Colonial buys Millennium Centre

Friday 3rd August 2001

MILLENNIUM CENTRE: Colonial First State Property Trust's latest asset

By Campbell McIlroy

Colonial First State Property Trust has concluded the largest commercial property deal of the year, buying Greenlane's Millennium Centre for $42.6 million from Manson Developments.

Colonial First State Property Trust general manager Lloyd Cundy said the purchase was an opportunity to increase the quality of the portfolio and, more importantly, move the average weighted lease term from 3.8 years to 4.4 years.

The Millennium Centre has a net income of $4.18 million from three buildings totalling 15,568sq m, reflecting a 9.8% yield.

The new acquisition will add $700,000 a year to company's profit before tax.

The buildings are tenanted by AMP, Spotless Services, Hume Industries, CM Research, Mighty River Power, Pharmacia NZ, Sealord, Toyota Finance and Genesis Power with leases running from six to 12 years.

Many of the leases are also two years into the first three- year rent review period, offering an early opportunity of rental growth for the company.

Manson Developments sales manager Cullum Manson said the sale reinforced the demand for good office space in Greenlane.

The level of demand has prompted Manson's to put up the rent for its nearby Meridian Centre, which is due for completion by the end of the year, from $212.50 a sq m to $214.75.

CFSPT's purchase takes its portfolio to 16 properties worth $250 million but the new jewel in the portfolio's crown was debt funded, taking the company's level of debt to just over 40%.

Mr Cundy said although the trust is allowed to carry up to a 50% debt ratio the board would be happier with about 35% so some of the smaller properties would be sold to reduce the debt level.

It has already put its Kodak House in Stanley St on the market as part of Bayleys' winter Total Property portfolio.

Meanwhile there has been a great deal of market speculation about a possible merger between CFSPT and Newmarket Property Trust.

Both companies are now owned by the same parent company, Commonwealth Bank of Australia.

"We've certainly been talking to them but we haven't made significant progress and the up-shot is there is no deal," Mr Cundy said.

With the company's debt level creeping up Mr Cundy also hinted at the possibility of raising further equity to take advantage of further opportunities to expand the trust.

"Property trusts have to keep doing things or they stagnate. It's a question of finding the right thing for the company and the unit holders. We've got a whole lot of things we have to look at. But it's not that easy to raise equity. Capital notes are achievable but it's debt and we really don't want to go down that track."

Whichever track the company goes down Mr Cundy said investors could expect to have a better idea within the next six months.

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