Commonwealth Property Office Fund (CPA) half-yearly results

14 February 2002

Colonial First State Property Limited, the Manager of the Commonwealth Property Office Fund (CPA), is pleased to announce that the distribution for the six-months ended 31 December 2001 has been declared at 4.41 cents per unit, an increase of 8.9% over the previous corresponding period to December 2000. The units will trade on an ex-basis from 19 February 2002 and the record date for the distribution is 25 February 2002.

Underpinning this distribution is a strong earnings result, with net operating income for the six months to 31 December 2001 of $25.9 million. This is up from $22.1 million for the previous corresponding period, reflecting growth of 17.3%.

This growth in the Fund’s earnings was generated at the property level, with net property income increasing by 25% as a result of active asset management across the portfolio. Factors contributing to this outperformance include the acquisition of 475 Victoria Avenue Chatswood, the ongoing refurbishment project at 385 Bourke Street Melbourne and positive rent review and leasing success across the portfolio.

In December 2001 the Fund was assigned a long-term issuer rating from Moody's credit rating services. The rating of A3 reflects the sound fundamentals and stable outlook for the Fund. The rating allows the Fund to diversify its funding sources through access to capital debt markets and potentially achieve a reduction in the cost of borrowings when the Fund’s existing $220 million debt facilities expire in April 2002.

The Fund continued its strong performance against its market peers, recording a total return of 7.9% for the six months to 31 December 2001 and a 12-month total return of 25.9%. This compares favourably to a 12-month return of 14.6% for the S&P/ ASX 200 Property Accumulation Index and 16.1% for the UBS Warburg Commercial 200 Index.

Positive revaluations of three assets during the period added $11.2 million to asset and investment revaluation reserves. Of these revaluations the most significant increase was at 201- 207 Kent Street Sydney which was revalued for the first time since acquisition in December 2000. This property, in which CPA has a 25% indirect interest through units in the Kent Street Trust, was valued at $217 million, up from $203 million on acquisition.

Other revaluations during the period included 120 Pitt Street Sydney which was revalued at $119 million (up from $116 million), and AAP Centre, where the Fund’s 50% interest was revalued at $140 million (up from $137.5 million). Defensive characteristics such as fixed rental review structures, staggered lease expiry profiles and a long weighted average lease expiry have underpinned the portfolio’s capital appreciation. On the back of the strong revaluation results net asset backing (NTA) per unit increased from $1.04 at 30 June 2001 to $1.06 at 31 December 2001.

The Fund acquired a one third interest in 475 Victoria Avenue Chatswood in August 2001 for $42 million. This acquisition was in line with the Fund’s stated strategy of investing in prime quality buildings in CBD and major suburban markets, bringing the Fund’s exposure to the Sydney market to 65% (by book value).

The purchase, which was accretive to earnings per unit, was funded by a mixture of equity and debt. The $19.8 million equity portion was raised via a placement to professional investors at a minimal discount to market price, reflecting the strong market demand for units in the Fund.

The redevelopment of the retail and mezzanine office area at 175 Pitt Street Sydney was completed in December 2001. The project, completed on an incremental yield of 9.6%, was 100% leased upon completion. Tenants in the newly refurbished area include the Commonwealth Bank of Australia, Fitness First, Prouds Jewellers, HSBC, Roxy, GNC Live Well, Burger King, Thomas Cook and By George.

The rolling refurbishment program at 385 Bourke Street Melbourne continued throughout the period. Net property income from the asset for the six months to 31 December 2001 was $8.2 million, up 42.4% on the previous corresponding period. A feasibility study is currently underway for the redevelopment of the retail Galleria area with the project expected to commence in late 2002.

A total of 9,760sqm was leased during the six months to 31 December 2001. Leasing deals completed over the period were predominantly in the refurbished space in 385 Bourke Street Melbourne and the redeveloped area in 175 Pitt Street Sydney. The occupancy rate in the portfolio remains high at 98.2%. The weighted average term to expiry of 5.2 years remains one of the highest in the office sector, pointing to stability of future income and illustrating the Manager’s ability to manage portfolio risk.

In December 2001, the Fund held its first unitholder meeting to approve the implementation of a distribution reinvestment plan (DRP) and to ratify two placements made to professional investors in June and August 2001 respectively. Unitholders voted overwhelmingly in favour of all three resolutions put to the meeting, reflecting their confidence in the Manager’s ability to actively manage the Fund and its underlying assets to deliver competitive, sustainable total returns to unitholders. As a result of the unitholder vote approving the implementation of a DRP the Manager now has access to an additional method of raising equity for the Fund. Unitholders will be notified when the Manager determines that the facility will become operative.