General Property Trust and the Lend Lease controlled Australian Prime Property Fund have both bought 25% shares in the Governor Phillip and Governor Macquarie Towers in Sydney for $480 million.
The remaining 50% will remain in the hands of Deutsche Office Trust.
Governor Phillip and Governor Macquarie Towers at 1 Farrer Place is considered one of Sydney’s blue chip office investments. In addition to Governor Phillip Tower and Governor Macquarie Tower, the asset includes the historic Phillip Street terraces. The office towers are located in the core of Sydney’s financial district and offer a high level of services and finishes with the added attraction of exceptional harbour and city views.
According to GPT the acquisition will be funded using existing debt facilities and will be accretive to earnings.
The acquisition gives GPT’s unitholders access to a prime Sydney CBD office asset which is anticipated to deliver a year one yield of 6.6% (before costs) and to provide future income growth through a high proportion of structured rental increases and the ability to capitalise on current below market rents.
Fund Manager of GPT Michael O’Brien says the acquisition provided the opportunity for GPT to gain greater exposure to the office sector at a time when improving office market fundamentals are anticipated.
“Our expectation is that office markets will begin to improve in 2004 and this, combined with the review profile of the asset, provides the opportunity to deliver strong growth for investors,” O’Brien says.
“This is one of the best buildings in the strongest office market in Australia boasting a fantastic location, blue chip tenants and a very high level of services. Quality assets with such strong fundamentals are rarely available in the Sydney market and are tightly held so this is a great opportunity for GPT’s portfolio.
“Governor Phillip and Governor Macquarie Tower further enhances GPT’s high quality portfolio, providing additional asset and tenant diversification and extends the average lease term across the portfolio to 5.9 years,” O’Brien says.
Governor Phillip and Governor Macquarie Towers consist of approximately 85,000 sqm of office space over 64 and 41 levels respectively. The buildings are currently 98% leased, with over 85% of the space leased to blue chip corporate tenants and the State Government. Major tenants include the NSW State Government (24% of net lettable area), Mallesons Stephen Jaques (20%), Goldman Sachs JBWere (11%) and UBS (7%).
GPT’s Office Portfolio Manager Tony Cope says the Sydney office market consistently demonstrates the strongest demand for space. As such, we believe Sydney assets will provide the best long-term returns for investors.
“This is an opportunity for GPT to acquire an interest in a prominent and well capitalised asset and to increase the Office Portfolio’s weighting to the Sydney market to 62%. Governor Phillip and Governor Macquarie Towers are contemporary buildings with very high specifications and limited capital expenditure requirements.”
“A large proportion of the leases benefit from structured growth and this, combined with our outlook for growth in the Sydney market, gives us confidence in delivering increased income from Governor Phillip and Governor Macquarie Tower in the medium term,” Cope says.
Management of the asset will be conducted under the terms of a Joint Owner’s Agreement between the owners (Deutsche Office Trust and a special purpose trust owned by General Property Trust and APPF Commercial). The joint owners will each have pre-emptive rights over each owner’s interest in the asset.
GPT will fund the acquisition, which is expected to be finalised in late December 2003, using existing debt facilities. On completion of this acquisition, GPT’s gearing will increase to 28%.
“This asset is clearly consistent with GPT’s strategy of owning premium quality assets in preferred markets with long-term leases and quality tenants. When combined with GPT’s existing assets, the acquisition creates an office portfolio with a total value of over $2.8 billion and improved tenant diversity and expiry,” O’Brien concluded.
