Cautious approach to new wave of mergers

DEXUS Property and the Canada Pension Plan Investment Board have set the ball rolling in the next wave of mergers in the real estate investment trust sector with a cash and equity proposal for the $3.7 billion Commonwealth Property Office Fund (CPA).

The deal is 60 per cent cash between DEXUS and CPPIB and also the issue of DEXUS securities. The directors of CPA have advised unit-holders, who must ultimately approve the deal, to take no action. It is an indicative and non-binding offer.

The trigger for the deal was in July when the manager of CPA, the Commonwealth Bank, revealed it was looking to internalise the management of its two listed REITs, which also includes the CFS Retail Trust.

Soon afterwards DEXUS completed an option deal to acquire 14.9 per cent of CPA. Speculation persists that the private Gandel Group, which is a co-owner of malls with CFS and also a large shareholder of CFS, will make a play for that trust.

The Canadian pension fund, one of the world's biggest with more than $C165 billion ($167 billion) in assets, revealed this year that it owned $C5.8 billion of Australian real estate, infrastructure, public equity and private equity.

DEXUS, whose chief executive Darren Steinberg was the former head of property at Colonial First Asset Management, the manager of CPA, had been expected to make a move on the trust.

Mr Steinberg said if the deal was approved it would boost the funds under management for DEXUS to $8 billion, making it one of the biggest office landlords in the country.

The plan is to keep CPA, which owns a large number of high-quality office towers, as an unlisted fund, with DEXUS as manager. "The CPPIB approached us with this proposal and it's given DEXUS the ability to proceed with the offer," Mr Steinberg said. "If the deal is approved, we will look to rationalise the portfolio."