Australia’s largest office landlord Dexus Property Group has lost its AUD2.5bn (€1.7bn) bid to take over Investa Office Fund (IOF), another Australian REIT.

IOF unitholders voted 60-40 to reject the offer from Dexus at an extraordinary general meeting in Sydney today.

With Dexus now forced to step away, the door has opened for Brisbane-based Cromwell Property Group – or possibly a consortium led by China Investment Corporation (CIC) – to make a play for the AUD3.5bn fund.

In a brief statement, IOF chair Deborah Page announced that the Dexus bid would not proceed because it failed to attract the required voting threshold.

Until Tuesday, the AUD21.1bn Dexus had a 50-50 chance of pulling the deal over the line, needing 75% of unitholder votes for its bid to succeed.

Cromwell seemed to move to scupper the deal, unexpectedly acquiring a 9.85% stake in IOF from CBRE Clarion for AUD250m.

Cromwell has stated it has no plans beyond being a shareholder of IOF. It has dismissed as “speculation” media reports of its plan for a counterbid, but industry sources told IPE Real Estate that it is a question of time before Cromwell makes a move on IOF.

The consortium led by CIC, which includes Blackstone and Mirvac, has yet to show its hand.

Industry sources said today that any new bid will succeed only if there is a higher cash offer. 

Winston Sammut, managing director at Folkestone Maxim Asset Management, who voted against the Dexus offer because it was ”a low-ball” bid, said: “Unitholders have sent a message to the IOF board that the deal was not good enough.”

Sammut said he was also uncomfortable with the conditions attached to the Dexus bid, including a break fee for AUD23m.

He was one of many investors who expected the proposed deal to fail. “I expect nothing to come from Cromwell immediately after the meeting. This will come at a later date,” he said.

“After all, with the still uncertain outlook as to what happens next, Cromwell would be happy to see a lower or falling IOF price before it makes its move.”

IOF’s share price soared to AUD4.13 on Tuesday when it was thought a competitive bid would emerge. At the time of writing, IOF shares had settled back to AUD4.09, albeit still below the AUD4.24 Cromwell paid CBRE Clarion for its stake.

An industry insider who worked with Cromwell in a previous bid said: “The company is a disciplined investor and will be very mindful of not paying over the odds.”

Market speculation now is that if Cromwell does not put up an early bid for IOF, it could call another unitholders’ meeting to take control of the manager of the fund, Investa Office Management Holdings (IOMH).

Cromwell, Australia’s 12th largest REIT, is relatively small compared with CIC and Blackstone, but sources told IPE Real Estate that having the South African property group Redefine as a key shareholder would provide Cromwell with a significant advantage.

“Redefine has the cash, but Cromwell will use a mixture of debt and equity to fund its bid for IOF,” said a debt market source.

The source said there are a number of private equity groups that would be happy to be part of Cromwell’s plans for IOF.

“I regard Cromwell as the most logical acquirer of the assets, including the management platform,” the source said. “The key components, including the people, could slot right in without a problem.”

This source believes Cromwell could attribute more value to the combined enterprise than any other local player as it does not have a competing enterprise that it is looking to shoehorn the IOF business and assets into.

Dexus has a large existing funds management business of its own, and is already the largest owner of central business district office towers in Australia

“Further, I regard Paul Weightman [Cromwell’s CEO] as one of the most astute real estate players in Australia,” the source told IPE Real Estate.

Cromwell previously bid for Investa Property Trust, which was sold to CIC for AUD2.45bn last July. It was one of three short-listed bidders, having been backed by Australia’s Future Fund and First State Super with a debt package of AUD400m.

A source close to the Cromwell bid said at the time that the difference between the bids by Cromwell and CIC was about AUD80mn.

Coincidentally, Dexus and Abu Dhabi Investment Authority (ADIA) put in the second-highest bid, but fell short behind CIC by around AUD50m.

Morgan Stanley Real Estate Investing still owns an 8.9% stake in IOF. It has been gradually exiting the entire Investa Property Group business, which it bought in 2007 for AUD6.6bn.

Morgan Stanley has already sold management rights to IOF to its sister trust Investa Commercial Property Fund (ICPF) for AUD90m. It has so far only received AUD45m from the transaction – it stands to collect a further AUD45m now that the Dexus deal has failed, as the balance was only to be paid if the management rights of IOF stayed within Investa.

Consequently, Morgan Stanley had been expected to vote against the Dexus offer and had been accused of having a conflict of interest. This led to Dexus to take legal action to stop Morgan Stanley from voting as a unitholder – but it was unsuccessful.