Dexus Property Group, Australia’s biggest owner and manager of office properties, will sell 65 of its U.S. properties to Blackstone Group LP for $770 million to restructure debt, repurchase shares and boost dividends.
Affiliates of Blackstone Real Estate Partners VII, a property fund run by the world’s largest private-equity firm, will buy industrial assets, including three warehouses leased to Whirlpool Corp. in central U.S., the Sydney-based company said in a statement to the Australian stock exchange.
Dexus, whose strategy in the U.S. has been to sell assets in central and eastern U.S. and use the proceeds to buy properties on the west coast, paused disposals last year as it sought to boost occupancies to achieve better sale prices. The group resumed the sales after increasing occupancies in its central U.S. properties by 12.8 percent in the second half of 2011, it said.
“I suspect they’re flagging, ultimately, an exit from the U.S. completely,” said Stuart Cartledge, managing director at Phoenix Portfolios in Melbourne.
Dexus shares rose 0.6 percent to 90.5 Australian cents at the close of trading in Sydney, compared with net tangible assets of A$1.01 a share as of Dec. 31, and A$1 following the sale. The stock has risen 9 percent so far this year, compared with a 6.1 percent gain in the benchmark S&P/ASX 200 index.
Dexus, which valued the properties sold at $762 million as of Dec. 31., said the price paid by Blackstone is in line with the estimated book value of the assets for June 30, 2012.
The company will use part of the surplus capital raised to begin buying back as much as A$200 million ($207 million), or 5 percent, of outstanding shares at current prices, it said. It will also use about 12 percent of the sale proceeds to restructure its U.S. debt, including prepaying some debt obligations and unwinding some interest-rate swaps.
“This sale is consistent with Dexus’s current strategy to exit non-core U.S. markets,” Chief Executive Officer Darren Steinberg said in the statement. “A buyback represents a sensible use of surplus capital while Dexus securities trade at a discount to their underlying value.”
The company also changed its dividend payout to between 70 percent and 80 percent of funds from operations from fiscal year 2013, compared with 70 percent expected for the year ending June 2012.
Dexus will own 24 properties on the west coast and four in central U.S. following the sale, representing about 8 percent of the group’s total assets, it said.
Sale proceeds after transaction costs and the U.S. debt restructuring will be about $660 million, Dexus said. The company will consider its U.S. west coast strategy in its group review and will provide an update at its full-year results presentation in August, it said.
Blackstone Real Estate
For Blackstone, the purchase of the 16.6 million square feet of industrial real estate adds to more than 45 million square feet it already owns through Chicago-based IndCor Properties Inc.
U.S. warehouse owners have seen a net gain in occupied space for six quarters as the economy begins to pick up, according to a March 22 report from Green Street Advisors Inc., a property research firm in Newport Beach, California.
While “industrial fundamentals are slowly recovering,” an increase in rents “remains elusive,” John Stewart, a senior analyst at Green Street, said in the report.
Blackstone and other big private-equity managers have sought to diversify their businesses after the 2008 financial crisis eroded investor appetite for traditional buyouts.
Blackstone’s real-estate unit oversaw $31.2 billion of fee-earning assets as of Dec. 31, up 16 percent from a year earlier and 32 percent from the end of 2009, according to the company. Profit from the division jumped 56 percent to $1 billion in 2011 from a year earlier.
The firm has raised more than $10 billion in less than a year for the Real Estate Partners VII fund, and plans to raise another $2 billion by the end of the year, according to a person familiar with the plans.
Blackstone in June completed the acquisition of the U.S. malls owned by Melbourne-based Centro Properties Group, now restructured and renamed Centro Retail Australia, for about $9.4 billion, the firm’s biggest deal since the leveraged buyout boom collapsed in 2007.