DEXUS buys into CBA property trust

The race has started for the assets of Commonwealth Bank's property trusts, with rival DEXUS Property Group emerging with a 14.9 per cent stake in Commonwealth Property Office Fund (CPA).

The chief executive of DEXUS, Darren Steinberg, said CPA's $3.7 billion in assets, which include a majority stake in Sydney's 5 Martin Place, would be a "good fit" for the group.

But Mr Steinberg, who is the former head of Colonial First State Global Asset Management, which is the direct manager of CBA's property trusts, ruled out an immediate takeover of CPA.

"At this point we have no intention of making a takeover offer for CPA," Mr Steinberg said.

"The model we worked on with Deutsche Bank will allow us to be a long-term shareholder."

The deal gives DEXUS the right to buy the underlying CPA units at a price of $1.1334 per unit, a 1.5 per cent discount to the fund's net tangible asset of $1.15 at December 31.

CBA effectively put its three separately managed real estate investment trusts - CPA, CFS Retail and the Kiwi Income Property Trust - into play when it announced on Thursday it wanted to internalise the management of the trusts. The three are managed by Colonial First State Global Asset Management.

Each of the trusts has its own direct management, with Charles Moore at CPA, Michael Gorman at CFS Retail and Chris Gudgeon at Kiwi Income, who report to Angus McNaughton, head of Colonial First State Global Asset Management.

Morningstar analyst David Ellis said any move to internalise the trusts' management would require the approval of unit-holders.

"At this early stage, we are positive on the internalisation proposal but we await more detail on the financial impacts to CPA, if the proposal proceeds," he said.

"We have long argued external management introduces fee leakage and conflicts of interest.

"Performance fees are particularly costly. The internalisation proposal is at the early stages of consideration and our $1.10 fair-value estimate is unchanged.

"At current prices the fund is trading at a 3 per cent premium to our valuation." CPA has a market capitalisation of $2.6 billion, CFS Retail's value is $5.6 billion and Kiwi Income is $NZ1.1 billion.

Pricing for a funds management business is generally at about 2 per cent to 3 per cent of the total assets under management, which varies depending on debt levels and asset quality.

JP Morgan's Richard Jones said the cost of internalisation of all the trusts could be about $650 million based on a 9.25 times earnings before interest and tax multiple, or 3.3 per cent of assets under management.