What’s Behind the Stockland / Dexus Property Deal?

This morning, Dexus Property Group [ASX:DXS] announced that they are buying Waterfront Place as well as Eagle Street Pier. Presently, the properties are 50% of Stockland [ASX:SGP].

The two properties are located upon prime land in the Brisbane CBD. Waterfront Place is definitely an office tower with 59,448 square metres of room. Eagle Street Pier is really a riverfront retail precinct, best known for its stunning views over the Queensland River.

Dexus will pay $635 million for the two properties.

The money is from the equity raising that Dexus were only available in April. Dexus raised about $450 zillion through a security purchase plan and an institutional placement. At the time, Dexus said that ‘this equity raising is intended to give Dexus the flexibility to pursue these [value-enhancing investment opportunities] while at the same time making certain gearing remains at the lower end of its target range of 30-40%. The opportunities include interests in perfect grade CBD office properties…‘ So now the market knows what those properties were.

Why is Dexus buying now?

Darren Steinberg is the Chief executive officer of Dexus. ‘This acquisition is an excellent long-term core investment for both Dexus as well as DWPF [Dexus Wholesale Property Fund], and Eagle Road Pier offers one of the best long term development sites in the Brisbane CBD.‘ Said Steinberg of the deal.

Penny Ransom is the fund manager of DWPS, and the winner of most awesome name for a fund exec. She said that ‘We are excited by the opportunity to acquire this particular strategic, long term asset.’

In other words, Dexus is confident about the future of the CBD office market. And here’s why: their stats show the premium workplace market in Brisbane is actually on the up. According to Dexus, Brisbane CBD office vacancy went down 1% last quarter. They forecast the supply cycle to peak in the 2016 financial year. As well as importantly, they see a ‘flight in order to quality‘ trend in Brisbane town offices. The vacancy rate for premium office space is around half that of other space.

Why is Stockland selling?

Stockland managing director as well as CEO Mark Steinert said that ‘The sale of our interest in Waterfront Location and Eagle Street Boat dock reflects our strategy to selectively down-weight our exposure to office at this point in the cycle and reuse capital into other accretive opportunities.A Stockland also described the office renting market in Brisbane because ‘challenging‘. So they aren’t as upbeat about the Brisbane office marketplace as Dexus is.

Stockland co-owned the two properties with the Future Fund. When the deal is done, Stockland will get $317.5 million.

Today, Stockland also announced they would pay an estimated dividend of $0.12 per reveal. That will take their full year results payments to $0.24 per share. The dividends will be paid at the end of August, not long after Stockland is due to release their end of year results.

Who the market agrees with

There was a difference in viewpoint between Dexus and Stockland. But the marketplace came down firmly on the side of Dexus. At the time of writing, Dexus’s share price had lifted 1.18%, while Stockland was lower 0.23%.

Source: Google Finance
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Investors will be watching the Brisbane office rental stats keenly to determine who was right after all.

Of program, there are other ways to gain contact with the commercial property market. In his report ‘5 Things You Can Do Within the next 30 Days To Boost Your Retirement Pot’, Kris Sayce introduces a listed property fund that he says is ‘certainly a cheaper way to add property to your portfolio than buying an investment property‘. This A-REIT (Australian investment trust) holds stakes in both Stockland and Dexus, as well as several other top property companies. Click here to discover how to get your free copy of this report.

Eva Mellors,
Contributor, Money Morning