Commonwealth Property acquires half of 201 Kent Street Sydney
18 December 2000
Commonwealth Property Limited, manager of the Commonwealth Property Office Fund (CPOF) and Commonwealth Property Investment Fund (CPIF), today announced the acquisition of a 50 per cent interest in 201 Kent Street, Sydney, for $100.3 million.
The acquisition was simultaneously exchanged and settled on Friday 15th December 2000, with CPOF and CPIF's Commercial Sector each acquiring a 25 per cent interest.
The remaining 50 per cent of the property was acquired by Bankers Trust.
201 Kent Street is the major office tower within the twin tower complex known as Maritime Trade Towers. It is a modern "A Grade" office building constructed in 1988 and comprises 34 levels in the main 'Aon' tower, the five level Grafton Bond Building and retail space.
The interest acquired is a long leasehold with 84 years unexpired and includes an income stream for 14 years from 207 Kent Street, the adjoining Maritime Trade Tower, as a result of a service agreement between the freeholder, Waterways Authority and the leaseholder.
According to Mr Graham Pearson, Fund Manager of CPIF, the acquisition is complementary to CPIF's Commercial Sector portfolio.
"The attractive income yield of 8.5 per cent after acquisition costs is an appropriate balance to the Sector's recent commitment to an $85 million investment in Sydney's premium grade Aurora Place, via Commonwealth Property Investment Trust, where strong capital returns are anticipated," Mr Pearson said.
"Together with Aurora Place, the 201 Kent Street acquisition will increase the CPIF Commercial Sector's Sydney CBD exposure to 36 per cent of gross assets and reflects Commonwealth Property's positive outlook for the Sydney CBD office market," he added.
Strong rental growth is expected to continue for prime office space in the Sydney CBD with market consensus forecasts averaging around 5 per cent per annum over the next five years for A grade space and more for premium space.*
Mr Trevor Ratcliff, Head of Listed Funds for Commonwealth Property, said this is an excellent first acquisition for CPOF since it listed last year.
"It will enhance distributions from day one and provide exposure to another prime A grade Sydney asset with strong fundamentals," he said.
It is estimated the acquisition will add 0.07 cents per unit to the distribution for the six month period to 30 June 2001, and 0.1cents per unit for the year to 30 June 2002.
The property is well leased and will strengthen the portfolio through reduced exposure to any one single tenant or property, yet maintain CPOF's long lease expiry profile in excess of six years.
The acquisition will be through an efficient structure, which has the potential to add value in the future either through acquisition of the co-investors interests or the freehold interest.
CPOF maintains a conservatively geared balance sheet relative to its peers with a debt to total assets ratio of 22 per cent.
34 level 'A' grade office tower, 5 level 'Grafton Bond' building and retail space. The complex provides a total net lettable area of 41,240 square metres with typical floor areas of 1,741 and 1,325 square metres in the low and high rises respectively
- Car parking for 269 vehicles provides a ratio of 1 bay per 153 square metres, almost 3 times the maximum under the current Sydney Council planning codes
- The Grafton Bond Building (net area 2,593.4 square metres) comprises a five storey heritage warehouse, which has been converted into fully restored and serviced boutique office suites. The retail space has a net lettable area of 1,242.3 square metres
- Located in the northern end of the western corridor of Sydney CBD, with excellent views to the west
- Currently 96.3% leased with average term to expiry of 6.3 years. Key tenants include Aon Risk Services, Austrade, RAMS, COMindico and Grajim
CPOF also announced revaluations of two of its properties - 385 Bourke Street, Melbourne and 120 Pitt Street, Sydney - which showed a $24.5 million increase over the previous valuations undertaken in January 1999 prior to CPOF listing in April, 1999.
Following the revaluations and post the 201 Kent Street acquisition, these two properties represent 40 per cent by value of the total portfolio of eight properties and add just under 2 cents per unit to NTA, lifting it to $1.00 per unit.
Mr Ratcliff attributed strong rental growth in both markets plus value adding floor refurbishments and the letting up of 11 floors in the Melbourne property for the increase.
"CPOF's leasing results have been very strong this year and the Melbourne and Sydney CBD office markets continue to show good rental and capital growth prospects for 2001," he said.
According to the December Property Monthly Report from UBS Warburg Australia Equities Ltd, CPOF has one of the strongest total returns for commercial listed property trusts over one year with a return of 19.4 per cent for the 12 months to November 30, 2000.