COMMERCIAL PROPERTY, SALES & LEASINGREAL ESTATE INVESTMENT TRUSTS & FUNDSSOCIAL INFRASTRUCTURE

Charter Hall Social injects $122m into Mater HQ

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CHARTER Hall Social Infrastructure REIT has taken ownership of health provider Mater’s new offices in Brisbane’s inner suburbs for $122.5 million as part of a two-step transaction.

Mater’s new A-grade, 11-storey headquarters at 14 Stratton St is currently under construction and traded on a tight passing yield of 4.84%, with fixed annual rental increases of 3%.  Mater will take up a new 10-year term as part of a lease back deal with two five-year options.

The Catholic not-for-profit is Queensland’s largest health provider of its type, owning and operating a network of hospitals, health centres and a research institute and gross assets of over $1 billion.

To be fitted out by Mater, the building will also offer healthcare training facilities and is centrally located in Newstead, about 2.6 kilometres north east of the Brisbane CBD.

Their existing hospital and training campus is in South Brisbane.

Settlement is due to occur following practical completion, expected in the June 2021 quarter. The build will achieve 5-star NABERs rating.

Mater represents a new tenant for Charter Hall Social Infrastructure REIT’s portfolio.

“This investment is consistent with our strategy of enhancing income sustainability and resilience by improving the quality of tenants and leases within a diversified social infrastructure portfolio,” Travis Butcher, fund manager of CQE said.

“This is an exciting opportunity for CQE to gain exposure to the highly resilient health sector and also opening up future partnership opportunities with Mater.”

CQE’s income from social infrastructure properties outside of child care increase from 4% to 11% of portfolio income following the deal. Pro-forma gearing is expected to increase to 24.3% or 25.6% on a look-through basis with remaining liquidity of $158.4 million.

Charter Hall has taken part in a number of sale and leaseback deals in recent times, including the $214 million acquisition of Owen-Illinois glass manufacturing facilities, and a portfolio of four ALDI distribution centres in partnership with Allianz for $648 million.

At the end of last year, partnered with BP and took a 49% interest in a $1.7 billion portfolio of 225 convenience properties across Australia, which it followed up with a BP portfolio in New Zealand.

“Momentum in sale and leaseback transactions continues to grow across corporate Australia and the group is well positioned to take advantage of this opportunity to secure strategically aligned assets and portfolios,” it said at its annual results.

Peter Court, Mike Walsh and Fred Le Fanue of Cushman & Wakefield negotiated the off-market sale. They said the deal ultimately comprised a dual transaction that included initially negotiating the purchase of the 9,088 sqm building on a vacant possession basis from Silverstone Developments, and Mater then structuring a 10-year leaseback to themselves, and on-selling the building with a contemporaneous exchange.

“This was a complex transaction that leveraged a unique opportunity for Mater to capitalise on current capital market dynamics,” Walsh said.

Court said the market emphasises the importance of strong tenant covenants and tenure, which was has remained heightened throughout the COVID-19 pandemic.

Charter Hall has been active in the near-CBD location for a number of years, having developed the $230 million headquarters for Aurizon at 900 Ann St in Fortitude Valley, and a $240 million office project anchored by the Bank of Queensland also in Newstead.

CQE will utilise available investment capacity which will increase CQE’s net gearing to approximately 25%, and given the likely settlement date will have minimal positive impact on FY21 operating earnings, however, will be accretive in future years.

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