Merger deals back on the table

With the highly anticipated indicative offer for Commonwealth Property Office Fund now on the table from DEXUS Property and the Canadian Pension Plan Investment Board, market talk is this will open the floodgates for a new round of mergers and acquisitions.

But there will also be a swath of new trusts entering the sector, via initial public offerings, such as the Fife Capital and 360 Capital industrial floats, the mooted $150 million John Singleton-backed pub fund and the $600 million GDI Property Group office fund.

With interest rates at a low point, investors are chasing yield and higher returns. Allocation to real estate is rising and consultants and advisers haven't been this busy for many years.

As more cash flows into the super funds, they will look at backing private, one-asset closed-end syndicates and trusts, such as the Centuria offering.

While M&A deals are highly lucrative from a mercenary point of view for investment bankers, public relations companies and newspapers, they aren't always welcome by the overall industry.

Small to medium investors, who buy the securities, do so for the long term and are not always happy to be forced to sell via a takeover.

In 2000 and later in 2004, the number of listed property trusts, as they used to be called, now known as real estate investment trusts, went from an untenable 90 to about 25.

As well, some deals were hostile, which led to the permanent breakdown in relationships.

Property employs a vast number of people and, in a small country, most of the leading players know each other or know of each other.

So will the sector go down this path again? Probably not, according to long-time investors.

It seems that the Dexus tilt is not hostile. Darren Steinberg was the former head of Colonial First State Asset Management, which was the manager of the Commonwealth Bank's property office, CPA, the current takeover target and its stablemate, CFS Retail.

The bank said in July it wanted to internalise the trusts. To ensure it was above board, independent directors of the bank's Commonwealth Managed Investment Ltd, the manager of all the bank's investments, formed a subcommittee to view the offer.

Investors are now awaiting the next move, which will come from the bank, when it provides the internalisation proposals to the CMIL independent directors.

It is expected that Dexus will be forced to offer a sweetener, but that won't be decided until the directors get an idea of what the internalisation numbers are, otherwise Dexus would be bidding against itself.

The usual argy bargy will now ensue with talk of asset revaluations, potential portfolio divestments, including the part ownership of 5 Martin Place, above, and staff changes, all of which generates fees and, of course, makes for interesting reading.

ccummins@fairfaxmedia.com.au