CPA steady & staying put

WHILST other LPTs scour the globe, the Commonwealth Property Office Fund is staying put in Australia, where it believes office market conditions remain buoyant.

The fund notched up a total net profit of $544.2 million for the 12 months ended June 30 2007, compared to $297.5 million for the previous corresponding period.

The result included the profit on the sale of 540 Springvale Road, Glen Waverley, which was partially offset by the decline in interest income due to the maturing of the industrial portfolio sale receivable in April 2006 and revaluation gains of $375.1 million for the period.

The total distributable income for the period only edged up slightly to $147.5 million, compared to $144.6 million in the previous corresponding period.

As a result, the fund provided an annual total return of 28.5%, which was below the UBS Commercial 200 Accumulation Index return of 32.8%.

However as fund manager Charles Moore explains, this is a result of the fund’s strategy, which in the short term will see a fall of distributions – but will provide long term benefits.

Moore said during the past five years, the composition of the Australian listed property trust sector has changed significantly, predominantly due to mergers and acquisitions, as well as the emergence of structures and strategies which focus heavily on offshore investment and third party funds management platforms.

“It is not our intention to greatly alter the fund’s strategy, nor to adopt an offshore acquisition strategy or to deviate away from the Fund’s sector-specific focus. The fund provides a unique point of difference in the listed property trust sector, allowing investors access to a prime portfolio of office assets in key Australian commercial market locations.

“The existing policy of supporting distributions by effectively drawing on debt is expensive and not viewed to be in the long-term interest of unitholders. We will now adopt a policy that ensures distributions to unitholders match distributable income,” he added.

“In the short term, this will result in a reduction to current distribution expectations however we anticipate the long term benefits reflect more appropriately investor demand for future earnings accretion.

“This revised strategy is aimed at further enhancing the existing strong underlying performance of the CPA portfolio, the success of which is evidenced by the portfolio’s high occupancy levels, strong property income growth and upward asset revaluations,” Moore said.

During the year, the fund successfully negotiated 107,955 sqm in new leases and renewals.

Rental reviews were completed over 438,406 sqm of tenanted space during the year, with an average rental increase of 5%. Of the space reviewed, 82% were fixed reviews and 18% were reviewed to market.

“The office sector has continued to gather momentum, with solid tenant demand leading to rising rents and national vacancy levels close to 20-year lows.

“Firming investment yields have been driven by positive investor sentiment and stronger rents. The fund has already benefited from improved market fundamentals, which have led to high occupancy levels within the portfolio, along with significant upward asset revaluations.

“We believe the current buoyant economic outlook will continue to provide further support to office markets in Australia,” Moore said.

The fund will pay an annual of 9.95 cents per unit for the 2007 financial year, compared to 9.67 cents per unit for the previous corresponding period.

CPA closed 0.005 cent higher at $1.625 yesterday.

Australian Property Journal