This article is from the Australian Property Journal archive
THE peak of the office market’s cap rate cycle is imminent, if not has already arrived, according to Australian Unity Office Fund, which is looking to capitalise on the popularity of Parramatta’s office market and add to its sustainable income stream.
AOF recently received approval from Parramatta Council for its site specific planning proposal for 2 Valentine Avenue in Parramatta. It had already received development consent for an 8,000 sqm building, but is now a step closer to securing consent for a building of between 25,000 sqm and 28,000 sqm.
“In anticipation of an approval, AOF is in advanced discussions with a number of tenants to lease part or all of the proposed development,” fund manager, Mark Lumby said. “Parramatta continues to be one of the tightest office markets in Australia with a vacancy rate of 3.9% and this low vacancy is expected to continue in the short-to-medium term.”
Gateway determination is now being considered by the New South Wales Department of Planning and Environment.
In November, AOF formally rejected Connecticut-based Starwood Capital’s takeover proposal after global investment firm downgraded its offer, despite not specifying any issues during due diligence.
AOF posted interim funds from operations of $14.2 million, up from $13.1 million, and a statutory net profit of $13.1 million, and distributions of $12.9 million.
Occupancy grew slightly to 95.1% across the $641.0 million portfolio, which has a net lettable area of 107,604 sqm and weighted average lease expiry of 3.8 years, and grew modestly in value after the revaluation of four properties that was driven by rental growth at 32 Phillip Street in Parramatta and 2 Eden Park Drive in North Ryde.
Its portfolio cap rate remained at 6.5%, said indicated “we are at, or close to, the peak of the current cap rate tightening cycle”.
“In our view, while cap rates may tighten a little, most of any further valuation growth will come through in market rental growth.”
Lumby said there is no significant expiry in the portfolio until June 2022 – the New South Wales government’s tenancy at 10 Valentine Avenue in Parramatta – and only two expiries of more than 1,000 sqm before January 2022, and with almost 60% of the portfolio leased to investment grade tenants such as Telstra, state and federal government, Boeing and GE, the fund is well placed to continue delivering sustainable income returns.
The fund secured 4,600 sqm of new leases in the half year across 19 deals, and there is a further 3,500 sqm undersigned, non-binding, heads of agreement.
AOF has total debt facilities of $220 million with $202.3 million withdrawn. Gearing is at 30.5%.
Australian Property Journal
