SYDNEY, AUSTRALIA — In a massive deal, Sydney-based DEXUS Property Group (ASX:DXS), an Australian listed REIT (A-REIT), has sold its U.S. central portfolio of 65 industrial properties and capital management initiatives to New York City-based Blackstone Real Estate Partners VII for $770 million. The portfolio spans 16.62 million square feet of industrial space and has an average occupancy of 89.6 percent. The sales price is in line with the projected net book value on June 30, 2012.

The properties in the central U.S. portfolio consist of industrial facilities in Atlanta; Baltimore, Md.; Charlotte, N.C.; Cincinnati, Ohio; Columbus, Ohio; Dallas; Minneapolis; Virginia; Orlando, Fla.; Phoenix; and San Antonio.

“This sale is consistent with DEXUS’ strategy to exit non-core U.S. markets,” said Darren Steinburg, CEO of DEXUS, in a prepared statement. “The residual investment is a high-quality portfolio concentrated in the core West Coast markets. We are focused on driving the most effective outcome from this business, both in terms of returns and overall platform efficiency.”

The transaction also includes capital management initiatives, which feature an on-market securities buyback, a revised distribution policy effective fiscal year 2013 and a U.S. debt restructure.

The securities buyback of up to $200 million will use surplus capital arising from the portfolio sale. The $200 million will equate to approximately 5 percent of equity on issue based on the current trading price. Deutsche Securities Australia Limited will act on behalf of DEXUS in the transaction.

“A buyback represents a sensible use of surplus capital while DEXUS securities trade at a discount to their underlying value and, on this basis, it is expected to enhance value and returns to investors,” said Steinburg.

Additionally, operating cash flows will benefit from reduced capital expenditure once used for the disposed properties. Thus, DEXUS is revising its distribution policy effective in fiscal year 2013. The new policy will be to distribute between 70 and 80 percent of funds from operations, in line with free cash flow. The expectations are that over time the average payout ratio will be around 75 percent of funds from operations.

Proceeds will initially be used to repay debt and, as a result, a restructure of U.S. debt will be undertaken. The costs of this restructure are estimated to be around 12 percent of the gross proceeds of the sale.

The central U.S. portfolio sale is slated to be settled mid June 2012.

— John Nelson