Weekly Transaction Update – 15th March

17 March 2019

This week we recorded 20 major transactions worth $1.19Bn Dexus takes full ownership of MLC Centre As expected, Dexus has exercised its pre-emptive right to acquire the 50% stake in the MLC Centre being offered by GPT. The transaction at $800M is reported to reflect a yield of 4.97% in line with the book valuations of the half-stake Dexus already controls and a 3% premium to GPT’s book value. Dexus and the Dexus Wholesale Property Fund acquired the initial half-stake in the Martin Place tower two years ago from QIC in a $722 million and will jointly acquire the GPT stake. The Harry Seidler designed MLC Centre is of Sydney’s most distinctive landmarks. It comprises a 67 level A-grade building containing 66,900 square metres of office space, 10,600 square metres of retail space and 308 car spaces. Since Dexus acquired their initial interest in the MLC Centre in July 2017, 15,763 square metres of space has been leased across the property at average face re-leasing spreads of 29.8% and average incentives of 13.8%. As a result the property has achieved an unlevered total property return of 11.37% per annum since that acquisition. Dexus believe that the office tower continues to be under-rented and with circa 28,000 square metres expiring or to be leased by the end of FY21 they expect to benefit from strong Sydney CBD office market fundamentals. Dexus indicated that they 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. For GPT, the asset has achieved an annualised return of in excess of 20 per cent per annum over the past three years and the sale of the asset allows the group to reinvest the capital into other developments in Parramatta and Melbourne. Cushman & Wakefield and Savills were appointed to handle the sale for GPT but was always likely to be picked up by Dexus. Elanor acquires Fairfield Centre Elanor Investor Group has acquired the Neeta City Shopping Centre in Fairfield for $85.3 million. Elanor picked up the Centre well below replacement cost and at a yield of circa 7.8%. The Woolworths and Big W anchored centre includes over 100 specialty stores and over 1100 secure parking spaces over a 2.22ha site. While no planning proposals have yet been lodged, the site has been earmarked by Fairfield Council for potential mixed-use rezoning, increased building heights to about 18 storeys and a higher floor-space ratio in its recent urban design study. The site could potentially yield between 595 and 660 residential units across about 75,000 square metres of overall gross floor area on the site, however Elanor will unlikely pursue a redevelopment strategy, instead focus on improving the retail mix and rental income from the existing asset. The property was last acquired by Australian Wholesale Property Fund for $86M in 2006. At that time, the Fund was managed by Allco, however following their collapse the Fund Management was transferred to Arcadia Funds Management. The Centre was sold by Colliers. LOGOs dispose of Yennora parcel LOGOs Group have disposed of a 8.8ha site in Yennora for $49M. The site formed part of a 31ha site acquired by LOGOs and Partners Group back in 2015 for $47M on a sale and lease back to Alcoa who occupied 124,000sqm across 8 buildings. Alcoa had previously announced the closure of the aluminium recycling facility at the site in 2014, paving the way for a subdivision and re-positioning of the site by LOGOs. The latest sale is the final stage of LOGOS sell down, bringing its total sales from subdivision strategy to $129 million over the past three years. CBRE’s negotiated the various sales on behalf of LOGOS and Partners Group. Stockland Sell Toowong Apartment Site In a move away from its previous 2016 strategy of participating in the apartment development game, Stockland quietly disguised the sale of a site in Toowong, Brisbane as a non core retail asset. Stockland announced this week that they had disposed of two retail assets, the Cleveland shopping centre and their Toowong retail and commercial assets for $143M. Their Cleveland asset had been reported in January as being sold to the Haben Group at $103M, allowing us to assume that Toowong was sold for circa $40M. According to the Stockland website, the properties in Toowong comprise 80-88 Jephson, 23 and 27-29 High Street. The Jephson Street asset includes a five-level 7,887sqm office building with a WALE of 1.9 yrs and was valued in June 2018 at $23.7M . The High Street assets comprise a number of commercial and retail buildings (one previously occupied by Woolworths) which were held by Stockland at circa $6.9M in Dec 2017. Little was said this week about the Toowong asset, however Stockland had clearly positioned this asset as a residential apartment project. Stockland obtained a Development Approval in 2017 for the redevelopment of the part site for three 25 storey residential towers containing a total of 530 new apartments and extensive ground floor retail activation. At the time, Stockland identified Toowong as one of the strongest markets for owner-occupiers of apartments in Brisbane and Mark Steinert has said: “Our proposal to undertake this mixed used apartment and retail development in Toowong aligns with our strategy to broaden our residential business and customer reach with an initial focus on sites within our existing portfolio”. Clearly with the oversupply of Brisbane apartments (now unwinding) changed Stockland’s strategy for the site. The buyer of the site is undisclosed, however the immediate play would be to lease up the commercial building and undertake a quick re-sale of the Jephson St asset to sit on the balance of the site as a future residential development whilst generating high street retail rental income. Quite a good opportunistic purchase I suspect. The sale was handled by CBRE. Review our other transaction data at ReSourceData. * indicates unconfirmed price or apportionment of a portfolio sale #ReDataSource