Dexus (ASX: DXS) acquired a 25% stake in Westfield Chermside in Brisbane from Scentre Group (ASX: SCG) for $683 million, marking the launch of a new fund. This is the second transaction on Westfield Chermside between the two parties—a Dexus retail fund acquired a 25% interest in the shopping mall earlier this year.

Why it matters: The partnership between Dexus and Scentre is a sensible strategy for both. Dexus’ ambition is to expand its funds management platform. Gaining access to one of Australia’s largest regional shopping centers should help attract capital investors into its new fund.

  • For the seller of the asset, the transaction unleashed capital. In recent years, Scentre has sold stakes in existing centers and redeployed the capital into center redevelopment. In addition, the group plans to add apartments around and above popular Westfield malls.
  • We expect the transaction to be largely earnings-neutral for Dexus and Scentre in fiscal 2026, considering the size of the transaction relative to both entities’ portfolios. We forecast funds from operations, or FFO, to stay flat year on year for Dexus, while growing by 4% for Scentre.

The bottom line: We keep the fair value estimates for no-moat Dexus and narrow-moat Scentre Group at AUD 9.60 and AUD 3.90, respectively. Scentre is modestly overvalued, after rising 20% year to date. The strong security performance is largely attributed to solid retail sales and robust tenant demand.

  • In contrast, Dexus’ security price has suffered ongoing negative sentiment toward office and concerns around investor redemptions. We are more optimistic than the market, as Dexus’s office portfolio is high quality, and the flight to quality should add to its appeal.
  • We also think Dexus funds management can continue to grow, given the platform’s brand, scale, management know-how, and track record. We’re encouraged to see the recent capital inflows into the platform, as asset valuations stabilize and investor confidence improves.

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Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.