Investa Office Fund has issued an upgrade in earnings for the full year based on forecast improvements in the office markets, in both leasing demand and higher rents.
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The group, which is seen as the only real estate investment trust that has a 100 per cent focus on the office sector, reported a 78 per cent rise in net profit to $99 million for the six months ending December 31, 2014.
After adjusting for currency, interest rates and other non-operating items, funds from operations (FFO) increased 3 per cent to $87.3 million, boosted by $329 million of acquisitions in 2014. Funds from operations is now the preferred measure of earnings for real estate investment trusts.
An interim distribution of 9.55¢ was paid, a rise of 3 per cent on the previous corresponding period.
Following stronger than expected leasing outcomes and lower debt costs, guidance for the 2015 full financial year has been upgraded from 27.3 ¢ per unit to 27.5¢ per unit, representing 3.8 per cent growth on the 2014 year.
Investa Office's recently-appointed fund manager, Ming Long, said it was a solid result from the fund, with the increase in the FFO driven by capital re-deployment into two high-quality Sydney assets, Piccadilly Centre in Pitt Street and 6 O'Connell Street, which she said were performing ahead of expectations due to strong leasing outcomes.
Ms Long said leases were being signed, not just at the premium office towers, but among small to medium companies in the secondary properties.
She said that in Sydney, the strongest level of demand has come from small tenants predominately in the business services, financial services IT and insurance sectors.
"Investa Office continues to benefit from an overweight position to Sydney, particularly high quality A and B-grade assets that offer affordable accommodation at less than $900 per square metre," Ms Long said.
The results come as the Morgan Stanley Real Estate Fund VI said on Wednesday it had appointed two joint financial advisers, UBS AG, Australia Branch and Morgan Stanley Australia, to explore strategic alternatives around its holding in Investa Property Group, which comprises two business units, Investa Office and Investa Land.
While Morgan Stanley has said they were looking at the future of the stake for a long time, the appointment of the advisors has made the move official.
Brokers said other overseas parties, such as Blackstone, may also be intested in the business which incorporates the ownership of an office management platform, Investa Office Management Holdings, which provides asset and property management services to over $8.9 billion of commercial office assets.
Ms Long said Investa has created an Independent Board Committee (IBC) comprising three independent directors of Investa, to ensure Investa's interests are protected.
"The IBC had discussions with Morgan Stanley in relation to acquiring Investa Office Management, however the threshold terms sought by Morgan Stanley could not provide Investa Office with any certainty and was not in the best interests of unitholders," Ms Long said.
"Investa Office maintains the pre-emptive rights granted by Investa when it took over management from ING in 2011. Despite these rights, no assurance can be made regarding any transaction, as they will only be triggered in certain circumstances.
