SYDNEY (Reuters) - The Canada Pension Plan Investment Board (CPPIB), one of the world’s largest pension funds, has teamed up with Dexus Property to make an initial A$2.7 billion ($2.55 billion) offer for Commonwealth Bank of Australia’s office trust.
The bid for the Commonwealth Property Office Fund (CPA), the latest in a flurry of deals in the real estate investment trust sector, underscores growing interest from foreign investors in Australia’s property and infrastructure markets.
High yields combined with clear market regulations and strong export links to Asia, especially China, is putting Australia firmly on the radar for sovereign investors such as CPPIB.
Foreign investment in Australian property, including hotels, office space and retail malls, almost doubled year-on-year to A$39.4 billion last year, according to Jones Lang LaSalle.
The bid for CPA, which has a portfolio worth A$3.7 billion ($3.50 billion) that includes prime retail space in Sydney, will significantly expand CPPIB’s assets in Australia.
The Canadian pension fund, one of the world’s biggest with more than C$165 billion ($158.91 billion) in assets, revealed earlier this year that it owned C$5.8 billion of Australian real estate, infrastructure, public equity and private equity.
“The (CPA) proposal is an excellent opportunity to expand our Australian core office portfolio and is in line with our strategy to invest in high-quality assets that are well position in their markets,” Graeme Eadie, senior vice-president and head of real estate investments at CPPIB, said in a statement.
The acquisition would give Dexus Property Group, Australia’s largest office management firm, a 26 percent share of the key Sydney prime grade office market and increase its office assets under management by almost 50 percent to A$11.5 billion.
Dexus, which already has a 14.9 percent stake in CPA, and CPPIB are offering A$0.68 a unit in cash and A$0.4516 a unit in stapled securities for the remainder of the trust.
The proposal offers CPA unitholders a headline offer price of A$1.15 a unit, slightly under the A$1.20 per security tipped by analysts.
CPA shares had gained 2.6 percent to A$1.19 by early afternoon trade, suggesting the market is hopeful of a higher bid.
CBA Equities analyst David Lloyd told clients in a note that he remained a seller of CPA at A$1.25.
Commonwealth Bank had no comment on the offer. CPA did not immediately respond to requests for comment.
While residential REITs have outperformed the Australian share market so far this year, office REITs, including CPA, and Dexus have underperformed amid a lack of corporate activity, uncertainty ahead of the September federal election, and a flat leasing sector.
Dexus shares were up 1 percent to A$1.05 in afternoon trade, while Commonwealth Bank shares had gained 2 percent to A$72.22.
A deal will need to be approved by Australia’s Foreign Investment Review Board (FIRB) and the Australian Competition and Consumer Commission (ACCC).
If it goes through, CPA will become an unlisted fund, managed by Dexus and owned equally by Dexus and CPPIB. ($1 = 1.0575 Australian dollars) ($1 = 1.0384 Canadian dollars)
Reporting by Jane Wardell; Editing by Ryan Woo