Sale of Wesfarmers House delivers strong profit
12 August 2008
Orchard is pleased to announce contracts for the sale of Wesfarmers House in Perth have been exchanged for $84.8 million, representing one of the most significant property transactions this year.
Originally purchased for $47.5 million in 2006 by the Commercial Office Fund (the Fund), the transaction equates to a property internal rate of return (IRR) of nearly 35% p.a. and delivers a strong profit of $37.3 million. The 13 level prime office building is situated in the heart of Perth’s CBD and is currently fully leased to commercial and resource sector tenants.
The price achieved is consistent with Orchard’s distribution guidance, as indicated by the announcement earlier this month of a discretionary distribution payment of 3.50 cents per unit (cpu) for the Fund to be made with the June 2009 distribution payment^.
Commenting on the sale, Orchard’s Chief Executive Officer David Hinde said "The sale of Wesfarmers House is in line with our strategy of taking advantage of investment cycles and profits in markets like Perth and Brisbane, where substantial rental growth has already been achieved."
Last year the Fund sold 369 Ann Street, Brisbane, for $48.4 million and 40 Tank Street, Brisbane, for $54.5 million as part of its strategic plan to re-weight out of the Brisbane and Perth markets, which have both performed extremely well over the past two years. This has resulted in a combined profit of $84 million for the Fund over the last twelve months.
Mr Hinde continued "We felt the time was right to capitalise a gain of $37.3 million for this asset. We will be using the sale proceeds to reduce debt levels in the Fund".
With the Fund's debt facility due for refinancing by June 2009 we believe applying the proceeds to reduce gearing is a prudent strategy and will help achieve better pricing going forward. Following the sale, the Fund's look-through gearing will decline from 61% to 57%, based on the Fund's most recent independent valuations.
Currently, the Fund has $638 million of assets under management and boasts a strong tenant mix with a balanced lease expiry profile. Despite challenging market conditions, it has provided a solid total return to investors of 17.84% per annum over the past two years, to 30 June 2008*.
For further information, please speak with your Financial Adviser or contact Orchard Investor and Adviser Services on 1800 008 494.
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^ The discretionary distribution is indicative only and subject to change. * The total return is equal to the change in Unit Price including reinvestment of distributions, annualised for the relevant period.