The Independent Board of AMP Capitals’ Diversified Property Fund (ADPF) has agreed term with Dexus on an Implementation Agreement (IA) which will provide investors with an opportunity to switch managers.
Under the IA, Dexus will seek to combine ADPF with its own Dexus Wholesale Property Fund (“DWPF”) via a stapling transaction.
ADPF is currently a circa $5 billion fund containing a high-quality diversified property fund that invests in the office, retail and industrial sectors. The overall sector allocation and portfolio quality is comparable to the DWPF portfolio. The portfolio includes investments in assets such as Quay Quarter Tower, Sydney (50% interest) which is currently under construction (and already subject to other sell down agreements), 309-321 Kent Street, Sydney (50% interest, with remaining 50% co-owned by Dexus), Westfield Booragoon, Perth (50% interest) and Westfield Warringah Mall, Brookvale, Sydney (25% interest) along with a diversified portfolio of industrial assets. ADPF also comprises minority investments in two other AMP Capital managed wholesale property funds.
ADPF is currently ranked no. 1 in both the MSCI/Mercer survey and the ANREV Australian Core Open End Fund Index survey for the most recent one-year period.
AMP Capital has put forward an alternative proposal to the merger, which it believes will deliver value to unitholders. The proposal is supported by AMP Limited, which has kept Ares Management Corporation informed. AMP and Ares are currently in discussions regarding a joint venture for AMP Capital’s private markets businesses, including Real Estate
The IA is an outcome of the discussions with the ADPF RE and engagement with ADPF Unitholders over a six-month period. The IA includes provisions customary for a transaction of this nature, including exclusivity arrangements.
Michael Sheffield, DWPF Fund Manager said “ADPF is a strategic fit with DWPF’s existing portfolio providing additional exposure to premium assets. The ability to merge this portfolio in a cost and capital efficient manner enables us to create a combined entity which delivers strong benefits to investors.”
Deborah Coakley, Executive General Manager, Funds Management said: “We pride ourselves on our approach to corporate governance and have a track record of delivering outperformance and supporting the investment strategies of our capital partners. We look forward to adding further value to the merged portfolio and welcoming new investors to our platform.”
Darren Steinberg, Dexus CEO said: “We are pleased to be able to make progress that will enable this merger to be voted on by both sets of Unitholders. This merger delivers further economies of scale from a management, procurement and leasing perspective across the platform and is strongly aligned with our objective of being the wholesale partner of choice.”
To implement the merger, the respective responsible entities will need to approve the deal for a vote by both the DWPF Unitholder votes (50% threshold) and an ADPF Unitholders vote (75% threshold). Unitholder meetings to vote on the merger are expected to take place in late April 2021.
Kylie O’Connor, AMP Capital’s Head of Real Estate commented: “While we respect the IBC’s decision, we have strong conviction and confidence in our team and its knowledge of the ADPF portfolio. The performance of ADPF speaks for itself and we are confident that our proposal will deliver benefits to all ADPF unitholders. We will continue to engage directly with unitholders on the benefits of our proposal and the high-quality nature of the portfolio.
“Our focus has always been on performance for unitholders, as well as managing the assets sustainably, and creating premium spaces for our tenants. Our track record in managing shopping centres and office locations is a strong testament to this.
If the merger is approved, it will expand and diversify Dexus’s funds management business. In addition, it will diversify DWPF’s existing wholesale institutional investor base through the introduction of new investors, while expanding existing relationships already established within Dexus’s funds management platform.
Our Views
Dexus may struggle to win the approval of unit holders. The portfolio contains interests in two Westfield Centres (which Westfield effectively manage), 2 large office assets (one of which is already joint owned and the other with existing sell down arrangements) and a portfolio of industrial assets. Whilst Dexus has a better capability than AMP Capital in the industrial space, it is unlikely to add much value to the remaining portfolio. We would expect that AMP Capital could match or improve upon the fee regime being offered by Dexus, so I believe it will come down to who has the more compelling strategic plan on the industrial portfolio.
Dexus will argue that there is value to be gained through better management of that portfolio with some rationalisation, whilst AMP can really only support a move selective sell down some of the assets whilst the market is hot.
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