This article is from the Australian Property Journal archive
HAVING just missed out on 80 Collins St, Charter Hall has moved quickly to shore up its Melbourne office assets with the $830 million purchase of Telstra’s headquarters in the city’s prized east end.
The buoyant group has just upgraded its annual earnings forecast, and is reportedly also in due diligence for a half-share in the $1.8 billion Chifley Tower in the Sydney CBD.
Charter Hall announced in Friday it had secured the 47-storey, 65,913 sqm tower at 242 Exhibition St in partnership with its unlisted Charter Hall Prime Office Fund and Canada’s Public Sector Pension Investment Board.
Charter Hall built the tower in 1992 for Telstra’s owner occupation. The major telco has a lease over 99.6% by net lettable area, running until the 2032 financial year plus options, with 3.5% annual fixed rental reviews.
The off-market deal was struck at a circa 4.5% yield by Cushman & Wakefield’s Josh Cullen. Another major Canadian player, Oxford Properties Group, became a part-owner of the tower following its recent $3.4 billion acquisition of Investa Office Fund, while the balance was held by the unlisted Investa Commercial Property Fund.
Charter Hall is currently constructing its $600 million Wesley Place precinct on nearby Lonsdale St, having secured Cbus and Telstra Super as anchor tenants for the 55,000 sqm tower, as well as the Australian Financial Complaints Authority, Uniting Church in Australia and Vanguard.
On the other side of the CBD, Charter Hall is planning to build a $1.5 billion commercial precinct at the adjoining 555 Collins St and 55 King St sites, and has just bought the eight-storey 737 Bourke St tower, opposite Marvel Stadium in Docklands, for $192 million.
It recently bidded for the QIC’s 80 Collins St development, also in the east end, but was outlasted by Dexus in a landmark $1.476 billion deal. Dexus itself was looking to boost its presence in the area, having paid $230 million last year for the adjoining sites at 52 and 60 Collins Street, across Exhibition Street, with plans to build a $650 million office tower.
Telstra’s headquarters has 63,398 sqm of office space over 43 floors plus retail and car parking, and is currently undergoing an extensive base building upgrade works program, that includes lift upgrades and enhanced end of trip facilities.
Charter Hall group managing director and chief executive officer, David Harrison said the transaction, which settles in the first half of FY20, “reflects the deep relationships we have across our platform with both investor and tenant customers, with capacity to fund major transactions in the Australian market”.
“The Melbourne CBD recorded 153,650 sqm of net demand in the year to 31 March 2019 – double that of Sydney CBD (71,800 sqm) – and was the strongest of any Australian CBD office market. Continued strong tenant demand has placed downward pressure on the Melbourne CBD vacancy rate, which now stands at 3.7% the lowest level since 1989.” Harrison said.
CPOF fund manager, Matthew Brown said: “Given the favourable Melbourne CBD office outlook this acquisition provides the fund with a unique opportunity to further enhance the quality of its existing office portfolio whilst strengthening the quality of the fund’s cash flow given the long WALE nature of the lease to a high-quality tenant covenant in Telstra.”
CPOF has a $5.4 billion portfolio of 26 office assets, and is currently undertaking a $300 million capital raising that it will use to help fund its office pipeline, which has an end value of circa $1.6 billion. That includes the 130 Lonsdale St component of Wesley Place.
Stephane Jalbert, managing director, real estate investments, Europe and Asia Pacific for PSP Investments said, “the strong yield profile of this investment and positive growth prospects for the city reinforce our long-term outlook of the Melbourne CBD office market”.
As well as the pending Chifley Tower and 80 Collins St deals, Tesltra HQ marks the latest in a string of mammoth commercial transactions in the major commercial markets since the summer.
In Sydney, Blackstone paid $1.52 billion for the 100 Market St and 77 and 85 Castlereagh St towers; Hong Kong billionaire Francis Choi bought out Cromwell to take full ownership of Northpoint Tower for $300 million; as did Dexus with co-owner GPT for the MLC Centre for $800 million; GPT forked out $531 million for a 25% interest in the Darling Park 1 & 2 and Cockle Bay Wharf complex; US fund manager Starwood Capital and Arrow Capital bought The Zenith Centre for $438.2 million, and Charter Hall spent $804 million on two King Street Wharf office buildings.
GPT’s unlisted Wholesale Office Fund agreed to exercise its pre-emptive right to buy out 2 Southbank Boulevard on Melbourne’s city fringe for $342 million.
