GPT Group trumps rivals in $4b bid for CPA

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 to enter an auction process and reassess its already sweetened proposal and either offer a higher price, or settle as a 14.9 per cent stakeholder.

But 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, that was keen to gain a foothold in the market.

After a long review process, GPT landed the blow to Dexus with an internally funded $1.272 a share, comprising $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 accepted by the CPA independent directors.

Both Dexus and CPA's directors said Tuesday they were undertaking a review of the GPT offer and would comment at a later date. The independent directors of CPA, the Commonwealth Managed Investment Ltd, have advised CPA unitholders to take no action until the GPT offer had been reviewed.

If successful it would give GPT an overall 18 per cent of the national prime office market, while Dexus would control about 26 per cent of the Sydney market and 15 per cent of Melbourne.

GPT's 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. He said if GPT got more than 50 per cent but not 100 per cent it could fund the deal in any case and not need the support of wholesale funds.

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

Mr Cameron said he would not be drawn on what GPT would pay. If GPT gets to compulsory acquisition then he will discuss it with the responsible entity. "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," Mr cameron said.

Stuart Cartledge, the managing director of fund managers 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," he said.

Ratings agency Moody's Investor Service said that DEXUS' debt rating was unaffected by GPT Group's counter offer.