Acquisition of A-Grade Canberra office buildings, 100% leased to Commonwealth Government

27 June 2012

Growthpoint Properties Australia (“Growthpoint”) is pleased to announce that it exchanged contracts today to acquire two interconnected office buildings located at 10-12 Mort Street, Canberra in the Australian Capital Territory for $55.8 million (before acquisition costs) from the GPT Wholesale Office Fund. The buildings are fully-let to the Commonwealth of Australia (Department of Education, Employment and Workplace Relations) (“DEEWR”) on a five year lease expiring 24 March 2017, with one five year option of renewal. Settlement of the acquisition is expected within 60 days.

Key metrics of the acquisition:

  • Purchase price (before acquisition costs): $55.8 million
  • Initial property income yield: 10.28% (9.60% after acquisition costs including government duties)
  • Capital value per m2 of net lettable area: $3,624 (note that this is below replacement cost)
  • Unexpired lease term: 4.75 years (as at 30 June 2012)
  • Fixed annual rent increases: 3.75% per annum
  • Occupancy: 100%
  • Independent property valuation: $56.0 million

The property comprises two modern “A grade” eight storey office buildings with a combined net lettable area of approximately 15,398 square metres plus 158 car parks on land of 3,064 square metres. The properties were constructed in 1984 and 1992, respectively, and an $11 million refurbishment was recently completed. Simultaneously with this refurbishment, DEEWR have completed a major new fitout of the entire property. The buildings are positioned on the north western corner of the intersection of Mort and Bunda Streets and have a high level of exposure in Canberra’s prime office and retail precinct. Prior to the recent refurbishment, each property enjoyed a 5 star NABERS energy rating. The property will now be subject to a new ratings assessment.

The buildings provide Growthpoint, with a quality, well located building leased to the Commonwealth Government and another excellent investment opportunity for Growthpoint’s securityholders. The income yield of 10.28% per annum on the purchase price[1] and the forecast ten year internal rate of return of 10.50% per annum[2] is particularly compelling when compared to the current Commonwealth Government ten year bond yield of approximately 3.00%. This is Growthpoint’s first acquisition in the Canberra office market and further diversifies Growthpoint’s portfolio into the office sector. Following completion of this acquisition, Growthpoint’s property portfolio will comprise 41 properties, with a value of approximately $1.6 billion[3] comprising 49% office properties and 51% industrial (by book value).

[1] Before transaction costs. The yield is 9.60% after acquisition costs including government duties.

[2] Source: independent property valuation

[3] This value includes two office buildings currently being developed in Artarmon, New South Wales and in Nundah, Queensland using their independent valuations at completion. Completion of each respective development is expected to occur late 2012/early 2013.