Canada fund, Dexus make $2.55 bln offer for Australian office trust

Reuters

* CPPIB and Dexus team up for $2.55 bln offer for CPA

* Underscores foreign interest in Australian property sector

* CPA portfolio valued at $3.5 bln

SYDNEY, Oct 11 (Reuters) - The Canada Pension PlanInvestment Board (CPPIB), one of the world's largest pensionfunds, has teamed up with Dexus Property to make aninitial A$2.7 billion ($2.55 billion) offer for CommonwealthBank of Australia's office trust.

The bid for the Commonwealth Property Office Fund (CPA), the latest in a flurry of deals in the real estateinvestment trust sector, underscores growing interest fromforeign investors in Australia's property and infrastructuremarkets.

High yields combined with clear market regulations andstrong export links to Asia, especially China, is puttingAustralia firmly on the radar for sovereign investors such asCPPIB.

Foreign investment in Australian property, including hotels,office space and retail malls, almost doubled year-on-year toA$39.4 billion last year, according to Jones Lang LaSalle.

The bid for CPA, which has a portfolio worth A$3.7 billion($3.50 billion) that includes prime retail space in Sydney, willsignificantly expand CPPIB's assets in Australia.

The Canadian pension fund, one of the world's biggest withmore than C$165 billion ($158.91 billion) in assets, revealedearlier this year that it owned C$5.8 billion of Australian realestate, infrastructure, public equity and private equity.

"The (CPA) proposal is an excellent opportunity to expandour Australian core office portfolio and is in line with ourstrategy to invest in high-quality assets that are well positionin their markets," Graeme Eadie, senior vice-president and headof real estate investments at CPPIB, said in a statement.

OFFICE REITS UNDERPERFORM

The acquisition would give Dexus Property Group, Australia'slargest office management firm, a 26 percent share of the keySydney prime grade office market and increase its office assetsunder management by almost 50 percent to A$11.5 billion.

Dexus, which already has a 14.9 percent stake in CPA, andCPPIB are offering A$0.68 a unit in cash and A$0.4516 a unit instapled securities for the remainder of the trust.

The proposal offers CPA unitholders a headline offer priceof A$1.15 a unit, slightly under the A$1.20 per security tippedby analysts.

CPA shares had gained 2.6 percent to A$1.19 by earlyafternoon trade, suggesting the market is hopeful of a higherbid.

CBA Equities analyst David Lloyd told clients in a note thathe remained a seller of CPA at A$1.25.

Commonwealth Bank had no comment on the offer. CPA did notimmediately respond to requests for comment.

While residential REITs have outperformed the Australianshare market so far this year, office REITs, including CPA, andDexus have underperformed amid a lack of corporate activity,uncertainty ahead of the September federal election, and a flatleasing sector.

Dexus shares were up 1 percent to A$1.05 in afternoon trade,while Commonwealth Bank shares had gained 2 percent to A$72.22.

A deal will need to be approved by Australia's ForeignInvestment Review Board (FIRB) and the Australian Competitionand Consumer Commission (ACCC).

If it goes through, CPA will become an unlisted fund,managed by Dexus and owned equally by Dexus and CPPIB.

View Comments (0)