This article is from the Australian Property Journal archive
ASX-listed Irongate Group is tapping investors to partially fund its $74 million acquisition of an A-grade Canberra office building home to the federal government’s Australian National Audit Office, and which has just undergone nearly $13 million of refurbishments.
The department leases 55% of the 8,901 sqm building at 38 Sydney Avenue and has 13.5 years remaining on its lease term, with fixed annual rent reviews of 3.5%.
The balance of the office space, about 3,920 sqm, is subject to a 24 month gross rent guarantee provided by vendor Blackstone.
The US giant has spent about $12.6 million on fit out and refurbishment works in the last two years, including a full atrium lobby upgrade, the addition of end-of-trip facilities and refurbishment of on floor amenities.
The asset is being acquired on an initial yield of 5.13%.
Irongate has launched a fully underwritten institutional placement to raise about $50 million to partially fund the $73.75 million acquisition, at an issue price of $1.47 per stapled security. That is a 3.9% discount to Friday’s closing price and represents a 6.2% distribution yield for FY22.
Macquarie and UBS are underwriting the placement.
“This transaction builds on IAP’s track record of acquiring strategically located, good quality income-producing properties,” Irongate CEO Graeme Katz said.
“The Canberra office market proved resilient through the COVID-19 pandemic, underpinned by the government sector.”
A recent report by BIS Oxford Economics found net absorption in Canberra has exceeded expectations, reaching a 10-year high in 2020.
Katz said the 38 Sydney Avenue property’s location 500 metres from Parliament House, in a precinct with A-grade vacancy of less than 1%, and NABERS energy rating of 4.5 stars and large floor plates that are easily subdividable, gives the group confidence with respect to future leasing activities.
Charter Hall has just acquired the Services Australia office in Canberra for $306 million, while Centuria has been shopping around the Scarborough House building in the Woden Town Centre, fully occupied by the Department of Health.
Irongate’s acquisition takes its portfolio value to $1.331 billion, across 35 properties with more than 361,000 sqm of lettable area that is 97.6 occupied. Weighted average lease expiry is 4.7 years and weighted average cap rate is 5.96%.
Including the impact of the acquisition and placement, FY22 DPS guidance remains unchanged at 2% to 3% growth, and FY22 funds from operations per security is expected to be in line with consensus.
The placement reduces Irongate’s pro forma gearing to 30.6%, at the bottom end of target range of 30% to 40%. Pro forma net tangible assets will be $1.42 per security.
