Colonial First State Property, manager of the Commonwealth Property Office Fund, has announced two strategic asset acquisitions in Brisbane and Perth.

The fund is to acquire 145 Ann Street, Brisbane, to be developed by Leighton, and a 50% interest in Alluvion at 58 Mounts Bay Road, Perth.The fund is to acquire 145 Ann Street, Brisbane, to be developed by Leighton, and a 50% interest in Alluvion at 58 Mounts Bay Road, Perth.

CPA fund manager, Charles Moore, said that the acquisitions are value enhancing to the existing portfolio and in line with the fund’s strategy of investing in prime quality office buildings located in central business districts and major suburban markets in Australia.

The property at 145 Ann Street, Brisbane, to be known as King George Central, was purchased for $208.1 million and is to be developed by Leighton Properties into a 27,820 sqm A-grade office tower over 28 levels as part of the purchase agreement, with CPA to be nominated to be granted the 120 year leasehold interest.

An A-grade office tower of 22,395 sqm over 21 levels, currently under construction at 58 Mounts Bay Road, Perth, and due to be completed in April 2010, had a 50% share purchased for $95 million.An A-grade office tower of 22,395 sqm over 21 levels, currently under construction at 58 Mounts Bay Road, Perth, and due to be completed in April 2010, had a 50% share purchased for $95 million.

The acquisitions are expected to deliver a blended initial yield of 7.9% strengthening the fundamentals of the portfolio and providing growth opportunities for the fund.

“In the mid-term there is strong potential to capitalise on an anticipated rebound in the Perth and Brisbane markets driven in part by existing and potential future resource and infrastructure projects in these markets,” said Mr Moore.

Construction of the 27,820 sqm office building with 1100 sqm floor plates and 110 car spaces at 145 Ann Street, Brisbane, is expected to commence in December 2009 with practical completion anticipated in May 2012.

The forecast initial acquisition yield is 8%, based on the acquisition price, the 66% of its income being pre-committed to by tenants including GHD, Credit Union Australia and Grant Thornton, and a five-year rental guarantee over any vacant space that exists from practical completion by vendor, LPPL3.

The 21-level A-grade commercial office tower of 22,395 sqm and with 1570 sqm floor plates and 96 car spaces at 58 Mounts Bay Road, Perth is currently under construction, with completion expected in April 2010.

The forecast initial acquisition yield is 7.74%, based on the acquisition price from vendor, Charter Hall, and the 100% pre-committed income from tenants including Clough and Savills.

Vacancy rates in the Brisbane and Perth CBD are understood to have risen to 8.3% from almost zero in the wake of the global financial crisis due to strong levels of market demand pulling back substantially at a time of high construction.

“In the short term vacancy levels are forecast to continue to rise in both markets as the final buildings in the current development cycle are completed,” said Mr Moore.

“However, given the resilience displayed by the Australian economy and national peak unemployment levels being revised downwards from 8% to 6.75% we expect to see an improvement in tenant demand with vacancy levels peaking at substantially lower levels than originally anticipated.”

“This is evident in the Brisbane and Perth markets where we anticipate peak vacancy levels of 13.7% and 11.4% respectively.”

Despite the current challenging office fundamentals in Brisbane and Perth, it is understood that the acquisitions provide protection and certainty in the short-term through the long lease and rental review structures secured from pre-committed tenants.

“Over the long term, the quality of the assets, the strong sustainability credentials and secure cashflows will deliver attractive total returns to the Fund,” said Mr Moore.

“We believe that both assets will have potential valuation uplift when investment yields re-rate.”

“We also remain confident of meeting our distribution guidance of 5.3 cents per unit, for the 12 months ending 30 June 2010, subject to a continuation of existing economic conditions.”


by Mark Bristow: Thursday November 26, 2009