Dexus weighs up buying MLC Centre stake

Sydney’s MLC Centre.
Sydney’s MLC Centre.

Dexus chief executive Darren Steinberg says the property trust will consider buying the other half of Sydney’s MLC Centre, which was put on the market yesterday by GPT Group with an estimated asking price of about $800 million.

Steinberg told The Australian that a joint venture made up of GPT and Dexus had a “pre-emptive clause” giving Dexus about 60 days to decide if it wants to buy the Martin Place building.

“We’ll have a look at it. We’ll take our time and make our assessment in due course,” he says.

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The 60-day clock began ticking yesterday, when GPT gave Dexus formal notice of its wish to sell its half of the building.

Dexus holds half of its stake directly and the other half is held by funds it manages.

The sale comes as office rents in Sydney continue to rise, prompting analysts to question whether GPT is getting out at the top of the property cycle.

Chief executive Bob Johnston says the company’s “successful repositioning of the asset has generated exceptional returns for GPT”.

He adds that GPT plans to tip the proceeds of the sale into new developments, including an office tower being built in Smith St, Parramatta, and a project in Melbourne.

The Melbourne project, an office tower with retail below, at the CBD shopping centre Melbourne Central is awaiting development approvals, but GPT estimates it will have an end value of about $250 million.

Dexus CEO Darren Steinberg. Picture: Chris Pavlich

“The group will also continue to seek new logistics development opportunities following the completion of a number of successful developments over the past two years,” Johnston says.

Macquarie analyst Stuart McLean predicted that GPT’s half of the MLC Centre could fetch $804m, or 11 per cent above its book value, based on a capitalisation rate of 4.5%.

A sale could also help GPT reduce its debt levels, McLean told clients in a note yesterday.

He says GPT’s present gearing could be as high as 31% following its $278 million purchase of the Eclipse tower in Parramatta in August.

“The sale of MLC could reduce gearing back down towards about 27%, which is at the lower end of the group’s stated gearing range of 25-35%,” he says.

He says the sale will reduce GPT’s exposure to the Sydney office market from 65% to 60%, and increase its weighting towards Melbourne from 30% to 34%.

“The sale also raises further questions around GPT’s intentions for the remainder of its Sydney office portfolio,” he says.

“If appropriate pricing can be achieved, we wonder if GPT could look to continue a selldown of assets at this stage in the cycle?”

GPT and Dexus shares both fell 1c yesterday, with GPT closing at $5.52 and Dexus at $11.04.

Meanwhile, in a deal previously flagged by The Australian, Charter Hall says it has paid $804 million to buy the office building at 10-12 Shelley St in Sydney’s Barangaroo precinct.

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