Commonwealth Property Office Fund interim results

2 February 2001

Commonwealth Property Limited, manager of Commonwealth Property Office Fund (CPOF), has recorded net operating income of $22.09 million for the six months to 31 December 2000.

Distribution for the period is 4.05 cents per unit, a 6 per cent increase over the distribution of 3.81 cents per unit for the previous corresponding period (31 December 1999). This is also a 2 per cent increase over the 3.97 cents per unit distributed for the six months to 30 June 2000.

According to the manager, a continuing focus on expense recovery and cost reduction at both asset and fund level plus solid leasing results were the main contributors to the result.

CPOF's unit price increase, up from 96 cents at 1 July 2000 to $1.03 at year end, combined with the June 2000, distribution to give a total return of 11.6 per cent for the six months to December 31, 2000. CPOF's 12 month return for the 2000 calendar year was 20.2 per cent.

CPOF's six month return outperformed the broader listed property market index, which achieved 8.9 per cent, and was slightly ahead of the listed office trust sector.

Portfolio occupancy remained high at 97 per cent with a total of 16,086 sqm of space leased or renewed over the six months period. The majority of this occurred at 385 Bourke Street, Melbourne and Finley Crisp Centre, Canberra.

The second stage of the rolling refurbishment of 385 Bourke Street, Melbourne continued with the completion of five floors totalling 6,394 sqm. The office tower is now 100 per cent leased with a recent lease to TXU for its Australian headquarters.

In December 2000, CPOF acquired a 25 per cent interest in 201-207 Kent Street, Sydney for $50.65 million increasing total assets to $731 million. The acquisition strengthens CPOF's risk/return profile by improving portfolio diversity, tenant mix and type and timing of rent reviews.

Debt facilities were increased in December from $130 million to $200 million to fund the acquisition and planned capital expenditure projects over the next 12 months.

Drawn down debt increased from $105 million at the start of the period to $155 million at year end.

CPOF maintained its relatively conservative gearing level at 21.2 per cent as at 31 December 2000 compared to the listed property trust commercial sector average of 25 per cent.

Net Tangible Asset (NTA) backing per unit increased to $1.00 from $0.98 as a result of the upwards revaluations of 385 Bourke Street, Melbourne, 120 Pitt Street, Sydney and AAP Centre, Sydney during the period.

The property portfolio value increased by $18.8 million, with 385 Bourke Street recording the largest gain as a result of the value adding rolling refurbishment and successful market repositioning of the asset. The remainder of the portfolio will be revalued in the first half of 2001.

According to Mr Trevor Ratcliff, CPOF's fund manager, the property office market demand and supply fundamentals remained strong over the period, with a continuing healthy net absorption of space in Melbourne and Sydney and solid rental growth.

"At the same time, the overall economic outlook became more uncertain and the listed property trust sector benefited from investor demand for more "defensive" assets," Mr Ratcliff said.

CPOF is a listed property fund comprising $731 million in office assets and one of eight property funds managed by Commonwealth Property, the investment and corporate real estate arm of the Commonwealth Bank of Australia.

Change in Fund Manager
Ms Carmel Hourigan, previously assistant fund manager of CPOF and involved with the fund prior to and since its listing on the ASX, has been appointed fund manager.

Mr Trevor Ratcliff will shortly take up a new position as head of new business development and major projects for Commonwealth Property's Corporate Real Estate unit. Commonwealth Property believes there are significant opportunities to grow this business.

Commenting on the management changes, Mr Geoff McWilliam, general manager, Commonwealth Property, said, "the depth and strength of management at Commonwealth Property plus our robust management processes means investors can be assured of the fund continuing to implement its investment strategies. These management changes will be transitioned to ensure no disruption to the management of the fund."