AMP sells prized local infrastructure, real estate business to Dexus for up to $1bn, dumps demerger

AMP is preparing a chunky capital return to shareholders amid the landmark carve-up of its private markets business, including a deal of up to $1bn with Dexus.

AMP's board, led by chairman Debra Hazelton, is ditching the company’s demerger. Picture: John Feder/The Australian

AMP is preparing a chunky capital return to shareholders after taking “a quicker route to certainty” with a landmark carve-up of its private markets business, including a deal with Dexus that sees it reap up to $1bn.

The local transaction -- which hinges on three separate payments and the leakage in funds under management being stopped -- led 173-year old AMP to ditch plans to spin off the $44bn private markets business on the ASX. The total amount that will be paid to AMP by Dexus over time ranges from $430m to $1bn.

The sale of the local real estate and infrastructure platform to Dexus and a further transaction to offload the global infrastructure equity division will dramatically reshape AMP. It will be left with just a bank, wealth division, financial advice arm and equity stakes in other firms.

Investors are waiting on the next leg of the divestment, a transaction by AMP to offload its global infrastructure unit, which is expected within days. Sources say US firm DigitalBridge now has its nose in front of larger company Apollo Global Management in the race for the assets.

AMP chief executive Alexis George stressed the board found the Dexus offer compelling and that it provided more certainty when weighing it against a demerger.

“The board and I got to the point that actually getting a quicker route to certainty was important for all stakeholders. I include the clients, the people and the shareholder in that,” she said in an interview.

“Is it sad to think that this is the kind of separation of what Amp has been? It is a little bit and I’m sure it is for our people as well. I think it’s the right way forward for both parts of the business.”

The deal catapults Dexus into the top ranks of the country’s real assets fund managers.

Dexus CEO Darren Steinberg said the acquisition forged a pathway to creating long-term value for the group’s shareholders and investors.

“Infrastructure is a logical next step for Dexus’s funds management business, underpinned by compelling sector fundamentals and a positive growth outlook,” he said.

Dexus will debt fund the transaction and expects the purchase will be earnings accretive in the first full financial year after completion.

AMP held two staff town hall meetings on Wednesday where executives fielded questions and noted there would be no voluntary redundancies ahead of the Dexus deal closing.

MST Financial analyst Lafitani Sotiriou estimates following the local infrastructure and real estate sale to Dexus, AMP will have $2bn in excess capital, which climbs to around $3bn after the divestment of the global infrastructure unit.

On the potential for an AMP capital return Ms George said: “We’ve been very clear about the fact that the majority of these proceeds will be returned to shareholders, and will be used to pay down some corporate debt, which our shareholders would appreciate... So I’m not walking away from that, we just need to work through the mechanics of how we can efficiently return that capital to shareholders.”

The transactions to offload the private markets business -- which was rebranded Collimate Capital earlier this year -- follow a host of AMP divestments in the past two years. That includes AMP’s sale of a residual stake in the entity that bought its life insurance unit, the divestment of its infrastructure debt arm to Ares Management and sale of its global equities and fixed income division to Macquarie Group.

But AMP’s shares dropped almost 1 per cent to $1.025 on Wednesday, outpacing a 0.8 per cent decline in the S&P/ASX200. Dexus’s stock bucked that trend rising 1.9 per cent to $11.

“Overall, (we’re) disappointed with the price from Dexus considering Ares were offering a joint venture for the whole of Collimate valued at $2.25bn in February 2021 (they were to take 60 per cent and AMP to keep 40 per cent). And AMP was to keep $900m for all their stakes in the various funds on top of the $2.25b,” said Alan Kwan, Australian Eagle Asset Management’s portfolio manager.

“The positive is that management and the board have committed to returning the proceeds to investors.”

Allan Gray portfolio manager Simon Mawhinney said: “We do not have the information to make an informed assessment of the merits of these sales.”

Mr Mawhinney noted, though, that after the private markets divestments and other asset sales AMP’s surplus capital would be “phenomenally large” relative to its $3.35bn market capitalisation.

Dexus is buying AMP’s local private markets business, which manages almost $28bn -- split between real estate at $18.2bn and infrastructure of $9.7bn.

Under the deal terms, Dexus will acquire the Australian private markets platform for an upfront cash payment of $250m.

In addition, the property group intends to buy all of AMP’s existing and committed sponsor equity stakes in the platform for up to about $450m, subject to “discussions with fund investors, pre-emptive rights processes and applicable consents”.

The third part of the deal sees AMP also eligible for a cash earn-out of up to $300m, if it maintains assets under management over a nine-month period after transaction completion. But AMP said given the expected loss of $3bn it was unlikely the full amount would be banked.

The transaction also occurs as rival group Mirvac is attempting to gain due diligence to compile a proposal to run the prized near $8bn AMP Capital Wholesale Office Fund.

The Australian revealed on April 17 the deal for the local platform with Dexus would be worth between $200m and $300m, with AMP set to receive additional amounts flowing from its co-investment holdings. This week, this publication also flagged the loss of a UniSuper mandate by AMP which is heading to property group GPT.

Macquarie analysts said the success of the transaction for Dexus would depend on its ability to “retain and stabilise” funds under management, expand margins and use the new relationships to grow.

The transaction with Dexus is expected to complete during the second half.

Investors are trying to get a handle on residual stakes AMP will hold after dismantling the Collimate Capital unit. AMP said it will retain its 24.99 per cent equity stake in US-based real estate manager PCCP and a sponsor stake in PCCP Fund VIII.

AMP chairman Debra Hazelton said the group was continuing negotiations to sell the global infrastructure equity business “in order to achieve the best outcomes” for shareholders, customers and staff.

DigitalBridge manages more than $US45bn and invests across data centres, mobile phone towers, fibre networks and edge infrastructure. It is up against Apollo, which has about $US498bn of assets under management.