AMP confirms sales talks with Dexus and other ‘multiple parties’ over possible Collimate Capital sale

Investors and analysts are tentatively backing Dexus snapping up AMP’s marquee Australian real estate and infrastructure business, as the long-running saga comes to a head.

AMP’s board, led by chairman Debra Hazelton, confirmed deal talks with parties including Dexus. Picture: John Feder/The Australian

Investors and analysts are tentatively backing Dexus snapping up AMP’s marquee Australian real estate and infrastructure business, as the long-running saga comes to a head with the companies saying deal negotiations were taking place.

The 173-year old embattled financial services group confirmed deal talks with property group Dexus and other interested parties on Tuesday, which may result in transactions to offload its prized real estate and infrastructure business. In the background the parties would be seeking to get key institutional clients over the line.

AMP’s private markets business – spanning $44bn in real estate and infrastructure investments and undrawn commitments – was rebranded Collimate Capital earlier this year, as AMP ramped up plans for a spin-off of the unit on the ASX.

AMP on Tuesday said it is “in discussions with multiple parties, including Dexus, regarding the potential sale of the assets and businesses of Collimate Capital.”

The statement follows The Australian revealing a transaction of up to $300m between AMP and Dexus for the sale of the local real estate and infrastructure platform, which is set to be announced as early as this week.

The bidding for AMP’s international infrastructure business sees Apollo Global Management and DigitalBridge vying for the division, according to sources.

Dexus also confirmed the deal talks with AMP on Tuesday and said it “regularly reviews” strategic opportunities that would boost security-holder value.

Dexus said while there was no certainty a transaction would materialise, the company would update investors in line with its obligations.

Collimate Capital boss Shawn Johnson sent staff a memo on Tuesday highlighting the discussions with Dexus and others for the sale of “some or all of the assets and businesses” within his division.

He said Collimate Capital continued to make “strong progress” in readying for the demerger and admitted the sale process was disruptive for staff.

“I would like to recognise the incredible work from everyone involved in the separation and demerger work to date and thank you for continuing to work through this period of ambiguity,” Mr Johnson said in the memo, obtained by The Australian.

“We remain in the position to pursue a demerger as well, and I will keep you informed … While I know this may be unsettling, I ask you to continue to deliver for our clients while we work through this process.”

AMP’s shares declined in early trading before rallying 0.9 per cent to close at $1.07 on Tuesday, giving it a market capitalisation of almost $3.5bn. Dexus’s stock edged up 0.3 per cent to $10.81.

Macquarie Securities analyst Stuart McLean said if Dexus acquired the AMP platform’s local management rights at $200m to $300m, the valuation implied a significant reduction in funds under management and fee revenue “could be withstood” and the deal would remain earnings accretive.

“Should Dexus acquire the platform on an attractive valuation to adjust for the earnings risks, it could more than double the funds management platform, which we view as undervalued by the market,” he added.

“After adjusting for net divestments post balance date (about $1bn) and committed development spend (about $0.5bn), we estimate (Dexus) — gearing falls to 29.3 per cent. This provides the group with sufficient debt capacity to fund the transaction.”

The negotiations with Dexus also separately include AMP’s co-investment stakes associated with funds, which could amount to additional proceeds worth hundreds of millions of dollars.

Barrenjoey analyst Andrew Adams said in a similar fashion to AMP’s sale of its infrastructure debt unit to US firm Ares Management, announced in December, he didn’t expect Dexus to assume the pro-forma cost base of Collimate Capital.

AMP “selling the assets provides clarity ahead of a demerger, but you have to sell all of the assets not some of them,” he added.

Allan Gray portfolio manager Simon Mawhinney, an AMP investor, said: “It’s (Collimate Capital) a people business and with people businesses, generally speaking, people like some certainty.

“Some resolution soon would be preferable for everyone.”

Merlon Capital Partners, also an AMP investor, values the group’s property business at $996m and its local and global infrastructure equity unit at $895m.

Merlon principal Hamish Carlisle said based on higher operating margins at rivals compared to AMP, the assets could be worth more to a strategic buyer.

AMP’s board, led by chairman Debra Hazelton, said it would continue sale discussions “with a focus on maximising the value for shareholders by getting the best outcome for clients and employees”.

“AMP remains in a position to pursue either a sale or demerger of these businesses,” the company said.

Resolution Life Australasia – which bought AMP’s life insurance arm – has mandates with Collimate Capital.

Asked about how the sale and demerger process may impact the firm, a spokeswoman said: “Collimate is one of a number of external mangers that RLA engages. RLA will monitor these developments as part of our standard manager monitoring process.”

Sources said the demerger was set to be dumped as AMP pursues a break-up and sale of the real estate and infrastructure unit.

If a deal on the co-investment stakes proceeds Dexus could commit to acquiring AMP’s interests in the investment vehicles and assets.

Macquarie’s Mr McLean said AMP’s domestic equity investments included a $106m interest in the AMP Capital Retail Trust and a flagged further $330m investment in real estate, “albeit timing of this commitment is unclear”.

He also noted an equity investment for AMP’s US funds management platform worth $157m.