CFX, GIC and MFCo acquires Myer Melbourne site
CFS Retail Property Trust (CFX or the Trust) has announced that the consortium in which it is a lead participant has finalised negotiations with Myer Pty Ltd (Myer) and has exchanged contracts to acquire the iconic Myer Melbourne site fronting Bourke and Lonsdale streets for $605m. Settlement of the deal is expected by mid August 2007.
The consortium comprises CFX, GIC Real Estate (GIC) and The Myer Family Company Pty Ltd (MFCo).
According to CFX, this is an important and strategic acquisition for the Trust, providing CFX with another landmark redevelopment and provides long term income streams for its investors. The predominant benefit of undertaking this project in a consortium arrangement is to manage the development risk exposure for CFX investors, while forging relationships with like minded property investors.
As part of the consortium arrangements, CFX, GIC and MFCo will, on settlement, own the Bourke street site equally among the three parties, while CFX and GIC will jointly own the Lonsdale Street site. The total initial outlay for the Trust will be $276.6m.
The consortium will then undertake an approximate $500m (CFX share $220m) redevelopment of the site over a five year period, drawing on the extensive experience and resources of Colonial First State Property Management, which has helped bring to fruition projects such as Chadstone Shopping Centre in Melbourne and QueensPlaza, Brisbane.
The Trust will be targeting an estimated initial yield of between 6% and 6.5% on costs including the acquisition of the site, while the Myer Melbourne project increases the Trust’s development pipeline to $1.7bn.
The Bourke Street site will be occupied by Myer in a 41,000 sqm tenancy, while the Lonsdale Street site will consist of 30,000 sqm of specialty and concept store retail space with a further 7,500 sqm occupied by Myer. Provision will also be made for future office accommodation or other uses above the Lonsdale Street retail development.
Rarely in Australia is an opportunity presented to invest in such a prime CBD retail asset, and fewer still which provide the opportunity to deliver more than 70,000 square metres of space in a modern retail development.
The Trust's share in the project will initially be debt funded, likely in the form of hybrid security financing, with the aim of optimising returns for unit holders, with gearing to remain in the Trust’s previously published gearing bands which are between 25% and 30% with the ability to go to 35% in the short term. The Trust is also expected to maintain its A rating from S&P following the transaction.
According to Colonial First State, this deal again highlights the combined strength of Colonial First State Global Asset Management and Colonial First State Property Management and their combined skills in funds management, property, leasing and development management. The companies are advised by the vendor that a key determining feature of its winning bid was the innovative design and thought through development program.
Myer lease arrangements:
Under the sale agreement, Myer has agreed to a 21-year lease with four, 10-year options. It is anticipated that the retailer will occupy approximately 48,500 square metres of gross lettable area in the Lonsdale and Bourke street buildings, 41,000 square metres of which would be in the Bourke Street accommodation.
The lease arrangements include provisions for annual rental increases equivalent to the Consumer Price Index, plus 1%.
Property management and development:
Colonial First State Property Management (CFSPM), the exclusive provider of property leasing, management and development services to CFX, will also provide property management and development services to the Myer Melbourne site redevelopment.
CFSPM manages 39 retail centres across Australia on behalf of CFX and other Colonial First State Global Asset Management funds and third party clients and, including the Myer Melbourne site, currently has a development pipeline in excess of $3.3bn.
24-Aug-2007