10 Oct 2016

Investec Australia Property Fund acquires Brisbane CBD office tower

Investec Australia Property Fund (“IAPF” or the “Fund”) today announced the acquisition of a 50% interest in an institutional grade office tower in the heart of the Brisbane CBD with Abacus Property Group (ASX: ABP) for a total purchase price of AUD 132,000,000. Abacus, its management team and majority shareholder are well known to the Fund and the Investec Group.

The property is situated at 324 Queen Street and occupies a prized corner at the junction of Queen and Creek Streets in the heart of Brisbane’s CBD known as the Golden Triangle. The property has a commanding street presence with a strong retail component and enjoys good accessibility to Brisbane’s public transport network with bus, train, ferry and City Cycle services all located within close proximity of the property.

The property will be acquired on a 12 month forward yield of 7.2% with annual contractual rental escalations of 3.9%. The property has been acquired with 20% vacancy, equating to approximately 4,000m². There is an opportunity to substantially increase the yield of the property to 8.9% on a fully leased basis through strategic capital works and an active leasing campaign, which both Abacus and the Fund have had recent success with at other properties in Brisbane. Other possible initiatives include upgrading the end of trip facilities, active outgoings management and using the availability of dominant signage rights to attract tenants or secure additional income.

Commenting on the acquisition, which takes the Fund’s total portfolio value to AUD 583 million, IAPF CEO Graeme Katz said:

“This is the Fund’s third acquisition where it has adopted a strategy to take on existing vacancy. This strategy has proven successful, with the Fund’s acquisitions at Solent Circuit and King Street now being virtually fully let resulting in significantly increased yields from acquisition. We believe that the price per m² of AUD 6,642 represents attractive value given that recent transactions within close proximity to the property have been concluded at between AUD 7,700 and AUD 9,700 per m².”

The property comprises a two story basement carpark with 98 secure parking spaces, ground level retail, three level podium and main tower of 22 levels with average floor plates of 739m2 which offers a strong USP in the office tower market relative to other CBD product. The property is leased to good quality tenants including Allianz, ANZ, Multiplex, North Queensland Bulk Ports, Asciano, American Express and Link Market Services.

Katz added:

“The Brisbane CBD office market is showing signs of turning, with recent data showing positive net absorption and an increase in effective rents. The Brisbane office occupier market is diversified, and often misunderstood in terms of exposure to the mining sector, which represents only a small portion of total net lettable area.”

The acquisition will be funded through the Fund’s existing debt facility at approximately 3.35%. The positive yield spread of circa 3.85% will result in an enhancement to the Fund’s earnings base.

Katz added:

“The acquisition aligns well to the Fund’s strategy of investing in well-located, high quality assets. Whilst the Brisbane market can be complex, we believe that this creates opportunities, particularly given the sound underlying fundamentals of the property. We are also very pleased create a new investment partnership with Abacus, who share a similar investment philosophy to the Fund’s.”

IAPF, listed on the Johannesburg Stock Exchange, provides South African investors with direct access to the Australian commercial property market.