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Cromwell Property Group (ASX:CMW) and Australian Unity Property have struck a deal to merge two unlisted property funds under the one roof with a total valuation of $1.1 billion, bringing together a diversified portfolio of assets with strong weightings towards Queensland and Western Australia.
Cromwell Funds Management Limited (CFM) and Australian Unity Property Limited (AUPL) have entered a merger implementation deed, and in a separate deal Cromwell will acquire AUPL for $17 million, subject to unitholder approval.
The merger will unite the 15 properties held by the Cromwell Direct Property Fund (CDPF) and the Australian Unity Diversified Property Fund (AUDPF), with each bringing a very different geographic and asset category class into the mix.
The Cromwell fund has nine commercial assets of which five are in Queensland, as well as properties in Adelaide, Dandenong (VIC), Queanbeyan (NSW), and Mascot (NSW), with 52 per cent of income sourced from government or listed tenants.
Meanwhile, the Australian Unity fund has a mix of shopping centres and industrial property spread across WA, VIC and NSW.
"The proposed transaction aligns with Cromwell’s strategic exit from non-core assets and recycling of capital to grow Cromwell’s funds under management, adding approximately $425 million in third-party gross assets to our Australian platform," says Cromwell’s chief investment officer Rob Percy.
"This transaction continues our journey to a capital-light funds management business model and enables us to continue to provide Cromwell investors with long term stable and risk adjusted returns."
Dr Joe Fernandes, chief investment officer and executive general manager for funds management at Australian Unity, says the combined fund will benefit investors through increased scale, diversification, and income and distribution stability.
"Cromwell’s reputation as a leading real estate funds manager and a custodian of investors' capital places the combined fund in good stead for future success. We look forward to working with Cromwell to preserve and enhance value for investors," Fernandes says.
As part of the proposed merger, the Cromwell Diversified Property Trust will subscribe for up to $12 million worth of units in CDPF to assist in funding a one-off withdrawal facility for AUDPF unitholders - a facility that will be worth up to $20 million when including the unlisted merged fund's balance sheet.
Australian Unity notes the proposed merger is subject to the sale of certain assets as well, which is expected to reduce overall portfolio gearing risk, particularly in a high interest rate environment.
The company also notes the merger will allow for increased liquidity, increased scale and continued diversification, and expected lower base management fees with market-linked performance fees.
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