4 Sep 2014

GPT Group purchases CBW complex

GPT Group, backed by its wholesale office fund, has bought the CBW complex for $608.1 million, in one of the largest transactions in the Melbourne market for years.

The deal is the first step in a blockbuster $1 billion-plus divestment by Cbus Property as it shifts capital into its own pipeline of projects.

A second tower in Docklands is under due diligence by AMP Capital, which is expected also to confirm its acquisition within days.

Built in 2009, the CBW complex comprises two towers with 76,000 square metres of space and a 5300-square-metre retail component, on the corner of Bourke and Collins streets in Melbourne.

The deal will deliver a capitalisation rate of 6.5 percent, although the initial passing yield is closer to 6 percent

“It is significantly under-rented,” GPT chief investment officer Carmel Hourigan told The Australian Financial Review. “That initial yield is sitting around 6 percent There lies the opportunity for us as well. The initial yield reflects the fact there is a significant positive reversion on expiry.”

GPT will fund its part of the purchase with debt. The GPT Wholesale Office Fund can use equity from a $250 million capital raising now under way.

The transaction takes GPTs acquisitions to $1.7 billion so far in 2014.

Last year, chief executive Michael Cameron set a target of increasing funds under management by an additional $10 billion.

In that quest GPT has made some high-profile but ultimately unsuccessful pursuits of major corporate targets.

Among them have been tilts at Australand’s office and industrial business, at Lend Lease’s industrial fund and at the Commonwealth Office Property Fund.

GPT has done better with direct deals, securing a $496 million half stake in the Northland shopping centre and three office towers worm $548 million in total. The bulk of these transactions were in a consolation package after rival DEXUS Property Group took control of the Commonwealth fund.

When the offer for that fund went flat, Mr Cameron reiterated GPT was sticking to its strategy of maintaining a “frugal approach” as it expanded its funds empire.

Yesterday Ms Hourigan said GPTs latest acquisition was consistent with that disciplined approach to acquisitions. “A market cap rate of 6.5 percent is in line with mid-cycle, long-term cap rates,” she said.

“On the balance sheet we’re also getting additional fee revenue so that enhances the internal rate of return.

“For this type of quality asset this is definitely in line with where we think long-term value is.”

With the acquisition of CBW, the Sydney and Melbourne markets now account for 88 per cent of GPTs office exposure. Ms Hourigan signalled that GPT was alert to further direct opportunities: “On the acquisition front, where we see value in line with our strategy we are willing to acquire.”

GPT Group is also willing to divest when it is appropriate, with a $150 million Docklands tower at 818 Bourke Street now thought to have found a preferred buyer.

The Cbus assets have been handled by Colliers International’s John Marasco, Nick Rathgeber and Leigh Melbourne and Savills’ Ian Hetherington.

Deutsche Bank analyst Jason Weate said pricing for the CBW acquisition was reasonable but also reflected the asset’s leasing risk.

Average lease expiry is 5.2 years. More than half of tenancies by income expire in the sixth year. Mr Weate estimated the transaction was about 1 per cent earnings per share accretive.

Meanwhile, the market awaits AMP’s confirmation of its acquisition of the National Australia Bank building in Docklands on a yield below 6 percent.

For developer Cbus Property, the sales represent profit to be returned to its members. They also mean fresh capital with which to snare new sites and fuel developments, such as the $1 billion-plus mixed-use project at 447 Collins Street, the $800 million office tower at 1 William Street in Brisbane and other residential developments in Sydney and Melbourne.

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