Dexus raises $500m and offloads Sydney assets
Listed property giant Dexus has signalled the tougher environment for offices could be here to stay by launching $500m in exchangeable notes and selling off assets.
The building sales have long been brewing and Dexus had held the line against discounting on direct sales. It has kept key assets across Sydney’s suburbs and the central business district which it weighed selling.
But it offloaded an office building in Sydney’s Rhodes held by one of its managed funds and also sold an industrial park in the city’s north in St Leonards at a premium.
Dexus surprised the market by unveiling the $500m note offer on Monday. The proceeds will go into buying $100m of existing exchangeable notes and it will use the remainder to extend its funding.
The coupon was priced at 3.5 per cent and the yield to maturity is 4.25 per cent.
UBS warned that Dexus may see short term weakness due to a $135m placement to hedge the equity component and its shares were sold down in early trade on Tuesday.
Dexus is paying a similar price to traditional debt but UBS noted the way the deal was put together signalled a switch.
“The exchangeable structure also suggests a more cautious tone and a preference for lower gearing, together with existing and planned asset sales at up to a 10 per cent discount to book value, in a period of increased capital requirements across the business,” UBS analysts Tom Bodor and Grant McCasker said.
They said the deal showed Dexus would effectively prefer to pay an insurance premium to ensure its balance sheet is robust should a more negative economic scenario play out.
The company’s asset sales also show that office values are under pressure, while warehouses are still going for a premium.
Singaporean developer Frasers bought the two buildings in Rhodes from the listed Dexus Industria REITfor about $160.5m. The offshore group already has a position in the corporate park and will look to revamp it.
The Dexus-run fund said it sold 1A and 1C Homebush Bay Drive, as it is mainly focused on industrial property, and the proceeds will go towards cutting debt. Fund manager Alex Abell said the Rhodes sale progressed a strategy of creating a top industrial REIT and boosted its balance sheet.
Adam Woodward of Colliers brokered the deal.
Macquarie Securities analyst Stuart McLean said the Rhodes sale was positive even though it was below the trust’s June valuation of $189m. The analyst added that the price was about a 20 per cent drop in value on what the buildings were held at last December but noted markets were opening up.
“Given we believed devaluations were likely once transaction volumes recovered, we view the divestment as a positive despite the discount,” Mr McLean said.
But industrial property is showing its mettle, with funds manager Gateway Capital teaming with global house Invesco to buy an industrial property in St Leonards from Dexus for $118.5m.
The pair picked up 12 Frederick St off the trust’s balance sheet in a deal via JLL The complex is on a 1.8ha corner site and well connected to nearby major roads.
In a sign that industrial assets are still faring well, Dexus said the proceeds would contribute approximately $50m pre-tax trading profits in this financial year.
The Frederick St property was the Gateway venture’s third acquisition with Invesco after they bought 61 Milperra Rd, Revesby, and 8-14 Burns Road, Altona, in June. The strategy is to focus on urban infill opportunities on the east coast, and there is still strong demand for space as the last mile delivery market.
Gateway Capital CEO Stuart Dawes said the latest property would have solid income growth driven by strong occupier demand coupled with the company‘s active style.