Weekly Transaction Update – 23rd June

25 June 2017

This week, we recorded over $1.7B of transactions across 18 assets. Most notable was the announcement by Dexus of the acquisition of 50% of MLC Centre and 100 Harris Street Pyrmont at a weighted yield of just 5.5%. For the MLC Centre, the sale result by QIC produced a stunning result. Dexus targeted the acquisition to capture the strength of the Sydney market that is predicted to occur over the next 3 years. Dexus claim that the building is 25% under rented and with a WALE of just 4.1 years and a 5% vacancy, the building will provide an opportunity to capture and exceed the potential rental reversion that exists. Furthermore, Martin Place is undergoing a significant transformation with the arrival of the Metro Station in 2024, and the redevelopment of at least 3 commercial towers which will help to re-position Martin Place as the premium office precinct in Sydney. The MLC Centre itself has capacity to add a further 10,000sqm of commercial space and 2,000sqm of retail space which will assist to add value to the asset. GPT (the other 50% owner) and QIC are nearing completion of a $150M upgrade including a substantial reconditioning of the facade and upgrades to the lifts and electrical systems and whilst these improvements are necessary to maintain the longevity of the asset, the floor plates and window systems are not ideal for major tenants. The acquisition was priced very sharply and whilst there are opportunities to capture the rental reversion and add additional value, the jury is out on whether this was a smart move by Dexus or a brave move. UBS and CLSA suggest it was an un-disciplined move which would be dilutive to their earnings. The market seemed to agree, trading at a 5% discount to the capital raising price of $10.20 per security. Dexus also announced the acquisition of 100 Harris Street Pyrmont, for $327.5M, a 26,900sqm Heritage building on a cap rate of 5.4%. The building has a 16% vacancy which the vendor (Michael Teplitsky) will cover with a rental guarantee for only 12 months. The key tennts include Domain and WeWork. The vendor acquired this asset in December 2014 for just $90M and progressed with a transformation of the asset into an A Grade Commercial asset. At the time, the vendor was hoping to achieve a sub 7% sale on completion and has now pocketed an extra $75M. Another large deal announced this week was the expected acquisition of Newcastle Marketown Shopping Centre by AMP Capital for $165M. The 25,000sq m centre is anchored by Coles and Woolworths and includes more than 50 specialty shops. The Newcastle city retail centre has struggle for relevance over its long history and more recently since the closure of David Jones in 2011. Marketown sits further west of the city centre and offers a more traditional convenience shopping centre but spread across two buildings, separated by an open air car park. The Centre sits on a large site and provides a significant development opportunity which may bring a retail heart to Newcastle. Also this week Alpha Investment Partners were announced to be the front runners (out of 11 parties) for 160 Ann Street Brisbane. Alpha Investment Partners, an arm of Keppel Capital, has a mandate from Germany’s biggest pension fund, GVK, to buy the office tower, which is 96 per cent leased on a weighted average lease expiry of more than nine years. The vendor, CorVal Partners Value Active Fund No.1 (backed by the Future Fund) purchased the building about five years ago for $82 million. There were a number of other deals this week. Scroll through the list below or head to Propel for further details.