DEXUS reinvests funds from US sale into offices

DEXUS Property Group has ended the calendar year with the $503.7 million purchase of key Sydney assets, after raising a similar amount with the sale of 27 US industrial properties.

By InvestSMART · 22 Dec 2012

By InvestSMART ·
22 Dec 2012

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DEXUS Property Group has ended the calendar year with the $503.7 million purchase of key Sydney assets, after raising a similar amount with the sale of 27 US industrial properties.

DEXUS has exchanged contracts to acquire interests in a portfolio of three Sydney office properties, including a joint venture with the DEXUS Wholesale Property Fund.

The properties to be acquired include a 25 per cent interest in 225 George Street, a premium-grade office building known as Grosvenor Place, a 50 per cent interest in 2 and 4 Dawn Fraser Avenue at Sydney Olympic Park and the joint (50/50) purchase of 39 Martin Place with the property fund.

The portfolio has been acquired off-market from the Direct Property Investment Fund, a wholesale office fund managed by the property division of Colonial First State Global Asset Management. The Direct Property Investment Fund is a closed-end fund and is in a wind-down phase.

The chief executive of DEXUS, Darren Steinberg, said he was pleased to be able to announce the reinvestment of a significant portion of the proceeds from the sale of its US industrial portfolio into quality Australian office assets.

On Thursday, Mr Steinberg announced DEXUS had raised $561 million through the sale of the majority of its US industrial portfolio. The deal was done in two transactions, with 26 of 27 US properties sold, including 23 industrial properties and three land parcels in Texas.

He said an entity advised by Heitman LLC in Chicago exchanged contracts to acquire a portfolio of 25 properties.

Brokers said the deals were positive for DEXUS and the real estate investment trust sector, which is poised for a more active 2013.

The head of property research at Bank of America Merrill Lynch, Simon Garing, said he thought Mr Steinberg had done a great job in achieving several quick wins.

"The sale by DEXUS of the bulk of its US portfolio at a 13 per cent premium to book value would now set the stage for the next phase of growth," Mr Garing said.

"The company highlighted gearing will be 24 per cent post the sale, with management happy to ramp up to 35 per cent at this point in the cycle, giving the company about a $1 billion 'war chest' with the focus on Australian CBD office acquisitions."

An analyst at Moelis & Co, Simon Scott, says the deals were a good outcome for DEXUS, given the premium paid allowed the company to fund the transaction costs, breaking of swaps and the cost of setting US denominated debt into Australian dollars.

"The sale of the US assets improves the quality and risk profile of the group's earnings and allows it to focus on one geographic jurisdiction within its core asset classes," Mr Scott said.

"The resultant reduction in gearing and access to low-cost funding will allow the company to continue growing its portfolio domestically."

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Frequently Asked Questions about this Article…

What did DEXUS do with the proceeds from selling its US industrial properties?

DEXUS reinvested a significant portion of the proceeds into Australian office assets, completing a A$503.7 million purchase of interests in three key Sydney office properties. The move shifted capital from its US industrial portfolio back into Australian CBD and prime office assets.

How much did DEXUS raise from the sale of its US industrial portfolio?

The article reports DEXUS raised about A$561 million from the sale of the majority of its US industrial portfolio. Earlier references in the article also note the sale involved 27 US industrial properties, with the transactions done in two parts (26 of 27 properties sold).

Which Sydney office properties did DEXUS acquire with the reinvestment?

DEXUS exchanged contracts to acquire interests in a portfolio of three Sydney offices: a 25% interest in 225 George Street (Grosvenor Place), a 50% interest in 2 and 4 Dawn Fraser Avenue at Sydney Olympic Park, and a 50/50 joint purchase of 39 Martin Place with the DEXUS Wholesale Property Fund.

Who did DEXUS buy the Sydney office portfolio from?

The portfolio was acquired off‑market from the Direct Property Investment Fund, a wholesale office fund managed by the property division of Colonial First State Global Asset Management. The article notes that this fund is a closed‑end vehicle that was in a wind‑down phase.

Who bought DEXUS’s US properties?

An entity advised by Heitman LLC in Chicago exchanged contracts to acquire a portfolio of US properties. The article states that Heitman’s advised entity agreed to buy a portfolio of 25 properties as part of the broader transactions.

What did analysts and brokers say about the sale and reinvestment?

Brokers described the deals as positive for DEXUS and the REIT sector, suggesting a more active 2013. Simon Garing at Bank of America Merrill Lynch praised the quick wins and noted the US sale was at a 13% premium to book value, positioning DEXUS for growth. Simon Scott at Moelis & Co said the premium helped cover transaction costs, swap break costs and currency conversion, and that the sale improves the group’s earnings quality and risk profile.

How did the US sale change DEXUS’s gearing and funding capacity?

Post‑sale gearing was reported at about 24%, and management indicated comfort to ramp gearing up to 35% at this point in the cycle. Analysts suggested this would give DEXUS roughly a A$1 billion ‘war chest’ to pursue Australian CBD office acquisitions.

What does this repositioning mean for everyday investors watching DEXUS or the REIT sector?

According to the article, the repositioning shifted DEXUS from US industrials into higher‑quality Australian office assets, which brokers and analysts viewed as a positive outcome. They highlighted improved earnings quality and a clearer geographic focus — signals that everyday investors might see as stronger positioning for domestic growth within core asset classes.