This article is from the Australian Property Journal archive
CHARTER Hall has continued its spending spree, acquiring 50% stake in the Coles’ Melbourne headquarters from the Investa Office Fund for $140.5 million on a tight yield of 5.8%.
The off-market purchase comes a day the group bought the Campbelltown Mall in Sydney for $197 million on a 6% yield, with backing from MTAA Super, as the seed asset for its new Charter Hall Prime Retail Fund, which will be managed by Charter Hall.
The deals have been secured as the group prepares the largest ever public offering in the property sector, a $1.253 billion portfolio of 66 properties due to list next month.
The Coles HQ property at 800 Toorak Road in Hawthorn East, in Melbourne’s inner-east, is on a 36,770sqm site and is 100% leased to Coles Group on an initial 15-year lease expiring in 2030, plus options.
It comprises a building with 39,399sqm of net lettable office space, a five-level central atrium, dining facilities, conference centre, laboratory and test kitchen facilities, gymnasium, Kmart tyre and auto centre at the rear of the site, data centre and parking for 1,200 vehicles with an adjoining 1,249 vehicle multi-deck carpark.
The half-stake purchase price reflects a yield of 5.8% based on the reviewed rent as at March 18th, 2017 of $15,820,542 per annum. Of the total site area, 34,002sqm is subject to the Coles lease, with Charter Hall saying the yield at settlement reflects its assessment of the apportioned value between the site area leased to Coles and the residual area.
The remaining 50% stake is held by a private group.
Prior to Coles taking on its current lease the building underwent upgrades to electrical, hydraulic, mechanical and security services in 2010 and 2014.
Charter Hall managing director and group chief executive officer, David Harrison, said the acquisition would see the group further expand its extensive relationship with Wesfarmers’ retail businesses, and maintain its focus on constructing portfolios leased to investment grade tenants on long leases, whilst also recognising that affordable rents will always attract large corporate users to well located properties with good amenity and generous car parking.
“We are pleased to extend our long-term relationship with Coles, which is now a tenant customer across our office, retail and industrial and logistics sectors,” he said. “The size and scale of our diversified sector service business model is allowing us to partner with our tenant customers to deliver property solutions that meet their individual business requirements, while ensuring that we create value for our capital partners,”
“Should the asset not be settled in the March 2017 quarter by a Charter Hall managed fund, the group would use cash and debt to settle the acquisition which would be slightly accretive to the group’s operating earnings and WALE in FY17, with the group extending its headstock Westpac debt facility to $200 million,” Harrison said.
Investa Office Fund’s manager Penny Ransom said the sale is accretive to net tangible assets and will reflect a 10.5% premium to the 30 June 2016 book value of $127.1m.
“The transaction is aligned with IOF’s strategic objectives to sell non-core assets and takes advantage of continued strength in capital markets. The sale represents a net passing yield on current income of 5.45%.
“Having previously added value to the asset through a lease extension to Coles to March 2030 and the addition of a 1,200 bay multi deck car park, IOF has been able to take advantage of the strong capital markets and crystalise value for unitholders,” she added.
“Importantly, the sale is in line with our core strategy to provide attractive risk adjusted returns, and a delayed settlement has been negotiated to minimise impact on earnings in the near term.” Ransom said.
Australian Property Journal
