Dexus (ASX:DXS) share price rises on proposed $15 billion fund merger

The Dexus Property Group (ASX: DXS) share price is rallying today following the announcement of its proposed $15 billion fund merger.

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The Dexus Property Group (ASX: DXS) share price has been steadily rising today following the announcement of its agreement with AMP Capital Diversified Property Fund (ADPF).

At the time of writing, shares in the real estate group are changing hands for $9.55 a share, up 2.19%.

Merging to be bigger and better

According to the release, the Dexus Wholesale Property Fund (DWPF) has entered into an implementation agreement with the independent board committee of ADPF.

Similar acronyms aside, the two property funds are said to share similarities in property assets. As per the release, the overall sector allocation and portfolio quality of ADPF are comparable to the DWPF portfolio.

The proposed merger has been in the works for the past 6 months. Additionally, it seems the objective of the merger is to optimise performance through economies of scale. That should mean fewer costs and greater profits, explaining the increased Dexus share price today.

Dexus CEO, Darren Steinberg, added his comments in the release:

We are pleased to be able to make progress that will enable this merger to be voted on by both sets of Unitholders. This merger delivers further economies of scale from a management, procurement and leasing perspective across the platform and is strongly aligned with our objective of being the wholesale partner of choice.

If the merger is approved ADPF’s $5 billion fund will combine with DWPF’s $10 billion fund to… you guessed it, make a $15 billion property fund. The fund will remain invested in the office, retail, and industrial sectors.

What’s next for the Dexus property fund?

As noted in the release, Dexus and DWPF have struck a balance in the transaction structure that addresses the needs of ADPF unitholders, while also providing liquidity for DWPF. Consequently, the merger is subject to respective responsible entities, as well as both DWPF and ADPF unitholders.

Voting on the merger is expected to be held late next month. If approved, Dexus will then provide further details around how much the group will need to contribute and what the expected returns are.

Dexus share price snapshot

The Dexus share price was clobbered last year due to concerns of COVID-19. The uncertainty surrounding lease arrangements on office spaces, retail stores, etc. had investors fleeing. However, unlike many other shares, Dexus is still nowhere near its pre-pandemic highs. In fact, over the past 12 months, the property group’s share price has dropped 19.4%. 

In spite of the impacts, Dexus continues to pay a significant dividend, yielding 5.5%. 

The property market is picking up pace once again. Although, as mentioned by the AFR, there are ‘looming headwinds’ as lifestyles have changed.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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