Dexus to revamp MLC Centre after paying $722m for half stake

The $722.6 million purchase, undertaken with the group’s wholesale fund, is part of a larger $1 billion push into Sydney by Dexus, with it also buying a $320 million complex in the inner-city suburb of Pyrmont.

Dexus will raise $550 million to fund the acquisitions and it will also pick up an industrial asset in Melbourne as part of a $739.3 million parcel of deals.

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Dexus will take a 25% stake in the MLC Centre, with the Dexus Wholesale Property Fund to take 25%.

Macquarie and Goldman Sachs are handling a $550 million equity placement and a non-underwritten security purchase plan to eligible Dexus holders will raise up to $50 million.

The raising is at $10.20 per share, representing a 3.4% discount to the last close of $10.56.

Dexus has also finalised a deal to buy 100 Harris St, Pyrmont, for $327.5 million from a private developer as foreshadowed by The Australian.

Buying the MLC stake from the Queensland Investment Corporation locks in Dexus as Sydney’s dominant office landlord despite a series of new towers being developed by rivals including Lendlease, Investa and AMP Capital.

It will also set a crisp benchmark for office valuations as it is being struck on a yield of about 4.75 per cent, in keeping with the forthcoming sale of a stake in Brookfield’s $1.9bn Wynyard development.

Queensland Investment Corporation called in JLL and Savills to sell its half stake in the MLC Centre in March after nearly completing a dramatic revamp of the historic tower with co-owner GPT Group.

Buying the MLC stake will allow it to explore options for the $500 million-plus office tower at 201 Elizabeth St it owns with billionaire Stan Perron while also reaping the benefits of Sydney’s surging leasing market

The sale process drew deep-pocketed investment heavyweights, including rival local real estate investment trusts and offshore buyers, including Blackstone and Morgan Stanley, that were keen to buy into a trophy tower in Australia’s gateway city.

Such assets towers are tightly held and rarely come to the open market and the pricing sets a fresh benchmark for premium towers at a time when capital city markets are already running hot.

Dexus says the deals boost its exposure to the Sydney office market and lift its office portfolio Sydney weighting from 65% to 67%.

It also expands the Dexus footprint in the core Martin Place precinct despite the group’s $2 billion plan for an above station development being rejected by the NSW government.

“These acquisitions continue our dominant positioning across Australia’s major cities and reinforce our belief that Sydney will continue to benefit from the global trend of urbanisation and enhanced infrastructure links over the coming years,” Dexus chief executive Darren Steinberg says.

“With these transactions we’ve broadened our customer base and identified a number of future opportunities to leverage our skills to unlock additional value and accelerate growth,” he says.

QIC managing director, global real estate, Steven Leigh said when it was put on the market that the 62-level tower was an iconic commercial and mixed-used destination and added that the sale was driven by portfolio reweighting.

The JLL team was led by Rob Sewell and Simon Rooney with the Savills team headed by Ian Hetherington.

The purchases indicate that Dexus will remain focused on office buildings, and will dispose of sites it has rezoned into residential or hotel use, and use its broader capabilities to undertake combined office and retail projects.

Dexus in May reiterated its market guidance for this financial year on the back of Sydney’s surging office leasing markets and signalled plans to grow its pipeline of mixed-use projects.

The group has plans for a major hotel and apartment complex on Sydney’s Hyde Park and buying the MLC stake will allow it to explore options for the $500 million-plus office tower at 201 Elizabeth St it owns with billionaire Stan Perron while also reaping the benefits of Sydney’s surging leasing market.

The tower sits on an 8148sqm site bounded by Martin Place, Castlereagh and King streets. It has a NABERS Energy Rating of 4.5 stars.

The Queensland group last December put forward a proposal for co-owner GPT to acquire its half stake in the building under pre-emptive arrangements.

But GPT in February said it had passed up the chance to take full control of the MLC Centre at a price understood to be around $685 million.

GPT chief Bob Johnston said at the time that the asset had gone through a major transformation and the group remained comfortable with its investment.

This article originally appeared on www.theaustralian.com.au/property.