Mirvac has kicked off its new strategy of focusing on the core office sector with the highly anticipated acquisition of seven GE Capital office assets in Sydney, Melbourne and Perth, valued at $584 million.
The move comes a day after Mirvac unveiled its strategy of focusing on office markets, inner-city apartments and metropolitan mixed-use residential developments.
This is one of the largest transactions in the office sector for the past two years and marks the start of the next phase of growth in the real estate investment trust sector.
With the low interest rate environment, super funds, sovereign funds and high net-worth investors are all returning to the REIT sector in a dash for higher- yielding investments.
This weight of money will force more asset sales and expansion strategies among REITs.
But it also comes at a time when rents remain flat due to a rise in supply from developments such as Docklands in Melbourne and Barangaroo South, Sydney.
To fund the deal, Mirvac will aim to raise $400 million through a fully underwritten institutional placement at $1.69 per stapled security, as well as a non-underwritten Security Purchase Plan to follow to allow eligible security holders to acquire Mirvac stapled securities at the placement price.
The GE Capital portfolio has been up for sale since late last year and has been viewed by a number of potential buyers, including the global Blackstone Group and Hong Kong-based Pacific Alliance Group.
Mirvac has been touted as the buyer for the past two months, but wanted to get its strategic review out to investors before announcing the acquisitions.
Under the deal, the assets are a mixture of core A-grade CBD assets and redevelopment opportunities designed to leverage Mirvac's integrated model.
They include Allendale Square, Perth, 90 Collins Street, Melbourne, which increases Mirvac Property Trust's core portfolio exposure to the Perth and Melbourne CBDs.
The five Sydney CBD assets are located in the strategically significant Alfred, Pitt, Dalley and George streets precinct, restocking Mirvac's commercial development pipeline with assets that can be held for the long term.
These will complement Mirvac's existing 190-200 George Street property in Sydney, which is being redeveloped and will be the new home for Ernst & Young.
The selling agent was John Cullen, of CBRE, who said the assets were keenly sought and well priced.
Mirvac chief executive Susan Lloyd-Hurwitz said the GE deal aligned with the directional mandates set for Mirvac's office portfolio following its strategic review.
"It enhances Mirvac's office operational leverage across a $4.1 billion portfolio of 32 properties and the equity raising will allow Mirvac to fund the acquisition and remain in line with its revised target gearing range of 20-30 per cent," she said.
Analysts at Macquarie Private Wealth said the transaction was expected to be neutral to the 2013 financial year earnings and accretive from the 2014 financial year onwards.
"Assuming a cost of debt of 5.7 per cent and conservatively providing for a 3 per cent vacancy factor given short-term lease expiries, we estimate the earnings accretion from 2014 to be just under 1 per cent on our forecasts," Macquarie analysts said.
"However, we note that given five of the seven assets in the portfolio are earmarked for development, potential exists for the generation of development profits in future years."
Andrew MacFarlane, of Goldman Sachs, said the start of any redevelopment was subject initially to planning approval and subsequent tenant pre-commitment.
"Given the current state of the Sydney office market, with elevated leasing incentives and limited effective rental growth, the securing of any tenant pre-commitment remains a challenge, given Mirvac's current Sydney office development opportunities are 56 per cent (8 Chifley) and 74.5 per cent (200 George Street) pre-committed.