CPA - Commonwealth Property Office Fund

[UMike]

Ahhh well I got it.....

A bit before I thought I would and it closed a cent higher also.....

Lets hope it all picks up from now. (with a divi).

 

[nulla nulla]

Ahhh well I got it.....

A bit before I thought I would and it closed a cent higher also.....

Lets hope it all picks up from now. (with a divi).

CPA tested the support level of $1.075 today before clawing its' way back to $1.085. I hope it isn't going to test the lower support levels arround $1.02.

 

[nulla nulla]

CPA not only tested the support level of $1.02 but dipped further to $1.005. The rally to close on Friday at an interday high of $1.05 was encouraging but the prospect of this simply being a "dead cat" bounce (possibly supported by the prospects of a forthcoming dividend of $0.03) shouldn't be overlooked.



Like a lot of A-REIT's, CPA has dropped by more than 10% over the past four weeks with the exodus of foreign investment funds. At some point the intrinsic value of CPA has to underpin the share price. The yield for long term punters must be getting attractive again as the share price retreats to December 2012 levels.

As always do your own research and good luck.

 

[nulla nulla]

After buying into CPA at $1.14 in late May 2014 for what I thought would be a quick trade on the rebound leading up to the Ex-div date, I had the setback of a white knuckle ride down to $1.005 before the CPA share price found support arround the $1.08 - $1.12 range after going ex-div. Things weren't looking good and after six weeks I was looking to exit arround $1.145 (or $1.13 if it didn't look like making the $1.145) figuring that I would use the dividend of $0.032 per share that we will receive in August to cover any trading losses and/or brokerage costs.



I would like to thank CBA for suggesting that CFX and CPA internalise their management,. Also I would like to thank Dexus for snapping up enough shares to lift their stake in CPA to 14.9% prompting take-over speculation. In the opening surge of trading on Thursday I happily sold my parcel for a capital gain $0.03 per share taking the combined profit of div and capital gain to $0.062 per share or just under 6% for a seven or eight week hold.

There was a good article in the Financial Revue on friday:


http://www.theaustralian.com.au/busi...-1226685258206


There is another article in todays Sydney Morning Herald BusinessDay section by Carolyn Cummins:

http://www.businessday.com.au/business/dexus-likely-to-offer-3b-for-fund-20130728-2qsne.html

$1.20 per share is being mooted as a realistic acquisition price. Dexus is infront whether they win or lose.

 

[rbgmauq]

CPA is facing the resistance of 1.200. The technical indicator at au.stoxline website shows a buy with the 1.402 target price in six months.

 

[nulla nulla]

CPA is facing the resistance of 1.200. The technical indicator at au.stoxline website shows a buy with the 1.402 target price in six months.

The share price spike in April-May this year appears to have been driven by the influx of off-shore funds chasing yield. The apparent relative strength of the Australian Economy and the elevation of the Aud$ to the status of a "hold" currency must have given the foreign investors some confidence/comfort to jump on board the likes of CPA and other A-REIT's.

This confidence evaporated quickly when the likes of Soris and Goldman Sachs started selling down gold and the Aud$. The dollar dropped almost 15% and the share price fell around another 10%. The irony is that now the Aud$ has dropped and the share price has dropped, the yield is even more attractive to off-shore investors.

However with the economy and the market in a constant state of volatility, dependant on China's growth rate and the US "Quantative Easing" program I find it hard to see CPA reaching $1.402 in the next six months. I can't see it developing the growth, returns, distribution and yield rates to sustain that sort of price level.

 

[nulla nulla]

Well that killed that. Dexus threw it's hat in the ring. CBA and Dexus had an Argy/Bargy episode as to who did what in the proper manner or otherwise. Dexus revealed that it was using Deutsche Bank to accumulate 14.9% of CPA shares between $1.13 and $1.20 with an expected average of approx $1.135 and every one is happy with CPA trading in a really tight range between $1.14 and $1.18 (mostly) as Deutsche Bank buy and sell shares to accumulate the necessary number of shares at the agreed price. If that isn't market manipulation then what is?



What a joke. If I had the extra capital, I would buy CPA every time it hit $1.14 - $1.145 and sell when it hit $1.15 - $1.155. The oportunities to make a quick $0.01 - $0.015 must be screaming out to all those market movers and shakers with robot traders and millions of $ to punt with.

 

[nulla nulla]

How quickly things change. The share price which had been heading south along with most other A-REITs, in late May early June, suddenly jumped into the $1.14 -$1.20 range as Dexus (with the help of Deutsche Bank) announced that they were acquiring a stake in CPA of 14.9% of the shares on issue. After the initial market reaction pushing the price above $1.17 the market settled down into a tight range between $1.14 and $1.16. It was almost tradeable on reasonable volumes.

However to me the risk to trading seemed to be how/whether Deutcshe Bank would be pushing the share price arround with their accumulation strategy, buying and selling trying to keep their average price in the lower end of the $1.135 to $1.20 range.

Now Dexus have made a non binding offer, in partnership with the Canada Pension Plan Investment Board (CPPIB), to pay out CBA for the management rights and to buy all the shares in CPA they don't already own (having now acquired control of 14.9% of the shares on issue).



The market immediately pushed the CPA share price above the offer value (cash and scrip in Dexus) of $1.15 closing out on Friday at $1.19. CPA has issued a "do nothing for now" recommendation to share holders as the offer is presently non binding etc. It would seem that the market considers that CPA is worth more and that there may be another bidder yet to be flushed out.

As always do your own research and good luck.

 

[nulla nulla]

CPA is reported as having rejected the Dexus offer as not having sufficient value and will not be allowing Dexus access to their records to conduct due dilligence. It would seem that if Dexus wants to peek under CPA's skirts they will have to sweeten the offer and commit to it rather than run with this "non binding conditional" bid.

Interestingly, the turnover of shares in both companies yesterday was higher than usual and disproportionately higher than the turnover in the rest of the A-REIT sector. Also interesting is that there has been no mention of how the relationship between CPA and Grollo would be effected if the take over bid was to occur. From memory I beleive that Grollo has first right of refusal over some of CPA's Melbourne assets as well as some equity in CPA (?)

Also it seems odd that the Dexus approach is so close to the NTA of CPA. To go to the effort of organising capital backing for the buyout you'd think they would have jumped in with a "premium" bid to knock out any other potential buyers. More to come yet, I think.

 

[nulla nulla]

The reference above in respect of "the relationship with Grollo" should be a relationship with "Grocon". My apologies.

 

[coolcup]

Also it seems odd that the Dexus approach is so close to the NTA of CPA. To go to the effort of organising capital backing for the buyout you'd think they would have jumped in with a "premium" bid to knock out any other potential buyers. More to come yet, I think.

Why would they go in with a premium? They already own a blocking stake so no other buyer is going to trump them unless it is at such a high level that DXS is happy to sell into the other buyer's bid. By bidding at NTA they are forcing any other dark horses out there to make a play at above valuation.

Don't forget that the DXS CEO Darren Steinberg was at CPA when he made the much maligned acquisition of the Grocon assets, issuing capital below NTA to buy office buildings at valuation. The market slaughtered him for that deal and he has gone to great lengths to show that he is not paying above the odds this time (note the detailed financial assumptions disclosure at the back of the ASX presentation which is not typical of a deal like this in the sector).

My view is that this will play out as all M&A for passive REITs in the sector does these days. First a bid at NTA, the CPA board reject it. Then a period of discussion where DXS then come out with a new offer a few cents above their original proposal. CPA board accept and look good for forcing the price higher, even though it is at a level which DXS was willing to pay in the first place. CPA has limited options here, they are too small to internalise and rival bidders have been scared away by DXS blocking stake.

 

[nulla nulla]

Why would they go in with a premium?.

Generally a serious takeover offer is at a premium to NTA of a few % to swing the deal. To me Dexus don't appear to be fully commited to their offer unless as you point out it is merely the first stage to be upped after rejection.

They already own a blocking stake so no other buyer is going to trump them unless it is at such a high level that DXS is happy to sell into the other buyer's bid. By bidding at NTA they are forcing any other dark horses out there to make a play at above valuation.

Unless of course someone else, already lurking in the register quietly acquires more to effectively block Dexus? (I think we have previously discussed the possibility of someone like GPT doing this). Turnover for CPA has been fairly high the last few weeks and it is unclear whether the 14.9% block of shares Dexus has a "right" to acquire from Deutsche Bank, has in fact been completely acquired yet.

Don't forget that the DXS CEO Darren Steinberg was at CPA when he made the much maligned acquisition of the Grocon assets, issuing capital below NTA to buy office buildings at valuation. The market slaughtered him for that deal and he has gone to great lengths to show that he is not paying above the odds this time (note the detailed financial assumptions disclosure at the back of the ASX presentation which is not typical of a deal like this in the sector).

Funny that the market movers pushed CPA down to the Grocon price, then bought it back up to NTA, then the yield chasers pushed it up higher, then the off shore investors sold it down again with the Aud$ and then a sniff of a takeover pushes it back up to NTA+.

Carolyn Cummins has an interesting article in todays Sydney Morning Herald BusinessDay. The fee exposure of CPA to buying out the management rights from CBA reduces the NTA from $1.15 to $1.10 but the avoidance of stamp duty on the transfer of the assets through a takeover increases the NTA to $1.18. Seems the current price reflects the markets expectation of a deal being done around this level.

My view is that this will play out as all M&A for passive REITs in the sector does these days. First a bid at NTA, the CPA board reject it. Then a period of discussion where DXS then come out with a new offer a few cents above their original proposal. CPA board accept and look good for forcing the price higher, even though it is at a level which DXS was willing to pay in the first place. CPA has limited options here, they are too small to internalise and rival bidders have been scared away by DXS blocking stake.

Your assessment is probably on the money. The directors will probably get a fee payout as well.

 

[nulla nulla]

This mornings notices on the ASX indicate that Dexus/Deutsche Bank/CPPIF have reduced their CPA holding from 14.64% to 13.55%, however National Australia Bank has weighed-in filing a "Initial Substantial Holder" notice advising that they have accumulated 5.553% of CPA shares. No indication that NAB is acting with the Dexus team. This represents a combined 19.103%, getting interesting.

 

[nulla nulla]

Vale CPA

Why would they go in with a premium? .......My view is that this will play out as all M&A for passive REITs in the sector does these days. First a bid at NTA, the CPA board reject it. Then a period of discussion where DXS then come out with a new offer a few cents above their original proposal. CPA board accept and look good for forcing the price higher, even though it is at a level which DXS was willing to pay in the first place. CPA has limited options here, they are too small to internalise and rival bidders have been scared away by DXS blocking stake.

Good call coolcup. Along comes the revised bid from Dexus for CPA at a slightly higher cash/scrip bid of $1.205, followed almost immediately by the CPA independant directors acceptance along with confimation of agreement from CBA to off load the management rights to Dexus. Hugs and kisses all round, some due dilligence to confirm all is in order and then put the deal to bed.



CPA has provided a fantastic return over the past four and a half years as the CPA share price recovered from the GFC lows, from buying on the lows and selling on the highs as well as picking up several distributions along the way. However it has been too tight for me to trade since the takeover bid was announced. Large scale traders no doubt would have jumped in arround the $1.185 to $1.19 with exits arround the $1.20 to $1.205 levels, being happy to pick up profits of $0.005 to $0.015 but this was too tight for me and I felt that there were better trade opportunities elsewhere.

I will miss you CPA

 

[coolcup]

Good call coolcup.

Thanks Nulla Nulla. What do you think of IOF? Do you think it could be the next target? They have recently sold their DOF investment which was the poison pill in the structure. I wonder if GPT may be interested given they were beaten to the punch by DXS on CPA??

 

[Gringotts Bank]

When bid for takeover, do the REITs often not get offered much of a premium to the current SP? If someone could explain the fundamentals pls that would be good.

 

[nulla nulla]

When bid for takeover, do the REITs often not get offered much of a premium to the current SP? If someone could explain the fundamentals pls that would be good.

I suspect it would depend on how close the targets' share price is to the nta of their assets. If the target reit is already trading at a premium to nta, then there is little room to move for the company launching the take-over to get a bargain. If the targets' share price is trading at a discount to nta then the take over company can offer a premium to the share price but still be less than the nta.

 

[Gringotts Bank]

I suspect it would depend on how close the targets' share price is to the nta of their assets. If the target reit is already trading at a premium to nta, then there is little room to move for the company launching the take-over to get a bargain. If the targets' share price is trading at a discount to nta then the take over company can offer a premium to the share price but still be less than the nta.

Thanks. Do REITs normally trade at a SP close to nta?

 

[nulla nulla]

Thanks Nulla Nulla. What do you think of IOF? Do you think it could be the next target? They have recently sold their DOF investment which was the poison pill in the structure. I wonder if GPT may be interested given they were beaten to the punch by DXS on CPA??

I hope not. I trade the price swings in IOF as well and would miss the trade opportunities if it was swallowed by someone like gpt. I suspect that iof has a fair few shares under a tight grip by the major share holders and any propective suitor would have to win them over first.

I don't think gpt wants to a pure office portfolio or for their reit portfolio to be disproportionately weighted to office. I understand that gpt wants to maintain a diverse mix of office, retail, etc so when one sector is down the others are more likely to be able to carry them through any sector slumps. You never know.

 

[nulla nulla]

Thanks. Do REITs normally trade at a SP close to nta?

Most of them seem to be these days. Some up some down, but not too far off.