Dexus and DWPF acquire remaining interest in MLC Centre Sydney
NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
12 March 2019
Dexus and DWPF acquire remaining interest in MLC Centre, Sydney
Dexus and Dexus Wholesale Property Fund (“DWPF”) today announced that they have entered into an agreement to jointly acquire the remaining 50% interest in the MLC Centre, 19 Martin Place, Sydney1. Dexus and DWPF will each acquire an additional 25% interest in the property for a total price of A$800.0 million2.
The MLC Centre is a quality A-grade property comprising 66,900 square metres of office space, 10,600 square metres of retail space and 308 car spaces. Since Dexus and DWPF acquired their initial interest in the MLC Centre in July 2017, 15,763 square metres of space has been leased3 across the property at average face re-leasing spreads of 29.8% and average incentives of 13.8%. The property has achieved an unlevered total property return4 of 11.37% per annum since acquisition.
The rationale for the acquisition includes:
- MLC Centre occupies one of the largest freehold sites in the Sydney CBD and will directly benefit from the new Martin Place Metro Station (due for completion in 2024)
- Office tower is under-rented5, providing an opportunity to benefit from strong Sydney CBD office market fundamentals with circa 28,000 square metres expiring or to be leased by the end of FY21
- Ground floor retail development across 12,800 square metres provides exposure to positive rental reversion and will add further amenity for occupants of the office tower (which represents more than 86% of current NLA)
- Acquisition of the remaining interest provides Dexus with full management and operational control
Acquisition funding and Exchangeable Note issue
Dexus is committed to maintaining a conservative and prudent capital structure. Dexus will fund its share of the acquisition through debt and will concurrently launch a fully underwritten offering of A$425 million Guaranteed Exchangeable Notes (“Notes”) due June 2026, which will be exchangeable into Dexus securities at the election of the holder anytime starting 41 days from closing until 10 days prior to maturity.
Consistent with Dexus capital management strategy, the Notes further diversify the Group’s funding sources through accessing an attractively priced new source of capital.
The Notes are being offered at a coupon in the range of 2.05% to 2.30% and fixed exchange price of A$15.05 per Dexus stapled security (subject to certain adjustments), representing a premium of approximately 20% to the Dexus closing price on 12 March 2019. The final coupon and exchange price is expected to be announced on 13 March 2019, following completion of the offer bookbuild.
The Notes will rank as unsubordinated and unsecured obligations of Dexus in line with Dexus’s existing indebtedness. Holders of the Notes will have a put option6 at the end of five years (on 19 March 2024).
Dexus was advised by Jones Lang LaSalle in relation to the acquisition of a further interest in the MLC Centre.
Citigroup Global Markets Australia Pty Limited, J.P. Morgan Securities PLC and Merrill Lynch Equities (Australia) Limited are acting as Joint Lead Managers and Underwriters to the issue. Key terms of the Notes are outlined in Appendix A.
Given the Notes are exchangeable into Dexus securities, key risks of being a Dexus Security holder are set out in Appendix B.
Pro-forma financial impact
Post-acquisition Dexus’s pro forma gearing is expected to increase by 90 basis points to 24.6%7. The acquisition is expected to have an immaterial impact on distributions in FY19. Dexus maintains its FY19 guidance8 of distribution per security growth of circa 5%.
Refer to the PDF for further information.
Head of Listed Investor Relations