GPT enters CPA picture with $4b bid

GPT Group has opened the floodgates in the real estate investment trust sector by trumping its rivals with a surprise $4 billion offer for the Commonwealth Property Office Fund (CPA).

The move will force the rival Dexus and Canada Pension Plan Investment Board consortium into an auction process. It will have to reassess its already sweetened proposal and either offer a higher price or settle as a 14.9 per cent stakeholder.

Institutional investors said the entry of GPT had effectively put $3 billion of Australian office assets on the market that could attract another bidder, probably from overseas, keen to get a foothold in the market.

After a long review process, GPT landed the blow to Dexus with an internally funded offer of $1.272 a share, made up of $0.75325 cash and 0.141 GPT securities, giving it an end value of $4 billion, which includes CPA's $1 billion debt.

Excluding CPA's distributions, GPT's offer is equal to $1.24 per CPA unit, higher than the Dexus/CPPIB $1.21 price that was proffered on November 8 and subsequently accepted by the CPA independent directors.

Both Dexus and CPA directors said on Tuesday they were undertaking a review of the GPT offer. The independent directors of CPA's Commonwealth Managed Investment Ltd have advised CPA unitholders to take no action until the GPT offer has been reviewed.

Success would give GPT 18 per cent of the national prime office market. Dexus would have about 26 per cent of the Sydney market and 15 per cent in Melbourne.

GPT chief executive Michael Cameron said the deal, if accepted, would add $1.1 billion of funds under management to the existing $7 billion, through the sale of six assets - including 60 Castlereagh Street, Sydney and 750 Collins Street, Melbourne - to the GPT Wholesale Fund.

Mr Cameron said that aligned with the $10 billion target he set at the start of this year.

If GPT got more than 50 per cent but not 100 per cent, it could fund the deal in any case, he said.

The Dexus offer includes a $41 million payment to the Commonwealth Bank for the management rights of CPA.

Mr Cameron said he would not, at this stage, be drawn on what GPT would pay. If GPT reached compulsory acquisition, he would discuss it with the responsible entity.

"The offer will be 3.5 per cent accretive to GPT in 2014 and offer 30 to 40 basis points in growth to GPT's long term total return," he said.

"The proposal is not subject to due diligence but will be subject to certain conditions including 50.1 per cent minimum acceptance, no internalisation of CPA management, and that a scheme implementation agreement is not entered into with Dexus, CPPIB or their associates."

Stuart Cartledge, the managing director of fund manager Phoenix Portfolios, said the GPT offer left Dexus in a "very, very difficult position".

"Whether they'll increase the bid is a function of how they can make the numbers stack up."

Ratings agency Moody's Investor Service said that Dexus' rating was unaffected by GPT's counter-offer.