This article is from the Australian Property Journal archive
WITHIN one week of GPT launching a formal marketing campaign for its half share of the MLC Centre in Sydney, co-owner Dexus confirmed it will exercise pre-emptive rights to the stake in an $800 million deal, and concurrently launched a $425 million raising through Citigroup, JPMorgan and Merrill Lynch.
Dexus and its unlisted Dexus Wholesale Property Fund will both take further 25% interests in the 67-storey A-grade tower at 19-29 Martin Place, which has 66,900 sqm of office space across 57 floors, 10,600 sqm of retail space and 308 parking spaces.
The acquisition price reflects a cap rate of just above 4.5%. The asset’s June book value came in at $725 million.
In a late announcement to the ASX yesterday evening, Dexus cited several reasons for the acquisition, including the office tower component being under-rented, “providing an opportunity to benefit from strong Sydney CBD office market fundamentals with circa 28,000 sqm expiring or to be leased by the end of FY21”.
Also among the motivations are the MLC Centre occupying “one of the largest freehold sites in the Sydney CBD” and its location adjacent to the new Martin Place Metro Station, due for completion in 2024; and acquisition of the remaining interest providing Dexus with “full management and operational control”.
Dexus is also anticipating positive rental reversion and added amenity from ground floor retail development across 12,800 sqm.
Since Dexus and DWPF acquired their initial interest in the MLC Centre in July 2017, 15,763 sqm of space has been leased across the property at average face re-leasing spreads of 29.8% and average incentives of 13.8%. The asset has achieved an unlevered total property return of 11.37% per annum in that time.
While Dexus had until March 17 to decide whether or not to take on the remaining interest, GPT decided to test the market, appointing Savills and Cushman & Wakefield agents to handle an expressions of interest campaign that would run until April 11.
Dexus will fund its share of the acquisition through debt and a fully underwritten $425 million convertible note due June 2026, exchangeable into Dexus securities 41 days from closing until 10 days prior to maturity.
The notes are being offered at a coupon in the range of 2.05% to 2.30% and fixed exchange price of $15.05 per Dexus stapled security, at a premium to its closing price of $12.54. Holders of the notes will have a put option at the end of five years.
Dexus was advised by JLL in its negotiations.
The group had just offloaded its A-grade campus-style Macquarie Park office complex at 11 Talavera Road in an off-market deal for $231.2 million, saying the north shore location is a non-core market for group and the divestment “provides capacity to fund development and acquisition opportunities in core markets”.
GPT expects the divestment of the MLC Centre to be broadly neutral to earnings for the group in 2019, before any reinvestment of the sale proceeds. The deal reduces the group’s Sydney office exposure from 65% to 60%, and its weighting to Melbourne increases from 30% to 34%.
Meanwhile, GPT’s unlisted Wholesale Office Fund has reportedly agreed to exercise its pre-emptive right to buy out 2 Southbank Boulevard on Melbourne’s city fringe for $342 million.
Australian Property Journal
