Dexus Gets Full Control of MLC Tower and Lower Retail; Fair Value Estimate Increases to AUD 10.60

The purchase by Dexus and the Dexus Wholesale Property Fund, of DWPF, of the 50% balance of the MLC office tower for AUD 800 million will provide a kick to short-term earnings. However, it is low quality growth, as Dexus is funding its stake through abnormally cheap debt, 7-year exchangeable notes paying a coupon of 2.3%. Benefits will mostly accrue over the longer term via higher fund management fees and flexibility to autonomously redevelop the lower retail levels of the site. Dexus has little scope to develop the 67,000 sqm of office over 67 floors or the underground car parking. But, significant value could be created from enhancing the 5,600 sqm of retail to benefit from increased traffic flow when the new Martin Place Metro Station completes in 2024.