Dexus - Potential Takeover target in 2025

An excellent discussion piece from Archie Sampson @Prepped Talent!

Is Dexus a prime private equity acquisition target? Dexus is trading at a 30% discount to it's Net Tangible Assets (NTA).

Oversimplified: they could sell off all their assets and pay out a 30% gain to shareholders. And this discount doesn't even take into account the $600m+ value sitting in management rights.

In 2019 Brookfield took advantage of a heavy NTA discount with Aveo, taking it private for $1.3b and now looking to exit for $3b+.

The main reasons a REIT would trade at a significant discount include:
- Management
- High Interest Rates
- Sector-Specific Issues

Management
If investors lack confidence in the management team, they'll place their money elsewhere.
Example: In 2019 Aveo was trading at over a 40% discount after an investigation uncovered questionable business practices.

Interest Rates
Higher interest rates = higher cost of debt - as REIT's are highly leveraged, this impacts profitability.
It also increases risk-free bond rates. When the returns are similar, investors would rather a risk-free return so they sell REIT shares & buy bonds.
The current rates have had an impact across all REIT's, bar Goodman (who are riding the AI wave), with many trading at a slight discount.

Sector-Specific Issues
This is where Dexus has been taking a bigger hit than other REIT's.
Dexus is highly weighted towards office real estate, it makes up ~60% of their portfolio, and the investor sentiment on office space is weak.
The view is that WFH means that companies will require less office space and therefore rents will drop.
However, although people are doing a few days WFH a week, they are all coming into the office on the same days, the total space required hasn't changed.

Even if less office space is required, Dexus has premium assets that will always be in high demand by large corporates.

Worth noting: property vals will likely come down as the spread between cap rate (property returns) and bond rate is too narrow.

Could Dexus present a similar opportunity to Aveo?

(reposted from: https://www.linkedin.com/posts/archer-sampson_is-dexus-a-prime-private-equity-acquisition-activity-7221998358570180608-HflD?utm_source=share&utm_medium=member_desktop)