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Sovereign wealth funds trade Rialto Tower in $644m deal

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Dexus and GIC exchanged contracts with Kuwaiti-owned St Martins Property on Saturday to seal the deal, despite uncertainty from the coronavirus pandemic, giving a much-needed confidence boost to the office property sector.

“We are pleased to continue to grow our relationship with GIC, enabling them to extend their investments into the Australian office market,” Dexus chief executive Darren Steinberg said.

“In the current environment, we are focused on business continuity, and pleasingly were able to close this off-market transaction within our targeted time frames.”

Dexus and GIC formed a joint venture to begin negotiating the off-market transaction well over a year ago, a source close to the deal said. Under their arrangement, GIC will end up with 90 per cent, while Dexus will take the remaining 10 per cent on its balance sheet.

In a coup for Dexus, the purchase will see it take over full management rights for the entire Rialto complex giving it an annual fee income stream.

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Macquarie Bank analyst Darren Leung said the half share sold on a passing yield of about 4.6 per cent, a pricing “positive” for values in the sector.

“DXS indicated it achieved marginally more favourable pricing prior to transaction close. While the transaction was completed off-market, we view this as a positive read-through for office asset values,” he said.

Industry feedback suggests asset values could decline by around 5 to 15 per cent as a result of falling income from the coronavirus pandemic.

Commercial agency JLL’s December 2019 quarter survey for cap rates in the sector puts Melbourne’s prime CBD office at around 4.4 to 5.1 per cent.

Rialto Tower’s corporate tenants include Bank of Melbourne, China Construction Bank and KordaMentha. The building is 91.7 per cent occupied and has a weighted average lease expiry of 4.6 years.

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