The Dexus Property Group (ASX: DXS) share price will be on watch this morning after the company announced it is acquiring the remaining 50% interest in the MLC Centre in Sydney in conjunction with the Dexus Wholesale Property Fund (DWPF).
What was in the announcement?
Dexus and DWPF will each acquire 25% interest in the property for a total price of A$800 million. Since Dexus and DWPF acquired their initial interest in the MLC Centre in July 2017, 15,763 square metres of space has been leased across the property at an average face re-leasing spreads of 29.8% and average incentives of 13.8%.
Management cited the MLC occupying one of the largest freehold sites in the Sydney CBD and benefits from the new Martin Place Metro Station (due for completion in 2024) as key reasons behind the acquisition. The office tower is under-rented and represents an opportunity for further rental revenue expansion while also providing Dexus with full management and operational control.
While maintaining a prudent capital structure, Dexus announced it will fund the acquisition through debt and launch a fully-underwritten offering of $425 million Guaranteed Exchangeable Notes due June 2026 with a 2.05%-2.30% coupon.
Is the Dexus share price a Buy?
The Dexus share price has been surging higher in 2019 and is up around 1% year-to-date to outpace the S&P/ASX200 Index (ASX: XJO) despite building headwinds for the real estate sector in Australia.
The Australian real estate investment trust (A-REIT) has significant exposure to office and industrial property, which are traditionally much more stable in terms of margin and tenancy levels throughout the economic cycle than retail or residential real estate. The A-REITs have been volatile in the last 6-12 months, but have broadly managed to sustained or grow their share prices with the exception of Vicinity Centres Re Ltd (ASX: VCX) which is down marginally for the year.
I’m not particularly bullish on most of the A-REITs but I think given its office and industrial focus, Dexus is well-placed to ride out any property storm throughout 2019. For those looking for more growth than income, I’d suggest taking a look at these top growth shares that have been tipped as market beaters.
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Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.