Investec Australia Property Fund acquires Sydney office building

IAPF has acquired a Sydney office building at the Norwest Business Park

Investec Australia Property Fund has announced the acquisition of a $38.9 million office building in the heart of Sydney’s growth corridor. The acquisition, with a scheduled settlement date of 31 March 2015, is the Fund’s first office acquisition in New South Wales and brings the value of the Fund’s total portfolio to $328 million.

The 11,610 square metre office building, situated at 21-23 Solent Circuit in Baulkham Hills, is located 36 kilometres from the Sydney CBD. The property, located in the Norwest Business Park, will greatly benefit from the construction of the North West Rail Link, due for completion in 2018. The area is one of Sydney’s growing decentralised office nodes along with Parramatta and Rhodes, which offers tenants office accommodation at much more affordable rates than in the Sydney CBD. The area is benefiting from significant state government infrastructure spending on road and rail projects and is home to significant corporate head offices, such as Woolworths.

The property is 85% leased with scope to deliver additional income to the Fund through active leasing of the vacant space. The vacant space is considered attractive for tenants, particularly given the average office rent at the property of AUD 271 per square metre compares favourably with other competing office markets. The initial passing yield on acquisition is 7.77% and the annualised property yield on a fully leased basis would be 9.46%. This represents an attractive spread over the Fund’s borrowing costs of 4.15%.

The weighted average lease expiry is five and a half years and contracted average annual rental growth rates range from CPI to 4.0%. The property is occupied by high quality tenants comprising a mix of listed, international and national companies, including Clarendon Homes, a home builder operating in New South Wales and Queensland for over 30 years; Novo Nordisk, a global healthcare company listed on NASDAQ Copenhagen and NYSE; Bosch Security Systems, part of the global Bosch group; PwC, a global professional services company operating in 157 countries; Cytec, a global technologies company listed on NYSE; and Imation, a global data storage and information security company listed on NYSE.

IAPF CEO Graeme Katz said the acquisition was an important step in deploying the capital raised as a result of a rights issue in October 2014.

“The acquisition is the sixth property acquired by the Fund since the rights issue in October 2014 resulting in a total of AUD 156 million being deployed, which will result in the Fund being 25% geared post this transaction. Investors should start to see the benefit of the deployment of the rights issue capital and increased gearing in the Fund in the 2016 financial year.

We are pleased to make the first office acquisition for the Fund in Sydney. Confidence appears to be growing in the NSW economy and the acquisition increases the Fund’s overall exposure to this market. The acquisition aligns well with the Fund’s strategy of investing in well-located, high quality assets,” he added.

IAPF, listed on the Johannesburg Stock Exchange under the Real Estate Holdings and Development sector, provides South African investors with direct access to the Australian commercial property market.