THE deal flow in the commercial property sector finally seems to be heating up now that many believe the market is near bottom.
Commonwealth Property Office Fund (CPA), which was last week pipped by The Carlyle Group and South Korean's National Pension Service on the $685 million sale of Aurora Place, yesterday announced plans to spend $309 million buying assets in Brisbane and Perth.
CPA will buy a development property in Brisbane from Leighton Holdings and a half stake in a building under construction in Perth from Charter Hall.
The purchases are being funded by with a $100 million placement to institutions managed and underwritten by Citi and CommSec, along with a $200 million convertible note issue. It has ended a long dry spell for Citi's equity capital markets team.
Elsewhere in property, Colonial First State Property is in advanced talks to buy the King George Central development in Brisbane from Devine for about $210 million. Some traders have speculated CPA was looking at that purchase, but Insider hears this is off the mark.
Also, unlisted Stockland Direct Office Trust No. 1's sole asset, a half stake in Brisbane's Waterfront Place, could soon be on the market.
But it cannot be put up for sale until after a shareholder vote, scheduled for December 11. And its co-owner, Stockland's listed arm, has a pre-emptive right over the holding, which was recently valued at between $207 million and $228 million.
No deals from Qantas
IT MAY suit British Airways to try to revive the idea of a merger with Qantas, but under boss Alan Joyce, the Australian airline seems much more focused on operations than corporate deal making.
Qantas yesterday held a briefing for 50 analysts and fund managers at its new Centre for Service Excellence in Sydney, where it gave an overview of its capital spending plans, hedging situation and plans to increase shareholder returns.
It revealed the Federal Government was due to make a decision on its domestic and international preferred airline tenders in late December, with $500 million of annual business up for grabs.
Qantas has the most to lose from any changes to the system, as a stricter adherence to the best-fare-of-the-day policy could see it lose its stranglehold and benefit Virgin Blue.
Government employees tend to prefer Qantas due to lounge access and frequent flyer point accretion, which means the national carrier benefits from the current lax enforcement of the best-fare-of-the-day policy.
Meanwhile, British Airways chief executive Willie Walsh told the Financial Times he was still interested in a tie-up with Qantas, although he admitted he was aware of the negative response to the idea in Australia.
Local investors do not want Qantas' relatively strong returns diluted by the poorly performing British airline, which is about to merge with Spain's Iberia.
Qantas' primary concern involving British Airways is making sure the Australian Competition and Consumer Commission allows them to renew their joint services agreement on the Kangaroo route, which has operated since the mid-1990s.
Back on the block
IN WHAT is almost a new float, Prime Infrastructure - the recapitalised Babcock & Brown Infrastructure - will start trading this morning under the code PIH.
There is a new register, led by cornerstone investor Brookfield Asset Management with 39.91 per cent, and three new directors appointed by the Canadian group.
Brookfield was meant to own between 35 per cent and 39.9 per cent of the company after the recapitalisation, depending on the take up of the share purchase plan.
The fact it ended up with a stake at the upper end means many retail shareholders were wary of investing in the new vehicle after having been burned by BBI.
After a 4¢-a-share distribution, BBI shareholders received only one Prime share for each 15,000 BBI shares owned in a huge consolidation.
Brookfield underwrote the first $87.5 million of the $250 million share purchase plan and clearly took up that portion, while the remainder was sub-underwritten by institutions that backed the recapitalisation.
Prime shares were effectively offered at $5.08, which compares to UBS's valuation of $4.89.
The broker is concerned that Prime's assets will depreciate by $340 million this year, compared with its guidance for $90 million of capital spending on maintenance.
UBS believes that over the longer term, capital spending on rail and port assets such as Prime's should be similar to depreciation.
Status quo
AUSTRALIAN companies may have raised more than $50 billion of equity this year, but overall they are no healthier on financial metrics than they were last December.
This is the surprising conclusion of Lincoln Indicators' biannual market health report to be released today.
The reason is that while the new equity helped reduce gearing, it did not improve other metrics like cash flows or profitability.
The fund manager found that only 25 per cent of listed companies were in a strong or satisfactory financial condition that would allow them to remain healthy if an unexpected event struck.
Lincoln is not suggesting that investors avoid the remaining 75 per cent of the market, but that they exercise additional caution when investing in those companies.
Not surprisingly, some of the healthiest stocks were large companies such as ANZ, JB Hi-Fi, Energy Resources of Australia, Woolworths and CSL.
But some smaller companies also have solid enough financial metrics to be considered much less speculative than their peers. Lincoln's top small cap picks include Forge Group, Tox Free Solutions, Cellestis and North Queensland Metals.
jfreed@fairfaxmedia.com.au
