Dexus likely to offer $3b for fund Darren Steinberg took a 14.9 per cent stake in CPA. An offer of more than $1.20 a security for the takeover of Commonwealth Property Office Fund (CPA) has been touted by analysts, with Dexsus Property Group expected to make the first move. Such an offer would value the in-play CPA at more than $3 billion. However, as has been seen in the past in the real estate investment trust (REIT) sector, the first offer is not necessarily the last. In 2004, the three listed AMP trusts, which were also externally managed by AMP Capital, were put into play and ended up in a bidding war between Stockland, the then Grange Securities and Westfield. The trigger for the latest round has been the confirmation by Commonwealth Bank that it was looking to internalise the management of the three REITs, CPA, CFS Retail and the New Zealand based Kiwi Income Property Trust. But 24 hours after the declaration, Dexus, run by the former head of property at Colonial Asset Management, the manager of the trusts and also part of the CBA group, Darren Steinberg, emerged with a 14.9 per cent stake in CPA. Dexus bought the stake through a forward contract agreement at the equivalent of $1.1334 per unit. CPA closed steady at $1.17 on Friday. For CFS Retail it has retail investor John Gandel as its main shareholder, who is also a key investor in Charter Hall Group. That cross shareholding has ignited speculation that Charter Hall, together with Mr Gandel, could make an offer for CFS Retail. According to Macquarie Securities analysts, a 14.9 per cent interest in CPA would make it difficult (albeit not impossible) for a competing bid to emerge, and while Mr Steinberg has stated that Dexus is "not intending to do anything else yet," holding a minority interest in a listed REIT is certainly not the end game. "We note that many of the scenarios we present require Dexus to raise equity and would think that such an option is only pursued if Dexus can do so at or above its net tangible asset," the analysts said. Dexus won't necessarily be limited to paying net tangible assets for CPA if it has the backing of a wholesale capital provider - a 5 per cent premium to existing asset values would yield an NTA of about $1.23 per security. "That said, Dexus could seek to only acquire the management rights from here and keep CPA as a listed trust, in which case value will not be realised," the analysts added. The analysts at Moelis & Co are expecting a 5 per cent-plus premium to CPA's $1.15 net tangible assets to be paid by Dexus with a mix of debt, equity and potentially some assets being bought by its wholesale fund. In light of a potential bid, CPA is OK value at net tangible assets or below, but we would avoid Dexus given this deal highlights the lack of earnings growth in the office sector. "Market data points continue to highlight the challenges in the leasing market," the Moelis & Co team says.