GPT sells interest in 1 Farrer Place for $584.6 million

2 December 2020

The GPT Group has sold its 25% interest in 1 Farer Place, Sydney to the Lendlease managed Australian Prime Property Fund Commercial.

Farrer Place is one of the Sydney’s premium towers, with 84,000 sqm in the 64-level Governor Phillip Tower and the 64-level Governor Macquarie Tower.

Under the terms of a co-owners agreement, GPT were required to first put its stake to Lendlease which also owns a 25 per cent stake, alongside Dexus, who held a second right to acquire the interest.

The sale price was struck at GPT’s 30 June 2020 book value of $584.6 million, reflecting a 4.39% yield. The transaction is expected to settle by mid-December.

According to GPT, the asset has delivered a return in excess of 12 per cent per annum over the past five years but the decision to sell was to shift capital into the logistics development pipeline where higher returns were forecast.

In announcing the sale, GPT’s Chief Executive Officer Bob Johnston said: “The sale of Farrer Place capitalises on the strong demand and rare opportunity to purchase landmark office assets. The proceeds from the sale will be reinvested into new opportunities including logistics acquisitions and the Group’s development pipeline, which we believe will generate superior long term returns for investors.”

Last week, the Group exchanged contracts for the purchase of three prime logistics properties and 2.35 hectares of adjoining development land at Drystone Industrial Estate, Truganina for a total price of $127.6 million. Settlement is expected to be completed by mid-December.

The properties, originally developed between 2015 and 2019, provide a combined 44,137 square metres of high quality warehouse and cold storage space fully leased to five tenants with a WALE of 8.2 years.

The Group has also recently commenced the speculative development of a 16,270 square metre warehouse at Berrinba in Brisbane, with completion scheduled for the second half of 2021 and an expected end value of $33 million.

GPT’s Chief Executive Officer Bob Johnston said: “These investments are consistent with GPT’s strategy to grow our exposure to the logistics sector, and complement our significant logistics development pipeline which has an expected end value of approximately $1 billion. The properties are well located, with long leases and good access to transport links, and we expect these assets will benefit from sustained demand from occupiers.”

Micah Schulz, APPF Commercial Fund Manager, said, “APPF Commercial’s acquisition of a further 25 per cent interest in 1 Farrer Place represents a strategic upweighting in a highly prized asset of a type that rarely comes to market. Pleasingly, the fund was in a strong position to take advantage of this opportunity with agility.

“Customers love the building for its prestige, location and quality. It provides a high degree of amenity, fantastic views, and is highly adaptable to shifting customer demands over time.

“The acquisition supports the Fund’s strategy of investing in flexible precincts with superior amenity and strong transport links. 1 Farrer Place will also benefit from significant additional private and public investment in the immediate precinct, including nearby metro station developments.”

The sale comes just a week after the China Investment Corporation paid $925m for a 50% interest in Grosvenor Place. That deal reflected a 4.9% cap rate.

The two major deals demonstrate the resilience of the premium core office market where despite the uncertain outlook for office rental and vacancy rates, capital is still comfortable with the long term risks that these towers offer.

Part of the rationale is that at a 4.5% yield, the return spread to 10 year bond rates remains well above the long term average for prime assets which provides a better long term risk adjusted return, even after factoring in for lower rentals and higher incentives.