Australian Unity’s Diversified Property Fund (DPF) has reset its’ Fund Strategy with the sale of 20 Smith Street Parramatta for $87.25 million, reflecting a passing yield of 4.6%.
The property contains an 8 level office building with 7352 sqm of NLA. The property is leased to 11 tenants, including major consulting firm GHD and offers a weighted average lease expiry of 1.7 years. The property also has a basement car park (182 spaces) and end-of-trip facilities and has been rated with a 4.5-star NABERS energy rating.
Colliers’ John McCann and Frank Oliveri with One Commercial’s Simon Kent and Joshua Charles acted on behalf of the Fund.
The Diversified Property Fund consists of a property portfolio with a balanced sector and geographic mandate delivering stable distributions with good opportunities for capital growth via value add leasing and development works. Prior to the 20 Smith Street sale, the Fund held 10 assets valued at $571m as at Dec 2021.
Following the decision to not proceed with the merger of the DPF and AOF funds, Australian Unity revised its strategy for DPF to further enhance returns to investors.
The revised strategy centred on the need to provide liquidity for the Fund to provide funding for the development works at Busselton and North Blackburn projects, each of which are expected to enhance returns for the Fund. As a result, Australian Unity elected to sell the Parramatta asset and to re-finance it existing debt facilities.
The sale of the Parramatta asset was at a 4.5% premium to its book value and whilst the site is able to accommodate a larger development, Australian Unity, who has also been seeking tenants for AOF’s 2-10 Valentine Street development, was unlikely to develop the asset.
The Fund will now use the proceeds from the sale to initially pay down debt, dropping the LVR from 43% to a more comfortable 33%, prior to putting the funds to work in the development projects.
DPF will also shortly complete the re-finance of a $300m debt facility which will result in lower financing costs for the Fund and longer tenure facilities. DPF intends to retain a maximum LVR of 40% across the cycle.
DPF has a retail investor base with some 4,300 investors attracted to the stable income and long term track record of the Fund. DPF was established in 2006 and over the past 10 years has generated an average distribution yield of 8.5% and a total return of 12.8% – well in excess of its target return of 10%.
Speaking to Australian Property News, DPF Fund Manager, Jonathan Senior said ““the Fund is now in great shape with undeveloped assets generating strong returns and a funding strategy and development pipeline that will help deliver enhanced returns to investors in the coming years.”
“Acquisitions that are accretive to the Fund are difficult to find at present and as such our immediate attention will be focused toward delivering the best outcome on the development opportunities within the existing portfolio.”