A year after buying Commonwealth Property Office Fund, Australian landlord Dexus Property Group is seeking to further expand its office empire.
But chief executive Darren Steinberg quashes speculation he's about to bid for larger listed shopping-mall owner GPT Group. After Dexus tapped investors for equity last week, JP Morgan said such a bid couldn't be ruled out.
"We don't see why a tie-up or merger with GPT would make any sense to Dexus at this point in time," said Mr Steinberg in an interview. "We don't need to get big for big's sake. We have scale."
According to a person familiar with the situation, Dexus has entered the sales process for Morgan Stanley's real-estate business in Australia, Investa Property Group. It has also been considering property investments along Australia's east coast.
"We look at any opportunities where we can create value for unit holders, whether small or large, and that is one of the benefits of the Dexus business model," Mr Steinberg said. "We can operate throughout the curve."
A land grab is taking place in Australia's real-estate market as companies that repaired their balance sheets and regained investor confidence following the financial crisis refocus on growth.
At the same time, property values are being driven up by low borrowing rates and strong demand from international investors, drawn by property yields that remain high compared with those offered by the US or Europe.
Some companies are seeking to join up to save costs as a slowing economy saps consumer confidence and creates challenging conditions for the retail-, industrial- and commercial-property sectors.
In February, shopping-mall owner Federation Centres agreed to buy Novion Property Group, a fellow regional player, for $7.78 billion ($US6.06 billion) in an all-share deal due to be voted on by investors next month.
Also in February, Morgan Stanley said it would begin a process to sell its Investa Property Group, which owns office towers in Sydney and Melbourne and manages about A$US9 billion worth of office properties. Dexus has teamed up with a capital partner to join several parties that have lodged proposals.
"I think they'd like to be the only choice, the major office REIT in the sector," CLSA Michael Scott, who covers Dexus, said.
Through its growing funds-management business, Dexus has allied in recent years with large capital partners, including the Canada Pension Plan Investment Board, the National Pension Service of Korea and Australia's sovereign-wealth fund. Last year, it teamed up with CPPIB to defeat GPT in a $3 billion bidding war for Commonwealth Property.
"The challenge today is finding the right opportunities to grow rather than finding the capital to deploy," Mr Steinberg said in the interview.
Last week, Dexus raised $400 million via a share issue to reduce debt and bring leverage below the company's target range of 30 per cent to 40 per cent, giving it the opportunity to gear up should the right opportunities arise.
"What we've currently found are a number of opportunities, predominantly along the east coast, that meet our return hurdles," said Mr Steinberg, while declining to comment on specific targets.
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Steinberg dismisses talk of a bid for GPT Group, says move wouldn't currently make sense.
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