Dexus has secured a large mandate from GIC to estavlish a JV and acquire a 50% interest in Rialto Towers, 525 Collins Street, Melbourne, for $644 million. GIC will hold a 90% share in the JV and Dexus will hold the remaining 10%.
The deal is the largest office transaction so far this year and despite the uncertainty in the current market reflects a strong outcome, with the reported fully leased yield of about 5%.
The 84,000sqm tower is 91.7% occupied with a weighted average lease expiry of 4.6 years as at 1 March 2020. Vacancy is expected to rise in coming months as a result of COVID however Dexus and GIC are of the view that they will benefit from the positive supply-demand dynamics of Melbourne’s office market over the long term. As part of the deal, Dexus will also take on the management of the entire Rialto Towers complex.
The remaining 50% ownership remains with Grollo Australia, controlled by Rino Grollo with the Dexus controlled stake buying out the position held by the Kuwaiti-controlled St Martins Properties.
The establishment of the JV and acquisition of Rialto Towers is consistent with Dexus’s strategic objective of being a wholesale partner of choice, providing the group with a breadth of capital sources through economic cycles.
The property acquisition is expected to settle in May 2020 (subject to FIRB approval), with Dexus’s interest funded from existing debt facilities. This transaction follows the settlement of GIC’s additional investment in the Dexus Australian Logistics Trust, announced to the Australian Securities Exchange on 1 April 2020, and further strengthens Dexus’s growing relationship with GIC.
Dexus CEO, Darren Steinberg said: “We are pleased to continue to grow our relationship with GIC, enabling them to extend their investments into the Australian office market. In the current environment, we are focused on business continuity, and pleasingly were able to close this off-market transaction within our targeted timeframes.”
Rialto Towers is an iconic prime-grade, 55 storey building, and is one of the largest office buildings located in Melbourne’s Central Business District. It is well located on Collins Street with good access to transport and other key amenities.
The JV increases third party assets under management and reinforces Dexus’s ability to secure and transact high quality opportunities off-market. In these times of elevated uncertainty Dexus continues to focus on preserving capital while selectively investing in assets with long-term value and strong fundamentals.