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MPFM's 9 Hunter Street co-investment - progress Dec quarter 2018.

Invest / Direct Property Funds

Australia

May 01 2019

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At the end of 2017 MP Funds Management (MPFM) co-invested in the acquisition of 9 Hunter Street, Sydney, a 15,500sqm (approx.) commercial office building which is located almost on the junction of Hunter and George Streets in the core precinct benefiting from Sydney's $62 billion building boom. This building and infrastructure boom has triggered an increase in demand for prime office assets, both existing and under construction. Upgrades in the immediate area surrounding the 9 Hunter Street asset include the light rail infrastructure and closing of George Street into the upgraded mall area, together with the $1.9 billion dollar refurbishment that Brookfield is doing on Wynyard railway.

In 2017 AMP Capital and UniSuper purchased a combined half share of the $1.9 billion Wynyard Place project from Brookfield Property Partners as part of the investors' strategy to boost its presence in the strong Sydney office market.

Under the plan, AMP's Wholesale Office Fund (AWOF) took a 25 per cent stake in the completed development of Brookfield's Wynyard Place. AMP Capital's separate account client UniSuper has also committed to a 24.9 per cent interest.

Brookfield Property Partners' Wynyard Place is a mixed use precinct bounded by George Street, Margaret Street and Carrington Street and the centrepiece is a 67,000 square metre, 27-level premium grade commercial tower, which is 45 per cent pre-committed by National Australia Bank. The development also includes a restoration of the historic Shell House and 285 George Street.

In addition, 3500 sqm of high-end retail will be created together with a revitalised Wynyard Lane and a major upgrade to Wynyard Station's George Street entrance connecting to a grand transit hall and public concourse. It will flow through to Wynyard Park, encompassing where the former Menzies Hotel once stood.

A range of international and domestic retailers are looking at the space to capture the high-level of foot traffic in the railway concourse.

Being located directly next door, the 9 Hunter Street asset benefits directly from the Wynyard development and upgrades to the concourse, retail and Hunter and George street presence. 9 Hunter Street was acquired for $202m and has recently been revalued at a value materially higher than the initial purchase price which is pleasing.

The asset sits in a single asset special purpose vehicle and the investment term is anticipated to be 3-5 years. Our preference is always a single asset structure because it provides complete visibility to the underlying asset.

Net monthly rental distributions provide investors with an annual yield of c. 5% and will move up to about 5.5% by the end of this year. Total return, inclusive of a capital return is anticipated and on track to be in the double digits.

The investment highlights and value come as a result of the following key themes:

The property was acquired for c. $13,000 per sqm, reflecting a 5.17% fully leased yield and average rental of $700 per sqm. Currently, freehold commercial assets are trading in the vicinity of $20,000 per sqm and rental values have surpassed $1000 per sqm in the immediate area surrounding the subject property. The subject property is a stratum, so it will not trade for as high a rate per sqm as freehold buildings however the increase in values overall, specifically rentals and cap rates means that although a discount will be applied the increasing values in the area will drive increased value at the subject asset.

Offtakes of quality commercial assets in the Sydney CBD as a result of both residential conversions as well as compulsory acquisitions for the metro and light rail lines mean diminished availability of commercial office space. New supply is limited, and demand continues.

Infrastructure spend and private development in Sydney CBD is at a peak, with expectations that the Sydney CBD population will grow by over 1 million people in the next 10 years.    

$48.1bn of commercial office sales transacted in 2018 nationally, with c. $16b in the last quarter of 2018. 2018 prime commercial rents grew by 8% with B grade rents growing at a slightly lower 6% and incentives remained steady at 18-20%.

MAJOR SURROUNDING INFRASTRUCTURE DEVELOPMENT:

  • Major development and infrastructure work that are occurring in the immediate surrounds of the Subject Property are as follows:
  • Circular Quay Ferry Wharves; Circular Quay is a key entry point to Sydney’s northern CBD, which is being transformed by a multi-billion-dollar pipeline of public
  • and private sector investment.
  • Barangaroo; Sydney’s newest commercial district at Barangaroo will accommodate 23,000 office workers and up to 33,000 visitors each day.
  • Darling Harbour Live; Darling Harbour is being transformed with a new world-class convention centre and commercial and residential village, including a PPP
  • with Lendlease to deliver a $3.4 billion, 20-hectare development including a convention center which will become one of Sydney’s largest tourism hubs. The
  • development comprises 500 apartments, two public open spaces and a pedestrian promenade.
  • UTS Redevelopment; UTS is redeveloping its City Campus in Sydney’s southern CBD with new buildings and facilities, major upgrades and improved pedestrian
  • connections.
  • Central Park; Work is continuing on this multi-stage urban village containing residential and office precincts, shops, cafes, parks and community facilities.
  • Metro Light Rail According to the latest NSW Government Parliament Report January 2019, the Sydney CBD and the South East of Sydney are busy transit and
  • destination corridors. In its 2012 Light Rail plan, Transport for NSW indicated that 'a total of 509,000 trips are made into the city centre each weekday, including
  • 205,000 in the morning peak hour'. This number was expected to grow to around 242,000 trips by 2031 – representing an 18 per cent increase. Employment was
  • also predicted to grow within the same period by 31 per cent to 415,000 jobs. With the light rail project originally scheduled to complete March 2019, its
  • anticipated the project is delayed by at least a year.
  • In November 2013, the business case for the project estimated the project would cost $1.6 billion. As noted in the Auditor-General's 2016 report, the budget
  • increased by $549 million to $2.1 billion by the time Transport for NSW signed the Public Private Partnership (PPP) contract in December 2014.

 

 

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