Dexus advised today, that Unitholders in both the Dexus Wholesale Property Fund (DWPF) and the AMP Capital Diversified Property Fund (ADPF) have approved the merger of the two trusts.
ADPF is currently a circa $5.4 billion 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.
Todays vote follows Dexus and DWPF entering into an Implementation Agreement with the Independent Board Committee of ADPF on behalf of the Responsible Entity of ADPF, which was announced to the Australian Securities Exchange on 16 March 2021.
The portfolio includes investments in assets such as Quay Quarter Tower, Sydney (50% interest) which is currently under construction, 309-321 Kent Street, Sydney (50% interest, with remaining 50% co-owned by Dexus), Westfield Booragoon Shopping Centre, Perth (50% interest) and Westfield Warringah Mall, Brookvale, Sydney (25% interest) along with a diversified portfolio of industrial assets.
ADPF also includes minority investments in two other AMP Capital managed wholesale funds, the AMP Capital Wholesale Office Fund (“AWOF”) and the AMP Capital Shopping Centre Fund (“ASCF”).
The loss of the Fund is a major blow to AMP Capital who, despite offering to reduce its fees and acquire certain assets form the Fund, was unable to investors in the Fund to retain the existing responsible entity. AMP had also hoped that the retention of the business would also assist in the separate listing of the AMP Capital business which was announced last week.
ADPF is presently subject to a meaningful volume of redemption requests from existing ADPF Unitholders. Dexus expects to satisfy the ADPF Unitholder redemption requests on a pro rata basis over an approximate 18-month period through the divestment of a number of assets.
Darren Steinberg, Dexus CEO said: “We are pleased that both sets of Unitholders have signalled their confidence in our abilities through their support of the merger proposal and welcome the ADPF unitholders onto our platform. We will continue to execute on the Fund’s investment strategy as we integrate the ADPF assets to drive performance and deliver further economies of scale from a management, procurement and leasing perspective.
The merger will expand Dexus’s funds management business, further diversifying DWPF’s portfolio and investor base while solidifying the Fund’s position as a globally significant diversified real estate wholesale fund.
Kylie O’Connor, AMP Capital’s Head of Real Estate commented: “While AMP Capital submitted a compelling alternate proposal with significant capital support, we respect our investors’ decision to seek the scale that the merged fund will provide.
“I am immensely proud of what AMP Capital has achieved with ADPF. First and foremost, we have always focused on delivering outstanding investment performance for unitholders, and ADPF’s market leading position is testament to this.
“AMP Capital has a long history of managing both single sector and diversified property funds for institutional and direct investors, as well as separate mandates, across the risk spectrum. Real Estate remains an integral part of AMP Capital’s Private Markets business, which is about to embark on a separation from AMP Limited. The team is focused on continuing to provide innovative real estate investment solutions for investors, as well as growth opportunities, as part of the newly created entity,” Ms O’Connor said.
In support of the merger Dexus has agreed to contribute funding to facilitate liquidity for ADPF investors and protect DWPF from value dilution resulting from transaction costs. Specifically, these funding contributions comprise:
- circa $400 million of upfront liquidity to redeeming ADPF Unitholders. This liquidity will be provided via the acquisition of existing ADPF assets and is expected to be subject to pre-emptive rights held by existing investors in the underlying assets and approvals. Should this approval not be secured Dexus will seek alternative methods of providing the liquidity.
- circa $50 million of transaction costs for both ADPF and DWPF. The coverage of ADPF transaction costs is subject to previous agreement between Dexus and the ADPF RE.
The merger will be accretive to Dexus’s Adjusted Funds from Operations (AFFO) and Net Asset Value (NAV) in FY22. In addition, the merger will provide the opportunity to generate further upside through the active management, leasing and development of ADPF assets.
Next steps
Dexus and DWPF have developed a transaction structure that addresses the needs of ADPF Unitholders seeking to redeem while maintaining the strength and liquidity of DWPF. The proposed next steps include:
- The responsible entity of DWPF will replace the ADPF RE on 28 April 2021
- DWPF and ADPF agree to combine via Stapling following an approximate 18-month period whereby Dexus will seek to sell-down a list of identified ADPF assets (Identified Assets) to meet all existing ADPF redemption requests (Redemption Window)
- The amount of ADPF investor redemptions to be met during the Redemption Window is fixed at approximately $2 billion. The Redemption Window has been established to provide time to cleanse the ADPF Unitholder redemption queue prior to the stapling with DWPF
- Where practical, Dexus will be appointed as investment manager and, to the extent practical, as property manager
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