SYDNEY, Dec 11 (Reuters) – A bidding war for Australia’s Commonwealth Property Office Fund escalated after Dexus Property Group and the Canada Pension Plan Investment Board hiked their joint offer – a move expected to prompt a higher bid from a rival suitor.
The latest cash and stock offer values CPA, as the fund is known, at A$3 billion ($2.7 billion) and represents a 2.6 percent premium over a bid from rival property investor GPT Group, Dexus said.
The value of both bids fluctuate according to the share prices moves of Dexus and GPT.
Both Dexus and GPT are large diversified property firms keen to lift their exposure to Australian office real estate which delivers high yields but analysts say the stakes are higher for GPT which has failed to clinch two other deals.
“It must be remembered that GPT has had two recent unsuccessful attempts to expand its portfolio, and another failure would be a real hit to management’s credibility,” Shannon Rivkin, a director at Rivkin.
Dexus will own 14.9 percent of CPA in January after exercising a derivatives contract.
GPT said it has no stake in CPA at the moment but has an agreement to own 8 percent if it declares its offer unconditional. GPT is 11.6 percent owned by Singaporean sovereign wealth fund GIC Private Limited.
A GPT spokesman said the company had noted the proposal but declined further comment.
CPA units rose 2.2 percent in afternoon trade compared with a 0.3 percent slip for the broader market. Dexus was flat while GPT edged 0.2 percent lower.
CPA owns 26 office buildings in major business districts across Australia.
For foreign investors such as GIC and CPPIB, Australian office property offers a clearly regulated market with attractive yields – currently around 7.33 percent for central business district buildings, according to Jones Lang LaSalle.
That compares to yields of 4.6 percent for New York and 4.0 percent for London, it said.
Foreign investment in Australian property, including hotels, office space and retail malls, almost doubled year-on-year to A$39.4 billion last year, Jones Lang LaSalle said.
Dexus and the Canadian fund are now offering a cash payment of A$0.7745 and 0.4516 Dexus security per unit, valuing each CPA unit at A$1.27 based on Dexus’ closing price on Tuesday. By comparison, GPT is offering A$0.75325 in cash and 0.141 GPT security for each CPA unit.
“It (Dexus offer) has a higher cash component which offers certainty given the fluctuation of share prices of Dexus and GPT,” said John Kim, a REIT analyst at CLSA.
Dexus has also removed its minimum acceptance condition, giving it another advantage over GPT.
Commonwealth Managed Investments Limited, a wholly owned subsidiary of Commonwealth Bank of Australia, manages CPA on behalf of unit holders. It said it would consider the revised bid from Dexus and CPPIB.
By Maggie Lu Yueyang
($1 = 1.0939 Australian dollars) (Editing by Edwina Gibbs)
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