) The Australian Finance Property trusts soar as mergers loom TURI CONDON, PROPERTY EDITOR 1 June 2007 WHEN Morgan Stanley Australia CEO Steven Harker spoke on the phone to Investa chairman Steve Crane two months ago, he may well have kicked off the third wave of takeovers in the Australian property trust market. Yesterday's $4.7 billion "knockout" bid for Australia's biggest office owner put a rocket under property trust share prices with the index up 4 per cent, a record one-day gain, according to one investor. The market took bets on other potential targets, with Mirvac up 9.5 per cent, DB RREEF up 7.65percent, Commonwealth Office up 6.4 per cent, US office owner Tishman Speyer up 5 per cent and Multiplex up 4 per cent (Mutiplex is already in play, with a bid from Canada's Brookfield and the founding Roberts family). But this will be different from the previous rounds of takeovers -- friendly mergers in 1999 and hostile takeovers in 2003. Both were Australian trusts swallowing other Australian trusts. This time it is the big US private equity players with billions of dollars to spend. Blackstone, which in February struck a record-breaking $US39billion ($47.5 billion) deal to buy Equity Office Properties in the US, has talked to the top 10 Australian listed property trusts, according to DB RREEF chief executive Victor Hoog Antink. There were 100 offshore private equity groups with the capability to take over an Investa-style trust, one investment banker said yesterday. The big local trusts have been running the ruler over Investa for some time. However, constrained by the need to deliver short-term returns, they haven't made the numbers work. Talk has abounded since last year that both Stockland and GPT had their eye on Investa, but sources said at least one of the parties pulled up at a price of $2.30 a share late last year. Citigroup analyst Peter Cashmore put a break-up value of $3 a share on Investa, assuming a 5.25 per cent capitalisation rate for the $4.8 billion office portfolio. The office holdings account for more than 80 per cent of earnings. (Citigroup is advising Morgan Stanley.) Investa had been a "wounded beast", according to one shareholder, with its disastrous acquisition of NSW home builder Clarendon resulting in a $93 million writedown last year, and instability since the departure of former CEO Chris O'Donnell a year ago. While the bid was supposed to be confidential, and Morgan Stanley's name did not leak, Investa's share price rose 15 per cent from the start of talks at the end of March to just before the bid was announced. Certainly many fund managers were caught short yesterday with underweight positions in Investa, believing the price had already run hard. "No one expected that bid. There will be pain out there today," said one banker. It raises the question of whether private equity will result in a rerating of listed property share prices, with only "the barbarians" able to take a tilt at the highly priced Australian property stocks. Steve Crane told The Australian yesterday that he had walked out of the fruitful negotiations at midnight on Wednesday, only to be pulled over and breathalysed on the way home. He was in the clear. But you can imagine a few drinks will go down before this round of corporate activity comes to a close. Bottom of Form
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