DEXUS Property Group (ASX: DXS) went into a trading halt to announce a very large property purchase.
DEXUS Property Group is one of Australia’s largest property groups, with a focus on commercial properties such as offices. Its office and industrial properties that it directly owns are worth $13.9 billion.
Dexus’ Large Acquisition
Hot on the heels of acquiring a 50% stake of the MLC Centre for $800 million, it is going to acquire the 80 Collins precinct for $1.476 billion from QIC Global Real Estate.
Dexus will acquire a 75% ownership of 80 Collins precinct while Dexus Wholesale Property Fund will acquire the remaining 25%.
The property is based in the eastern core of Melbourne’s CBD and comprises 105,000 square metres of net lettable area (NLA).
Dexus will be acquiring an existing 47 level A-grade office tower, a new 35 level premium office tower, a new retail podium with 21 tenancies and a new 255 room boutique hotel. The ‘new’ buildings are currently being developed.
There are a number of reasons why Dexus thinks this is a good buy:
It provides a rare opportunity to invest in a whole block precinct, strategically located in Melbourne’s CBD tightly held Eastern Core.
It will give Dexus 92,600 square metres of prime grade office space, including a brand new premium office tower with large floor plates and a 5-star energy rate.
It increases Dexus’ office portfolio weighting to the strong Melbourne CBD office market from 9% to 17% where Melbourne’s CBD office vacancy rate of 3.7% supports significant rental increases.
The deal will be funded by a number of payments, the first two from an equity raising to gather up to $950 million from investors at a price of $12.10.
Dexus has provided preliminary FY20 distribution growth of around 5% with this acquisition and expects an increase of (pro forma) net tangible assets to $10.19 and gearing of 24.7%.
Is Dexus A Buy?
This is a large and exciting acquisition for Dexus, but at this stage in the property cycle I’m not sure the purchase price will definitely seem good value in three or five years from now if Australia has a downturn.
I would rather invest in one of the proven and reliable ASX shares outlined in the free report below instead for dividends.
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