CPPIB, Dexus’s A$2.8 Billion Commonwealth Fund Bid Accepted
Dexus Property Group (DXS), Australia’s biggest listed office landlord, and the Canada Pension Plan Investment Board reached an agreement with Commonwealth Bank of Australia to buy the bank’s listed office trust for A$2.83 billion ($2.66 billion).
Dexus and the Canadian fund increased their cash-and-stock bid to A$1.2052 a share, from A$1.15-a-share last month, Dexus said in a regulatory filing. A binding agreement must be reached by mid-December, according to the statement.
The takeover would be the latest in a string of investments in Australian property by CPPIB and adds to the Toronto-based fund’s C$5.8 billion ($5.5 billion) of investments in the country. Dexus, which agreed to buy a 14.9 percent interest in the fund in August after Commonwealth Bank said it planned to exit its property business, would own and manage a quarter of the commercial buildings in Sydney following a successful takeover.
“There’s a tremendous amount of money around the world that wants to be invested in good quality assets in a safe country, and that’s what CPA is,” said Adrian Atkins, a Sydney-based analyst at Morningstar Australasia Pty. “Dexus is paying an OK price to boost their assets, get more funds under management and get greater scale and more visibility with a bigger portfolio.”
The companies’ revised proposal follows the rejection by Commonwealth Property Office Fund (CPA) on Oct. 14 of an offer that was equal to the fund’s net tangible assets at the time. Since then, the fund reported Oct. 31 an increase in its NTA to A$1.19 per share.
Dexus raised the bid “because the recent valuations pushed up the values of some properties and had an impact on NTA,” said Winston Sammut, Sydney-based managing director at Maxim Asset Management Ltd. “I don’t have a problem with the price.”
Sammut added that if anyone knows the real value of CPA, it would be Darren Steinberg, who served as managing director of Commonwealth Property Office’s manager before becoming chief executive officer of Dexus in March 2012.
For each CPA security, today’s offer equates to cash of 72.65 Australian cents, assuming an implementation date of March 31, and 0.4516 Dexus share based on Dexus’ closing share price of A$1.06 on Nov. 7. The independent directors of Commonwealth Property Office’s board have said they will recommend shareholders vote in favor of the bid, if it proceeds, in the absence of a superior proposal, Dexus said today.
Dexus shares were up 0.9 percent at A$1.07 at the close of trading in Sydney, bringing the increase this year to 5.4 percent. CPA shares climbed 0.8 percent to A$1.20, extending gains this year to 18 percent, compared with 16 percent for the benchmark S&P/ASX 200 index.
While the city-center office vacancy rate rose to 11.3 percent in the three months to Sept. 30, the highest since the the first quarter of 1999, business confidence is improving, demand is stabilizing and inquiries are starting to recover, broker Jones Lang LaSalle Inc. said in an Oct. 16 report.
CPPIB bought a stake in a property trust managed by AMP Capital Ltd. in October last year and took a A$1 billion stake in developer Lend Lease Group’s A$6 billion Barangaroo development in Sydney’s center in July 2012. It also invested in an unlisted Australia fund managed by Goodman Group, the nation’s biggest industrial property developer, when the REIT first made a bid to acquire the fund in October 2010.
The Canadian fund has also partnered with Australian companies including the nation’s biggest shopping mall operator Westfield Group and Goodman to invest in properties overseas.
Commonwealth Bank in July said it was seeking to exit its property management business, and proposed its listed property funds, two in Australia and one in New Zealand, set up their own management teams. Dexus will pay an additional A$41 million to the bank for the management rights if the consortium gains control of the office fund.
The bank said in a separate statement today that its New Zealand fund, the Kiwi Income Property Trust, has agreed to pay NZ$72.5 million ($60 million) to take over its management rights from Commonwealth Bank.
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