Dexus share price in the green after $1b AMP deal confirmed

The property group has agreed to buy Collimate Capital's real estate business from AMP

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Key points

  • The Dexus share price has bounced into the green on Wednesday, trading 1.4% higher at $10.94
  • The property group has agreed to buy Collimate Capital's real estate and domestic infrastructure equity business from AMP
  • The acquisition could cost the company up to $1 billion and will boost its assets under management by $31 billion

The Dexus Property Group (ASX: DXS) share price is climbing on news the company is acquiring AMP Ltd (ASX: AMP)'s real estate and domestic infrastructure business.

The acquisition could cost the real estate investment company $1 billion.

After spending most of this morning in the red, the Dexus share price has recovered to gain 1.44%. Right now, the company's stock is swapping hands for $10.94 apiece.

Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is slumping 0.58% and the S&P/ASX 200 Real Estate Index (ASX: XRE) is up 0.48%.

Let's take a closer look at the acquisition announced today.

About the potential $1b acquisition

The Dexus share price has shaken off its early tumble to trade higher following news it's set to buy Collimate Capital's real estate and domestic infrastructure equity business.

Collimate Capital was managing $21 billion of real estate assets and $10 billion of infrastructure assets at the end of financial year 2021. For context, Dexus had $45.3 billion of assets under management (AUM) as of 31 December.

Dexus expects to pay up to $1 billion through three separate expenses for the transaction.

First, it will provide AMP with a $250 million upfront cash payment for the business.

It could also be liable to pay AMP a $300 million earn-out agreement. AMP will receive the full earn-out if the company's AUM is retained for nine months following the sale.

It's worth noting that AMP is not expecting to receive the full value of the earn-out, instead predicting AUM will fall by around $3 billion.

Finally, Dexus has agreed to acquire co-investment stakes in the platform for approximately $450 million in cash. That expense is subject to discussions with investors, pre-emptive rights processes, and relevant consents.

Around $270 million of that $450 million is earmarked to buy a greater stake in the AMP Capital Wholesale Office Fund (AWOF).

As The Motley Fool Australia recently reported, the AWOF's management is being challenged by Mirvac Group (ASX: MGR).

Dexus plans to retain Collimate's "key people" following the takeover.

It noted that the investment aligned with its fund management business's expansion and diversification strategy. It also expected to power growth through the combination of the two platforms.

Dexus' previously given guidance won't change due to the acquisition. That's because it won't be completed until the next financial year.

What did management say?

Dexus CEO Darren Steinberg commented on the news, saying:

I am excited to announce this opportunity which positions Dexus as a leading real asset manager, with new capabilities and an expanded product offering, underpinned by our best practice governance and risk management framework.

It delivers on our strategic objectives of being a real estate partner of choice and delivering resilient income streams, while enhancing our ability to leverage the key megatrends benefiting real assets …

Infrastructure is a logical next step for Dexus's funds management business, underpinned by compelling sector fundamentals and a positive growth outlook.

Dexus share price snapshot

Today's gains haven't been enough to boost the Dexus share price back into the year-to-date green.

Right now, the company's stock is 3% lower than it was at the start of the year. However, it has gained 10% since this time last year.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. 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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