Dexus deal to boost earnings

Dexus Property will increase its 2014 earnings by up to 1.25 per cent and is in line for a debt ratings upgrade, upon the successful completion of the $3.84 billion offer for the Commonwealth Property Office Fund.

The revised offer, which was approved by CPA's independent directors, will add between 1 to 1.24 per cent to the 2014 earnings per security guidance of 5.2¢ and between 2 to 2.5 per cent in the 2015 financial year.

Moody's Investor Services said that while the higher offer would have a modest incremental effect on Dexus' financial profile, its senior unsecured rating remained on review for possible upgrade.

"The review for possible upgrade continues to reflect the significant scale and diversity that the acquisition brings to Dexus," said Maurice O'Connell, a Moody's senior analyst.

"The review will focus on the final terms of the offer; Dexus' strategy in the context of the enlarged group, including plan for financial leverage; its plans in relation to its peak leverage (gearing); and any future plan to sell non-core assets.

"The review will also address Dexus' ongoing strategic growth plan, including appetite for further acquisitions."

Upon completion, Dexus will emerge with a 26 per cent holding, the largest single stake, of Sydney prime grade offices, 15 per cent in Melbourne and 12 per cent in Brisbane.

Upon completion of the deal, which brokers said was likely as no new party was expected to enter the fray, it will increase Dexus' on balance sheet assets by 25 per cent to $9.1 billion, and its assets under management by 28 per cent to $17.1 billion.

Dexus chief executive Darren Steinberg, the former head of property at Colonial First State Asset Management, said once completed the group's gearing would rise to about 34 per cent, which analysts said was industry standard.

"We anticipate that our share of CPA will be absorbed into a new wholesale fund and down the track we anticipate there will be some non-core asset sales," Mr Steinberg said.

Brokers said the next step, upon completion, was a round of potential asset sales, which could include a number of part ownerships that CPA has, such as its stake in Grosvenor Place.