DEXUS simplicity a plus - analyst

BLACKSTONE Group LP's apparent deal to buy assets from DEXUS Property for about $800 million has been given the nod from investors.

BLACKSTONE Group LP's apparent deal to buy assets from DEXUS Property for about $800 million has been given the nod from investors.

Under the deal, DEXUS wants to sell 69 listed properties in the south-east, mid-Atlantic, midwest and south-west, which make up the bulk of its US holdings.

According to a report late on Wednesday night from the US-based Real Estate Alert, DEXUS has sweetened the pot by adding a group of higher-quality properties leased to Whirlpool. The Real Estate Alert report says DEXUS has estimated the value of those properties, in Orlando, Columbus and Atlanta, at about $220 million. It first signalled it was willing to part with buildings leased to Whirlpool when it sold a Toronto warehouse for $79.4 million.

In a short statement in response to the speculation, DEXUS said its current strategy "is to progressively concentrate the US industrial portfolio in preferred west coast markets by selling properties located outside of those markets (the central portfolio)".

The head of property research at Bank of America Merrill Lynch, Simon Garing, said while selling US assets would be near-term dilutive, it should achieve two key goals.

First, it would simplify DEXUS and improve portfolio quality (the US assets have been a drag on income growth).

Second, it would free up "about $1 billion of capital to pursue other, domestic, growth options", including potentially improving the funds management business.

"We still expect DEXUS to review the potential to sell the remaining US core assets in the mid-term," Mr Garing says in a report to clients.

"A simplified DEXUS focused on its high-quality Australian portfolios could see a re-rate to a higher price-earnings ratio (in line with GPT) implying a share price of 97?, even allowing for the dilution of asset sales. This supports our buy thesis."

Deutsche Bank's real estate analysts told clients that assuming the flagged disposal proceeds, DEXUS would maintain a $US533 million ($518 million) west coast portfolio (Seattle, Los Angeles, Inland Empire, San Diego). "In our view, the next question that DEXUS must address is whether a portfolio of this scale is sufficient to sustain the in-house US management and development capability that the group has built up on the west coast over the last two years," the Deutsche Bank analysts said.

"DEXUS has previously flagged [under the former chief executive, Victor Hoog Antink] that a portion of non-core US sale proceeds would likely be redeployed into west coast acquisitions/developments.

"However, we would expect both gearing considerations (assuming a buyback is undertaken) and relatively tight pricing for core west coast assets to limit the extent of capital redeployment into this market."

The buyer, Blackstone, owns a range of US assets as well as the American malls of the Melbourne-based Centro Properties Group, now restructured and renamed Centro Retail Australia.

US warehouse owners have enjoyed a net gain in occupied space for six quarters as the economy begins to pick up, according to a March 22 report from Green Street Advisors Inc, a property research firm in Newport Beach, California.

While "industrial fundamentals are slowly recovering", an increase in rents "remains elusive", a senior analyst at Green Street, John Stewart, said in the report.

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