decrease of $16 million in the value of 30 Pirie Street to $73 million.

The Parramatta property is a single allotment comprising a 14 level office building at 10 Valentine Avenue and an adjoining six-level car park for a total of 282 cars at 2 Valentine Avenue.

2 Valentine Avenue currently has development approval for a circa 28,000 square metres A-grade office tower across 24 levels with 117 car spaces, with the previous independent valuation valuing it as a development site.

The independent valuer has considered current market conditions with respect to office development opportunities and has valued 2 Valentine Avenue as a car park with development approval.

This change in valuation methodology has resulted in a $22.55 million decrease in the value of 2-10 Valentine Avenue to $98.0 million. The balance of AOF’s updated independent valuations were broadly in line with their prior independent valuations. The June 2022 total portfolio value of $539.8 million reflects a weighted average capitalisation rate of 5.69%.

Source: AOF.