Diversified property group GPT has thrown its full weight behind Sydney’s booming office sector with the acquisition of a significant stake in the $2 billion Darling Park and Cockle Bay retail complex at Darling Harbour.
GPT will tap investors for $850 million to fund the deal, which encompasses Darling Park Tower 1, leased by the Commonwealth Bank, and Tower 2, the home of IAG, and a majority stake in the proposed $1 billion, 40-storey office skyscraper at the front of the existing Darling Park towers.
With the development of the W Hotel nearby and Mirvac’s plan for the Harbourside shopping centre opposite, the revamp of Darling Harbour will be the last piece of the puzzle for the western and southern corridor of the city.
While it is still in the design phase, GPT’s plans for Cockle Bay will encompass public space, including a natural amphitheatre which can host major events such as Vivid, Chinese New Year and New Year’s Eve celebrations
The space will also have a park at northern end of site known as Cockle Bay Park.
GPT’s chief executive, Bob Johnston, said the public space will cover the area of the Western Distributor that currently separates much of Darling Harbour from the city. It will turn dead space above the freeway into a new public and green space.
“Apart from improving the connection across the Western Distributor, the development will include enhanced entrances on Market and Druitt Streets improving the connections to Town Hall Station and the planned light rail and Metro stations,” Mr Johnston said. There will also be new restaurants along the Cockle Bay wharf.
An international design competition is expected to be launched later this year for the $2 billion overhaul.
Mr Johnston said the acquisition reflects the group’s confidence in the Sydney office market where the vacancy rate for premium space is at a record low 3.2 per cent. It will boost the group’s exposure to the Sydney office market to 59 per cent.
“We are confident of further rental growth in the Sydney and Melbourne office markets and the deal also gives us exposure to development opportunities with our interest in the planned fourth office tower,” Mr Johnston said.
He said “discussions are presently underway with CBA in relation to their future requirements”.
There have been suggestions the bank could also lease space in the new proposed tower, although Mr Johnston declined to comment directly on any possible deal.
The deal is on an initial yield of 5.3 per cent and the raising is at $6.07 per GPT security, representing a 4.1 per cent discount to its last closing price of $6.33.
GPT will remain in a trading halt until Thursday after the placement has concluded. UBS and Macquarie underwrote the capital raising.
Upon completion of the deal, GPT and its unlisted wholesale office fund GWOF will hold a combined 75 per cent of the complex. GWOF owns 100 per cent of Tower 3.
Brookfield is the seller and GWOF had a first right of refusal over the 30 per cent stake, which it offered to GPT as part of the internal business platform.
Of the funds raised, $531 million will be used for the new acquisition, with the remainder financing the next stage of growth from within the group’s $1.5 billion ongoing development pipeline across the office and logistics sectors.
This will include a $180 million office complex above Melbourne Central’s existing retail centre and an additional $70 million expansion of the mall’s leisure and entertainment precinct. There is also the $266 million office development at 32 Smith Street, Parramatta.
GPT will also increase its exposure to the logistics sector which is experiencing boomtime growth due to online shopping.
The group recently bought acquired a $212 million portfolio of logistics assets in Sydney and is developing a 26,400 square metre facility at Truganina, Melbourne worth $33 million.
“We are focussed on increasing our exposure to the office and industrial property sectors and while retail is softening, we still see growth,” Mr Johnston said.
Broking analysts said the deal was positive for GPT by increasing its presence in the profitable sectors of the property market.
Mr Johnston guided funds from operations per security growth of 2.5 per cent on 2018 and maintained distribution per security growth of 4 per cent on 2018 financial year.
GPT releases its half year results on August 12.
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