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CPOF Acquires Bank Headquarters

01/09/2006

Headquarters of St George Bank, Sydney and Bank SA, Adelaide acquired for $146m.

Charter Hall Group announces that the Core Plus Office Fund (CPOF) has acquired 2 investment grade office buildings from St George Bank Ltd on 15 year lease backs for $146 million. The portfolio comprises the $126 million Kogarah head office of St George Bank in suburban Sydney and the Bank SA head office in Adelaide Central Business District.

The buildings were sold by St George Bank based on fixed prices where prospective purchasers needed to set the initial office rentals, subject to double net leases over 15 years with annual CPI (Australian) reviews.

Charter Hall Joint CEO David Harrison stated that CPOF was on track to invest the committed equity within the 2 year investment period as 44% of the committed equity has already been allocated to 5 acquisitions. The CPOF portfolio metrics now include an impressive average lease expiry profile exceeding 10.5 years, annual rent reviews combining CPI linked and fixed annual increases ranging from 3% to 4.5%, together with various market review opportunities.

The initial passing yields reflect 7% for the St George portfolio and Mr Harrison confirmed that the acquisitions meet the investment criteria of CPOF which is targeting 10 year total returns on equity of 12%.

Other wholesale funds managed by Charter Hall include four opportunity funds that have raised $434 million of equity and have either undertaken or are currently undertaking over $1.3 billion of projects, with capacity for a further $400 million of projects. In total Charter Hall has raised in excess of $785 million of new equity across its unlisted and listed vehicles since its IPO in June 2005 and increased staff by 25% to accommodate such growth according to Mr Harrison.

CPOF was launched in December 2005. Charter Hall Property Trust will generate its growth in office sector assets via its $115 million investment in CPOF, which will now be drawn to $57 million. As with previous wholesale funds, equity commitments are drawn down from investors progressively as acquisitions are finalised. With gearing of 50% of total fund assets, CPOF has initial capacity of approximately $1 billion.

The investment strategy of CPOF is to acquire and hold office properties over the medium to long term within a "flow through" investment trust:

  • which are located within capital city markets of Australia, primarily CBD and Fringe CBD precincts, however, suburban or metropolitan locations may be considered appropriate;
  • that may require enhancement and subsequently represent appropriate investment grade assets to be held in a flow through wholesale fund which distributes 100% of pre-tax net rental income;
  • where values post-enhancement will generally be in the price range of $50 million to $250 million;
  • to provide a mix of core (70%) and enhanced (30%) assets; and
  • which, on a blended basis, will achieve a target 12% IRR on equity.


The St George Portfolio acquisition is expected to be completed in September 2006.