CPPIB, partner clinch $2.8-billion deal for Australian office portfolio

The Canada Pension Plan Investment Board and an Australian property management firm have partnered to buy a $2.8-billion Australian office property portfolio after raising their bid to clinch the deal.

CPPIB and Dexus Property Group said they have reached a conditional agreement to buy the Commonwealth Property Office Fund after raising their bid to $1.20 per unit from $1.15 offered last month. The parties have until mid-December to negotiate a binding agreement.

CPPIB, which manages the assets of the Canada Pension Plan, is increasingly diversifying its holdings around the world and reported earlier this year it already had $5.8-billion invested in Australia, including a joint investment in a new office tower complex in Sydney known as the Barangaroo South project.

Australia's Commonwealth Managed Investments Ltd., controlled by the Commonwealth Bank of Australia, announced in July it was looking to sell its property business, which has been listed as a real estate investment trust on the Australian Stock Exchange.

The company has a portfolio of about two dozen office buildings, which had a book value of $3.7-billion as of the end of June. The venture will be co-owned by CPPIB and Dexus, and managed by Dexus, which is Australia's largest commercial property management firm.

The bidders estimate investors will receive about 72 cents in cash and 48 cents in Dexus stapled securities per unit, but said the final cash amount could vary depending on the operating performance of the fund and the final closing date, which is anticipated to be March 31.

In a statement Monday, the partners said they believe their offer is "compelling" for Commonwealth Property Fund unitholders "with an attractive premium for their units and ongoing participation in the benefits associated with an investment in Dexus."

The parties must still reach a binding agreement after a due diligence process, and requires investor approval.