Ferret's Stock to Watch: COMMONWEALTH PROP OFFICE FUND
09:23, Friday, 19 January 2007
A PRIME PROPERTY PORTFOLIO TO MAKE YOU EAT YOUR HEART OUT
Sydney - Thursday - January 19: (RWE Aust Business News)
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OVERVIEW
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An investment income stock should be part of every investor's
portfolio.
One investment that stands out is the Commonwealth Property
Office Fund (ASX:CPA) that offers 9.7 per cent with a yield of 6.86 per
cent.
The Fund is a portfolio of prime real estate accumulated over a
period of years.
Its principal objective is to deliver competitive, sustainable
total returns to unitholders by adopting an active management style.
CPA is managed by Colonial First State Property Ltd. The
management team dedicated to CPA brings a diverse range of property
management and investment expertise to the management of the Fund.
The Fund caught market attention this week after announcing a
revaluation of $110 million in the six months to December 31.
The only negative aspect could be whether the property market
has peaked and might decline.
It falls back then on the quality of the assets involved.
Directors told the Australian Stock Exchange this week that 13 of
its office property assets had been independently revalued over the
period leading to a $110 million or 7.7 per cent uplift on prior book
value.
The Fund's net tangible assets increased from $1.23 per unit at
June 30 to $1.30 at December 31 as a result of these increments.
Fund Manager Charles Moore said, "The valuation uplift was a
result of significant leasing progress made in a number of key assets,
leading to high occupancy levels together with underlying market rental
growth and firming investment yields across all major commercial markets.
"The most significant increase was seen at 300 Queen Street
Brisbane (up 46 per cent to $115 million).
"The increase in value in the Brisbane asset reflects the
significant underlying market rental growth experienced in this market,"
Mr Moore said.
The CPA share of the revalued assets covered:
* 225 George Street was last valued in June 2006, then showing a
14.2 per cent increase to book value.
* 201-207 Kent Street was last valued in June 2006, then showing
a 10.2 per cent increase to book value.
Of the 13 assets revalued during the six month period, five
properties returned double-digit growth.
The only asset to show a fall in value was 120 Pitt Street
Sydney, reflecting the uncertainty of the outlook for the existing
Commonwealth Bank of Australia tenancy beyond lease expiry in 2011.
Accounting for the new capitalisation rates, the portfolio
weighted average capitalisation rate firmed from 7.2 per cent at June to
6.8 per cent at December.
UNIT PRICE MOVEMENTS
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Units yesterday edged up 0.5c to $1.415. Rolling high for the
year is $1.495 and low $1.265. Distribution is 9.7c to yield 6.88 per
cent. Earnings per unit 18.8c and price earnings ratio 7.53. The Fund has
1.6 billion units on issue with a market cap of $2.2 billion.
Last year CPA acquired a 50 per cent interest in a 99-year
leasehold at sites 6 and 7 Dawn Fraser Avenue, Sydney Olympic Park,
Homebush.
CPA bought its interest in the development sites from Property
Development Portfolio No.3, the jointly managed Charter Hall and AMP
Capital Investors opportunity fund, with the remaining 50 per cent
interest being purchased by Colonial First State's Direct Property
Investment Fund Office Sector.
The joint owners plan to develop two A-Grade office buildings
with a total net lettable area of approximately 34,000sqm, underpinned by
a 100 per cent lease pre-commitment by Commonwealth Bank of Australia.
CPA's share of total project costs is expected to be $70.9
million (excluding financing cost).
CPA's acquisition will be funded through its existing debt
facilities.
On completion, sites 6 and 7 Dawn Fraser Avenue are anticipated
to deliver the Fund an initial passing yield (post-costs) of 7.21 per
cent.
Targeting a 4.5 star Australian Building Green Rating and a 4
star Green Star Office Design rating, the first of the new buildings, at
site 6, is due for completion in mid-2008 while the second building, at
site 7, is due for completion in the fourth quarter of 2008.
BACKGROUND
**********
The Commonwealth Property Office Fund is a sector specific listed
office trust.
The Fund was listed in April 1999 with a market capitalisation of
$545.5 million.
On listing, the Fund had a property portfolio of seven assets
totalling $619.5 million.
A majority of the assets were purchased from Commonwealth Bank of
Australia through the corporate reconstruction legislation, which
resulted in non-core assets being rationalised off the balance sheet.
It represented a great opportunity and placed CPA in a unique
position with the Manager able to construct a fund with an established
high-quality income stream.
This provided the springboard for the Fund to deliver on its
strategy of optimising unitholder value through active management of its
portfolio and investment in quality properties.
In October 2002 the Fund acquired a $1.18 billion portfolio of
office and industrial assets previously held in the former Colonial First
State Property Trust Group (CFT) portfolio.
On April 7, 2003, the Fund settled on the sale of the non-core
CFT industrial portfolio for a total consideration of $500 million.
This reflected a premium of 10 per cent to the asset book value
of $451 million.
The sale was negotiated on a delayed payment basis providing the
Fund with an attractive and secure income stream and flexibility to fund
future acquisitions of prime quality office assets in key markets at the
optimal time in the cycle.
Since that time, the Fund has acquired office properties across
Australia with a total value of just over $1 billion (including forecast
completed value of development projects under construction).
At June 30 the Fund's property portfolio comprised 30 office
assets, with a total portfolio value of $2.8 billion.
ENDS
Copyright © 2007 RWE Australian Business News. All rights reserved.
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