The Australian Financial Review - Thursday 2 October, 2008.

APT makes moves on Record Realty
Ben Wilmot

Melbourne-based Australian Public Trustees has put itself forward as a white Knight for the ailing Record Realty with an offer that could carve up the listed trust's $1.9 billion portfolio.

The low-profile group manages the unlisted Government Property Trust, which owns a $167 million portfolio of assets leased to Australian governments, but it has larger ambitions.

Last year it bid on about $300 million of Investa Property Group assets but the deal did not go ahead as the credit crunch hit the sector. APT is now looking to capitalise on the tougher conditions by pouncing on the Allco Finance Group managed trust.

Record Realty units trade at just 1.6¢ giving it a market capitalisation of $6.4 million. The trust is weighed down by $1.7 billion of debts.

The portfolio is split between the United States ($629 million), Germany ($502 million) and Australia ($803 million). About 19 per cent of the portfolio is leased to Australian governments and 22 per cent is leased to Australian companies.

Allco is pursuing a three-year sale program for all Record Realty assets. But its initial attempts to sell off properties, including the Australian Securities Exchange headquarters in Sydney, have failed.

Under Allco's plan, Record Realty will not make distributions and will pay back debts before unit holders eventually receive the residual amount. If APT wins control of Record Realty it would shift all the government-leased properties into its own Government Property Trust. It would continue the sell-down of the trust's non-government properties in Germany and Australia to pay down debt.

The play could result in the rebirth of Government Property Trust as a $1.2 billion vehicle, with holdings split between Australian and US government properties. These properties support about $960 million of debt and an equity raising of at least $50 million is proposed to recapitalise the vehicle. APT is seeking to persuade Allco to sell its 15 per cent stake in Record Realty and to resign from the management of the trust. The Melbourne funds manager has existing ties with Record Realty's major lender BOS International and would seek a medium-term standstill agreement.

The proposal is understood to have won support from some unit holders who hope that removing the trust from Allco's control will restore value.

APT chief executive Darren Olney-Fraser declined to comment on the deal. "As Australia's largest specialist investor in government-leased properties, Government Property Trust constantly looks at a range o commercial opportunities," he said.

A Record Realty spokeswoman said that the group indicated in March that it was open to selling the management of the trust but said it would not recommend any takeover unless it was in the best interests of unit holders.