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 new 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 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 returning to REITS searching for higher-yielding investments.
This weight of money will force more asset sales and expansion strategies among the REITS.
But it also comes at a time when rents remain flat due to a rise in supply from new developments such as Docklands in Melbourne and Sydney's Barangaroo South.
To fund the deal Mirvac will raise $400 million through a fully underwritten institutional placement at $1.69 per stapled security. A non-underwritten security purchase plan will allow eligible securityholders to acquire Mirvac stapled securities at the placement price.
The GE Capital portfolio, which has been up for sale since late last year, had been viewed by potential buyers such as Blackstone and Hong Kong's Pacific Alliance Group.
Mirvac had been touted as the buyer for the past two months, but it wanted to release its review, which it revealed on Thursday, before announcing the acquisitions.
The assets are a mix of core A-grade CBD assets and redevelopment opportunities designed to boost Mirvac's integrated model.
They include Allendale Square, Perth and 90 Collins Street, Melbourne, which increase Mirvac Property Trust's portfolio exposure to the Perth and Melbourne CBDs.
The five Sydney CBD assets are located in the "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 under construction for redevelopment and will be the new home for accounting group Ernst & Young.
The selling agent, John Cullen of CBRE, said the assets were keenly sought and well priced.
According to Mirvac chief executive Susan Lloyd-Hurwitz, the GE deal aligned with the mandates set for Mirvac's office portfolio following its 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 to 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.
"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," the 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."