Ferrets Stock to Watch: TISHMAN SPEYER OFFICE FUND 08:20, Monday, 8 January 2007
US REAL ESTATE DEAL BIGGEST-EVER LOCAL LISTING
Sydney - Monday - January 8: (RWE Aust Business News) *****************************************************
OVERVIEW ********
A global property group, Tishman Speyer Properties, headquartered in New York, has outlined the world's biggest real estate deal to New York Times reporter Charles Bagli and the story was reproduced in the Sydney Morning Herald on Saturday.
Tishman Speyer has rocked the New York real estate world by paying $A6.8 billion to giant insurance group Metropolitan Life for a large chunk of Manhattan involving Stuyvesant Town and Peter Cooper Village covering 32 hectares of prime land.
Australia has a serious interest in the development because Tishman has had Tishman Speyer Office Fund (ASX:TSO) listed on the Australian Stock Exchange since 2004.
Tishman Speyer Properties Properties has executed the deal in a joint venture with partner, BlackRock.
Tishman Speyer is a a highly regarded father and son operation with the son, 37-year-old Robert Speyer, taking the lead to glue the deal together through a mammoth overnight sitting one day in October, according to Mr Bagli.
The deal has been described as the biggest of all time, and includes 110 buildings and 11,232 apartments, all rent controlled.
This has given analysts reason to be cautious at how it is all going to finish up but whatever the outcome it is a long-term project which will take many years to generate reasonable returns on the huge outlay.
In December 2004, Tishman Speyer became the first American real estate company to launch a publicly listed fund of US office properties on the Australian Stock Exchange, marking an important development for Australian investors and Tishman Speyer alike.
For investors, Tishman Speyer Office Fund represents not only the first time they were afforded an opportunity to invest in a listed fund with offshore exposure limited to high quality, primarily Class A office buildings, but also to benefit from Tishman Speyer's active management.
For Tishman Speyer, TSO represents its first entry as a company into the vibrant Australian market and its only listed vehicle.
Most importantly, it reflects the company's ability to see an opportunity first and transform that opportunity into tangible results for its investors.
SHARE PRICE MOVEMENTS *********************
Units of TSO rose 2c to $2.48 on Friday. Rolling high for the year is an all-time high of $2.66 with a low of $2.05. Dividend is 17 per cent to yield a solid 6.85 per cent. Earnings per unit is 24.87c and p/e ratio a low 9.97. The company has 298.7 units on issue with a market cap of $739.7 million.
On November 1 the company produced a leasing and market update.
Tishman Speyer Office Fund said operating performance for the September quarter continued to strengthen on market fundamentals which boosted management's leasing efforts, which included:
* Signing 30 leases (including amendments to existing leases) covering over 279,100 square feet of office space;
* Significant progress in management of the 2007 lease expiry at Franklin Center with the signing of a 108,700 square feet lease by GATX and an additional 25,800 square feet of office space being absorbed by Harley Davidson Financial - 53,200 square feet of leases;
* 53,200 square feet of leases signed at CitySpire resulting in the asset being 96.7 per cent leased at September 30.
Leasing activity across the underlying property portfolio in which TSO invests totalled 279,100 square feet, comprising 47,700 square feet of renewals and 231,400 square feet of new and expansion leases.
At September 30, the portfolio was 95 per cent leased compared with 93.9 per cent at June 30.
BACKGROUND **********
Tishman Speyer Office Fund, list on December 1, 2004, is managed by Tishman Speyer Australia Ltd.
TSO has an interest in three properties in the New York metropolitan area; 300 Park Avenue and CitySpire in Manhattan and Greenwich American Centre in Fairfield County, Connecticut.
Strength in the midtown Manhattan leasing market continued during the most recent quarter.
Demand for space was only partially satisfied through additional sublease space being offered on the market, leading to a 0.2 per cent decrease in availability rates over the quarter to 8 per cent.
Availability rates in the Park Avenue submarket also continued to drop to a market low of 4.2 per cent.
At the same time, asking rents continue to spike across the Midtown Manhattan market and are now up 14 per cent over the past year.
One of the most significant operational successes during the quarter was achieved at CitySpire where the efforts of the leasing team, combined with the strength of the midtown Manhattan market, resulted in the signing of four leases covering 53,200 square feet.
This leasing activity resulted in CitySpire being 96.7 per cent leased at September 30, an increase of 12.3 per cent over the quarter.
Operationally, efforts are now focused on the existing lease covering 46,500 square feet of space located on the top office levels of the building which expires in September 2007.
This space has in-place face rents that are approximately 50 per cent below current market rates and is set to benefit from the continued strengthening of the midtown Manhattan market.
During the quarter, Amaranth Advisors LLC, a hedge fund manager and a tenant at Greenwich American Centre, incurred substantial losses on its investment portfolio and announced that it will proceed towards liquidating its hedge fund.
Amaranth leases 124,300 square feet under a direct lease at the complex and sub-leases a further 45,000 square feet of space.
The space is leased at rental rates below current market rates and is supported by a letter of credit equivalent to one years rent.
Amaranth remains current on its lease obligations.
The leased status remained unchanged at 300 Park Avenue which is 100 per cent leased, while Greenwich American Centre is now 90.1 per cent leased; an increase of 0.2 per cent over the quarter.
In the Philadelphia market, TSO has an interest in Bala Plaza (comprising three office buildings), located in suburban Philadelphia.
The greater Philadelphia office market recorded its third consecutive quarter of net positive absorption, with aggressive leasing activity within suburban Philadelphia helping the market record year-to-date net absorption of over 1.2 million square feet, twice the amount achieved in 2005.
The continuing improvement in the suburban Philadelphia leasing market has resulted in an availability rate of 18.4 per cent compared to 19.7 per cent as at June 30.
These decreasing availability figures are starting to translate into increasing asking rents.
Leasing activity at Bala Plaza totalled 17,800 square feet during the third quarter of 2006, bringing year to date leasing activity to over 191,300 square feet.
Bala Plaza was 93.9 per cent leased at September 30, a decrease of 0.4 per cent over the quarter.
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