Australia’s Dexus Rethinks Infrastructure Funds After Melbourne Airport Setback

Dexus has launched a strategic review of its infrastructure fund business after a court kept alive a process that could force investors in vehicles managed by the Australian property giant to sell their stakes in the owner of Melbourne’s international airport.

The ASX-listed group said Friday that it had begun reviewing infrastructure funds and mandates inherited from AMP Capital after the NSW Supreme Court upheld a default notice requiring a compulsory sale process for shares in Australia Pacific Airports Corporation, the company that owns Melbourne Airport and regional Launceston Airport.

The court on 29 May ruled that the notice triggered a process to offer the APAC shares held by the funds’ investors to APAC’s remaining shareholders at an assessed fair market value, while also suspending the investors’ governance, voting and information rights.

“The review will build on fund-level work already undertaken and take a coordinated approach across funds and mandates, reflecting Dexus’ commitment to address issues that have emerged and determine a path forward for investors,” the group said in a stock filing.

Forced Exit

The court on Friday extended an injunction until 22 June, allowing the funds’ investors to approach the NSW Court of Appeal to seek a further halt to the forced-sale process pending any appeal, or to reach acceptable undertakings with APAC and the other shareholders.

Dexus said it had agreed to pay the legal costs of the funds’ investors for any appeal they file, as well as any adverse costs order made against them, while noting that APAC’s auditor could meanwhile progress and finalise a valuation of the airport interests.

The strategic review covers the Dexus Diversified Infrastructure Trust, Dexus Community Infrastructure Fund, Dexus Core Infrastructure Fund, Australia Pacific Airports Fund vehicles, infrastructure mandates and separately managed accounts, with the platform representing A$7.3 billion ($4.8 billion) in funds under management as of 31 December.

The business accounts for roughly 20 percent of Dexus third-party funds under management and A$35 million in post-tax management fees before associated costs, according to the group, which said the responsible-entity boards would retain independent advice while Dexus conducts the review with infrastructure clients.

The shake-up comes after the NSW Supreme Court found that Dexus had mishandled confidential airport information during a sale process dubbed Project Mercury. The group had sought to unload a 9.7 percent APAC interest through the JP Morgan-led campaign before co-owners IFM Investors and Future Fund pushed for a sale of the wider airport holding.

Under Pressure

The APAC dispute has put pressure on Dexus CEO Ross Du Vernet and chairman Warwick Negus while clouding the basis for the group’s acquisition of the former AMP real estate and Australian infrastructure platform, which brought Dexus a business with A$31 billion in invested assets under management.

AMP agreed in April 2022 to sell Collimate Capital’s real estate and domestic infrastructure equity business to Dexus for A$250 million upfront, with the buyer also acquiring existing and committed sponsor stakes for up to about A$450 million in cash and AMP eligible for a further earn-out of up to A$300 million.

Dexus said Friday that key executives had been stood down while the board and management considered the court judgment and that the group no longer retained the financial advisors appointed to advise on the APAC sale process.

The turmoil comes as Dexus chief operating officer Melanie Bourke departs after 22 years with the firm, with the group eliminating the COO role as part of a cost-cutting campaign that includes a 5 percent workforce reduction.

Disposal Drive

Dexus is also pressing ahead with asset sales, with The Australian reporting last week that Investa is targeting A$700 million in office purchases from the group as the Sydney-based manager looks to buy into a recovering office market.

The proposed transactions include Sydney’s nearly vacant 30 The Bond and an adjoining heritage building, as well as 123 Albert Street in Brisbane, with the newspaper reporting that the Sydney asset is expected to trade below book value and the Brisbane tower near book value.

Dexus has also begun marketing a Brisbane logistics asset, adding an industrial property to a disposal programme that has accelerated as the group seeks to recycle capital, fund its buyback and reshape a portfolio still heavily exposed to office assets.

The prospective disposals follow Dexus in April shelving plans for a A$1.1 billion office tower at 60 Collins Street in central Melbourne, with the group saying the approved scheme failed to meet internal investment hurdles amid alternative opportunities to generate stronger returns for securityholders.

Dexus has moved more decisively into industrial development, announcing in May a 50:50 joint venture with cement maker Boral to develop a 630 hectare (1,557 acre) site in Melbourne’s Ravenhall suburb into what the partners described as Australia’s largest logistics precinct.