This article is from the Australian Property Journal archive
AUSTRALIAN Unity Office Fund (AOF) has offloaded the 32 Phillip Street building in Parramatta for $66 million, at 5% above book value, while concerns from major shareholders have pushed back the mooted merger with an Australian Unity stablemate.
The B-grade, eight-level building at 32 Phillip Street has 6,759 sqm of space and was recently fully refurbished as part of terms of a new 10-year lease to GE Capital Finance.
AOF will initially use proceeds from the sale to reduce borrowings and gearing, and intends to explore capital management initiatives, including the potential for an on-market buyback and/or a special distribution.
It will continue progressing asset management and value-add initiatives at 10 Valentine Avenue, also in Parramatta, and 30 Pirie Street in Adelaide.
The deal is the latest suburban Sydney asset transaction to land in short time following a suite of deals in North Sydney totalling more than half a billion dollars.
Recent deals in Parramatta included the City of Parramatta Council paying $64 million in September for an office building on Wentworth Street that will become its administrative headquarters from 2023.
The suburb’s office market saw vacancies rose in the six months to July from 6.4% to 10.2% – its highest level in 11 years – largely due to supply additions. Coming completion of 6 and 8 Parramatta Square, along with 6 Hassall Street will add to its premium office space.
The NSW government recently approved Scentre Group’s $500 million proposal to build a 105,000 sqm office tower above Westfield Parramatta. Last year, the New South Wales government committed to overhauling planning controls for Parramatta’s CBD, hoping to create 50,000 new jobs and two million sqm of new commercial space in the process.
Merger vote pushed back
Meanwhile, AOF said that as part of ongoing engagement with unitholders in relation to its merger proposal with Australian Unity Diversified Property Fund (DPF), “recent feedback received from a small number of AOF’s largest unitholders is that they are currently not supportive of the merger proposal in its present form”.
“AOF RE is of the view that further engagement with AOF unitholders and other stakeholders is required to understand their feedback and determine if there are opportunities to make refinements to the merger proposal.”
A merger would create a $1.2 billion fund called the Australian Unity Property Fund. It was first flagged in July when responsible entity the Australian Unity Investment Real Estate Limited (AUIREL) announced the results of a strategic assessment that determined to maintain AOF’s focus on owning office assets in metropolitan and CBD markets.
DPF agreed to approach the Supreme Court of New South Wales to seek an order to adjourn its unitholder meeting to consider the merger proposal scheduled for 10 December until early February.
AOF unitholders would own 54% of the new fund, and DPF unitholders 46%. The new fund would have a $735 million market cap and its portfolio would bring in Ampol, Woolworths, Coles and Aldi as tenants, with a 97.0% occupancy rate and 5.7% portfolio capitalisation rate across 19 assets. The 5.0-year weighted average lease expiry would represent an increase of 2.1 years from an AOF perspective.
The divestment of 32 Phillip Street was approved by responsible entity AUIREL, and once finalised, AOF will also seek DPF’s consent to any proposed capital management initiatives.
AOF had been the target of a takeover bid from US-based Starwood Capital that fell over last year, following by a proposed takeover by Abacus Property Group and Charter Hall that was thwarted by shareholders.
