GPT Group will seek out new targets across the Australian property landscape after yesterday choosing to walk away from its surprise takeover play for the Commonwealth Property Office Fund (CPA) with $1.2 billion worth of office and retail property assets in hand.
Dexus Property Group and partner Canada Pension Plan Investment Board yesterday emerged as victors in the drawn-out battle for the CPA, and they will take the bulk of the trust's $4 billion office property portfolio after sweetening their bid and offloading four office assets and an interest in a shopping centre to GPT's unlisted fund.
GPT ended a week of speculation by firmly ruling out a lift to its takeover offer for the Commonwealth Bank-managed office fund, with chief executive Michael Cameron defending the pullback, which comes after earlier unsuccessful tilts at Australand Property Group's office and industrial business and Lend Lease's industrial property fund.
"We don't see this or any other transaction that we choose not to proceed with as a failed bid. The most important thing for GPT is to properly allocate capital to generate the strongest possible total returns for security holders," he said.
Mr Cameron insisted that the group still had opportunities to grow its business through either acquisition or development, and would remain focused on targeting opportunities that generate the strongest possible total returns for investors.
GPT will walk away with a $1.2 billion lift in funds under management and analysts are now focused on the prospect of GPT switching on a buyback in the wake of its full-year results rather than more takeover action.
Credit Suisse analyst Stephen Rich said: "For a company that's focused on the allocation of capital, they were using their scrip in order to buy CPA at a premium -- having missed out on that, it makes sense to use the same firepower to buy back their own stock at a discount."
Hedge funds had driven down GPT's security price but it recovered after the split-up deal with the Dexus consortium emerged last week. GPT securities closed down 1 cent at $3.59 and Dexus lost 1.5 cents to close at $1.025 on a weak day. Goldman Sachs traders said they were surprised that GPT had not traded back up to $3.70 and noted that the group's management had shown very good financial discipline in not overbidding for CPA.
The traders suggested that Investa Office Fund could be next merger target but analysts cautioned that GPT had effectively bid up the prices of office trusts with its play for CPA.
The Dexus consortium's takeover also highlighted the influence of deep pocketed capital partners that many A-REITs have attracted. "The players who have access to third-party capital from sovereign wealth and global pension funds are well positioned in a competitive market for direct assets," Credit Suisse's Mr Rich said. But it is not leading to over-exuberance in the sector.
Antares Equities fund manager Brett McNeill said: "I think it's a positive for the sector; it's avoided an unnecessary, over-the-top bidding war, which it was starting to head towards. It's another example of the sector's much improved discipline compared to pre-GFC -- I am not sure that this sensible outcome would have been achieved in those days."
Mr Cameron also flagged a cautious stance on taking on leverage at this point in the property cycle. "It also means issuing or buying back equity when value can be created for security holders, and not relying on increasing debt in a low-interest-rate environment to enhance short-term earnings at the expense of long-term total return," he said.