Morgan Stanley to Buy Investa for A$4.7 Billion

Morgan Stanley to Buy Investa for A$4.7 Billion (Update6)

By Robert Fenner

May 31 (Bloomberg) -- Morgan Stanley agreed to buy Investa Property Group, Australia's biggest office owner, capping $12.5 billion of real estate investments this month, spread across three continents.

The A$4.7 billion ($3.9 billion) cash offer values Investa shares at A$3.08 each, 14 percent more than yesterday's closing price, Sydney-based Investa said in a statement today.

The purchase adds buildings in Australia's three largest cities to offices Morgan Stanley acquired in the past two weeks in Berlin, Dallas and Las Vegas. Investa's property earnings more than doubled in the six months ended Dec. 31 as rising employment spurred demand for office space.

``Investa's got probably the highest quality office portfolio in the country,'' said John Snowden, who manages the equivalent of $5.9 billion in property securities at Colonial First State in Sydney. ``Morgan Stanley has a low cost of capital and it's very hard to acquire a portfolio the size of Investa's by buying properties piecemeal.''

Investment banks are piling into real estate assets, helping spark $233.2 billion of property acquisitions this year, more than double the amount for the first five months of 2006, according to data compiled by Bloomberg.

Lehman Brothers Holdings Inc. and Tishman Speyer Properties LP on May 29 agreed to buy U.S. apartment developer Archstone- Smith Trust for $13.5 billion, expanding their residential assets as rents rise.

Qantas, Deutsche

Investa's Sydney properties include the Norman Foster- designed 126 Phillip Street, headquarters to Qantas Airways Ltd. and Deutsche Bank AG's Australian unit. It also owns 120 Collins Street in Melbourne, where Citigroup Inc. has offices.

Sydney, Melbourne and Brisbane are home to almost half of Australia's 20 million people.

Office rents in Sydney are forecast to rise 10 percent annually during the next three years, according to John Sears, director of research at Jones Lang Lasalle Inc. in Sydney. In Melbourne, rents are expected grow 6 percent.

Morgan Stanley's recent property acquisitions include a May 22 agreement to buy Richard Rainwater's Crescent Real Estate Equities Co. for $4.4 billion, including debt, gaining control of 70 U.S. office buildings with about 28 million square feet.

On May 17, the firm agreed to pay 2.1 billion euros ($2.8 billion) euros cash to Union Investment Real Estate AG. for 28 buildings in Germany.

In November, the securities firm began raising as much as $8 billion for funds to invest in high-yielding real estate.

``Morgan Stanley have got a huge amount of money to invest and they'll have to place it quickly, otherwise they have to give it back to investors,'' said Peter Churchouse, who manages the Lim Asia Alternative Real Estate Fund for Lim Advisors Ltd. in Hong Kong.

Japan

Morgan Stanley also has accumulated a 3.4 percent stake in Mitsubishi Estate Co. Japan's biggest developer, worth about 173.3 billion yen ($1.4 billion) at today's share price.

That came after the company last month won the bidding for All Nippon Airways Co.'s 13 Japanese hotels, agreeing to pay 281.3 billion yen in that country's largest real estate acquisition. Morgan Stanley also completed in April its $6.6 billion acquisition of CNL Hotels & Resorts Inc.

Investa shares jumped 41 cents, or 15 percent, to a record A$3.10 in Sydney. The deal helped push up the S&P/ASX 200 Property Index 4.3 percent, the benchmark's biggest gain.

The acquisition ``has put new spice into the sector,'' Marcus Padley, author of trading newsletter Marcus Today, wrote in an e-mailed report.

Shares of Sydney-based Westfield Group, the world's biggest owner of shopping centers, rose 3.3 percent to A$21.49, their biggest advance.

Sydney Office Space

Office vacancy rates in Australian cities have fallen each year since 2004. Sydney's the vacancy rate is expected to decline to about 6.5 percent by the end of next year from 9.4 percent, according to Australia & New Zealand Banking Group Ltd.

Investa has been focusing on office buildings to limit the impact of sluggish demand for residential developments, which has led to writedowns at the company's Clarendon housing unit.

``Morgan Stanley is taking the view it can get rid of Clarendon and play the upside in the office market,'' said Matt Hoult, who helps manage the equivalent of $4.1 billion at ABN Amro Asset Management in Sydney, including property stocks.

Retention Packages

The bid for Investa is subject to an independent expert's report confirming the offer is in the best interests of shareholders. The offer, which values Investa at A$6.6 billion including debt, needs to be approved by 75 percent of the stock voted at a shareholder meeting expected to be held in August.

Investa will spend as much as A$5 million on payments to retain senior executives. Chief Executive Officer John Arthur asked not to be included in the retention plan.

Standard & Poor's placed Investa's credit rating on review for a possible downgrade. The company's debt is currently rated BBB+, the third-lowest investment grade.

Investa is being advised by UBS AG.