Telstra Super’s joint acquisition of Brisbane Square with Charter Hall reflected the fund’s aim to overweight its $1 billion property portfolio to unlisted assets, Jim Christensen, CIO at the $10 billion fund, said.
In a 50:50 joint-venture, the $10 billion Telstra Super and the Charter Hall Core Plus Office Fund yesterday announced they had bought Brisbane Square, the A-grade CBD office tower, for $300 million from Westscheme.
Christensen said the fund had resolved to change increase its exposure to direct property from 50 per cent of its property portfolio to about 75 per cent, a decision made in a strategic review that was undertaken when property portfolio manager Greg Lee joined the fund at the beginning of the year.
The Brisbane Square investment was Telstra Super’s first step towards this aim, and its 50 per cent allocation to listed property helped fund the move.
“We were fortunate that we had a range of listed holdings in the portfolio, which has given us liquidity,” Christensen said.
According to Westscheme and its asset consultant, Access Capital Advisors, the $300 million price tag implied an equity value of about $106 million – a substantial increase on the $54.5 million equity value priced in when it acquired the asset in 2004.
David Harrison, joint managing director at Charter Hall, expected “strong income growth” from the property because the rents paid to its two tenants, the Brisbane City Council (BCC) and Suncorp, were 38 per cent below the market rate.
In addition to annual increases of 3.5 per cent, rents should lift substantially in 2016 when Suncorp’s lease expires and the BCC undertakes a mid-lease review of its tenancy agreement, providing a “market revision” opportunity for Charter Hall and Telstra Super in which they could push for higher rents, Harrison said.
The property currently generated an income yield of about 7.7 per cent, “but obviously we expect that to grow over time,” he added.