Investors await CPA bid details

Investors in takeover target Commonwealth Property Office Fund (CPA) must now wait for details from the independent directors of its manager on the proposed internalisation by the Commonwealth Bank, before any new offer can be made.

DEXUS Property, which has an option over 14.9 per cent of CPA, has made an indicative joint offer with the Canadian Pension Plan Investment Board equal to $1.15 a security, which investors say is too low.

This was rejected by the fund’s manager, the independent directors of Commonwealth Managed Investment Ltd, who said ‘‘the DEXUS proposal does not provide a compelling value proposition for CPA unit holders’’.

‘‘Should the consortium decide to submit a revised proposal with improved terms, it will be considered on its merits,’’ CMIL chairman Richard Haddock said.

Analysts have said until details emerge of the privatisation and how that affects CPA’s net tangible assets, DEXUS has no comparison value to bid against. CPA is trading at $1.19 and fund managers have said a price of up to $1.22 per CPA security would be needed to sway sellers.

Under an internalisation, CPA investors would likely receive the net tangible assets figure, which is $1.15.

Bank of America Merrill Lynch’s head of property, Simon Garing, said the joint venture between DEXUS and CPPIB effectively provided for four weeks to continue discussions with CMIL to come to an agreement.

‘‘DEXUS also has the option of waiting for the internalisation to complete before making another move,’’ Mr Garing said.

‘‘CPA’s net tangible asset would be reduced under either a takeover or internalisation due to CMIL’s advisory fees, debt break costs, the facilitation fee and the conversion payment for the convertible note, which we believe is about $22 million larger for a takeover than [an] internalisation.

‘‘We estimate these costs would lower CPA’s effective NTA by 4.6 per cent to $1.10 under a takeover or to $1.11 under an internalisation.’’

But Mr Garing said in a takeover scenario, the winner would save up to 5 per cent by not paying stamp duty (as they are not buying the property directly) and that could provide an estimated potential 8¢ benefit, lifting CPA’s effective NTA to $1.18.

Simon Wheatley of Goldman Sachs Australia has retained his ‘‘buy’’ rating on DEXUS.

‘‘Should the proposal be implemented, DEXUS will become the dominant landlord in the Australian office property sector given the $11.5 billion funds under management of office space that DEXUS will oversee,’’ Mr Wheatley said.