ACN 006 464 428
Colonial First State Property Limited
•
Colonial
First State
Property Trusts
• • • • • • •
Notices of Meeting and
Explanatory Memorandum
Comprising the following trusts:
Colonial First State Industrial Property Trust
Colonial First State Commercial Property Trust
Colonial First State Retail Property Trust
Colonial First State Development Trust
This document is important.
If you do not understand it or are in any doubt about the action to be taken, you should consult
your stockbroker, accountant, investment adviser or other professional adviser immediately.
Colonial First State Property Limited
ACN 006 464 428
in its capacity as the Manager of the Trusts
The Notices of Meeting and Explanatory Memorandum are dated 13 November 1999
Contents
Page
1
Notices of Meeting
1
2
Action Required By Unitholders
5
3
Explanatory Memorandum
6
4
Property Portfolio and Market Overview
13
5
Financial Information
49
6
Voting & Eligibility
64
7
Experts’ Reports
66
8
Trust Deed Amendments
151
9
Additional Information
156
10 Glossary
159
Key Dates
Last day for lodgement of Proxy Forms
15 December 1999
Last day for receipt of Election Forms
(unitholders elect to receive the
Cash Alternative or Colonial First State
Property Trust Group Securities)
15 December 1999
Last day of trading in existing units(1)
16 December 1999
Meetings of unitholders of
Colonial First State Retail Property Trust,
Colonial First State Industrial Property Trust,
Colonial First State Commercial Property Trust
and Colonial First State Development Trust
17 December 1999
Trading of Colonial First State Property
Trust Group Stapled Securities commences(2)
20 December 1999
Announcement of Bookbuild Price
7 February 2000
(1) Assuming Merger Proposal proceeds.
(2) Estimate only – will only occur if Merger Proposal proceeds.
Colonial First State Property Limited (ACN 006 464 428) is the manager of each of the Trusts. Permanent Trustee Australia Limited is the
trustee of Colonial First State Retail Property Trust, Colonial First State Industrial Property Trust and Colonial First State Commercial Property
Trust whilst Perpetual Trustee Company Limited is the trustee of Colonial First State Development Trust.
An investment in the Stapled Securities of the Trusts does not represent a deposit or other liability of Colonial State Bank or any other
member of the Colonial Group. The investment is subject to investment risk which can include delays in repayment, loss of income and the
loss of the principal invested. None of Colonial First State Property Limited, Colonial State Bank or any member of the Colonial Group,
guarantees the performance of the Trusts, the repayment of capital or the payment of a particular return on the Stapled Securities.
Permanent Trustee Australia Limited and Perpetual Trustee Company Limited ("Trustees") were not involved in the preparation of any part of
this document. The Trustees have not issued this document. The role of each Trustee has been limited to reviewing the relevant Notice of
Meeting and Explanatory Memorandum to ensure that they contain a summary of information relating to the matters to be considered at
the meeting of unitholders and the resolutions to be put at the meeting of which they are aware that is relevant to the decision of the
unitholders on how to vote at the meeting. In all other respects in relation to the Notices of Meeting and Explanatory Memorandum, the
Trustees have relied upon information provided by Colonial First State Property Limited, the Manager of the Trusts.
1. Notice of Meeting
of Colonial First State Retail Property Trust
Notice is given that a meeting of the unitholders of the Colonial First State Retail Property Trust (the ‘Trust’) will be held at
the offices of Mallesons Stephen Jaques, Level 60, Governor Phillip Tower, 1 Farrer Place, Sydney on 17 December 1999
commencing at 10am.
Business
The business of the meeting will consist of the following:
Appointment of the Chairperson
To appoint a person to act as Chairperson of the meeting in accordance with section 1069C(1) of the Corporations Law.
Approval of Merger Proposal
Resolution 1: Approval of Merger Proposal
To consider and, if thought fit, pass an Ordinary Resolution on the following terms:
‘That the Trustee and Manager are authorised to proceed with the Merger Proposal as described in the Explanatory
Memorandum (‘Explanatory Memorandum’) that accompanies the Notice of Meeting dated 13 November 1999
(‘Notice of Meeting’) and to do all things necessary or appropriate to implement the Merger Proposal.’
Approval of Issue of Units
Resolution 2: Approval of Issue of Units in the Trust
To consider and, if thought fit, pass a Special Resolution on the following terms:
‘That, subject to Resolution 1 and Resolution 3 set out in the Notice of Meeting being duly passed, and subject to
unitholders in the Trust being contemporaneously issued units in each of Colonial First State Industrial Property Trust,
Colonial First State Commercial Property Trust and Colonial First State Development Trust at a price of $0.01 per unit and
in the ratios set out in the Explanatory Memorandum, the following issues of units in the Trust be and are hereby approved:
(i) the issue of up to 174,400,000 units in the Trust at a price of $0.01 per unit to unitholders in Colonial First State
Industrial Property Trust;
(ii) the issue of up to 148,290,000 units in the Trust at a price of $0.01 per unit to unitholders in Colonial First State
Commercial Property Trust; and
(iii) the issue of up to 72,830,000 units in the Trust at a price of $0.01 per unit to unitholders in Colonial First State
Development Trust.’
Approval of Amendments to the Trust Deed
Resolution 3: Approval of Amendments to the Trust Deed of the Trust
To consider and, if thought fit, pass a Special Resolution on the following terms:
‘That, subject to Resolution 1 and Resolution 2 set out in the Notice of Meeting being duly passed, the Trust Deed of the
Trust be amended as described in Section 8 of the Explanatory Memorandum with such changes and additions (if any) as
may be required by the Australian Securities and Investments Commissions (‘ASIC’) or Australian Stock Exchange Limited
or as may be considered appropriate by the Trustee or Manager and the Trustee and the Manager are authorised and
directed to execute a Supplemental Deed and to lodge the Supplemental Deed with ASIC to give effect to the amendments.’
Michelene Hart
Company Secretary
Colonial First State Property Limited (ACN 006 464 428)
13 November 1999
Information on Voting and Proxies
For information on voting and proxies, please refer to Section 6 of this booklet.
1
1. Notice of Meeting
of Colonial First State Industrial Property Trust
Notice is given that a meeting of the unitholders of the Colonial First State Industrial Property Trust (the ‘Trust’)
will be held at the offices of Mallesons Stephen Jaques, Level 60, Governor Phillip Tower, 1 Farrer Place, Sydney on
17 December 1999 commencing at 10am.
Business
The business of the meeting will consist of the following:
Appointment of the Chairperson
To appoint a person to act as Chairperson of the meeting in accordance with section 1069C(1) of the Corporations Law.
Approval of Merger Proposal
Resolution 1: Approval of Merger Proposal
To consider and, if thought fit, pass an Ordinary Resolution on the following terms:
‘That the Trustee and Manager are authorised to proceed with the Merger Proposal as described in the Explanatory
Memorandum (‘Explanatory Memorandum’) that accompanies the Notice of Meeting dated 13 November 1999
(‘Notice of Meeting’) and to do all things necessary or appropriate to implement the Merger Proposal.’
Approval of Issue of Units
Resolution 2: Approval of Issue of Units in the Trust
To consider and, if thought fit, pass a Special Resolution on the following terms:
‘That, subject to Resolution 1 and Resolution 3 set out in the Notice of Meeting being duly passed, and subject to
unitholders in the Trust being contemporaneously issued units in each of Colonial First State Retail Property Trust, Colonial
First State Commercial Property Trust and Colonial First State Development Trust at a price of $0.01 per unit and in the
ratios set out in the Explanatory Memorandum, the following issues of units in the Trust be and are hereby approved:
(i) the issue of up to 190,410,000 units in the Trust at $0.01 per unit to unitholders in Colonial First State Retail
Property Trust;
(ii) the issue of up to 148,290,000 units in the Trust at $0.01 per unit to unitholders in Colonial First State
Commercial Property Trust; and
(iii) the issue of up to 72,830,000 units in the Trust at $0.01 per unit to unitholders in Colonial First State
Development Trust.’
Approval of Amendments to the Trust Deed
Resolution 3: Approval of Amendments to the Trust Deed of the Trust
To consider and, if thought fit, pass a Special Resolution on the following terms:
‘That, subject to Resolution 1 and Resolution 2 set out in the Notice of Meeting being duly passed, the Trust Deed of the
Trust be amended as described in Section 8 of the Explanatory Memorandum with such changes or additions (if any) as
may be required by the Australian Securities and Investments Commission (‘ASIC’) or Australian Stock Exchange Limited
or may be considered appropriate by the Trustee or Manager and the Trustee and the Manager are authorised and directed
to execute a Supplemental Deed and to lodge the Supplemental Deed with ASIC to give effect to the amendments.’
Michelene Hart
Company Secretary
Colonial First State Property Limited (ACN 006 464 428)
13 November 1999
Information on Voting and Proxies
For information on voting and proxies, please refer to Section 6 of this booklet.
2
1. Notice of Meeting
of Colonial First State Commercial Property Trust
Notice is given that a meeting of the unitholders of the Colonial First State Commercial Property Trust (the ‘Trust’) will be
held at the offices of Mallesons Stephen Jaques, Level 60, Governor Phillip Tower, 1 Farrer Place, Sydney on 17 December
1999 commencing at 10am.
Business
The business of the meeting will consist of the following:
Appointment of the Chairperson
To appoint a person to act as Chairperson of the meeting in accordance with section 1069C(1) of the Corporations Law.
Approval of Merger Proposal
Resolution 1: Approval of Merger Proposal
To consider and, if thought fit, pass an Ordinary Resolution on the following terms:
‘That the Trustee and Manager are authorised to proceed with the Merger Proposal as described in the Explanatory
Memorandum (‘Explanatory Memorandum’) that accompanies the Notice of Meeting dated 13 November 1999
(‘Notice of Meeting’) and to do all things necessary or appropriate to implement the Merger Proposal’.
Approval of Issue of Units
Resolution 2: Approval of Issue of Units in the Trust
To consider and, if thought fit, pass a Special Resolution on the following terms:
‘That, subject to Resolution 1 and Resolution 3 set out in the Notice of Meeting being duly passed, and subject to
unitholders in the Trust being contemporaneously issued units in each of Colonial First State Retail Property Trust, Colonial
First State Industrial Property Trust and Colonial First State Development Trust at a price of $0.01 per unit and in the
ratios set out in the Explanatory Memorandum, the following issues of units in the Trust be and are hereby approved:
(i) the issue of up to 190,410,000 units in the Trust at $0.01 per unit to unitholders in Colonial First State
Retail Property Trust;
(ii) the issue of up to 174,400,000 units in the Trust at $0.01 per unit to unitholders in Colonial First State
Industrial Property Trust; and
(iii) the issue of up to 72,830,000 units in the Trust at $0.01 per unit to unitholders in Colonial First State
Development Trust.’
Approval of Amendments to the Trust Deed
Resolution 3: Approval of Amendments to the Trust Deed of the Trust
To consider and, if thought fit, pass a Special Resolution on the following terms:
‘That, subject to Resolution 1 and Resolution 2 set out in the Notice of Meeting being duly passed, the Trust Deed of the
Trust be amended as described in Section 8 of the Explanatory Memorandum with such changes or additions (if any) as
may be required by the Australian Securities and Investments Commission (‘ASIC’) or Australian Stock Exchange Limited
or as may be considered appropriate by the Trustee or Manager and the Trustee and the Manager are authorised and
directed to execute a Supplemental Deed and to lodge the Supplemental Deed with ASIC to give effect to the amendments.’
Michelene Hart
Company Secretary
Colonial First State Property Limited (ACN 006 464 428)
13 November 1999
Information on Voting and Proxies
For information on voting and proxies, please refer to Section 6 of this booklet.
3
1. Notice of Meeting
of Colonial First State Development Trust
Notice is given that a meeting of the unitholders of the Colonial First State Development Trust (the ‘Trust’) will be held at
the offices of Mallesons Stephen Jaques, Level 60, Governor Phillip Tower, 1 Farrer Place, Sydney on 17 December 1999
commencing at 10am.
Business
The business of the meeting will consist of the following:
Appointment of the Chairperson
To appoint a person to act as Chairperson of the meeting in accordance with section 1069C(1) of the Corporations Law.
Approval of Merger Proposal
Resolution 1: Approval of Merger Proposal
To consider and, if thought fit, pass an Ordinary Resolution on the following terms:
‘That the Trustee and Manager are authorised to proceed with the Merger Proposal as described in the Explanatory
Memorandum (‘Explanatory Memorandum’) that accompanies the Notice of Meeting dated 13 November 1999
(‘Notice of Meeting’) and to do all things necessary or appropriate to implement the Merger Proposal’.
Approval of Issue of Units
Resolution 2: Approval of Issue of Units in the Trust
To consider and, if thought fit, pass a Special Resolution on the following terms:
‘That, subject to Resolution 1 and Resolution 3 set out in the Notice of Meeting being duly passed, and subject to
unitholders in the Trust being contemporaneously issued units in each of Colonial First State Retail Property Trust, Colonial
First State Commercial Property Trust and Colonial First State Industrial Property Trust at a price of $0.01 per unit and in
the ratios set out in the Explanatory Memorandum, the following issues of units in the Trust be and are hereby approved:
(i) the issue of up to 190,410,000 units in the Trust at $0.01 per unit to unitholders in Colonial First State Retail
Property Trust;
(ii) the issue of up to 174,400,000 units in the Trust at $0.01 per unit to unitholders in Colonial First State
Industrial Property Trust; and
(iii) the issue of up to 148,290,000 units in the Trust at $0.01 per unit to unitholders in Colonial First State
Commercial Property Trust.’
Approval of Amendments to the Trust Deed
Resolution 3: Approval of Amendments to the Trust Deed of the Trust
To consider and, if thought fit, pass a Special Resolution on the following terms:
‘That, subject to Resolution 1 and Resolution 2 set out in the Notice of Meeting being duly passed, the Trust Deed of the
Trust be amended as described in Section 8 of the Explanatory Memorandum with such changes or additions (if any) as
may be required by the Australian Securities and Investments Commission (‘ASIC’) or Australian Stock Exchange Limited
or as may be considered appropriate by the Trustee or Manager and the Trustee and the Manager are authorised and
directed to execute a Supplemental Deed and to lodge the Supplemental Deed with ASIC to give effect to the amendments.’
Michelene Hart
Company Secretary
Colonial First State Property Limited (ACN 006 464 428)
13 November 1999
Information on Voting and Proxies
For information on voting and proxies, please refer to Section 6 of this booklet.
4
2. Action Required by Unitholders
Step 1: Read the Documents Forwarded to You
The Notices of Meeting and Explanatory Memorandum set out the proposal to merge:
Colonial First State Retail Property Trust;
Colonial First State Industrial Property Trust;
Colonial First State Commercial Property Trust; and
Colonial First State Development Trust.
The Explanatory Memorandum contains details of the Merger Proposal and sets out the benefits that it offers to
unitholders, as well as potential arguments against it. It also contains a report by Arthur Andersen Corporate Finance Pty
Limited (an independent expert) that has been prepared for unitholders.
This information is important in deciding how you should vote on the resolutions at the unitholders’ meeting.
Step 2: Vote on the Resolutions
The unitholders’ meetings of each of the Trusts are scheduled for 17 December 1999. You are encouraged to attend and
vote at the unitholders’ meeting of your Trust or, if you are unable to do so, to complete the personalised proxy form that
accompanies this booklet. You may nominate someone to vote on your behalf at the meeting and indicate how you wish
that person to vote on the proxy form. For details on the completion and lodgement of Proxy Forms refer to Section 6 of
this booklet headed ‘Voting and Eligibility’.
Proxy forms should be sent in the envelope provided as follows:
Address for mail:
c/- Computershare Registry Services Pty Limited
Reply Paid 2975
Melbourne VIC 8060
Proxy forms must be returned so as to be received at least two days before the meeting (ie the latest time and date for return
of proxy forms is midnight on 15 December 1999).
Arthur Andersen Corporate Finance Pty Limited, an independent expert, has considered the Merger Proposal and
concluded that the Merger Proposal is fair and reasonable and in the best interests of unitholders in each of the four Trusts
proposed to be merged.
Step 3 : Elect to Receive Stapled Securities or the Cash Alternative
If your address is in Australia or New Zealand you are strongly encouraged to return the personalised Election Form
accompanying this booklet. Unitholders need to choose whether they want to receive Stapled Securities in the Colonial First
State Property Trust Group or the Cash Alternative.
Election forms may be returned in the envelope provided to the Trust’s Registry, whose address is set out above. Election
Forms must arrive not later than midnight on 15 December 1999.
You are encouraged to return the Election Form even if you intend to vote against the Resolutions. If you do not lodge your
Election Form or if it is not properly completed and received by midnight on 15 December 1999, you will automatically
receive cash under the Cash Alternative if the Merger Proposal proceeds.
For your choice to be effective, you must lodge your Election Form by midnight on 15 December 1999.
5
3. Explanatory Memorandum
The Merger Proposal
Overview
Colonial First State Property Limited currently manages four listed property Trusts, namely:
Colonial First State Retail Property Trust (which has a portfolio of nine retail investments and one office investment,
having a total book value of approximately $512 million);
Colonial First State Commercial Property Trust (which has a portfolio of seven office investments with a total book
value of approximately $350 million);
Colonial First State Industrial Property Trust (which has a portfolio of 23 industrial investments and one office
investment, having a total book value of approximately $463 million); and
Colonial First State Development Trust (which was established to develop two Sydney office buildings which are now
complete and substantially let and have a combined book value of approximately $275 million).
Information on the assets of each of the Trusts is contained in Section 4 – Property Portfolio.
Each of these Trusts currently has a strategy to invest in specific sectors of the property market. Until recently, this strategy
was considered appropriate. However, the listed property trust market is undergoing significant rationalisation through
mergers and take-overs with the larger vehicles enjoying greater market support and delivering benefits that are not
generally available to the smaller vehicles.
Accordingly, the Manager proposes that the four Trusts be merged to create a large diversified property group.
The Current Position
Colonial First State
Industrial Property
Trust unitholders
Colonial First State
Retail Property
Trust unitholders
100%
Colonial First State
Commercial Property
Trust unitholders
100%
100%
Colonial First State
Development
Trust unitholders
100%
Colonial First State
Retail
Property Trust
Colonial First State
Industrial
Property Trust
Colonial First State
Commercial
Property Trust
Colonial First State
Development
Trust
Predominantly Retail
Investments
Predominantly Industrial
Investments
Office Investments
Undertook 2 office
developments,
now complete
Colonial First State
Commercial Property Trust
unitholders prior to
Merger Proposal
Colonial First State
Industrial Property Trust
unitholders prior to
Merger Proposal
Colonial First State
Development Property
Trust unitholders prior to
Merger Proposal
Merger Proposal
Colonial First State
Retail Property Trust
unitholders prior to
Merger Proposal
32.5%
25.3%
29.8%
Stapled Securities
Colonial First State
Property Trust Group
Large Diversified Property Portfolio
6
12.4%
Why Merge?
The Merger Proposal has the potential to increase the value of an investment held in each of the Trusts and to provide
benefits that are not presently available to the Trusts and their unitholders.
Price Re-rating.
If the Merger Proposal is implemented, it is expected to generate an annualised distribution yield of 9.0% (based on
the notional price of $2.00 per Stapled Security) for the six months ending 30 June 2000. As the weighted average
distribution yield of large diversified property vehicles is 7.7%, the Manager anticipates a price re-rating (increase in the
value of securities) if the Merger Proposal is implemented. The chart below illustrates that, based on current forecasts,
upon implementation of the Merger Proposal, Colonial First State Property Trust Group will provide the highest 2000
distribution yield of its peer group.
2000 Distribution Yield
Market Capitalisation
($m)
Colonial First State Property Trust Group
1,172
Advance Property Fund
641
BT Property Trust
430
AMP Diversified Property Trust
994
Stockland Trust Group
1,386
Sector Weighted Average
1,421
National Mutual Property Trust
918
Mirvac Group
1,692
3,885
General Property Trust
6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5
Yield %
Source: Warburg Dillon Read, Property & Tourism Forecasts & Analysis – week ending 24 October 1999.
Notes:
(1) As at 22 October 1999. The market capitalisation in respect of Colonial First State Property Trust Group has been
estimated using a notional price of $2.00 per Stapled Security.
(2) Sector weighted average excludes Colonial First State Property Trust Group.
Market Capitalisation and Liquidity
If the Merger Proposal is implemented, unitholders will have an investment in a much larger property investment vehicle.
The Merged Group is expected to have a market capitalisation of approximately $1.17 billion (based on a notional price
of $2.00 per Stapled Security) and will represent approximately 3.90% of the Property Trust Index of the ASX.
The Manager believes the larger market capitalisation will improve liquidity and widen the potential investor base.
The chart below illustrates the relative price performance from January 1996 of property investment vehicles with a market
capitalisation in excess of $600 million compared to those below $600 million. Clearly, in recent years the larger vehicles
have outperformed the smaller vehicles.
Price Index Performance
1.7
Market Capitalisation < $600m
1.6
1.5
Market Capitalisation > $600m
1.4
1.3
1.2
1.1
1.0
0.9
0.8
Sep-99
Jun-99
Mar-99
Oct-98
Dec-98
Jul-98
Apr-98
Jan-98
Nov-97
Aug-97
Feb-97
May-97
Dec-96
Sep-96
Jun-96
Mar-96
0.6
Jan-96
0.7
Source: Warburg Dillon Read.
7
3. Explanatory Memorandum
The Merger Proposal (continued)
Funding Flexibility and Cost of Capital
Being part of a larger investment vehicle with a broader investor base should provide greater funding flexibility through
improved access to debt and equity markets. This should lead to a relatively lower cost of capital in funding new
acquisitions or restructuring existing funding arrangements.
The expansion of the capital base will enable the Merged Group to compete more effectively with other large investors
and open up investment opportunities not currently available to the existing Trusts due to their smaller size and relative
cost of funding.
Size and Diversification
If the Merger Proposal is implemented, the Merged Group will be the sixth largest (by total assets) property investment
vehicle listed on the ASX, with 43 properties and over 1,100 tenants in all mainland States and the ACT.
The Manager believes that substantially increasing the size and diversification of the property portfolio should reduce any
cyclical impact of the current sector specific property exposure and will reduce the dependence on a few large tenants.
The Merger Proposal
The proposal to merge the Trusts will be achieved by ‘stapling’ units in each of the Trusts so that unitholders will have an
interest in each of the Trusts.
The merger of the Trusts will primarily be achieved by amending the Trust Deeds of each Trust to enable the Trustee and
Manager of a Trust to issue units in the Trust to unitholders in each other Trust and provide for ‘stapling’ the units in each
Trust to units in each other Trust. On completion of the Merger Proposal, investors will hold Colonial First State Property
Trust Group Stapled Securities, each comprising one Consolidated CMF Unit, one Consolidated CIP Unit, one Consolidated
COC Unit and one Consolidated CFD Unit. These four securities will be quoted and traded together as Stapled Securities in
the Colonial First State Property Trust Group on the ASX and will not be able to be traded or dealt with separately.
Stapling will be achieved by including provisions in the Trust Deed of each Trust designed to ensure that units in the four
Trusts are always dealt with as though they comprised a single security and, in particular, to provide that:
a transfer of units in any of the Trusts can only be completed if it is accompanied by a transfer of an equal number of
units in each of the other Trusts; and
any issue of new units by a Trust must be matched by an issue of an equal number of units in each of the other Trusts.
KPMG has advised that the recommendations comprised within the Review of Business Taxation undertaken by the Ralph
Committee should not impact the stapled security structure proposed as, based on draft legislation, none of the Trusts
forming the Stapled Securities should be tax paying entities. Refer to Section 7.
Mallesons Stephen Jaques have advised that the implementation of the Merger Proposal will not give rise to a
stamp duty imposition for the Trust although some stamp duty will be paid on the transfer of Stapled Securities to
the Cash Alternative Nominee and this will be deducted from the Cash Alternative proceeds paid to unit holders
who do not receive Stapled Securities.
Unitholders need to choose whether they want to receive Stapled Securities in the Colonial First State Property Trust Group
or the Cash Alternative.
In addition to having common investors, it is expected that each Trust will have common objectives and strategies.
The Colonial First State Property Trust Group will be run as a single economic entity having a diversified property
investment portfolio.
In implementing the Merger Proposal, the following steps will occur in relation to unitholders in each of the four Trusts
on the merger date:
each existing unit in each Trust will be consolidated in the following ratios rounded up to the nearest whole number:
0.585 Consolidated CMF Units for each existing CMF Unit;
0.950 Consolidated CIP Units for each existing CIP Unit;
0.965 Consolidated COC Units for each existing COC Unit;
0.850 Consolidated COC Units for each existing COC Capital Entitlement Unit; and
1.025 Consolidated CFD Units for each existing CFD Unit;
8
each Unitholder in each Trust will receive a special distribution of $0.03 per Consolidated Unit which will be
wholly applied to subscribe for equal numbers of fully paid Consolidated Units in each of the three other Trusts
for $0.01 each. This special distribution is a deferred tax distribution (for a more detailed review of tax consequences,
see Section 7 of this Explanatory Memorandum);
the stapling provisions in each of the Trust Deeds will take effect and the Consolidated Units will become
Stapled Securities;
the Stapled Securities held by unitholders receiving the Cash Alternative (i.e. unitholders who have not elected to have
Stapled Securities or who have registered addresses outside Australia and New Zealand) will be transferred to the Cash
Alternative Nominee;
the Stapled Securities transferred to the Cash Alternative Nominee will be sold through the Bookbuild – see below.
In addition to the above steps, if the Merger Proposal is implemented:
the final instalment of $1.00 per unit payable in respect of each unit in CFD will be cancelled; and
the terms of issue of the Capital Entitlement Units in COC will be varied so as to render those units the same
as ordinary units with effect from the merger date.
The record date for determining entitlements to the income distribution for each Trust for the quarter ending 31 December
1999 will be brought forward to 16 December 1999 (ie. the day before the meeting). The effect of this amendment is that
unit holders in each of the Trusts will be entitled to the income of the relevant Trust for the quarter ending 31 December
1999 based on their unit holding on 16 December 1999. Their entitlement to income from the Trust in which they held
units prior to the Merger for the quarter ending 31 December 1999 will therefore not be affected by the Merger Proposal.
Implementation
The Merger Proposal is conditional on the passing of resolutions at a meeting of unitholders of each of the Trusts to be held
on 17 December 1999, (the Notices of Meeting for which are set out in Section 1 of this booklet).
The Bookbuild
Where a unitholder does not elect to receive Stapled Securities by lodging the duly completed Election Form on or before
midnight on 15 December 1999 or has a registered address outside Australia and New Zealand, their Stapled Securities will
automatically be transferred to the Cash Alternative Nominee. The Stapled Securities will then be sold under the Bookbuild.
Warburg Dillon Read and Deutsche Bank have been appointed by the Manager as Joint Managers of the sale of Stapled
Securities under the Bookbuild.
The Stapled Securities transferred to the Cash Alternative Nominee will be sold through the Bookbuild. The price achieved
on sale of Stapled Securities through the Bookbuild is not fixed or underwritten, and accordingly, may be lower or higher
than the notional $2.00 per Stapled Security. Further, expenses (including stamp duty), and brokerage of 0.75% will be
deducted. Unitholders receiving the Cash Alternative will receive a sale price equal to the average price achieved on the
sale of all of the Stapled Securities less expenses and brokerage.
The sale of all Stapled Securities through the Bookbuild will be undertaken in the first week of February 2000 unless
market conditions are unfavourable, in which case the sale of the Stapled Securities will take place no later than 24 March
2000. Once the sale of all the Stapled Securities is completed, the sale price for Unitholders receiving the Cash Alternative
will be determined and paid within 14 days of completion of the Bookbuild.
The number of Stapled Securities to be sold in the Bookbuild will depend upon how many unitholders participate in the
Cash Alternative or who have registered addresses outside Australia or New Zealand.
Institutional investors will be invited to submit bids for Stapled Securities to be sold in the Bookbuild. Bids must be made
to either of the Joint Managers for Stapled Securities to a value of at least $500,000. Participants in the Bookbuild may
bid for Stapled Securities at various prices. The price at which the Stapled Securities are sold under the Bookbuild will be
determined by the Manager in consultation with the Joint Managers. The price will be determined having regard to the
primary objective of obtaining the best price for Stapled Securities reasonably obtainable, it being recognised that this will
be assisted if bidders into the Bookbuild have an expectation that there will be an orderly secondary market for Stapled
Securities. A secondary objective is to obtain a spread of investors in the Stapled Securities.
Accordingly, the price at which the Stapled Securities are sold under the Bookbuild may not necessarily be the highest price
at which all Stapled Securities can be sold and may be higher or lower than $2.00 per Stapled Security.
If the Proposal is Not Implemented
If the proposal is not implemented then each of the Trusts will continue to operate as it currently does. The Manager will
continue to seek to maximise returns to unitholders.
9
3. Explanatory Memorandum
Colonial First State Property Trust Group
Overview
The merger of the Trusts, through stapling the units of each of the Trusts, will create a diversified property group with total
assets in excess of $1.6 billion. The Group will have investments in the retail, office and industrial sectors of the property
market. The portfolio will be well diversified by property, property type and geographic location.
Price Re-rating
If the Merger Proposal is implemented, the Manager forecasts the Group will have an annualised distribution yield of
9.0% (based on the notional price of $2.00 per Stapled Security) for the six months ending 30 June 2000. As the weighted
average distribution yield of large diversified property vehicles is 7.7%, the Manager believes that there will be a price
re-rating (increase in the value of securities) if the Merger Proposal is implemented.
Asset Diversification and Average Age
The Merger Proposal will increase the size and diversity of the property portfolio.
As represented in the charts below, the diversification of property type by value and earnings distribution from the merged
portfolio is well balanced, thereby alleviating any adverse impact of sector specific investment and earnings cycles.
Asset Type
Earnings Distribution
Industrial
28%
Office
40%
Office
42%
Industrial
32%
Retail
26%
Retail
32%
The geographic spread of assets by value after the proposed merger is set out below.
Geographic Spread of CPG After Merger Proposal
QLD 20%
NSW 45%
WA 8%
ACT 0.5%
SA 10%
VIC 16.5%
After implementation of the Merger Proposal, the largest geographical weighting of properties will be in New South Wales,
the largest Australian state by population.
The average age of the portfolio (weighted by value) will be 10 years on completion of the Merger Proposal with a total net
lettable area in excess of 838,000 square metres.
Tenant Diversification
On completion of the Merger Proposal, Colonial First State Property Trust Group will have in excess of 1,100 tenants.
Colonial First State Property Trust Group’s exposure to its 10 largest tenants (in terms of total income) will be 28%.
10
Lease Maturity Profile
The graph below illustrates the lease maturity profile, by total net income, after the Merger. After implementation of the
Merger Proposal, the average remaining lease term is 5 years.
Lease Maturity Profile
%
50
43%
40
30
20
13%
14%
11%
8%
10
7%
5 years +
5 years
4 years
3 years
2 years
1 year
0
Holding over
4%
The property portfolio will be well diversified in terms of lease maturity profile.
Vacancies
After implementation of the Merger Proposal, the vacancy rate will be 2.8%.
Strategy and Key Policies
Manager’s Strategy
The strategy of the Manager will be to seek to provide stable, growing distributions to investors in the Colonial First State
Property Trust Group.
This will be achieved by adhering to a sound investment philosophy and implementing a disciplined and continuous
action plan.
The investment philosophy will be to:
invest in a portfolio of properties, diversified by property type and geographic location;
invest in sectors of the property market that the Manager considers will deliver the best overall performance; and
avoid having a large exposure to any particular market sector or individual property.
The key elements of the action plan will be:
the ongoing active management of the existing property portfolio with a focus on enhancing the income stream;
to maintain a broad diversified property portfolio;
to improve the quality of the portfolio over time by:
(a) the acquisition of additional properties that meet the investment criteria and enhance returns to investors; and
(b) the disposal of properties which no longer satisfy the investment criteria in terms of quality, size and outlook
for returns;
the active management of interest rates; and
to focus on the cost of capital and management of investors’ capital.
As shown above, the property portfolio will be well diversified both geographically and by asset type. The Manager will
look to maintain a well diversified portfolio, but at times the Manager may increase weightings in certain sectors and
geographic locations that it expects to outperform.
11
3. Explanatory Memorandum
Colonial First State Property Trust Group (continued)
Distributions
Investors in the Colonial First State Property Trust Group will receive distributions from each of the Trusts. It is intended that
the combined distribution will be paid to investors quarterly, no later than two months after the end of the relevant period.
Gearing
The pro-forma gearing (debt to total assets) for the Colonial First State Property Trust Group at the time of merging is
approximately 27%. It is the current intention of the Manager that the long term gearing be 20%-30%. It is intended that
the Group’s distribution reinvestment plan be activated to reduce gearing and fund capital expenditure.
The Manager will implement an interest rate hedging policy that fixes most of the Group’s debt for a period of 3-5 years.
Valuations
The Manager will arrange to value the properties at approximately annual intervals.
Management
The Manager will draw on the resources of Colonial First State. A diagram showing the management structure for the
Colonial First State Property Trust Group is shown below:
Board of Directors
Chief Executive Officer
Chris Cuffe
Head of Listed Property
Sandy Calder
Investment Manager Retail
Conrad Sinclair
Investment Manager
Commercial
Justin Lynch
Investment Manager Industrial
Chris Judd
Asset Manager Retail
Roger Stapleton
Asset Manager Commercial
Lachlan Gyde
Asset Manager Industrial
Matthew Meredith
Portfolio Research Manager
Property Management
The profiles of the board of directors are set out below:
Directors of the CPG Manager
P L Polson BCom MBL PMD (Chairman) is Managing Director of Colonial First State Investments Group Limited and a
director of other Colonial Group subsidiaries. He joined Colonial Group in October 1994. Previous positions included
Managing Director of National Mutual Funds Management (International) Ltd and Managing Director of Standard Bank
Financial Services in South Africa.
A Carstens BCom (Hons) CA (SA) is Chief Financial Officer of Colonial First State Investments Group Limited and is
responsible for overseeing the finance and administration functions of Colonial’s investment management operations. Before
joining Colonial in 1994, he held senior management positions in the financial services industry and with Ernst & Young.
F S Grimwade LLB (Hons) BCom MBA (Columbia) is General Manager Corporate Development of Colonial First State
Investments Group Limited. He joined Colonial in January 1996 as Group Company Secretary and General Manager Legal
Affairs from WMC Ltd where he spent six years as Company Secretary and General Manager Shareholder Relations. He
also worked with international investment bank Goldman, Sachs and Co. and as a lawyer with Mallesons Stephen Jaques.
G S Ray LLB BCom FCPA FTIA is General Counsel and Group Solicitor of the Colonial Group. He has acted in this
capacity for more than 20 years and has been involved in most of the major contracts undertaken by the Colonial Group.
C E Cuffe BCom, ACA, ASIA is Chief Executive Officer of Colonial First State Investment Managers (Australia) Limited.
Following a five year period with a major firm of Chartered Accountants, Peat Marwick Mitchell & Co (now KPMG),
Chris entered the funds management industry where he has held various senior positions since 1985, assuming the role
of Chief Executive Officer of First State Fund Managers Limited in 1990.
A Bird, BSc (Urban Land Admin) ARICS is Director – Property Investments. He has over 20 years’ experience in the
property industry. Prior to joining Colonial in 1991 he held professional appointments in London, Jakarta and Melbourne.
12
4. Property Portfolio
The Portfolio
With 43 properties, over 1,100 tenants, investments in all mainland states and the ACT and a total property investment
portfolio in excess of $1.6 billion, the Colonial First State Property Trust Group will be the sixth largest (by total assets)
property investment vehicle listed on the ASX.
The property assets in the portfolio are set out below:
State
Property
Book Value ($)
at 30 September 1999
Retail – 32% of portfolio by book value
Brimbank Central
Corio Village
Golden Grove Village
Castle Plaza
Thornlie Square
Grand Plaza
Runaway Bay Shopping Village
Clifford Gardens Shopping Centre
Rockingham City Shopping Centre
Sub Total – Retail
VIC
VIC
SA
SA
WA
QLD
QLD
QLD
WA
83,006,072
48,300,410
50,867,697
58,046,592
22,165,534
71,398,331
59,529,913
88,154,586
22,543,663
504,012,798
Office – 40% of portfolio by book value
Brandon Office Park
Colonial State Bank Tower, 150 George Street, Parramatta
Abbotsford Office Park, 675-674 Victoria Street, Abbotsford
Hongkong Bank Building, 300 Queen Street, Brisbane
197 St Georges Terrace & 1-5 Mill Street, Perth
Mercantile Mutual Centre, 45 Pirie Street, Adelaide
SRA Building, 32 Lee Street, Sydney
15 Bowes Street, Woden
60 Castlereagh Street, Sydney
339-345 Military Road, Cremorne
56 Pitt Street, Sydney
Sub Total – Office
VIC
NSW
VIC
QLD
WA
SA
NSW
ACT
NSW
NSW
NSW
41,563,552
77,818,923
19,878,741
67,500,000
87,012,237
51,761,391
5,404,732
8,010,801
160,000,000
12,737,099
115,000,000
646,687,476
Industrial – 28% of portfolio by book value
Alexandria Industrial Estate
Boundary Industrial Park
Brodie Industrial Park, Rydalmere
390 Eastern Valley Way, Chatswood
71-95 Roberts Road, Chullora
85 Epping Road & 376 Lane Cove Road, North Ryde
14 Aquatic Drive, Frenchs Forest
Gateway Estate, Arndell Park
8 Giffnock Avenue, North Ryde
Kmart Distribution Centre, Hoppers Crossing
100-128 Bridge Road, Keysborough
Mascot Central, Mascot
197-205 Fitzgerald Road, Laverton North
13-15 Lyon Park Road, North Ryde
91 Mars Road, Lane Cove
17 O’Riordan Street, Alexandria
25 Pavesi Street, Smithfield
80 Turner Street, Port Melbourne
Slough Business Park, Silverwater
Smithfield Industrial Estate (Stage 1)
Smithfield Industrial Estate (Stage 2)
60 Enterprise Place, Tingalpa
299 Montague Road, West End
Sub Total – Industrial
NSW
QLD
NSW
NSW
NSW
NSW
NSW
NSW
NSW
VIC
VIC
NSW
VIC
NSW
NSW
NSW
NSW
VIC
NSW
NSW
NSW
QLD
QLD
35,056,393
21,000,000
17,400,000
8,250,000
28,000,000
19,000,000
26,300,000
28,506,139
2,400,000
40,000,000
8,800,000
28,806,632
11,725,000
16,304,623
10,600,000
8,238,421
7,450,000
11,617,000
80,072,130
11,414,294
10,308,145
12,140,000
8,479,212
451,867,989
Total
1,602,568,263
13
4. Property Portfolio
The Portfolio (continued)
Brandon Office Park, Glen Waverley, Victoria
Date Completed
In stages from 1988 to 1990
Net Lettable Area
16,862.30 sqm
Typical Floor Area
1,100 sqm
Car Parking
657 spaces
Occupancy
95.80%
Current Valuation
$41,500,000
Valuation Date
15 May 1999
Major Tenants
Tenant
Area Let (sqm)
% Area Let
Expiry
NEC Australia Pty Ltd
6,791
40.30
November 2000
Telstra Corporation Ltd
6,869
40.70
May 1999 (agreed to
renew) & February 2000
Pacific Dunlop Ltd
1,166
6.90
August 2003
Jones Lang La Salle
586
3.50
August 2004
Location:
The property is located on the north east corner of Springvale and Ferntree Gully Roads, Glen Waverley,
approximately 20 kilometres south-east of the Melbourne CBD.
Title Details: The property is on three titles, with a total site area of 37,660 square metres.
Description:
The property is an office park development comprising five office buildings in three separate structures, set
amongst landscaped gardens and recreation facilities. The structures provide office accommodation in
varying levels between two and four storeys in height.
The Manager has now received planning approval which allows the development of additional floor space of
approximately 11,500 square metres on the site. Construction of any building would only commence if a
leasing pre-commitment over part of the space was secured.
56 Pitt Street, Sydney
Date Completed
Significantly refurbished over 1998
Net Lettable Area
20,910 sqm
Typical Floor Area
820 sqm
Car Parking
80 spaces
Occupancy
77.57%
Current Valuation
$115,000,000
Valuation Date
30 September 1999
Major Tenants
Tenant
Area Let (sqm)
% Area Let
Perpetual Trustees
2,474
11.80
Paladin Australia
1,649
7.90
Location:
Expiry
June 2005
August 2005
The property is prominently located within Sydney’s financial district.
Title Details: The property is held within one title, having a site area of approximately 1,784 square metres.
Description:
14
The building has undergone an extensive refurbishment, which was completed in October 1998 and provides
Grade A office accommodation over 26 levels
150 George Street, Parramatta, NSW
Date Completed
1992
Net Lettable Area
21,964 sqm
Typical Floor Area
1,200 sqm
Car Parking
492 spaces
Occupancy
100%
Current Valuation
$77,800,000
Valuation Date
15 November 1998
Major Tenants
Tenant
Area Let (sqm)
Colonial State Bank
Location:
21,964
% Area Let
100
Expiry
November 2005
The property is located in the Parramatta CBD. Parramatta is a major regional centre in New South Wales
located approximately 23 kilometres west of the Sydney CBD.
Title Details: The property is on a single title, with a site area of 5,124 square metres.
Description:
A modern commercial office building incorporating ground floor retail/showroom space, loading dock and
carpark entry, six upper levels of car parking, mezzanine offices and a further 16 upper levels of commercial
office accommodation.
The whole building is leased to the State Bank of New South Wales Limited (Colonial State Bank) for a
period of 10 years expiring on 21 November 2005. Rent reviews are two-yearly to market. Colonial State
Bank is a member of the Colonial Group.
15
4. Property Portfolio
The Portfolio (continued)
300 Queen Street, Brisbane, Queensland
Date Completed
1984
Net Lettable Area
Office
18,301 sqm
Retail
751 sqm
Total
19,052 sqm
96%
4%
Typical Floor Area
798 – 833 sqm
Car Parking
134 spaces
Occupancy
93.90%
Current Valuation
$67,500,000
Valuation Date
15 September 1999
100%
Major Tenants
Tenant
Area Let (sqm)
Macquarie Bank Limited
2,394
% Area Let
12.70
Expiry
December 2006
Kendalls KBM Service Pty Ltd
1,666
8.70
July 2005
Douglas Heck & Burrell
1,220
6.50
July 2009
870
4.60
September 2001
Hong Kong Bank of Australia
BDO Property & Administration
(Qld) Pty Ltd
833
4.40
October 2004
Ports Corporation of Qld
830
4.40
January 2004
Knight Frank (Queensland)
798
4.20
June 2003
Nicol Robinson & Kidd
798
4.20
December 2002
Location:
The property is located in a prime position on the north-western side of Queen Street in the Brisbane CBD,
adjacent to Post Office Square.
Title Details: The property is on two titles, a freehold site with an area of 2,034 square metres and a leasehold site of
151 square metres expiring in March 2063.
Description:
16
The property comprises a commercial office building, which is a 28 level building incorporating three
basement carpark levels, lower ground floor food court (which links directly to Post Office Square),
ground floor foyer and 24 upper levels of office accommodation.
675-679 Victoria St, Abbotsford, Melbourne, Victoria
Date Completed
1984 to 1987
Net Lettable Area
Office
Retail
Total
9,356.50 sqm
117 sqm
9,473.50 sqm
Typical Floor Area
600 – 1,500 sqm
Car Parking
365 spaces
Occupancy
Office
Retail
Total
100%
100%
100%
Current Valuation
$19,800,000
Valuation Date
15 October 1998
98.80%
1.20%
100.00%
Major Tenants
Tenant
Area Let (sqm)
Pacific Access Pty Limited
British Aerospace
Honeywell Limited
2,969.00
2,471.00
2,041.50
% Area Let
31.50
26.20
21.60
Expiry
September 2002
December 2001
December 2003
Location:
The property is located on the northern side of Victoria Street and is bounded by the Yarra River, some
4.5 kilometres east of the Melbourne CBD.
Title Details: The property is on three separate titles on a site area of 17,679 square metres.
Description: The property is a complex of three freestanding, low rise office buildings. The buildings offer office
accommodation across two to four levels, and are fully let.
60 Castlereagh Street, Sydney
Date Completed
Net Lettable Area
Typical Floor Area
Car Parking
Occupancy
Current Valuation
Valuation Date
September 1999
26,935 sqm
1,180 sqm
62 spaces
84.50%
$160,000,000
30 September 1999
Major Tenants
Tenant
BNP
Holding Redlich
Area Let (sqm)
10,784
1,191
% Area Let
40
4
Expiry
June 2010
June 2008
Location:
The property is prominently located in Castlereagh Street within the CBD of Sydney.
Title Details: The property is held within four titles, having a site area of approximately 2,487 square metres.
Description: The development provides 20 levels of office accommodation, ground floor retail space and basement
car parking.
17
4. Property Portfolio
The Portfolio (continued)
197 St Georges Terrace, Perth, WA
5 Mill Street, Perth, WA
1 Mill Street, Perth, WA
Date Completed
197 St Georges Terrace
5 Mill Street
1 Mill Street
Net Lettable Area
Typical Floor Area
197 St Georges Terrace
5 Mill Street
1 Mill Street
Car Parking
Occupancy
197 St Georges Terrace
5 Mill Street
1 Mill Street
Current Valuation
Valuation Date
1983
1972
1986
39,675 sqm
833 sqm
737 sqm
1,833 – 1,995 sqm
282 spaces
99.10%
90.40%
93.60%
$86,400,000
15 December 1998
Major Tenants
Tenant
Area Let (sqm)
% Area Let
Expiry
Government of WA
20,672
52.10
June 2007
Fluor Daniel
5,870
14.80
August 1999 – February 2003
Location:
The property is located in Perth’s prime business district upon a large and prominent site, close to a number
of established multi-storey office buildings. It has frontages to St Georges Terrace, Mill Street and Mounts
Bay Road.
Title Details: The property is on one title totalling an area of 8,726 square metres.
Description:
The property consists of three separate buildings:
197 St Georges Terrace: The building comprises a 29 level office tower with net lettable area of 26,303 square metres.
The premises are currently 99.1% leased, 78.66% of which is to the State Government until 2007.
18
5 Mill Street:
5 Mill Street was completed in 1972 as the first stage of the development. The building comprises
a basement, ground and 10 upper floors with a net lettable area of 7,100 square metres. The
premises are currently 90.4% leased to a variety of tenants.
1 Mill Street:
1 Mill Street was completed in 1986 and comprises a four level office building with net lettable
area of 6,273 square metres. The building is 93.6% leased to Fluor Daniel.
45 Pirie Street, Adelaide, South Australia
Date Completed
Net Lettable Area
Office
Retail
Total
Typical Floor Area
Car Parking
Occupancy
Office
Retail
Total
Current Valuation
Valuation Date
1989
19,102.90 sqm
702.60 sqm
19,805.50 sqm
1,110 sqm
57 spaces
96.50%
3.50%
100.00%
100%
100%
100%
$51,500,000
15 November 1998
Major Tenants
Tenant
Area Let (sqm)
% Area Let
Expiry
Attorney General’s Department
7,646.00
38.60
September 2007
Department for Industrial Affairs
2,939.00
14.80
August 2000
Norman Waterhouse
1,114.50
5.60
September 2003
Colliers Jardine (SA) Pty Ltd
1,217.00
6.10
August 2002
Location:
The property is located in the centre of the Adelaide CBD on the southside of Pirie Street.
Title Details: The property is on one title with a site area of 3,308 square metres.
Description:
The property is a modern 19 level premium grade office building with basement car parking.
SRA Building, 32 Lee Street, Sydney, NSW
Estimated Completion
September 2000
Net Lettable Area
Office
13,500 sqm
Retail
891 sqm
Total
14,391 sqm
Typical Floor Area
2,070 sqm
Car Parking
90 spaces
Occupancy
Office
100% to SRA
Retail
Under negotiation
Current Valuation
$4,550,000 site value
$51,000,000 upon completion
Major Tenants
Tenant
Area Let (sqm)
State Rail Authority
Location:
13,511
% Area Let
94.20
Expiry
March 2010
The property is located in the southern sector of the Sydney CBD, approximately 2 kilometres south of the
Sydney GPO in the Central Railway Station precinct. The development is on the eastern side of Lee Street
abutting Central Railway Station.
Title Details: The property is on a site area of approximately 3,464 square metres.
Description:
It is proposed that a development of an eight level retail and office building with a net lettable area of
approximately 14,390 square metres will be constructed on the site. Offices will account for 94.2% of
net lettable area. All of the office area is to be leased to the State Rail Authority for a period of 10 years.
The lower two floors will contain some retail space. The Trust has purchased a 99 year lease of the site
and will make a further single payment for the building upon completion. The total purchase price will
be $50,925,000.
19
4. Property Portfolio
The Portfolio (continued)
Grand Plaza Shopping Centre
Location
South-West Brisbane
Type
Sub-Regional Shopping Centre
Ownership
50%
Current Valuation
$71,000,000 (November 1998)
Capitalisation Rate
8.50%
Lettable Area
38,209 sqm
Car Parking
2,300
Number of Tenants
116
Major Tenants
Tenant
Area Let (sqm)
% Lettable Area
Expiry (excl. options)
Target
7,102
18.59
2014
Big W
6,599
17.27
2014
Woolworths
4,844
12.68
2014
Coles
3,880
10.15
2014
Birch Caroll & Coyle
3,593
9.40
2014
Best & Less
1,142
2.99
2004
Location:
Grand Plaza Shopping Centre is located approximately 26 kilometres south of the Brisbane CBD within
the City of Logan.
Title Details: The property is contained on one title with a site area of approximately 18 hectares.
Description:
Grand Plaza Shopping Centre opened in October 1994. It is a fully enclosed, air conditioned, single level
sub-regional centre with a number of free standing fast food restaurants. Major tenants are Woolworths, Coles,
Big W, Target, Best and Less and Birch Carroll & Coyle (cinemas). There are approximately 110 specialty stores.
Brimbank Central
Location
Western Melbourne
Type
Sub-Regional Shopping Centre
Ownership
100%
Current Valuation
$82,500,000 (May 1999)
Capitalisation Rate
9.25%
Net Lettable Area
35,667 sqm
Car Parking
1,900
Number of Tenants
109
Major Tenants
Tenant
Area Let (sqm)
Kmart
7,440
% Lettable Area
20.86
Expiry (excl. options)
2012
Target
7,123
19.97
2016
Safeway
3,688
10.28
2004
Bi-Lo Megafresh
3,520
9.87
2011
Franklins
1,625
4.56
2010
Location:
Brimbank Central Shopping Centre is located within the suburb of Deer Park, approximately 18 kilometres
to the west of the Melbourne CBD.
Title Details: The property is on a single title with a site area of approximately 10.9 hectares.
Description:
20
The centre was originally constructed in 1979 and underwent extensive refurbishment and extension in
1997. The present configuration provides a modern sub-regional shopping centre incorporating a Target and
Kmart Discount Department Store, Safeway, Franklins and Bi Lo Mega Fresh Supermarket, Target and
Kmart Garden Centres and 79 specialty shops.
Thornlie Square Shopping Centre
Location
South East Perth
Type
Community Shopping Centre
Ownership
100%
Current Valuation
$21,750,000 (September 1998)
Capitalisation Rate
11.50%
Lettable Area
13,030 sqm
Car Parking
874
Number of Tenants
54
Major Tenants
Tenant
Area Let (sqm)
% Lettable Area
Expiry (excl. options)
Coles
4,959
38.06
2013
Farmer Jacks
2,774
21.29
2007
Location:
Thornlie Square Shopping Centre is located within the suburb of Thornlie, approximately 18 kilometres
south-east of the Perth CBD.
Title Details: The property is on one title, with a site area of approximately 4.8 hectares.
Description:
Thornlie Square Shopping Centre was completed in the early 1970s and was extended and refurbished
in 1987. The centre is constructed over a single level, and the malls are fully enclosed and airconditioned.
The centre is anchored by a Coles supermarket, Farmer Jacks Supermarket, 44 specialty shops and a service
station.
Corio Village Shopping Centre
Location
Geelong, Victoria
Type
Sub-Regional Shopping Centre
Ownership
100%
Current Valuation
$48,000,000 (February 1999)
Capitalisation Rate
10.50%
Net Lettable Area
30,371 sqm
Car Parking
1,565
Number of Tenants
107
Major Tenants
Tenant
Kmart
Area Let (sqm)
% Lettable Area
Expiry (excl. options)
6,503
21.41
Coles
3,716
12.24
2005
Harris Scarfe
2,799
9.22
2005
Franklins
2,726
8.98
2010
Location:
2004
Corio Village Shopping Centre is located on an island site on the corner of Bacchus Marsh Road and
Purnell Road in Corio. Corio is located approximately 7 kilometres north of the City of Geelong and
enjoys a dominant position within the immediate market.
Title Details: The property is contained on three separate titles and has a combined site area of approximately
8.7 hectares.
Description:
Originally constructed in 1973, the property comprises a sub-regional shopping centre featuring a Kmart
and Harris Scarfe Discount Department Stores, Coles and Franklins Supermarkets, 80 specialty shops,
three kiosks and 14 office suites. The centre has been extended and refurbished since it first opened in 1973.
21
4. Property Portfolio
The Portfolio (continued)
Castle Plaza Shopping Centre
Location
Edwardstown, Southern Adelaide
Type
Sub-Regional Shopping Centre
Ownership
100%
Current Valuation
$57,800,000 (November 1998)
Capitalisation Rate
10%
Net Lettable Area
22,766 sqm
Car Parking
1,347
Number of Tenants
60
Major Tenants
Tenant
Area Let (sqm)
% Lettable Area
Expiry (excl. options)
Target
7,970
31.40
2012
Coles
4,325
17.04
2012
Foodland
2,539
10.00
2008
Location:
The centre is located in the suburb of Edwardstown, approximately 8 kilometres south of Adelaide’s CBD.
Title Details: The property is on three separate titles and has a site area of approximately 7.7 hectares.
Description:
Castle Plaza Shopping Centre is a sub-regional centre comprising a Target Discount Department Store,
a Coles and Foodland Supermarkets along with 55 specialty stores, a tavern and a freestanding Hungry
Jack’s outlet.
Golden Grove Village Shopping Centre
Location
North-East Adelaide
Type
District Shopping Centre
Ownership
100%
Current Valuation
$50,000,000 (November 1998)
Capitalisation Rate
9.75%
Lettable Area
14,074 sqm
Car Parking
1,142
Number of Tenants
69
Major Tenants
Tenant
Area Let (sqm)
% Lettable Area
Expiry (excl. options)
Woolworths
4,431
31.48
2018
Franklins
1,805
17.08
2012
Location:
The centre is located in the suburb of Golden Grove, approximately 19 kilometres north east of the
Adelaide CBD.
Title Details: The property is on one title with a site area of approximately 12.56 hectares.
Description:
22
Opened in 1992, the centre comprises two anchor supermarket tenants, Woolworths and Franklins, together
with 31 specialty tenants within an enclosed mall.
Clifford Gardens Shopping Centre
Location
Toowoomba, Queensland
Type
Sub-Regional Shopping Centre
Ownership
100%
Current Valuation
$88,000,000 (May 1999)
Capitalisation Rate
9.25%
Net Lettable Area
25,384 sqm
Car Parking
1,492
Number of Tenants
94
Major Tenants
Tenant
Area Let (sqm)
% Lettable Area
Expiry (excl. options)
Big W
8,318
32.77
2003
Franklins Big Fresh
3,532
13.91
2016
Woolworths
3,479
13.71
2003
Best & Less
1,027
3.73
2003
Location:
The centre is located approximately 2 kilometres south-west of the Toowoomba CBD.
Title Details: The property is contained on a single title, with a site area of approximately 8.4 hectares.
Description:
The property comprises a fully enclosed predominantly single level sub-regional shopping centre. The centre
incorporates a Big W, Franklins Big Fresh, Woolworths and Best and Less, 81 specialty stores and five kiosks.
15 Bowes Street, Woden, ACT
Location
Woden Town Centre
Southern Canberra
Type
Suburban Office
Ownership
100%
Current Valuation
$8,000,000 (March 1999)
Capitalisation Rate
13.50%
Net Lettable Area
9,196 sqm
Car Parking
9
Occupancy
100%
Number of Tenants
5
Major Tenants
Tenant
Area Let (sqm)
% Lettable Area
Expiry (excl. options)
Commonwealth of Australia
4,521
49.16
2000
Department of Health
2,066
22.47
2007
Location:
Located in the suburb of Woden, approximately 10 kilometres south of the Canberra CBD.
Title Details: The property is on one title with a site area of approximately 3,197 square metres.
Description:
The property comprises an eight storey office tower, featuring a ground floor bowling alley, retail
premises and seven upper floors of office.
23
4. Property Portfolio
The Portfolio (continued)
Runaway Bay Shopping Village
Location
Northern Gold Coast
Type
Sub-Regional Shopping Centre
Ownership
50%
Current Valuation
$59,050,000 (September 1998)
Capitalisation Rate
9.0%
Lettable Area
35,605 sqm
Car Parking
2,200
Number of Tenants
120
Major Tenants
Tenant
Area Let (sqm)
% Lettable Area
Expiry (excl. options)
Target
7,123
20.01
2016
Big W
6,619
18.59
2015
Woolworths
4,279
12.02
2014
Coles
3,214
9.03
2015
Best & Less
1,146
3.22
2000
Location:
Runaway Bay is located at the northern end of the Gold Coast region, approximately 75 kilometres south
of Brisbane and approximately 11 kilometres north of the Surfers Paradise commercial area.
Title Details: The property is contained on three separate titles and has a site area of approximately 11.3 hectares.
Description:
Runaway Bay Shopping Village comprises a single level enclosed and air conditioned retail shopping centre
with several freestanding buildings. The centre includes Woolworths and Coles Supermarkets, Big W and
Target Discount Department Stores with approximately 127 specialty stores and kiosks.
Rockingham City Shopping Centre
Location
Rockingham, South of Perth
Type
Sub-Regional Shopping Centre
Ownership
12.50%
Current Valuation
$21,250,000 (March 1999)
Capitalisation Rate
7.75%
Lettable Area
46,444 sqm
Car Parking
3,218
Number of Tenants
125
Major Tenants
Tenant
Area Let (sqm)
% Lettable Area
Expiry (excl. options)
Target
8,275
18.59
2020
Kmart
7,812
17.27
2004
Advantage
5,347
12.68
2009
Coles
3,455
10.15
2005
Aherns
2,362
2.99
2004
Location:
Located in the suburb of Rockingham, approximately 46 kilometres south of Perth’s CBD.
Title Details: The centre and adjoining development land is contained on 15 titles and has a site area of approximately
22 hectares.
Description:
24
A regional shopping centre that was originally opened in 1972 and has since undergone considerable
extension. The centre includes Target, Kmart, Coles, Advantage Supermarket, Aherns and 143
specialty stores.
Alexandria Industrial Estate, 46-62 Maddox Street, Alexandria, NSW
Gross Lettable Area
Industrial
39,583 sqm
Office
4,017 sqm
Total
43,600 sqm
Occupancy
98%
Average Net
Passing Rental
$86.00 per sqm
Valuation
$35,000,000
Valuation Date
March 1999
Major Tenants
Tenant
Area (sqm)
Average Rent (per sqm)
Expiry
Marbig Rexel
6,391
$97.54*
February 2000
Bremick
8,195
$82.00
October 2002
Quadric Interiors
4,113
$87.00
January 2001
Envotel
7,150
$81.00
March 2003
DDR
3,097
$86.00
April 2001
* Gross Rent
Location:
The property is located on the western side of Bourke Road having frontages to Maddox Street and Huntley
Street in Alexandria. Alexandria is an established industrial location which benefits from excellent road
routes linking the City of Sydney, which is approximately 5 kilometres to the north, with Kingsford Smith
Airport and the container and port facilities situated on Botany Bay to the south.
Title Details: The property is located on a single title with an area of approximately 6.10 hectares.
Description:
The property is a relatively modern industrial estate comprising 34 office/warehouse units in eight separate
buildings. In general, each of the units provides substantially clear span warehouse/manufacturing
accommodation with a low office content.
25
4. Property Portfolio
The Portfolio (continued)
Slough Business Park, Silverwater Road, Silverwater, NSW
Date Completed
Constructed in four stages
during the 1980s
Gross Lettable Area
Industrial
55,110 sqm
Office
16,169 sqm
Total
71,279 sqm
Occupancy
89%
Average Net
Passing Rental
$112.00 per sqm
Valuation
$80,000,000
Valuation Date
March 1999
Major Tenants
Tenant
Area (sqm)
Average Rent (per sqm)
Expiry
UNISYS
5,833
$114.00
June 2000
AEMS
5,540
$105.00
June 2001
Thorn EMI
4,777
$117.00
August 2004
ITT Flygt Ltd
3,331
$119.00
May 2004
Asic Tiger
5,300
$119.00
February 2003
Location:
The property is located at Silverwater Road, Silverwater, and is bordered by Holker Street and Fariola Street.
Silverwater is a prime Sydney industrial suburb 19 kilometres west of the CBD and 4 kilometres east of the
Parramatta Business District and is occupied by a number of leading technology companies.
The property is conveniently located for transport with access to Parramatta Road, Victoria Road and the
F4 Freeway.
Title Details: The property is on a single title, with a total area of 9.65 hectares.
Description:
The property is a modern industrial estate constructed in four stages during the 1980s, comprising
49 office/warehouse units, a take-away shop and an on-site management office in 10 separate buildings.
Each of the 49 units are of a generally similar design comprising a ground level warehouse with minimum
internal clearance of six to eight metres, ground level entrance foyer and high quality office accommodation
arranged over the ground and first floor.
26
13-15 Lyon Park Road, North Ryde, NSW
Date Completed
1990
Gross Lettable Area
Industrial
1,181 sqm
Office
6,388 sqm
Total
7,569 sqm
Occupancy
79%
Average Net Passing Rental
Office
$210.19 per sqm
Warehouse
$102.64 per sqm
Valuation
$16,250,000
Valuation Date
March 1999
Major Tenants
Tenant
Area (sqm)
Autodesk – Office
– Warehouse
Stafford Miller
Hitachi
1,239
Average Rent (per sqm)
631
$92.73
$200.00
August 2001
March 2002
– Office
913
$225.63
310
$103.00
792
$220.00
Location:
October 2002
1,176
– Warehouse
Polaroid
Expiry
$197.59
March 2002
The property is located in Lyon Park Road, North Ryde, and is bound by Giffnock Avenue. North Ryde is
located 14 kilometres north-west of the Sydney CBD and 7 kilometres from the North Sydney Business
District. It offers convenient access to major arterial roads.
Title Details: The property is located on a single title, with a site area of approximately 8,026 square metres.
Description:
The property is a modern high technology industrial property comprising office accommodation arranged
over basement, ground and five upper levels together with four high clearance warehouses at the rear. The
single level basement provides parking for 69 vehicles.
Boundary Industrial Park, Coopers Plains, Queensland
Date Completed
Various stages between 1986 and 1991
Gross Lettable Area
Warehouse
31,018 sqm
Office/other
4,126 sqm
Total
35,144 sqm
Occupancy
100%
Average Net
Passing Rental
$70.00 per sqm
Valuation
$21,000,000
Valuation Date
August 1999
Major Tenants
Tenant
Area (sqm)
Coles Supermarkets
Average Rent (per sqm)
Expiry
11,715
$81.60
January 2000
Australian Liquor Marketers
9,164
$70.60
February 2001
Campbells Cash & Carry
5,048
$73.00
February 2004
Joliment Dell
4,134
$64.05
January 2002
Location:
The property is located 14 kilometres south of the Brisbane CBD in an established industrial area.
Title Details: The property is located on a single title, with a site area of approximately 6.843 hectares.
Description:
The property comprises eight high clearance warehouses with ancillary office space and one retail unit.
27
4. Property Portfolio
The Portfolio (continued)
197-205 Fitzgerald Road, Laverton North, Victoria
Date Completed
Stage 1
1996
Stage 2
1997
Gross Lettable Area
Warehouse
15,050 sqm
Awnings
2,455 sqm
Office
200 sqm
Total
17,705 sqm
Occupancy
100%
Average Net
Passing Rental
$59.70 per sqm
Valuation
$11,725,000
Valuation Date
August 1999
Major Tenants
Tenant
Area (sqm)
Toll Holdings
17,705
Location:
Average Rent (per sqm)
Expiry
$59.70
September 2007
The property is located on the western side of Fitzgerald Road, 15 kilometres west of the Melbourne CBD
in a developing industrial area.
Title Details: The property is located on two titles, Lot 4 with a site area of approximately 4.186 hectares and Lot 27A
with a site area of approximately 0.7768 hectares.
Description:
The property comprises three stages. Stages 1 & 2 are distribution warehouses with high clearance and
three-sided roller shutter access to the warehouse. Stage 1 has a high quality office component at the front.
Stage 3 land will remain vacant for the time being.
100-128 Bridge Road, Keysborough, Victoria
Date Completed
1994
Gross Lettable Area
Warehouse
6,516 sqm
Office/other
359 sqm
Total
6,875 sqm
Occupancy
100%
Average Net
Passing Rental
$130.00 per sqm
Valuation
$8,800,000
Valuation Date
August 1999
Major Tenants
Tenant
Area (sqm)
TDG Distribution
Location:
Average Rent (per sqm)
6,875
$130.00
28
June 2004
Keysborough is a recognised industrial location 30 kilometres south-east of Melbourne GPO.
Title Details: The property is on a single title of 1.82 hectares.
Description:
Expiry
A modern high clearance coolstore complex with separate administration office.
25 Pavesi Street, Smithfield, NSW
Date Completed
1997
Gross Lettable Area
Warehouse
6,027 sqm
Office
1,500 sqm
Total
7,527 sqm
Occupancy
100%
Average Net
Passing Rental
$80.00 per sqm
Valuation
$7,450,000
Valuation Date
August 1999
Major Tenants
Tenant
Area (sqm)
RS Components Pty Ltd
Location:
Average Rent (per sqm)
7,527
Expiry
$80.00
August 2008
Smithfield is a recognised industrial area located 30 kilometres west of Sydney. The area consists largely of
modern light industrial accommodation, large distribution warehouse facilities and a range of industrial
estates consisting of smaller storage and light industry.
Title Details: The property is on a single title of 1.6 hectares.
Description:
A modern high clearance warehouse with associated offices and amenities.
Gateway Estate, Walters Road, Arndell Park, NSW
Date Completed
1999
Gross Lettable Area
Building A
2,614 sqm
Building B
3,136 sqm
Building C
11,666 sqm
Building D
10,512 sqm
Total
27,928 sqm
Occupancy
100% (includes rental guarantee)
Average Net
Passing Rental
$91.08 per sqm
Valuation
$28,500,000
Valuation Date
August 1999
Major Tenants
Tenant
Area (sqm)
Average Rent (per sqm)
Expiry
Fujitsu General
10,512
$95.00
March 2009
Sanyo Australia Pty Ltd
10,002
$75.00
January 2009
Sanyo Australia Pty Ltd
1,662
$167.00
January 2009
Kelair
3,136
$90.00
March 2009
Location:
Arndell Park is a recognised industrial area located 35 kilometres west of Sydney. The site is a short distance
north of the Western Motorway that links the estate to Parramatta and Sydney.
Title Details: The property is on a single title of 4.57 hectares.
Description:
Gateway Estate comprises a recently completed four unit warehouse complex. Each unit provides high
clearance warehouse areas with adjoining offices. Both Sanyo and Fujitsu General conduct regional
operations from the Estate.
29
4. Property Portfolio
The Portfolio (continued)
Mascot Central, Gardeners Road, Mascot, NSW
Date Completed
1999
Gross Lettable Area
Location:
Warehouse
9,148 sqm
Office
7,998 sqm
Total
17,146 sqm
Occupancy
Rental guarantee over
the property
expires March 2000
Average Net Passing Rental
n/a
Valuation
$26,800,000
Valuation Date
March 1999
Mascot is located in the favoured South Sydney industrial precinct between Alexandria and the airport. The
site contains excellent linkages to the airport, the container and port facilities of Botany Bay and Sydney by
nearby O’Riordan Street. The site is approximately 6 kilometres south of the Sydney CBD.
Title Details: The property is on a single title of approximately 2.06 hectares.
Description:
Mascot Central comprises two recently completed office/warehouse buildings. The larger of the two
buildings enjoys exposure to busy Gardners Road having a gross lettable area of 10,289 square metres (office
– 5,136 square metres, warehouse – 5,153 square metres). Building B benefits from frontage to Church
Avenue and has a gross lettable area of 6,857 square metres (office – 2,862 square metres, warehouse –
3,995 square metres).
299 Montague Road, West End, Queensland
Date Completed
1994
Gross Lettable Area
5,995 sqm
Occupancy
100%
Average Net Passing Rental
$149.00 per sqm
Valuation
$8,400,000
Valuation Date
March 1999
Major Tenants
Tenant
Area (sqm)
State of Queensland
Location:
5,995
Average Rent (per sqm)
$149.00
Expiry
January 2005
Established high-tech industrial location, 2.5 kilometres south-west of Brisbane CBD.
Title Details: Freehold title – 7,971 square metres.
Description:
30
The State Library Building is a large freestanding administration/warehouse complex. The property was
extensively redeveloped in 1994 to meet the high standards of accommodation and services required by the
State Library.
Brodie Industrial Park, 40 Brodie Street, Rydalmere, NSW
Date Completed
Early 1980s
Gross Lettable Area
Industrial
17,424 sqm
Office
2,390 sqm
Total
19,814 sqm
Occupancy
100%
Average Net Passing Rental
$87.00 per sqm
Valuation
$17,400,000
Valuation Date
August 1999
Major Tenants
Tenant
Area (sqm)
McKechnie
Average Rent (per sqm)
Expiry
7,880
$81.00
May 2000
Compaq
4,104
$88.20
December 2006
Keycorp
2,649
$96.04
November 2000
2,054
$97.83
March 2003
AGL
Location:
The property is located in the favoured inner western industrial suburb of Rydalmere, approximately
20 kilometres north-west of the Sydney CBD. Brodie Street links to Victoria Road, a major arterial road
which connects to the Western Highway via Silverwater Road.
Title Details: The property is located on single title with a total area of approximately 3.72 hectares.
Description:
The property is an industrial estate comprising nine high clearance warehouses with mezzanine office
components ranging from 10% to 20% of GLA. The complex was built in the early 1980s modelled around
an old sawtooth section. There is generous vehicle manoeuvring, loading and parking areas.
390 Eastern Valley Way, Chatswood, NSW
Date Completed
1988
Gross Lettable Area
5,221 sqm
Occupancy
100%
Average Net Passing Rental
$156.93 per sqm
Valuation
$8,250,000
Valuation Date
August 1999
Major Tenants
Tenant
Area (sqm)
E & P International
Average Rent (per sqm)
Expiry
1,088
$171.23
February 2001
Sharp Corporation
876
$163.67
January 2004
Hal Data
768
$136.19
February 2000
Location:
Prominently located within the Chatswood industrial area which provides accommodation predominantly
for light industrial users.
Title Details: Freehold as part of a community title scheme with a site area of 3,723 square metres and also having the
benefit of a registered strata plan.
Description:
Multi-tenanted office/warehouse development forming part of Chatswood Business Park. This property has
good exposure to the main arterial route of Eastern Valley Way.
31
4. Property Portfolio
The Portfolio (continued)
77-91 Roberts Road, Chullora, NSW
Date Completed
1994
Gross Lettable Area
32,975 sqm
Occupancy
100%
Average Net Passing Rental
$76.00 per sqm
Valuation
$28,000,000
Valuation Date
August 1999
Major Tenants
Tenant
Area (sqm)
Seahighway Pty Ltd
Location:
Average Rent (per sqm)
32,975
Expiry
$76.00
March 2007
Prominently located on the eastern side of Roberts Road, a major north-south arterial road linking North
Ryde and Homebush with the southern suburbs and M5 Motorway.
Title Details: Freehold title with site area of 6.25 hectares.
Description:
Part of a major distribution facility operated by Finemores, the transport group.
14 Aquatic Drive, Frenchs Forest, NSW
Date Completed
1988
Gross Lettable Area
17,815 sqm
Occupancy
94%
Average Net Passing Rental
$138.13 per sqm
Valuation
$26,300,000
Valuation Date
August 1999
Major Tenants
Tenant
Area (sqm)
Average Rent (per sqm)
Expiry
Dell Computer
4,557
$165.00
December 2002
Prentice Hall
2,943
$165.00#
July 2005
Target
2,873
$129.00*
February 2001
*Gross Rent
# As at November 1999
Location:
Prominently located in the Frenchs Forest high-tech industrial area. This property has exposure to busy
Warringah Road.
Title Details : Freehold with site area of 1.58 hectares.
Description:
32
High-tech office warehouse development, comprising four linked buildings with basement parking.
91 Mars Road, Lane Cove, NSW
Date Completed
1985
Gross Lettable Area
6,794 sqm
Occupancy
100%
Average Net Passing Rental
$142.50 per sqm
Valuation
$10,600,000
Valuation Date
August 1999
Major Tenants
Tenant
Area (sqm)
Doubleday Australia Limited
Location:
Average Rent (per sqm)
6,794
$142.50
Expiry
February 2010
Located within the Lane Cove industrial area, easily accessible from Epping Road and the new M2 Motorway.
Title Details: Freehold title with a site area of 7,853 square metres.
Description:
Traditional office/warehouse facility providing high clearance warehousing, offices over two levels and
undercover parking.
Lot 1, Old Geelong Road, Hoppers Crossing, Victoria
Date Completed
1990
Gross Lettable Area
52,612 sqm
Occupancy
100%
Average Net Passing Rental
$86.50 per sqm
Valuation
$40,000,000
Valuation Date
August 1999
Major Tenants
Tenant
Area (sqm)
Coles Supermarkets Australia
Pty Ltd
Location:
Average Rent (per sqm)
52,612
$86.50
Expiry
October 2010
Approximately 20 kilometres south-west of Melbourne CBD, adjacent to the Princess Highway and with
immediate access to the Western Distributor and planned City Link expressways.
Title Details: Freehold title with a site area of 14.51 hectares.
Description:
National distribution centre for Kmart.
33
4. Property Portfolio
The Portfolio (continued)
85 Epping Road and 376 Lane Cove Road, North Ryde, NSW
Date Completed
Estimated to be built in
1980 and 1985
Gross Lettable Area
13,153 sqm
Occupancy
100%
Average Net Passing Rental
$157.50 per sqm
Valuation
$19,000,000
Valuation Date
August 1999
Major Tenants
Tenant
Area (sqm)
Average Rent (per sqm)
Expiry
AC Nielson
4,562
$186.00
December 2000
ICL Australia
8,591
$142.59
October 2000
Location:
Prominently located on the corner of Epping Road and Lane Cove Road, in the established high-tech
industrial area of North Ryde.
Title Details: Freehold title with a site area of 2.37 hectares.
Description:
The property incorporates two free standing high-tech buildings located in the heart of the North Ryde
industrial area. The prominent corner position provides good exposure.
Smithfield Stage 1, 364-368 Woodpark Road, Smithfield, NSW
Date Completed
Late 1980s
Gross Lettable Area
Industrial
14,313 sqm (86%)
Office
2,416 sqm (14%)
Total
16,729 sqm (100%)
Occupancy
100%
Average Net Passing Rental
$80.00 per sqm
Valuation
$11,400,000
Valuation Date
March 1999
Major Tenants
Tenant
Area (sqm)
Average Rent (per sqm)
Expiry
WDF Coghlan
8,349
$83.00
Islander Imports
1,776
$82.27*
March 2004
March 2000
Colanco Printing
993
$78.00
December 2000
* Gross Rent
Location:
The property is located in Smithfield, which is in the western suburbs of the Sydney metropolitan area
approximately 35 kilometres west of the Sydney CBD and 7 kilometres to the south-west of Parramatta.
The property benefits from good metropolitan and interstate road transport facilities with links directly to
the Western Highway approximately 3 kilometres to the north and the Hume Highway approximately
6 kilometres to the south.
Title Details: The property is on a single title, with a total area of approximately 2.806 hectares.
Description:
The property consists of a relatively modern industrial estate comprising a total of 20 mixed warehouse and
office units with a combined lettable area of approximately 16,729 square metres.
Surrounding developments comprise a mix of industrial, manufacturing and distribution warehouse type
properties, the majority of which have been constructed during the last 10 years.
34
Smithfield Stage 2, 317-321 Woodpark Road, Smithfield, NSW
Date Completed
Early 1990s
Gross Lettable Area
Industrial
13,820 sqm
Office
1,083 sqm
Total
14,903 sqm
Occupancy
98.2%
Average Net Passing Rental
$73.00 per sqm
Valuation
$10,300,000
Valuation Date
March 1999
Major Tenants
Tenant
Area (sqm)
Average Rent (per sqm)
Expiry
Omegatrend
1,850
$88.00
August 2000
Speedy Wheels
1,770
$74.00
December 2001
CEG Electric Glass
1,205
$70.00
July 2000
Multicorp Distributions
1,069
$73.00
December 2000
Location:
The property is located opposite Smithfield Stage 1 in Woodpark Road.
The property benefits from good metropolitan and interstate road transport facilities with links directly to
the Western Highway approximately 3 kilometres to the north and the Hume Highway approximately
6 kilometres to the south.
Title Details: The property is on a single title with a site area of approximately 2.891 hectares.
Description:
The property is a modern warehouse estate comprising a total of 34 mixed industrial and office units
arranged in four separate blocks. The majority of the units comprise smaller light industrial and warehouse
type accommodation.
The estate also includes a detached two storey property comprising a ground floor retail outlet together with
an upper level caretaker’s office and adjoining residence.
8 Giffnock Avenue, North Ryde, NSW
Date Completed
n/a
Gross Lettable Area
n/a
Occupancy
Vacant site
Average Net Passing Rental
n/a
Valuation
$2,400,000
Valuation Date
August 1999
Location:
Adjoining 85 Epping Road and 376 Lane Cove Road, North Ryde, with access from Giffnock Avenue.
Title Details: Freehold title with a site area of 4,935 square metres.
Description:
Vacant industrial land zoned for high-tech use, situated adjacent to Fujitsu and AC Nielsen buildings, in the
heart of North Ryde.
35
4. Property Portfolio
The Portfolio (continued)
60 Enterprise Place, Tingalpa, Queensland
Date Completed
1996
Gross Lettable Area
11,564 sqm
Occupancy
100%
Average Net Passing Rental
$104.00 per sqm
Valuation
$12,140,000
Valuation Date
August 1999
Major Tenants
Tenant
Area (sqm)
Average Rent (per sqm)
Queensco Unity
6,091
$119.00
Pemara Labels
2,234
$97.00
Location:
Expiry
March 2006
May 2006
Part of the Wynngate Industrial Estate, adjoining the Gateway Arterial Road south of the Gateway Bridge
and in close proximity to the port and airport.
Title Details: Freehold title with a site area of 1.94 hectares.
Description:
Recently completed office warehouse complex, comprising one storage and distribution facility occupying
half of the site and a three unit development on the remainder of the site.
339-345 Military Road, Cremorne, NSW
Date Completed
Office completed in 1987
Gross Lettable Area
Office
3,693 sqm
Alma House
550 sqm
The Stables
233 sqm
Total
4,476 sqm
Occupancy
80%
Average Net Passing Rental
$274.41 per sqm
Valuation
$13,100,000
Valuation Date
August 1999
Major Tenants
Tenant
Area (sqm)
ABKP
1,316
Foss and McAuliffe
Location:
550
Average Rent (per sqm)
Expiry
$242.00
September 2008
$336.00 (gross rent)
May 2001
The property is located on the corner of Military Road and Belmont Road, Cremorne on the Sydney North
Shore. The property is approximately 7 kilometres north of the Sydney CBD.
Title Details: The property is located on a single title with a site area of approximately 3,988 square metres.
Description:
36
The property comprises a four level office building with a net lettable area of 3,693 square metres, a historic
Victorian residence known as ‘Alma House’ and a third office building known as ‘The Stables’.
17 O’Riordan Street, Alexandria, NSW
(purchased 4 January 1999)
Date Completed
1995
Gross Lettable Area
Warehouse
4,007 sqm
Office
2,054 sqm
Storage
36 sqm
Total
6,097 sqm
Occupancy
100%
Average Net Passing Rental
$103.53 per sqm
Valuation
$7,800,000
Valuation Date
November 1998
Major Tenants
Tenant
Area (sqm)
Allders International
(Oceania) Pty Ltd
Location:
6,097
Average Rent (per sqm)
Expiry
$103.53
July 2007
The property is located in Alexandria, some 5 kilometres from the Sydney CBD. Alexandra is a well
established industrial location and benefits from its proximity to shipping and air freight facilities with
Kingsford Smith Airport and Port Botany some 3.5 and 9.5 kilometres to the south.
Title Details: The property is located on a single title with a site area of 7,357 square metres.
Description:
The property comprises a modern high clearance warehouse together with an attached two level
office building.
80 Turner Street, Port Melbourne, Victoria
Date Completed
1994
Gross Lettable Area
Warehouse/other
9,281 sqm
Office
2,539 sqm
Total
11,820 sqm
Occupancy
100%
Average Net Passing Rental
$88.53 per sqm
Valuation
$11,000,000
Valuation Date
1 November 98
Major Tenants
Tenant
Area (sqm)
Air International Pty Ltd
11,820
Location:
Average Rent (per sqm)
$88.53
Expiry
December 2006
The property is located on the corner of Turner and Douglas Streets in Port Melbourne some 3 kilometres
south-west of the Melbourne CBD adjacent to the soon to be developed Docklands precinct. The
surrounding precinct is a traditional industrial area which is becoming increasingly popular with tenants with
high-tech or office/warehouse requirements.
Title Details: The property is located on a single title with site area of approximately 2.19 hectares.
Description:
The property is a modern purpose built office/warehouse, research and development facility. The property
features a warehouse with seven metre clearance and administration area.
37
Jones Lang LaSalle
Market Overview
Overview of Australian Property
Markets – June 1999
Prepared for
The Directors
Colonial First State Property Limited
Level 9, 330 Collins Street
Melbourne Vic 3000
38
Table of Contents
Page
Introduction
1
Major Issues
1
Australian Office Markets
2
Australian Retail Markets
4
Australian Industrial Markets
7
Investment Market Conditions
9
Disclaimer
This Property Market Overview was prepared in October 1999, based on market data and
information current as at the end of June (Q2) 1999.
Jones lang LaSalle Advisory stresses that the estimating of future property market conditions,
prices and rental levels should be regarded as an indicative assessment of possibilities rather
than absolute certainties. The process of making projections involves assumptions about a
considerable number of variables that are very sensitive to changing conditions. Variations in
any one of these may, and often will, significantly affect the outcomes, we draw you attention to
this as one of the many relevant factors to consider in making investment decisions.
Jones Lang LaSalle Advisory has prepared this Property Market Overview , but has not been
involved in the preparation of any other part of the Information Memorandum to which we
understand it will be appended. Jones Lang LaSalle Advisory, therefore can not, and do not,
make any warranty or representation as to the accuracy or completeness of any information or
statement contained in any other part of the Information Memorandum. Jones Lang LaSalle
Advisory specifically disclaims liability to any person in the event of any alleged false or
misleading statement in, or material omission from any part of the Information Memorandum,
other than in respect of the material prepared by Jones Lang LaSalle Advisory.
39
Jones Lang LaSalle
Market Overview (continued)
Overview of Australian Property
Markets - June 1999
Introduction
This report has been prepared on instructions received
from the Manager (Colonial First State Property Limited).
The aim is to provide a broad overview of trends in the
office, retail and industrial sectors of the Australian
property markets as at June 1999.
Major Issues
The continued strength of the domestic economy (GDP
grew 4.1% in year to June 1999) has been the major factor
influencing commercial real estate markets in Australia
over Q2/1999. (Q2 is Quarter 2, this refers to the market as
at June 30th 1999).
Offices: There has been a marked improvement in
sentiment since the beginning of 1999. This has been most
noticeable in the Sydney CBD where a number of major
deals over Q2/1999 have greatly reduced the risk of
significant over-supply.
Retail: Surging consumer spending resulted in retail sales
increasing by 7% in the year to June 1999 ($139.4 bn).
Combined with the strong financial performance by many
major retailers, this has resulted in demand for further
retail floor space.
Industrial: Buoyant demand due to growth in output,
particularly in those sectors producing retail goods and
those related to the housing market. Continued shift from
rental to ownership due to low interest rates.
The following is a summary of the major issues that we
expect will influence the property markets in Australia
over the next year or so:Interest Rates: The current low interest rate environment
has acted as a major stimulus for demand for retail,
residential and industrial property. Despite the increase in
bond yields and money market rates experienced during
Q2, the consensus is that interest rates will increase in late
1999 / early 2000, which may have a dampening impact
on the real estate market.
Taxation Reforms: If the major findings of the Ralph
Committee report are accepted (a reduction in the
corporate rate tax to 30% and the retention of some form
of accelerated depreciation for capital investment), the
forthcoming business tax reforms are likely to have a
positive impact on most sectors of the economy and
therefore be beneficial for the property market.
The other major tax reform relates to income tax, with
significant tax cuts planned from July 2000. This is likely
to lead to a further boost to the retail industry and to those
areas of the manufacturing sector producing retail goods in
the second half of next year.
Employment Growth: Has recovered strongly over the
second quarter of 1999 with this growth looking set to
continue for the remainder of 1999. Employment grew by
64 000 in June (annual growth of 2.2%) to a record level
of 8.8 million. This pushed the unemployment rate down
to a 9 year low of 7.0% in June, before increasing again to
7.4% in September. The Australian labour market is now
exhibiting similarities to that in the US with growth in the
service sector outpacing labour shedding elsewhere in the
economy.
Retail Spending: Shows little sign of slowing down.
While the monthly growth rate continues to fluctuate, June
sales of $12.2 bn (seasonally adjusted) resulted in an
annual growth rate of 7.1%. This is marginally above the
average year on year growth of 6.9% achieved over the
past 6 months.
The Westpac – Melbourne Institute Survey of Consumer
Sentiment is regarded as a good leading indicator of future
retail sales levels. The index has continued to increase
during 1999 with the July figure some 11.8% higher year
on year. The index is currently at its highest level since
1994.
Housing Sector Still Growing: The level of both housing
finance and dwelling approvals has improved in Q2 and
further growth is expected prior to the GST. The strength
of the housing market (along with strong employment
growth and continued high consumption levels) may result
in the Reserve Bank of Australia increasing interest rates
to take some heat of the economy in late 1999 or early
2000.
GST: Although the GST will not be introduced until July
2000, it is already having an impact. Sales of ‘luxury’
retail items such as televisions and stereos have been
boosted by the first reduction in the Wholesale Sales Tax.
Residential construction activity has also been boosted as
owners bring forward projects.
National Overview - June 1999 - 1
40
Australian Office Markets
CBD Office Markets
Rental Cycle - As at Q2/1999
Sydney
Early
Downturn
Late
Upturn
Canberra
Melbourne
Early
Upturn
Late
Downturn
Perth
Brisbane
Adelaide
Jones Lang LaSalle Advisory
Figure 1
Australian CBD office markets are at quite different stages
of their rental cycle.
The Sydney market is currently close to the peak of the
present cycle with our expectation that average rentals will
decline from current levels over the next year. Despite the
high levels of new construction, the Sydney market is,
however benefiting from strong positive demand and the
downturn is therefore likely to be much less pronounced
than in the previous market cycle.
The Sydney CBD is also at a quite different stage to other
markets in terms of supply, being the only market to be
currently witnessing significant levels of new
development. Completion levels over Q2 were minimal
with just 32 000m2 completed nationally. The largest
completion was the 8 000m2 headquarters for Theiss
Construction in the suburb of South Brisbane.
Future construction levels remain minimal in all markets
except for the Sydney CBD (384 000m2) which accounts
for over 60% of all office space currently under
construction across all the 15 markets monitored
(620 000m2). All of the office space currently under
construction across Australia is scheduled for completion
in 1999 or 2000, with no projects scheduled to enter the
market in 2001.
Demand Issues
OFFICE NET ABSORPTION
Capital City CBDs
600
400
Forecast Q3/Q4
200
Absorbed
Q1/Q2
0
-200
Other CBD office markets around Australia have seen
much less construction activity than Sydney in the current
cycle and (with the exception of Canberra) they continue
to see a slow recovery in rentals.
Supply Issues
OFFICE SUPPLY
Capital City CBDs
Square Metres ('000s)
1,200
1,000
800
600
400
200
0
70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01
Completed
Under Construction
Jones Lang LaSalle Advisory
Figure 2
Square Metres ('000s)
1994
Average of mid-point of forecast ranges
1995
1996
1997
1998
1999
Jones Lang LaSalle Advisory
Figure 3
There has been a significant increase in net absorption
across the major Australian office markets during
Q2/1999. Net absorption has increased from less than
40 000m2 in Q1 to more than 100 000m2 in Q2, resulting in
net absorption of around 145 000m2 for the first half of
1999. We are now forecasting total net absorption across
all Capital City CBD markets of almost 212 000m2 in
1999, an increase of more than 100% from the 1998 total
of 93 000m2.
Net absorption has been strongest in the Sydney and
Melbourne CBDs, both of which recorded levels in excess
of 35 000m2 in Q2. All the other CBD markets have seen
positive net absorption, with the only markets
experiencing a reduction in total occupied stock over the
past quarter being the suburban markets of St Kilda and
South East Suburbs in Melbourne and Crows Nest / St
Leonards in Sydney.
National Overview - June 1999 - 2
41
Jones Lang LaSalle
Market Overview (continued)
Australian Office Markets
Vacancies
There have been no significant changes in effective rental
levels during Q2/1999, with most markets recording either
no change or a minor increase in rents. Figure 5 shows
that rents in Canberra have fallen significantly over the
past two years while the other CBD markets have
continued to experience positive rental growth. The rate of
growth has accelerated in both Melbourne and Brisbane
over the past year.
OFFICE VACANCY RATES
Capital City CBDs
30%
25%
20%
15%
10%
5%
0%
1993
1994
Sydney
1995
Melbourne
1996
1997
Brisbane
1998
Adelaide
Q2/99
Perth
Canberra
Jones Lang LaSalle Advisory
The average rent for prime space in the Sydney CBD has
remained static at $478 m2, since Q4 1998. This average
has been impacted by two countervailing trends. Rentals
for space in existing buildings have been stable or
increasing slightly, while new buildings have been leasing
at rentals below the market average. Rents for secondary
grade space have also been declining in the Sydney CBD.
Figure 4
With limited levels of new supply and stronger than
expected demand, vacancy levels have fallen in most
office markets during Q2/1999. Vacancies in the Sydney
CBD have moved down to 6.1%, in line with levels
experienced in Q2/1998. This is forecast to be a short term
improvement, with vacancies forecast to increase again
over the second half of this year.
Vacancies have continued to trend down in Melbourne and
Brisbane CBDs over Q2, while Adelaide, Perth and Canberra
CBDs have seen little change in vacancy rates. The only
markets to have witnessed an increase in vacancies over Q2
have been the Melbourne Suburban markets of St Kilda Road
and South East Suburbs.
Yields
OFFICE YIELDS
Capital City CBDs
12%
10%
8%
6%
4%
1993
1994
Sydney
Mid-point yields
1995
Melbourne
1996
Brisbane
1997
Adelaide
1998
Perth
Q2/99
Canberra
Jones Lang LaSalle Advisory
Figure 6
Rents
Despite the increase in interest rates and the upward trend
in bond rates, there has been no significant change in
investment yields for prime quality CBD office buildings.
The only market to have seen any increase in yields in
Q2/1999 has been the Sydney CBD, where the higher end
of the range has moved out by 25 basis points to 7.00%.
OFFICE RENTS
Capital City CBDs
Brisbane CBD
Melbourne CBD
Sydney CBD
Perth CBD
Adelaide CBD
Canberra
-15%
-10%
-5%
0%
5%
10%
15%
20%
Melbourne CBD continues to attract the lowest yields of
any Australian office market (4.00% - 6.00%). There
remains strong investor interest due to the perception that
significant levels of rental growth will be experienced over
the next 5 years.
Growth % p.a.
12 months to Q2/1999
Average prime gross effective rents
12 months to Q2/1998
Jones Lang LaSalle Advisory
Figure 5
National Overview - June 1999 - 3
42
Australian Office Markets
Australian Retail Markets
Capital Values
Retail Markets
Rental Cycle - As at Q2/1999
There has been very little growth in the capital value of
CBD office space across Australia over the past year.
During the year to Q2/1999, values have fallen in Canberra
and Perth, with no change recorded in either Sydney or
Adelaide. The only markets to experience an increase in
values over this period have been Melbourne (5.5%) and
Brisbane (4.3%).
Sydney CBD
Melbourne CBD
The Sydney market has seen the strongest growth in values
since 1993. This is largely a reflection of the fact that
values declined most in the Sydney CBD in the previous
market downturn. Despite having increased by 40% since
December 1993, capital values for prime office space in
the Sydney CBD remain some 35% below those reached at
the peak of the previous cycle in 1989/90.
Capital City CBDs
Per Square Metre
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
1993
1994
Sydney
1995
Melbourne
1996
Brisbane
1997
Adelaide
Melbourne
Regional
Early
Upturn
Sydney
Regional
Late
Downturn
Jones Lang LaSalle Advisory
Figure 8
Retail markets continue to perform positively across most
states and sectors. Turnover growth is still trending
upwards, with further improvements likely until mid-2000.
Rental growth has occurred and a number of sectors have
witnessed a further firming of property yields.
Construction activity is currently strong, but appears to
have peaked and is forecast to diminish over the next few
years.
CAPITAL VALUE INDICATORS
$7,000
Early
Downturn
Late
Upturn
1998
Perth
Q2/1999
Canberra
Jones Lang LaSalle Advisory
Figure 7
Melbourne and Sydney CBDs have experienced
significant rental growth, and are now clearly in the late
upturn of the rental cycle. Regional centres across the
country are likely to witness continued moderate rental
growth over 1999-2000.
Supply Issues
RETAIL SUPPLY
Australia
240
Square Metres ('000s)
200
160
120
80
40
0
CBD
Regional
Sub Regional
Historic (1996-98 - avg pa)
Excludes Canberra and Bulky Goods prior to 1997
Neighbourhood
Bulky Goods
Outlook (1999-01 - avg pa)
Jones Lang LaSalle Advisory
Figure 9
Shopping centres are continuing to expand, while new
bulky goods outlets are planned. Although many projects
are in the pipeline, few additional developments were
confirmed in Q2, indicating that the cycle may have
peaked, except in the regional sector where there remain a
few large extensions still to complete.
National Overview - June 1999 - 4
43
Jones Lang LaSalle
Market Overview (continued)
Australian Retail Markets
RETAIL TURNOVER BY CATEGORY
Australia
CBDs: Following the peak of 1998, completion levels are
likely to be significantly lower over the next three years.
Minimal supply has been added this year to date, and only
16 000m2 remains under construction and due for
completion this year (all in Sydney CBD).
Regional Centres: Next year is likely to witness the peak of
the supply cycle for regional centres. The average centre is
now becoming larger with cinemas, bulky good retailing
and more specialities often being incorporated.
Sub–Regional/Neighbourhood Centres:
Increased
activity over the past 6 months is likely to result in
construction peaking in 1999.
Bulky Goods: Almost 140 000m2 has completed across
multi-unit centres and category killers during the year to
date, mostly in the form of new centres.
Demand Issues
CONSUMER SENTIMENT/RETAIL TURNOVER
Australia
140
Consumer Sentiment Index
Quarterly Growth - Trend at Constant Prices
2.5%
120
2.0%
100
1.5%
80
1.0%
60
0.5%
40
0.0%
20
-0.5%
0
6/85
6/86
6/87
6/88
Consumer Sentiment (LHS)
6/89
6/90
6/91
6/92
6/93
Turnover Growth (RHS)
Source: ABS, Westpac/Melbourne Institute
6/94
6/95
6/96
6/97
6/98
-1.0%
6/99
Growth (%)
Clothing/Soft Goods
Hospitality/Services
Other
Total
Recreational Goods
Food
Dept Stores
Household Goods
-2%
6%
8%
10%
12%
Year to Q2/1999
Jones Lang LaSalle Advisory
Annual turnover growth was strongest in Victoria (9.3%)
and Queensland (7.7%), with all states recording growth
above 4%. Annual growth of over 20% was recorded for
clothing and soft goods retailing in Victoria and for
recreational goods retailing in the Australian Capital
Territory. The poorest performing sectors in the year to
June 1999 were household good retailing in Western
Australia (-5.3%) and New South Wales (-4.4%).
Vacancies
Long term avg - Turnover Growth (RHS)
RETAIL VACANCY
Jones Lang LaSalle Advisory
Quarterly turnover growth slowed slightly over Q2/1999 to
1.2%, in line with normal seasonal fluctuations. National
retail turnover remains at record high levels.
Sustained positive consumer sentiment continues to
underpin the high retail turnover levels recorded. This is
due to a number of factors including:-
-
4%
Total moving annual retail turnover growth continued to
accelerate, recording 6.1% over the year to June 1999
(current prices).
Clothing/soft goods and
hospitality/services remained the major beneficiaries.
Despite a continued fall in household goods turnover,
furniture and floor covering retailing (8.9%) and domestic
hardware and houseware retailing (1.6%) have recorded
positive growth over the last 12 months.
Australia
12%
-
2%
Year to Q2/1998
Figure 11
Figure 10
-
0%
Percentage change in MAT - Current Prices
Source: ABS
Rising real income levels
Increased job security and tightening labour
market conditions,
Anticipation of the introduction of the GST
in mid-2000,
Low interest rate environment, and
Ready availability of credit.
Proportion of Shops Vacant
10%
8%
6%
4%
2%
0%
6/93
12/93
6/94
12/94
CBD
Note : Arithmetic average of all major cities.
Sub-regional vacancy excludes Canberra
6/95
12/95
Regional
6/96
12/96
6/97
Sub Regional
12/97
6/98
12/98
3/99
6/99
Neighbourhood
Jones Lang LaSalle Advisory
Figure 12
CBDs: The national vacancy rate rose slightly to 4.9%,
with increases recorded in all eastern seaboard states.
Vacancy rates in Sydney and Brisbane are the highest
witnessed since June 1996, with the upgrading of city
environments a major short term negative to CBD retailing
in these cities.
National Overview - June 1999 - 5
44
Australian Retail Markets
Regional Centres: Although national vacancy remains
low, rates have increased in all capitals except Adelaide.
Lowest vacancies were found in Melbourne (0.5%),
Adelaide (0.9%) and Sydney (1.1%).
Neighbourhood Centres: This sector continues to exhibit
the highest vacancy levels (averaging 8.2%). Vacancies in
neighbourhood centres in Melbourne have however fallen
to the lowest vacancy on record (5.5%), with almost full
occupancy in some larger neighbourhood centres.
Rents
RETAIL RENTS
Australia
Growth (%)
Sub Regional*
Neighbourhood
Regional
0%
1%
CBD & Enclosed Centre Yields
As at Q2/1999
Table 1
Prime
Regional
SubN’hood
CBD
Regional
Sydney
7.75-9.00
7.50
9.75
9.00-11.00
Melbourne
7.75-9.50
7.50
9.75
9.50-11.00
SE Qld
8.00-9.00
8.00
10.00
9.50-12.00
Adelaide
8.50-11.00*
8.75
10.75
9.50-14.00
Perth
8.25-9.25
7.50
10.00
9.50-13.00
Canberra
8.75-11.00
8.00
N/A
9.00-11.00
* Rundle Mall (Super Prime CBD)
Note Yield ranges used for Prime CBD and Neighbourhood Centres
Median yields quoted for Regional and Sub-Regional Centres
Retail yields have continued to firm across several
markets, with further decreases expected over the
remainder of the year. Investors are reacting positively to
the sector in general with the sheer volume of funds and
limited availability of stock impacting strongly on property
yields.
CBD
Average net rents
* Excludes Canberra
Yields
2%
3%
12 months to Q1/1999
4%
5%
6%
7%
8%
9%
12 months to Q2/1999
Jones Lang LaSalle Advisory
Figure 13
CBD: Very strong rental growth has been witnessed in
Melbourne CBD over the past year and this continued
during Q2/1999. This has been primarily driven by the low
rental base, although significant improvements in tenant
demand and trading levels have also assisted. Sydney has
been the only other city to witness solid rental growth over
the year.
Sub-regional/Neighbourhood Centres: Mixed results
recorded, although sub-regional centres in Sydney (18.2%)
and neighbourhood centres in Melbourne (7.2%) saw solid
rental growth over the 12 months to Q2/1999.
CBD: Despite the wide variety of retail space in the CBD,
prime yields are firm across most cities. This reflects
positive investor sentiment and the scarcity of product
available. Over the quarter, yields decreased in Sydney and
Canberra.
Enclosed Centre: Overall yields for enclosed centres are
continuing to firm across most states, especially at the
lower end of the market. Despite this, and the recent rise in
10-year bond rates, the yield gap remains high and is
creating investment opportunities. Over the quarter,
regional median yields firmed in Melbourne and Canberra,
while sub-regional medians firmed in Sydney.
Neighbourhood yields firmed in Sydney, Melbourne and
Canberra with other states likely to witness similar
outcomes over the short term.
Regional Centres: While South East Queensland and
Adelaide have recorded low/negative increases, all other
states have recorded 2%-3% annual average net rental
growth.
Bulky Goods: Little change over the quarter, except in
Sydney where minimal increases occurred.
National Overview - June 1999 - 6
45
Jones Lang LaSalle
Market Overview (continued)
Australian Industrial Markets
Industrial Markets
Rental Cycle - As at Q2/1999
Melbourne
Early
Downturn
Late
Upturn
Over 1.08 million m2 of additional industrial space has
been completed during the first half of 1999. Completions
for the year look set to match or possibly even exceed the
record levels experienced in 1998.
Completions of traditional industrial premises remain at
high levels with Melbourne, Brisbane and Adelaide set to
experience higher levels of supply than those recorded in
1998.
Sydney
Perth
Brisbane
Early
Upturn
Late
Downturn
Adelaide
Canberra
Jones Lang LaSalle Advisory
High tech development activity has increased in Sydney
and Brisbane, with completion levels over the first half of
1999 already exceeding 1998 levels. A substantial amount
of space remains under construction and proposed for
completion in Sydney over the remainder of 1999 and
2000.
Figure 14
The industrial sector of the market has seen stronger
demand during Q2, largely as a result of the strength of the
overall economy. This has fed through to increased
demand for manufactured products, particularly for retail
goods and those used in the housing sector.
Most industrial markets remain in the upturn stage of the
rental cycle. The only exception is Canberra, where rentals
continue to fall due to limited leasing activity.
The low interest rate environment coupled with Olympic
related activity remain the major factors behind the
development activity in Sydney. High levels of
affordability and low cost ‘design & construct’ and precommitment activity continue to drive the market
nationally.
Demand
INDUSTRIAL TAKE-UP*
Australia
Melbourne rents peaked some time ago and have been
trending down marginally in some areas over the past year
or more. Rents now appear likely to fall more
significantly, driven down by the very competitive terms
being offered to attract tenants to pre-lease new projects.
5,000
Square Metres ('000s)
4,000
3,000
2,000
Supply
1,000
INDUSTRIAL SUPPLY
0
1994
Capital Cities
* Traditional & High Tech
Square Metres ('000s)
1995
1996
1997
Average 1994-98
1998
H1/1999
Jones Lang LaSalle Advisory
Figure 16
2,400
2,000
Take-up activity remains strong with over 1.7 million m2
of industrial space absorbed nationally over the first half of
1999. Gross activity strengthened considerably over Q2 in
most capitals after a very quiet Q1. Melbourne, in
particular experienced a tripling in activity over this time.
1,600
1,200
800
400
0
1994
1995
1996
Completed
Proposed/Mooted
* Traditional & High Tech
1997
1998
1999
2000
Under Construction
Average (1994-1998)
Jones Lang LaSalle Advisory
Figure 15
Take-up levels are however, likely to fall short of the
record levels experienced in 1998, especially in Sydney
where activity is starting to slow.
National Overview - June 1999 - 7
46
Australian Industrial Markets
Prime yields have either remained unchanged or firmed
marginally in all markets over the past 6 months. This
continues the longer term trend towards firmer industrial
yields in all markets except for Canberra.
Rents
AVERAGE RENTS
Prime Industrial
Comparatively attractive returns and steady rental growth
continue to draw investors towards prime, and in some
instances secondary, property.
Sydney
Melbourne
Brisbane
Adelaide
Perth
Canberra
-3.0%
-2.0%
-1.0%
0.0%
1.0%
12 months to Q2/99
2.0%
3.0%
4.0%
5.0%
6.0%
Strong demand for industrial property has resulted in
competition between private investors and institutions.
This has caused yields to firm in light of the scarce
investment opportunities available.
12 months to Q2/98
Jones Lang LaSalle Advisory
Capital Values
Figure 17
Rental growth remains strong in Sydney but patchy
elsewhere with Perth and Brisbane recording increases in
the 12 months to Q2/1999. Adelaide recorded zero rental
growth in the year to Q2/1999. Rents continued to decline
in both Melbourne and Canberra which remains in the
downturn phase of the rental cycle.
$1,100
CAPITAL VALUES
Prime Industrial
$ / Square Metre
$1,000
$900
$800
$700
$600
Continued strong demand has been the catalyst for growth
in Sydney. In Melbourne, competition among developers
and waning demand have pushed pre-lease rents below
existing prime rental levels. Further slides in rentals are
expected in the Melbourne market during the remainder of
1999.
In Brisbane and Perth, steady demand has underpinned
rental increases. The trend towards owner occupation and
the strong growth of the ‘design & construct’ market have,
however, prevented significant gains from being recorded.
Yields
$500
$400
$300
6-94 9-94 12-94 3-95 6-95 9-95 12-95 3-96 6-96 9-96 12-96 3-97 6-97 9-97 12-97 3-98 6-98 9-98 12-98 3-99 6-99
Sydney
Melbourne
Brisbane
Adelaide
Perth
Jones Lang LaSalle Advisory
Figure 19
Capital values have continued to increase in some sectors
of the Sydney market over the past 6 months, particularly
in Northern Sydney, while stabilising in other parts of the
metropolitan area. Average growth in Sydney in the year
to Q2/1999 was some 4.8%.
Perth was the only other market to experience increasing
capital values in the year to Q2/1999. In Adelaide values
remained stable with marginal falls in other markets.
AVERAGE YIELDS
Prime Industrial
13%
Figure 19 shows that Sydney has been the only market to
experience significant gains in industrial capital values,
with gains in Melbourne, Brisbane and Adelaide being
steady if unspectacular over the longer term.
12%
11%
10%
9%
8%
03-94 06-94 09-94 12-94 03-95 06-95 09-95 12-95 03-96 06-96 09-96 12-96 03-97 06-97 09-97 12-97 03-98 06-98 09-98 12-98 03-99 06-99
Sydney
Melbourne
Brisbane
Adelaide
Perth
Canberra
Jones Lang LaSalle Advisory
Figure 18
National Overview - June 1999 - 8
47
Jones Lang LaSalle
Market Overview (continued)
Investment Market Conditions
DIRECT PROPERTY SALES
12
Direct Investment Activity
Australia
$ billion
10
The first 6 months of 1999 saw a decline in the total value
of direct property investment activity (sales over $5 million)
following a prolonged period of high activity in 1997 and
1998. Over the first half of 1999 there was $3,203m
transacted nationally, representing a 45% decline on the
previous six month period.
8
6
4
2
0
1990
The office sector continues to record the greatest value of
turnover, underpinned by the sale of Melbourne Central and
a number of transactions associated with the listing of the
Commonwealth Bank's Property Office Fund which
contributed $619m to the total of $1,760m.
Retail transactions continued at a strong pace, although they
also fell by 34% when compared to the previous six month
period. Major transactions included Melbourne Central and
a 50% interest in Marketown Mt Druitt.
Industrial investment activity fell away significantly, with
only $283m transacted, representing a 72% decline in
activity in the previous six month period.
Direct Property Sales(1)
Australia
Table 2
Office
Retail
Industrial
Total
1997
($m)
3 670.3
3 402.7
1 548.7
8 621.6
1998
($m)
6 0157.6
2 957.3
1 838.9
10 812.0
Q1 & Q2/1999
($m)
1 760.4
1 159.3
283.1
3 202.8
(1) Sales over $5 million
Jones Lang LaSalle Advisory
1991
1992
1993
1994
Office
Sales in excess of $5 million
* 6 months to June
1995
Retail
1996
1997
1998
1999*
Industrial
Jones Lang LaSalle Advisory
Figure 20
Net Purchaser Profile(1)
Direct Property Sales(2)
Australia - 12 months to Q2/1999
Table 3
Office
$m
-2,060.3
2,980.2
-184.1
Institutions
Property Trusts
Developers/Prop.
Co.
Corporates
-155.4
Australian Private
10.0
Government
-235.0
Non-Profit
-12.6
Organisations
Foreign – Asian
-446.1
Foreign – Other
82.9
Other/Unknown
20.2
(1) Total purchases less total sales
(2) Sales over $5 million
Retail
$m
122.4
1,120.4
-149.2
Industrial
$m
153.2
530.8
-285.7
Total
$m
-1,784.7
4,631.4
-619.0
-333.5
-224.9
-32.8
-18.1
-154.3
-86.0
-29.9
-11.2
-643.2
-300.8
-297.6
-41.9
-404.8
-25.5
-54.1
-176.5
33.9
25.8
-1,027.4
91.3
-8.1
Direct & Indirect Real Estate
4,000
Investment Activity
$ millions
3,500
3,000
2,500
Sales activity is expected to continue at lower levels than
was experienced during 1997 and 1998. Transactional
activity associated with new Listed Property Trust and
Government asset sales which contributed significantly to
total activity in those years is expected to be lower in
1999.
2,000
1,500
1,000
500
0
6/93
6/94
6/95
Direct Real Estate Sales
N.B. Direct real estate sales over $5 million
Source: ASX/JB Were & Son
6/96
LPT Turnover
6/97
6/98
6/99
LPT Sector - Capital Raised
Jones Lang LaSalle Advisory
Figure 21
National Overview - June 1999 - 9
48
5. Financial Information
Financial Summary
Colonial First State Property Trust Group
The following table sets out the pro-forma balance sheet of CPG assuming the Merger Proposal was fully implemented
as at 30 June 1999. The pro-forma balance sheet reflects the aggregate of:
audited accounts as at 30 June 1999 of Colonial First State Industrial Property Trust and Colonial First State
Commercial Property Trust, adjusted to reflect the effect of property re-valuations since that date;
audited accounts as at 30 June 1999 of Colonial First State Development Trust, excluding the equity receivable
(final instalment) and adjusted to reflect the effect of property re-valuations and actual capital expenditure to
30 September 1999; and
audited accounts as at 30 September 1999 of Colonial First State Retail Property Trust (as its financial statements are
prepared as at 30 September each year), adjusted to reflect the effect of property re-valuations since that date.
CPG(1) Pro-forma Balance Sheet
$’000
Current Assets
Cash and other current assets
22,064
Receivables
7,138
_______________
Total Current Assets
29,202
_______________
Non-Current Assets
Properties
1,600,722
Other investments
–
_______________
Total Non-Current Assets
1,600,722
_______________
Total Assets
1,629,924
_______________
Current Liabilities
Accounts payable
15,032
_______________
Distributions payable
22,850
_______________
Total Current Liabilities
37,882
_______________
Non-Current Liabilities
Borrowings
434,500
_______________
Total Non-Current Liabilities
434,500
_______________
Total Liabilities
472,382
_______________
Net Assets
1,157,542
_______________
Securities on issue
585,827,819
_______________
NTA per Security
$1.98
_______________
Debt/Total Assets
26.66%
_______________
Note:
(1) Colonial First State Property Trust Group (merged group) – assumes Merger Proposal is implemented.
49
5. Financial Information
Financial Summary (continued)
The following table sets out the Manager’s forecast distributions for the six months ending 30 June 2000 and the year
ending 30 June 2001, assuming the Merger Proposal is implemented. These forecasts must be read in conjunction with
the material forecast assumptions and risk factors set out on pages 59–63. While the Manager believes the assumptions
made in preparing the forecasts are appropriate and reasonable, some factors that may affect results cannot be foreseen
or accurately predicted and many factors are beyond the control of the Manager. Actual results often differ from forecast
results. Consequently the Manager cannot guarantee that the forecast results will be achieved.
6 Months to
30 June 2000
Year to
30 June 2001
66,477,085
142,720,451
925,278
150,278
Interest income
66,373
_______________
41,365
_______________
Total Income
67,468,737
_______________
142,912,094
_______________
5,005,648
11,673,330
Interest expense
13,652,470
_______________
30,789,227
_______________
Total Expenses
18,658,118
_______________
42,462,556
_______________
48,810,618
100,449,538
4,091,831
8,120,738
Distributable Income
52,902,449
_______________
108,570,275
_______________
Average Securities
587,804,988
_______________
599,813,421
_______________
Earnings Per Stapled Security (June 2000 annualised)(2)
16.61 c
16.75 c
Distribution Per Stapled Security (June 2000 annualised)(2)
18.00 c
18.10 c
CPG(1) Distribution Statement
Income
Total net property income
Total rental indemnities
Expenses
Trust expenses
Net Income
Transfer from (to) reserves
Notes:
(1) Colonial First State Property Trust Group (merged group) – assumes Merger Proposal is implemented.
(2) All earnings per unit and distributions per unit do not take account of the potential impact of GST.
50
5. Financial Information
Impact on Colonial First State Retail Property Trust
The following table sets out the:
audited balance sheet of CMF as at 30 September 1999 (as its financial statements are prepared as at 30 September
each year), adjusted to reflect the effect of property re-valuations since that date; and
the pro-forma balance sheet of CPG assuming the Merger Proposal was fully implemented as of 30 June 1999 – the
basis of the pro-forma accounts for CPG is set out at the beginning of this Section.
CMF(1)
$'000
CPG(2)
$'000
3,901
22,064
Receivables
4,704
_______________
7,138
_______________
Total Current Assets
8,605
_______________
29,202
_______________
512,027
1,600,722
Other investments
0
_______________
0
_______________
Total Non-Current Assets
512,027
_______________
1,600,722
_______________
Total Assets
520,632
_______________
1,629,924
_______________
Accounts payable
Distributions payable
4,048
8,462
_______________
15,032
22,850
_______________
Total Current Liabilities
12,510
_______________
37,882
_______________
Borrowings
138,500
_______________
434,500
_______________
Total Non-Current Liabilities
138,500
_______________
434,500
_______________
Total Liabilities
151,010
_______________
472,382
_______________
Net Assets
369,622
_______________
1,157,542
_______________
Securities on issue
325,443,693
_______________
585,827,819
_______________
NTA per Security
$1.14
_______________
$1.98
_______________
Debt/Total Assets
26.60%
_______________
26.66%
_______________
Pro-forma Balance Sheet
Current Assets
Cash and other current assets
Non-Current Assets
Properties
Current Liabilities
Non-Current Liabilities
Notes:
(1) Colonial First State Retail Property Trust – assumes Merger Proposal is not implemented.
(2) Colonial First State Property Trust Group (merged group) – assumes Merger Proposal is implemented.
Given the ratio of 0.585 CPG Stapled Securities for each unit held in CMF, the comparable NTA per Stapled Security
is $1.16 compared to the present $1.14.
51
5. Financial Information
Impact on Colonial First State Retail Property Trust (continued)
The following table sets out the Manager’s forecast distributions for the six months ending 30 June 2000 and 12 months
ending 30 June 2001, assuming the Merger Proposal is not implemented (refer to columns headed CMF) and also assuming
that the Merger Proposal is implemented (refer to columns headed CPG). The table should be read in conjunction with
the major assumptions and risks set out on pages 59–63 and the statement concerning financial forecasts on page 50.
6 Months to 30 June 2000
CMF(1)
CPG(2)
Distribution Statement
Total net property income
Year to 30 June 2001
CMF(1)
CPG(2)
22,317,351
66,477,085
45,010,464
142,720,451
0
925,278
0
150,278
Interest income
78,887
_______________
66,373
_______________
157,545
_______________
41,365
_______________
Total Income
22,396,238
_______________
67,468,737
_______________
45,168,009
_______________
142,912,094
_______________
1,868,334
5,005,648
3,877,730
11,673,330
Interest expense
3,587,175
_______________
13,652,470
_______________
7,845,883
_______________
30,789,227
_______________
Total Expenses
5,455,509
_______________
18,658,118
_______________
11,723,613
_______________
42,462,556
_______________
16,940,730
48,810,618
33,444,395
100,449,538
145,064
4,091,831
877,206
8,120,738
17,085,794
_______________
52,902,449
_______________
34,321,601
_______________
108,570,275
_______________
325,443,693
_______________
587,804,988
_______________
325,443,693
_______________
599,813,421
_______________
10.41 c
16.61 c
10.28 c
16.75 c
10.50 c
18.00 c
10.55 c
18.10 c
Total rental indemnities
Expenses
Trust expenses
Net Income
Transfer from (to) reserves
Distributable Income
Average Securities
Earnings Per Unit (June 2000 annualised)
(3)
Distribution Per Unit (June 2000 annualised)(3)
Notes:
(1) Colonial First State Retail Property Trust – assumes Merger Proposal is not implemented.
(2) Colonial First State Property Trust Group (merged group) – assumes Merger Proposal is implemented.
(3) All earnings per unit and distributions per unit do not take account of the likely impact of GST.
Given the ratio of 0.585 CPG Stapled Securities for each unit held in Colonial First State Retail Property Trust, the
comparable distributions per ordinary unit currently held in Colonial First State Retail Property Trust (ie. assuming
the Merger Proposal is not implemented) and per 0.585 Stapled Securities in Colonial First State Property Trust Group
(ie. assuming the Merger Proposal is implemented) are:
6 Months to
30 June 2000 (annualised)
Year to
30 June 2001
Excluding the Impact of GST
Colonial First State Retail Property Trust
10.50c
10.55c
Colonial First State Property Trust Group
10.53c
10.59c
Colonial First State Retail Property Trust
10.50c
10.46c
Colonial First State Property Trust Group
10.53c
10.48c
Including the Potential Impact of GST
52
5. Financial Information
Impact on Colonial First State Industrial Property Trust
The following table sets out:
the audited balance sheet of Colonial First State Industrial Property Trust (‘CIP’) as at 30 June 1999, adjusted to reflect
the effect of property re-valuations since that date; and
the pro-forma balance sheet of CPG assuming the Merger Proposal was fully implemented as of 30 June 1999 – the
basis of the pro-forma accounts for CPG is set out at the beginning of this Section.
30 June 1999
CIP(1)
$’000
CPG(2)
$’000
7,858
22,064
Receivables
1,355
_______________
7,138
_______________
Total Current Assets
9,213
_______________
29,202
_______________
463,064
1,600,722
Other investments
0
_______________
0
_______________
Total Non-Current Assets
463,064
_______________
1,600,722
_______________
Total Assets
472,277
_______________
1,629,924
_______________
Accounts payable
Distributions payable
2,501
8,168
_______________
15,032
22,850
_______________
Total Current Liabilities
10,669
_______________
37,882
_______________
Borrowings
127,700
_______________
434,500
_______________
Total Non-Current Liabilities
127,700
_______________
434,500
_______________
Total Liabilities
138,369
_______________
472,382
_______________
Net Assets
333,908
_______________
1,157,542
_______________
Securities on issue
183,551,660
_______________
585,827,819
_______________
NTA per Security
$1.82
_______________
$1.98
_______________
Debt/Total Assets
27.04%
_______________
26.66%
_______________
Pro-forma Balance Sheet
Current Assets
Cash and other current assets
Non-Current Assets
Properties
Current Liabilities
Non-Current Liabilities
Notes:
(1) Colonial First State Industrial Property Trust – assumes Merger Proposal is not implemented.
(2) Colonial First State Property Trust Group (merged group) – assumes Merger Proposal is implemented.
Given the ratio of 0.950 CPG Stapled Securities for each unit held in CIP, the comparable NTA per Stapled Security
is $1.88 compared to the present $1.82.
53
5. Financial Information
Impact on Colonial First State Industrial Property Trust (continued)
The following table sets out the Manager’s forecast distributions for the six months ending 30 June 2000 and year ending
30 June 2001, assuming the Merger Proposal is not implemented (refer to columns headed CIP) and also assuming that the
Merger Proposal is implemented (refer to columns headed CPG). The table should be read in conjunction with the major
assumptions and risks set out on pages 59–63 and the statement concerning financial forecasts on page 50.
6 Months to 30 June 2000
CIP(1)
CPG(2)
Distribution Statement
Year to 30 June 2001
CIP(1)
CPG(2)
Income
Total net property income
21,265,167
66,477,085
41,924,740
142,720,451
0
925,278
0
150,278
Interest income
186,675
_______________
66,373
_______________
248,302
_______________
41,365
_______________
Total Income
21,451,842
_______________
67,468,737
_______________
42,173,043
_______________
142,912,094
_______________
1,769,182
5,005,648
3,934,168
11,673,330
Interest expense
4,095,856
_______________
13,652,470
_______________
8,393,894
_______________
30,789,227
_______________
Total Expenses
5,865,038
_______________
18,658,118
_______________
12,328,063
_______________
42,462,556
_______________
15,586,805
48,810,618
29,844,980
100,449,538
15,086
4,091,831
991,699
8,120,738
Distributable Income
15,601,891
_______________
52,902,449
_______________
30,836,679
_______________
108,570,275
_______________
Average Securities
183,551,660
_______________
587,804,988
_______________
183,551,660
_______________
599,813,421
_______________
Earnings Per Unit (June 2000 annualised)(3)
16.98 c
16.61 c
16.26 c
16.75 c
Distribution Per Unit (June 2000 annualised)(3)
17.00 c
18.00 c
16.80 c
18.10 c
Total rental indemnities
Expenses
Trust expenses
Net Income
Transfer from (to) reserves
Notes:
(1) Colonial First State Industrial Property Trust – assumes Merger Proposal is not implemented.
(2) Colonial First State Property Trust Group (merged group) – assumes Merger Proposal is implemented.
(3) All earnings per unit and distributions per unit do not take account of the likely impact of GST.
Given the ratio of 0.950 CPG Stapled Securities for each unit held in Colonial First State Industrial Property Trust, the
comparable distributions per ordinary unit currently held in Colonial First State Industrial Property Trust, (ie. assuming
the Merger Proposal is not implemented) and per 0.950 Stapled Securities in Colonial First State Property Trust Group
(ie. assuming the Merger Proposal is implemented) are:
6 Months to
30 June 2000 (annualised)
Year to
30 June 2001
Excluding the Impact of GST
Colonial First State Industrial Property Trust
17.00c
16.80c
Colonial First State Property Trust Group
17.10c
17.20c
Colonial First State Industrial Property Trust
17.00c
16.56c
Colonial First State Property Trust Group
17.10c
17.03c
Including the Potential Impact of GST
54
5. Financial Information
Impact on Colonial First State Commercial Property Trust
The following table sets out:
the audited balance sheet of Colonial First State Commercial Property Trust (‘COC’) as at 30 June 1999, adjusted to
reflect the effect of property re-valuations since that date; and
the pro-forma balance sheet of CPG assuming the Merger Proposal was fully implemented as of 30 June 1999 – the
basis of the pro-forma accounts for CPG is set out at the beginning of this Section.
30 June 1999
COC(1)
$’000
CPG(2)
$’000
3,066
22,064
Receivables
1,079
_______________
7,138
_______________
Total Current Assets
4,145
_______________
29,202
_______________
350,631
1,600,722
Other investments
0
_______________
0
_______________
Total Non-Current Assets
350,631
_______________
1,600,722
_______________
Total Assets
354,776
_______________
1,629,924
_______________
Accounts payable
Distributions payable
1,038
6,220
_______________
15,032
22,850
_______________
Total Current Liabilities
7,258
_______________
37,882
_______________
Borrowings
45,300
_______________
434,500
_______________
Total Non-Current Liabilities
45,300
_______________
434,500
_______________
Total Liabilities
52,558
_______________
472,382
_______________
Net Assets
302,218
_______________
1,157,542
_______________
Securities on issue
155,029,854
_______________
585,827,819
_______________
NTA per Security
$1.95
_______________
$1.98
_______________
Debt/Total Assets
12.77%
_______________
26.66%
_______________
Pro-forma Balance Sheet
Current Assets
Cash and other current assets
Non-Current Assets
Properties
Current Liabilities
Non-Current Liabilities
Notes:
(1) Colonial First State Commercial Property Trust – assumes Merger Proposal is not implemented.
(2) Colonial First State Property Trust Group (merged group) – assumes Merger Proposal is not implemented.
Given the ratio of 0.965 CPG Stapled Securities for each unit held in COC, the comparable NTA per Stapled Security is
$1.91 compared to the present $1.95.
55
5. Financial Information
Impact on Colonial First State Commercial Property Trust (continued)
The following table sets out the Manager’s forecast distributions for the six months ending 30 June 2000 and year ending
30 June 2001, assuming the Merger Proposal is not implemented (refer to columns headed COC) and also assuming that
the Merger Proposal is implemented (refer to columns headed CPG). The table should be read in conjunction with the
major assumptions and risks set out on pages 59–63 and the statement concerning financial forecasts on page 50.
6 Months to 30 June 2000
COC(1)
CPG(2)
Distribution Statement
Year to 30 June 2001
COC(1)
CPG(2)
Income
15,206,865
66,477,085
33,676,521
142,720,451
925,278
925,278
150,278
150,278
Interest income
140,246
_______________
66,373
_______________
350,183
_______________
41,365
_______________
Total Income
16,272,389
_______________
67,468,737
_______________
34,176,982
_______________
142,912,094
_______________
1,334,988
5,005,648
3,049,638
11,673,330
Interest expense
1,408,542
_______________
13,652,470
_______________
5,407,751
_______________
30,789,227
_______________
Total Expenses
2,743,530
_______________
18,658,118
_______________
8,457,388
_______________
42,462,556
_______________
13,528,809
48,810,618
25,719,594
100,449,538
4,091,831
320,306
8,120,738
Total net property income(3)
Total rental indemnities
Expenses
Trust expenses
Net Income
Transfer from (to) reserves
(1,088,508)
Distributable Income
12,440,301
_______________
52,902,449
_______________
26,039,900
_______________
108,570,275
_______________
Average Securities
143,387,514
_______________
587,804,988
_______________
149,208,684
_______________
599,813,421
_______________
Earnings Per Unit (June 2000 annualised)(3)
18.87 c
16.61 c
17.24 c
16.75 c
Distribution Per Unit (June 2000 annualised)(3)
17.35 c
18.00 c
17.45 c
18.10 c
Notes:
(1) Colonial First State Commercial Property Trust – assumes Merger Proposal is not implemented.
(2) Colonial First State Property Trust Group (merged group) – assumes Merger Proposal is implemented.
(3) All earnings per unit and distribution per unit do not take account of the likely impact of GST.
Given the ratio of 0.965 CPG Stapled Securities for each unit held in Colonial First State Commercial Property Trust, the
comparable distributions per ordinary unit held in Colonial First State Commercial Property Trust (ie. assuming the Merger
Proposal is not implemented) and per 0.965 Stapled Securities in Colonial First State Property Trust Group (ie. assuming
the Merger Proposal is implemented) are:
6 Months to
30 June 2000 (annualised)
Year to
30 June 2001
Excluding the Impact of GST
Colonial First State Commercial Property Trust
17.35c
17.45c
Colonial First State Property Trust Group
17.37c
17.47c
Colonial First State Commercial Property Trust
17.35c
17.22c
Colonial First State Property Trust Group
17.37c
17.30c
Including the Potential Impact of GST
56
5. Financial Information
Impact on Colonial First State Development Trust
The table below sets out:
the audited balance sheet of Colonial First State Development Trust (‘CFD’) as at 30 June 1999, excluding the equity
receivable (final instalment) and adjusted to reflect the effect of property re-valuations and actual capital expenditure
to 30 September 1999; and
the pro-forma balance sheet of CPG assuming the Merger Proposal was fully implemented as of 30 June 1999 – the
basis of the pro-forma accounts for CPG is set out at the beginning of this Section.
The Manager appointed Jones Lang La Salle Adviser Services Pty Limited (‘JLL’) to value the Trust’s two buildings as at
30 September 1999.
In respect of 56 Pitt Street Sydney, JLL considered the value to be in the order of $122.9 million, assuming the property
was fully leased and that there were no outstanding capital commitments. After allowing for these items, JLL has valued
the property at $115 million as at 30 September 1999.
A similar approach was adopted in respect of 60 Castlereagh Street Sydney. JLL considered the value to be in the order
of $197.1 million, assuming the property was fully leased and that there were no outstanding capital commitments. After
allowing for these items, JLL has valued the property at $160 million as at 30 September 1999.
Accordingly, as at 30 September 1999 the combined value is $275 million after allowing for actual and anticipated capital
commitments that were unpaid.
30 June 1999
CFD
$’000
CPG
$’000
7,239
22,064
Receivables
0
_______________
7,138
_______________
Total Current Assets
7,239
_______________
29,202
_______________
275,000
1,600,722
Other investments
0
_______________
0
_______________
Total Non-Current Assets
275,000
_______________
1,600,722
_______________
Total Assets
282,239
_______________
1,629,924
_______________
Accounts payable
Distributions payable
7,445
0
_______________
15,032
22,850
_______________
Total Current Liabilities
7,445
_______________
37,882
_______________
Borrowings
123,000
_______________
434,500
_______________
Total Non-Current Liabilities
123,000
_______________
434,500
_______________
Total Liabilities
130,445
_______________
472,382
_______________
Net Assets
151,794
_______________
1,157,542
_______________
Securities on issue
71,028,528
_______________
585,827,819
_______________
NTA per Security
$2.14
_______________
$1.98
_______________
Debt/Total Assets
43.58%
_______________
26.66%
_______________
Pro-forma Balance Sheet
Current Assets
Cash and other current assets
Non-Current Assets
Properties
Current Liabilities
Non-Current Liabilities
Notes:
(1) Colonial First State Development Trust – assumes Merger Proposal is not implemented.
(2) Colonial First State Property Trust Group (merged group) – assumes Merger Proposal is implemented.
Given the ratio of 1.025 CPG Stapled Securities for each unit held in CFD, the comparable NTA per Stapled Security
is $2.03 compared to the present $2.14.
57
5. Financial Information
Impact on Colonial First State Development Trust (continued)
The following table sets out the Manager’s forecast distributions for the six months ending 30 June 2000 and year ending
30 June 2001, assuming the Merger Proposal is not implemented (refer to columns headed CFD) and also assuming that
the Merger Proposal is implemented (refer to columns headed CPG). The table should be read in conjunction with the
major assumptions and risks set out on pages 59–63 and the statement concerning financial forecasts on page 50.
6 Months to June 2000
CFD(1)
CPG(2)
Distribution Statement
Year to 30 June 2001
CFD(1)
CPG(2)
Income
Total net property income
2,955,413
66,477,085
20,250,511
142,720,451
0
925,278
0
150,278
Interest income
71,492
_______________
66,373
_______________
131,020
_______________
41,365
_______________
Total Income
3,026,904
_______________
67,468,737
_______________
20,381,530
_______________
142,912,094
_______________
1,475,810
5,005,648
2,895,229
11,673,330
Interest expense
4,614,992
_______________
13,652,470
_______________
5,971,176
_______________
30,789,227
_______________
Total Expenses
6,090,802
_______________
18,658,118
_______________
8,866,406
_______________
42,462,556
_______________
48,810,618
11,515,125
100,449,538
Total rental indemnities
Expenses
Trust expenses
Net Income
(3,063,898)
Transfer from (to) reserves
0
4,091,831
(328,131)
8,120,738
Distributable Income
(3,063,898)
_______________
52,902,449
_______________
11,186,993
_______________
108,570,275
_______________
Average Securities
71,028,528
_______________
587,804,988
_______________
71,028,528
_______________
599,813,421
_______________
(8.63) c
16.61 c
16.21 c
16.75 c
0.00 c
18.00 c
15.75 c
18.10 c
Earnings Per Unit (June 2000 annualised)(3)
Distribution Per Unit (June 2000 annualised)(3)
Notes:
(1) Colonial First State Development Trust – assumes Merger Proposal is not implemented.
(2) Colonial First State Property Trust Group (merged group) – assumes Merger Proposal is implemented.
(3) All earnings per unit and distributions per unit do not take account of the likely impact of GST.
Given the ratio of 1.025 CPG Stapled Securities for each unit held in Colonial First State Development Trust, the
comparable distributions per ordinary unit currently held in Colonial First State Development Trust (ie. assuming
the Merger Proposal is not implemented) and per 1.025 Stapled Securities in Colonial First State Property Trust Group
(ie. assuming the Merger Proposal is implemented) are:
6 Months to
30 June 2000 (annualised)
Year to
30 June 2001
Excluding the Impact of GST
Colonial First State Development Trust
Colonial First State Property Trust Group
0.00c
15.75c
18.45c
18.55c
0.00c
15.72c
18.45c
18.37c
Including the Potential Impact of GST
Colonial First State Development Trust
Colonial First State Property Trust Group
58
5. Financial Information
Assumptions
The forecast distributions for the six months ending 30 June 2000 and the year ending 30 June 2001 are based on various
assumptions made by the Manager.
During the forecast period, there is a risk that the assumptions may change or no longer be valid. While the Manager has
given due care and attention to the preparation of the forecast distributions, it can give no guarantee or assurance that the
forecasts will be achieved. Furthermore, during the forecast period the Manager may consider property acquisitions or sales
which have not been reflected in the forecasts. Such acquisitions may require further capital raising and could have an
impact on forecast distributions.
The principal assumptions made by the Manager in preparing the forecasts are set out below:
The Merger Proposal
The forecasts for the Colonial First State Property Trust Group assume that the Merger Proposal proceeds in full and that
it will be effective as at 1 January 2000.
Net Property Income
Net property income consists of the aggregate of rental income derived from the Trusts’ properties and is net of
non-recoverable outgoings and other expenses incurred in the day-to-day management of the Trusts’ properties.
The projected rental income is based on current leases and, where applicable, includes the Manager’s expectations
for any movements arising from rent reviews, lease expiries and the potential take-up of vacant space.
Where lease inducements are provided in the form of tenancy fitouts, they are treated by way of contributions to
capital works.
Certain tenants within properties held by CFD have been granted rent free periods as part of an incentive. In forecasting
the earnings of CPG, these rent free periods have been amortised over the term of the lease and/or licence period.
Other factors taken into account in projecting net rental income include the likely movements in market rentals
and the Consumer Price Index.
Letting Up in CFD
The two properties held by Colonial First State Development Trust (‘CFD’) are 84.5% let by area, leaving approximately
7,500 square metres of space available for lease.
The forecasts assume that this area is leased at an average gross face rental of $538 per square metre per annum in
accordance with the following table:
Area
(sqm)
Rent
Commences
442
733
445
1,188
April 2000
May 2000
June 2000
July 2000
390
300
770
823
761
823
823
November 1999
January 2000
February 2000
March 2000
April 2000
May 2000
August 2000
60 Castlereagh Street, Sydney
56 Pitt Street, Sydney
59
5. Financial Information
Assumptions (continued)
Other Income
Interest earned on surplus cash in the years to 30 June 2000 and 2001 has been assumed to be 4.75% and
4.96% respectively.
Transfers from Reserve
If the Merger Proposal is implemented, the transfers from reserves are set out below:
6 Months Ending
30 June 2000
($ million)
Transfer from capital reserves
12 Months Ending
30 June 2001
($ million)
4.10
8.10
Final Instalment
The forecasts in respect of CFD (assuming the Merger Proposal is not implemented) assume investors will pay the
final instalment of $1.00 per unit on 30 June 2000. If the Merger Proposal is implemented, it is assumed that the final
instalment in respect of CFD is cancelled.
Manager’s and Trustee’s Fees
The forecasts for CPG assume the Manager charges a fee equal to 0.6% of the gross asset value and the Manager
waives its fee in respect of January 2000. The forecasts in respect of each of the separately listed existing Trusts
assume the current fee arrangements are not altered.
It is assumed that the Trusts will be registered as managed investment schemes on 1 March 2000 and that fees will
not be payable to the Trustees from this date.
Interest Expense
The forecasts for CPG assume the ANZ facility in respect of CFD is either prepaid or renegotiated and that the following
existing interest rate swap facilities remain in place:
Amount
Termination Date
Rate(1)
$41,000,000
May 2001
5.250%
$41,000,000
from May 2001 to May 2005
6.430%
$31,200,00
December 2005
6.095%
$25,000,000
November 2001
5.375%
$8,000,000
November 2001
5.270%
$33,000,000
from November 2001 to November 2005
6.485%
$69,000,000
April 2001
5.015%
$69,000,000
from April 2001 to April 2005
6.400%
CIP
COC
CMF
The forecasts for CPG assume the Manager will fix an additional $104 million of borrowings for 3 years at
7.34% (including margins) from 1 January 2000.
Interest rates (before bank margins) on any unhedged borrowings are assumed to average 5.30% in the year to
30 June 2000 and 5.51% in the year to 30 June 2001.
The forecasts in respect of each of the separately listed existing Trusts assume that all facilities remain in place.
60
Capital Expenditure
Allowance has been made for capital expenditure during the forecast period which is expected to be:
6 Months Ending
30 June 2000
($ million)
Colonial First State Property Group
6.80
12 Months Ending
30 June 2001
($ million)
79.38
Distribution Reinvestment Plan
The forecasts for CPG assume that the Distribution Reinvestment Plan (‘DRP’) is activated during the forecast period with
the holders of 30% of the Stapled Securities participating in the DRP. It is assumed that Stapled Securities will be issued at
a discount of 2.5% to the notional price of $2.00. The forecasts in respect of each of the separately listed existing Trusts
do not assume activation of a DRP.
Accounting Standards
It is assumed that there is no change in applicable Accounting Standards, the Corporations Law or other financial reporting
requirements that may have a material effect on the forecast distributions.
Goods and Services Tax
Leases representing at least 80% of the income of each Trust were reviewed to consider the impact of GST. (Refer GST
commentary on page 62.) Based on the review, the likely impact of GST on the Trusts and the merged vehicle, for the year
ended 30 June 2001, is set out below:
Trust/Investment
Vehicle
Reduction in
Distribution due
to GST
Colonial First State Commercial Property Trust
1.3%
Colonial First State Industrial Property Trust
1.4%
Colonial First State Development Trust
0.2%
Colonial First State Retail Property Trust
0.9%
Colonial First State Property Group
1.0%
Other Assumptions
No capital is raised during the forecast period other than as a result of the DRP.
The Manager’s policy is to re-value property investments on an annual basis. Notwithstanding this, the Manager has
not attempted to forecast movements in property values other than increasing the value of a property by the amount
of capital expenditure in relation to that property.
There are no sales of properties other than Thornlie Shopping Centre assumed to be sold for book value in January
2000, nor are there any property acquisitions.
All material leases are enforceable and performed in accordance with their terms.
There are no changes in Federal, State or Local Government laws (including taxation laws other than GST), regulations
or policies that will have a material impact on the performance of the Trust.
61
5. Financial Information
Risks
Like all investments, an investment in Colonial First State Property Trust Group will be subject to risks, some of which
will be outside the control of the Manager. The Manager has identified the following particular risks which it believes
should be considered:
General Factors
Movements in general economic conditions, share markets, bond markets and interest rates may affect the income
and expenses of CPG and the price at which the Stapled Securities trade;
The capital value of CPG’s investments may fluctuate with market conditions, resulting in a diminution in the net
tangible asset backing of CPG’s Stapled Securities;
Property rental rates may change;
Changes in Government policy (such as in relation to taxation laws) or statutory changes may affect CPG and the
attractiveness of an investment in CPG;
Third parties may default on obligations to CPG.
Goods and Services Tax
The Federal Government has passed the A New Tax System (Goods and Services Tax ) Act 1999 which will impose GST at
the rate of 10% in respect of taxable supplies made or deemed to be made on or after 1 July 2000. The GST legislation
does not provide for any statutory right of recovery of GST from the person to whom a supply is made. In the absence of
transitional relief, a supply, such as a lease of real property which spans 1 July 2000, would result in GST becoming payable
in respect of rent received on or after 1 July 2000.
The A New Tax System (Goods and Services Tax Transition) Act 1999 provides limited relief from the payment of GST
where the lease term spans 1 July 2000. Where a lease was entered into before 2 December 1998, the lease is GST free to
the earlier of the first review opportunity and 1 July 2005. Where a lease was entered into on or after 2 December 1998 and
before 8 July 1999, the lease is GST free until the earlier of the first review opportunity and 1 July 2005 provided that the
lessee would otherwise have been entitled to a full input tax credit under the lease. The transitional GST free status has an
ultimate expiry date of 1 July 2005.
Some leases have contractual provisions which are sufficient to enable the trustee of the trust, as lessor, to recover GST from
the tenant. Some leases have no provision in the leases to enable any recovery of GST from tenants. Subject to the
transitional rules referred to above, GST may be payable in respect of leases from 1 July 2000 or from a review opportunity
but, at the latest, from 1 July 2005.
Where the lease does not contain a contractual right to recover GST, then once the transitional arrangements are exhausted
GST will be payable by the trustee as lessor with no right of recovery of the GST from the tenant.
The likely impact on the yield of the trusts is set out elsewhere in this document.
Trust Specific Factors
The rental and occupancy levels for CPG’s properties may change and therefore adversely affect CPG’s net income
and its level of distributions;
CPG may have to undertake unforeseen capital expenditure;
Tenants may default on their obligations under lease agreements;
Major unforeseen litigation may occur; and
Loss as a result of claims by tenants due to disruption and failure of computer systems.
62
Review of Business Taxation
During 1998, a review of the Australian taxation system was initiated by the Federal Government. As part of this review
the report "A Tax System Redesigned" ("The Ralph Report") was released on 21 September 1999 recommending a number
of changes to the taxation system. At the same time, the Government announced that it would implement some of the
Ralph Report recommendations with immediate effect and that it would give further consideration to the other
recommendations of the Ralph Report, the implementation of which would be deferred until at least 1 July 2001.
On 21 October 1999, the Federal Government introduced a package of legislation into Parliament to implement the
recommendations which were to have immediate effect. The measures included within the legislation include the proposed
reduction in the corporate tax rate, capital gains tax changes and the removal of accelerated depreciation. As at the date
of this Explanatory Memorandum, this legislation has yet to be passed by the Federal Parliament.
The main recommendations made by the Ralph Report which could affect property trusts include:
removal of accelerated depreciation on plant and equipment which is acquired after 21 September 1999;
phasing out of the deduction currently available for prepaid expenses made after 21 September 1999;
the availability of a capital gains tax discount upon the disposal of assets which have been held for longer than
12 months;
the taxation of trusts as if they were companies (from 1 July 2001), with an exemption available for trusts that are
characterised as Collective Investment Vehicles that will continue to adopt the flow through method of trust income;
and
the continuation of the ability to distribute tax preferred income for trusts which are characterised as Collective
Investment Vehicles.
These issues are likely to have an impact on the property trust industry as a whole and are not limited in their application
to the Trusts which will form the Merged Group.
A number of the proposed measures continue to be subject to a consultative process, and accordingly there is uncertainty
as to the final form the proposals may take.
Year 2000
The Manager has completed remediation and certification for its Year 2000 compliance programme to meet the needs of its
clients now and into the next century. Its goal and corporate policy is to continue to provide a full range of products and
services without interruption. The Manager believes that it has taken all reasonably available measures to minimise the
impact of the Year 2000 on its computer systems. However, because of the nature of the Year 2000 computer issue, the
Manager, like other members of the financial community, cannot give an absolute assurance that the Year 2000 computer
issue will not affect its operations or financial performance.
As a result of the Year 2000 computer issue, certain disruptions and failure may indirectly affect the operations of the
relevant Trustee, the Manager and CPG (for example, disruptions to, or failure of electricity supplies, stock exchange
trading systems, the management of the properties in which CPG invests, and so on) and cause loss to CPG. Many of these
risks are beyond the control of the relevant Trustee and the Manager.
No assurance can be given by the relevant Trustee and the Manager that the operations of the relevant Trustee, the
Manager or CPG will not be adversely affected by these risks.
63
6. Voting and Eligibility
The Manager has determined that all of the units as at 8.00 pm on 15 December 1999 are to be taken, for the purpose
of the relevant meeting, to be held by the person who held them at that time.
Consequently, persons registered as unitholders in a Trust at that time will be entitled to attend and vote at the relevant
meeting (either in person or by proxy) (subject to any applicable voting exclusion).
Voting in Person
If you will be attending a meeting in person, we ask that you register your attendance at least 10 minutes prior to the
scheduled start of the meeting.
Voting by Proxy
You may also appoint a proxy to vote on your behalf using the enclosed proxy form. A proxy need not be a unitholder.
If you are a unitholder of more than one of the Trusts you must do a separate appointment of proxy for each Trust using
the appropriate form. If you return your proxy form but do not write in the name of a proxy, the Chairperson will be your
proxy and will vote on your behalf as you direct on the proxy form.
You may direct your proxy how to vote on each resolution on your proxy form. If the Chairperson is your proxy and you
choose not to mark the boxes instructing the Chairperson how to vote, the Chairperson will exercise those votes in favour
of the Resolutions.
The Trustee of your Trust has appointed Computershare Registry Services Pty Limited as its agent to receive proxies. Proxy
forms must be returned so as to be received by Computershare Registry Services Pty Limited at least two days before the
meeting (ie the latest time and date for return of proxy forms is midnight on 15 December 1999). The postal address for the
return of proxy forms is:
Address for mail:
Computershare Registry Services Pty Limited
Reply Paid 2975
Melbourne VIC 8060
Instructions on how to sign the proxy form are set out on the back of the form.
Your Vote is Important
Quorum, Majority and Voting Eligibility
Appointment of the Chairperson
The Chairperson of each meeting must be appointed by the unitholders present at the meeting or, in the absence of
such appointment, nominated by the Trustee and approved by the ASIC. The Manager recommends the appointment
of Mr Joe Rooney as Chairperson of each meeting. Mr Rooney has been nominated by the Trustee to act as Chairperson
and his nomination has been approved by the ASIC.
In accordance with section 1069C of the Corporations Law, unitholders at each meeting will be given the opportunity
to appoint the Chairperson. Under the Corporations Law, only unitholders present in person (not by proxy) may vote
on the appointment of the Chairperson. On a show of hands, each unitholder present in person has one vote.
In order for the resolution for the appointment of Chairperson to be passed, the Trust Deed of each Trust requires that
there be a quorum of at least five persons holding or representing by proxy at least 10% of all units issued in the Trust
carrying the right to vote. If a quorum is not present within 30 minutes from the time appointed for the meeting, the
meeting will be adjourned to such time and place as the Chairperson shall direct and this quorum requirement will not
apply at the reconvened meeting. The resolution must be passed by a show of hands by a majority of unitholders present
and voting at the meeting.
64
Resolution 1: Approval of Merger Proposal
This resolution must be passed by a majority of the votes cast on the resolution by unitholders of the relevant Trust present
(in person or by proxy) at the meeting.
Voting is by a show of hands or, if a poll is duly demanded, on a poll. It is intended that in each Trust voting on this
resolution will be conducted on a poll.
Each unitholder of the relevant Trust present in person or by proxy has one vote on a show of hands and on a poll one vote
for each unit held. In the case of joint holders, only the person whose name appears first in the Trust’s unit register may vote.
In each Trust, the quorum requirement for this resolution is not less than 5 unitholders present in person or by proxy
together holding between them at least 10% of all issued units.
Resolution 2: Approval of Issue of Units in the Trusts
In each Trust this resolution must be passed by 75% of votes cast by unitholders entitled to vote.
Voting is by a show of hands or, if a poll is duly demanded, on a poll. It is intended that in each Trust voting on this
resolution will be conducted on a poll.
Each unitholder of the relevant Trust present in person or by proxy has one vote on a show of hands and on a poll one vote
for each unit held. In the case of joint holders, only the person whose name appears first in the Trust’s unit register may vote.
In each Trust, the quorum requirement for this resolution is not less than 5 unitholders present in person or by proxy
together holding between them at least 10% of all issued units.
Resolution 3: Approval of Amendments to Trust Deeds
In each Trust, voting must be on a poll as this resolution is required to be decided by reference to the percentage of votes
cast at the meeting in favour of the resolution (by value and by number).
In the case of joint holders, only the person whose name appears first in the Trust’s unit register may vote.
In each Trust, the quorum and majority requirements for this resolution require that:
the unitholders who at the meeting vote on the resolution (whether in person or by proxy) hold between them units
equal in value to at least 25% of the total value of units held by persons entitled to vote on the resolution; and
the unitholders who, at the meeting, vote (whether in person or by proxy) in favour of the resolution hold units equal
in value to at least 75% of the total value of all of the units held by unitholders who are eligible to vote and vote
(whether in person or by proxy) on the resolution.
This resolution is subject to quorum and majority requirements based on the value of units held. The value of each unit will
be determined by reference to the market value of the units on the ASX on 15 December 1999.
If you have any queries about voting or proxies, please call Computershare Registry Services Pty Limited on 03 9615 5982.
If you have queries about any other aspects of the meeting, please contact Colonial First State Property Pty Limited
on 1300 360 636.
65
7. Experts’ Reports
Independent Experts’ Reports
The Directors
Colonial First State Property Limited
Level 12
330 Collins Street
Melbourne Vic 3000
1 November 1999
Dear Sirs
Taxation Report
This report has been prepared for inclusion in the Explanatory Memorandum prepared by Colonial First State Property
Limited in connection with the Proposed Merger of:
Colonial First State Commercial Property Trust (‘COC’);
Colonial First State Industrial Property Trust (‘CIP’);
Colonial First State Retail Property Trust (‘CMF’); and
Colonial First State Development Trust (‘CFD’).
Merger arrangement
The Proposed Merger will be effected by stapling the units in each of the four trusts, so that the units are treated as a single
Stapled Security. This is to be undertaken as follows:
The existing units in each trust will be consolidated so as to have a notional value of $2.00 per unit.
Each current Unitholder will receive a special capital distribution of $0.03 per Consolidated Unit which will be wholly
applied to subscribe for a fully paid unit in each of the other three trusts at a price of $0.01 per unit.
Each of the trust deeds will be amended such that the units cannot be sold separately but the four different units must
be sold as a stapled or consolidated security.
The consolidated CMF, CIP, COC and CFD units will each have the same entitlements.
Each CMF, CIP, COC and CFD unit will be stapled to form a Stapled Security in the Colonial First State Property
Trust Group (‘CPG’). The Stapled Security will trade as one security on the ASX and units in the individual trusts will
cease to be traded in their own right.
A Cash Alternative will be available for existing Unitholders who do not elect to participate in the Merger Proposal
or who have registered addresses outside Australia and New Zealand. Unitholders who receive the Cash Alterative
will have their existing units transferred to a nominee and sold for cash. Unitholders who fail to complete the necessary
election form for participation in the stapling arrangement will automatically have their units transferred to a nominee
and sold for cash.
Scope
This Taxation Report addresses the Australian income tax implications for current CMF, CIP, COC and CFD Unitholders
arising from the Merger Proposal. Specifically, the taxation implications associated with the on market acquisition of a
Stapled Security after the stapling process are beyond the scope of this report.
The report has been prepared on the basis that Unitholders are Australian residents for tax purposes and that the units are
held on capital account and were acquired after 19 September 1985.
The advice contained in this report is general in nature. The taxation consequence for investors under the Merger Proposal
may vary depending upon their particular circumstances. Accordingly, Unitholders should not rely on this overview but
should seek their own advice.
66
In August 1998, the Australian Government initiated a review of business taxation which was chaired by Mr John Ralph.
The report ‘A Tax System Redesigned’ (the Ralph Report) was released on 21 September 1999.
The Government has introduced legislation to implement a number of the Ralph Report recommendations including
The New Business Taxation System (Integrity and Other Measures) Bill 1999 (‘Integrity Bill’) which was introduced into
Parliament on 22 October 1999. The legislation introduced addresses changes to the capital gains tax (‘CGT’) regime,
changes to depreciation, integrity measures and reduction of the corporate tax rate. This legislation has yet to be passed
by the Federal Parliament.
The Ralph Report recommendations also include other measures to alter the taxation of trusts and to provide a new
general framework for business income tax. The Government’s Press Release dated 21 September 1999 announced that
further consideration was warranted in respect of these recommendations. At this stage, the Government has not made
any further announcements nor introduced any legislation into Parliament in respect of these recommendations.
The taxation comments included within this report have been based upon the first package of draft legislation arising
from the Ralph Report and announcements included within the Government Press Release and do not include an analysis
of potential future amendments.
The ultimate interpretation of laws rests with the Courts and current interpretation may be subject to amendment during
the currency of this proposal.
Taxation implications for the stapling of the units
Special distribution
The special capital distribution should not be included in the Unitholder’s assessable income in the year of receipt but
should be treated as a return of capital.
Although the Unitholder should not be assessed on this receipt, an adjustment to the tax cost base of the original units will
be necessary, in the same way as ordinary tax deferred distributions require the adjustment. In the event that the special
capital distribution is greater than the cost base of the original unit (including previous adjustments which have been made
for tax deferred amounts), an assessable capital gain will arise to the Unitholder equal to the amount by which the special
distribution exceeds the tax cost base of the relevant units.
Creation of CPG Stapled Securities
Amendment of Trust Deeds
In order to effect the stapling arrangement, the trust deed of each trust must be amended to provide for the consolidation
of the units and the subsequent merger and stapling. We understand that the trusts’ legal advisers have confirmed that
the trust deed amendments will not constitute a resettlement of the trusts. Accordingly, a CGT event should not arise
in respect of the trusts as a consequence of the trust deed amendments.
Consolidation of units
The consolidation of the units of each trust should not constitute a CGT event. The cost base of the existing units would
be spread over the Consolidated Units.
Acquisition of units
Under the Merger Proposal, there is no disposal of the original units by the Unitholder (unless units are sold on market
prior to the restructure or a Unitholder receives the Cash Alternative at the time of the restructure). Accordingly, a CGT
event should not arise to the Unitholder as a consequence of electing to participate in the stapled security arrangement.
The special distribution applied to the purchase of units in the other trusts by the original Unitholder will give rise to an
acquisition of assets for CGT purposes. The cost base in the newly acquired units will be limited to the $0.01 per unit
so applied.
Disposal of units
When a Stapled Security is sold, the Unitholder will be treated as having sold units in each of the underlying trusts.
Depending upon the cost base of the relevant units, a capital gain or capital loss may arise to the Unitholder. The
calculation of the gain or loss will require a reasonable apportionment of the consideration received across the units of each
trust which form the Stapled Security. In this regard, the Manager will regularly advise Unitholders of the Net Tangible
Assets per unit for each of the underlying trusts.
67
7. Experts’ Reports
Independent Experts’ Reports (continued)
It is likely that the Unitholder will incur a capital loss on the sale of the original Consolidated Units and capital gains on the
sale of the Consolidated Units in the other trusts acquired as part of the Proposed Merger. The capital loss on the disposal
of the original Consolidated Units will be reduced by any tax free distributions previously received in respect of those units.
When calculating the capital loss, the cost base of the units are not indexed for inflation. Accordingly, Unitholders may
effectively lose the benefit of indexation and the tax free distributions in respect of their original units on the sale of the
Stapled Securities. The capital loss can be offset against the capital gains on the other units.
The Integrity Bill introduces a CGT discount for individuals, trusts and complying superannuation funds. Under the Bill,
in certain circumstances individuals and trusts will include in assessable income half (without indexation) the realised
nominal capital gain whilst complying superannuation funds will be assessed on two thirds of the nominal capital gain.
These provisions are subject to certain transitional rules for assets held as at 21 September 1999. For Unitholders to
qualify for the CGT discount, units must be held for at least 12 months.
Receipt of trust distributions
Providing the four trusts continue to only carry on eligible investment business, as defined within the draft legislation,
Unitholders of the Stapled Securities will be entitled to their share of the income distributions from each trust after the
restructure. Each Unitholder will continue to be assessed on their portion of the net income of each trust for the relevant
period, and each trust will continue to determine its own distributable income to be passed on to Unitholders.
The trust distributions will consist of net income, capital gains, tax free and tax deferred income components. The taxation
implications for a resident individual Unitholder of the respective distribution components are as follows:
Net income
The taxable income component of each trust’s distribution is to be included in the Unitholder’s assessable income for the
year of income to which the distribution relates. This will be so even where the actual distribution may be received after the
end of the relevant year of income to which the distribution relates. Pursuant to draft legislation, this will continue to be the
case where the actual distribution is made within 2 months of the end of the year of income.
Capital gains
The capital gain component of a trust distribution is to be included in the Unitholder’s assessable income.
Under the Integrity Bill, the CGT discount will be available for certain capital gains derived by a trust in respect of trust
assets which have been held by the trust for more than 12 months. Where the CGT discount has been utilised by the trust,
the net income of the trust distribution will include only half of the nominal capital gain.
Unitholders receiving a discounted capital gain from the trust must gross-up the discounted capital gain distributed to them.
The gross up factor allows the Unitholder to apply any capital losses against both the trust capital gain and capital gains
from other sources in order to determine their net capital gain for a given income year. The net capital gain will then be
eligible for the CGT discount if the unitholder is an individual, trust or a complying superannuation fund.
Tax deferred distribution
The tax deferred portion of a distribution will not form part of a Unitholder’s assessable income for the relevant year of
income. However for CGT purposes, cost base adjustments must be made.
Where the tax deferred amounts exceed the cost base of the respective units (determined after taking account of the receipt
of prior period distributions of tax deferred income), a capital gain will arise to the Stapled Security Unitholder to the
extent that the cost base is exceeded. This gain will be assessable to the Unitholder in the income year in which the tax
deferred amount is received.
The extent to which tax deferred distributions will be assessable to Stapled Security Unitholders will differ according to
whether the tax deferred distribution relates to the original unitholding or to units acquired in the other trusts as a
consequence of the Merger Proposal.
The cost base of original trust units will be the initial consideration paid to acquire those units. Tax deferred distributions
received in respect of the original units will be applied to reduce this cost base. The cost base must be fully eroded before
a capital gain on the initial holding will arise to the Unitholder.
As noted previously, under the Merger Proposal existing Unitholders in each of the four trusts acquire units in the other
trusts for $0.01 per unit. Accordingly, the practical consequence is that the tax deferred amounts relating to units acquired
with the special capital distribution will constitute a capital gain derived by the Unitholder in relation to the year of income
to which the tax deferred distribution relates.
68
In accordance with the Integrity Bill, it is proposed that the CGT discount will be available in these circumstances to
individuals, trusts and complying superannuation funds where the units are held for at least 12 months and the trust itself
satisfies a widely held requirement.
Tax free distribution
A tax free distribution will not form part of a Stapled Security Unitholder’s assessable income, nor will it reduce a unit’s
cost base in calculating whether a capital gain arises to a Stapled Security Unitholder. However, tax-free distributions will
reduce the cost base of the units in the event that a capital loss is incurred by a Unitholder upon disposal of the units. It
is highly unlikely that a Unitholder will make a capital loss on the subsequent sale of a unit (within the Stapled Security)
acquired as part of the stapling process which have an initial cost base of $0.01 per unit. However, a loss is likely to be
realised on the original unit (within the Stapled Security), the value of which will be substantially diluted by the issues
of units to be made prior to the Stapling.
Distribution Re-investment Plan (DRP)
The Manager may introduce a DRP whereby Unitholders can elect to re-invest their entitlement to distribution from
CPG and receive new Stapled Securities.
Unitholders will still be taxed on their share of the net income of each underlying trust distributed by CPG (as described above).
The cost base of the new underlying units received under the DRP will be the notional amount of the cash distribution
entitlement re-invested by the Unitholder in the proportions to be advised by the Manager.
Cash Alternative
Unitholders who receive the Cash Alternative will have their existing units transferred to a nominee and sold.
The transfer of units will be a CGT Event and, depending upon the cost base (or indexed/reduced cost base) of the relevant
units, a capital gain or a capital loss may arise. Adjustments to the units’ cost base may need to be made for any tax
deferred or tax free distributions received by the Unitholder through the holding period.
Under the Integrity Bill, where the units have been held for more than 12 months individuals, trusts and complying
superannuation funds should be subject to the concessional treatment in respect of any net capital gain realised on the
disposal of their units.
Tax Reform
One of the Ralph Report recommendations is that trusts should generally be taxed as companies. However, trusts which
qualify as Collective Investment Vehicles (‘CIVs’) were recommended to be exempt from corporate taxation so that the tax
preferred distributions and the trust distribution components would continue to be taxed on a flow-through basis, as
outlined above, in the hands of investors.
Based on the Ralph Report and the indicative draft legislation issued in conjunction with the Report, all of the Colonial
First State trusts forming part of the Stapled Security should constitute CIVs.
The mere act of stapling the securities should not prevent the trusts from qualifying as CIVs, based upon the current
draft legislation.
However, the recommendations as to the taxation of trusts continue to be subject to a consultative process. At present, it
is unclear as to the final form these proposals will take. The Government stated that any changes to the taxation of trusts
would not apply before 1 July 2001.
Goods and Services Tax (‘GST’)
GST at a rate of 10% will apply to taxable supplies made after 1 July 2000, subject to certain transitional provisions. The
impact of GST at the trust level is discussed in the Explanatory Memorandum.
For investors, there should be no direct GST consequence of either buying or selling a Stapled Security or from the
distribution of income by the trusts.
Yours faithfully
Ian Dinnison
Tax Partner
69
7. Experts’ Reports
Independent Experts’ Reports (continued)
The Directors
Colonial First State Property Limited
Level 12
330 Collins Street
Melbourne Vic 3000
5 November 1999
Dear Sirs
Proposed Merger
This report has been prepared for inclusion in an Explanatory Memorandum to be issued by Colonial First State Property
Limited in connection with a proposal to effectively merge Colonial First State Commercial Property Trust, Colonial First
State Industrial Property Trust, Colonial First State Retail Property Trust and Colonial First State Development Trust.
We have been asked to review the pro-forma balance sheets and the forecast financial information relating to both the
individual Trusts and the Merged Entity which are set out in Section 5 of the Explanatory Memorandum and summarised
in the Overview document which accompanies the Explanatory Memorandum. These forecasts and the pro-forma balance
sheets have been prepared by and are the sole responsibility of the directors of the Manager. Our review included such
procedures as we considered necessary to examine both the assumptions and accounting policies used by the Manager and
included enquiries as to the process adopted in preparing the forecasts, an examination of the reasoning behind the
underlying assumptions and tests to verify that the assumptions have been correctly applied in the forecasts and in
compiling the pro-forma balance sheets.
The forecasts involve a high degree of subjective judgement on the part of the Manager in endeavouring to predict a
number of economic, operating and trading outcomes (many of which are noted in the section headed ‘Risks’ in Section 5
of the Explanatory Memorandum). There will inevitably be differences between the actual results and the forecasts as
events and circumstances frequently do not occur as expected or are not anticipated. If events do not occur as assumed,
distributions from each of the Trusts and the Merged Entity may vary materially from those in the Manager’s forecasts.
Accordingly, we do not express an audit opinion on the forecasts (since, by their nature, they are not capable of
independent substantiation), nor are we able to confirm or guarantee the attainment of the forecasts.
Subject to the above, we advise that:
(a) nothing has come to our attention which causes us to believe that the Manager’s assumptions do not provide a
reasonable basis for the forecasts and the pro-forma balance sheets; and
(b) in our opinion, in all material respects, the forecasts and the pro-forma balance sheets have been properly prepared in
accordance with the Manager’s assumptions and on a basis consistent with the Trusts’ accounting policies, Australian
Accounting Standards and other mandatory professional reporting requirements.
Yours faithfully
KPMG Corporate Finance (Aust) Pty Ltd
Anthony Lubofsky
Director
70
Colonial First State Property
Trust Group
Independent Expert’s Report
November 1999
In relation to the proposed merger of:
Colonial First State Industrial Property Trust;
Colonial First State Commercial Property Trust;
Colonial First State Retail Property Trust; and
Colonial First State Development Trust.
71
5 November 1999
The Trustees
Permanent Trustee Australia Limited
As Trustee of the Colonial First State
Industrial Property Trust
294-296 Collins Street
MELBOURNE VIC 3000
The Trustees
Permanent Trustee Australia Limited
As Trustee of the Colonial First State
Commercial Property Trust
294-296 Collins Street
MELBOURNE VIC 3000
The Trustees
Permanent Trustee Australia Limited
As Trustee of the Colonial First State
Retail Property Trust
294-296 Collins Street
MELBOURNE VIC 3000
The Trustees
Perpetual Trustee Company Limited
As Trustee of the Colonial First State
Development Trust
50 Queen Street
MELBOURNE VIC 3000
Dear Trustees
Merger of Property Trusts Managed by Colonial First State Property Limited
1.
Introduction
Colonial First State Property Limited (“Colonial First State” or “the Manager”) is
proposing to merge the four listed property trusts that it manages to create a single
larger diversified property trust.
The trusts that will be included in the merger are:
· Colonial First State Industrial Property Trust (“the Industrial Property Trust”);
· Colonial First State Commercial Property Trust (“the Commercial Property Trust”);
· Colonial First State Retail Property Trust (“the Retail Property Trust”); and
· Colonial First State Development Trust (“the Development Trust”).
The trustees of each of the existing trusts have appointed Arthur Andersen Corporate
Finance Pty Ltd (“Arthur Andersen Corporate Finance”) to prepare an independent
expert’s report stating whether the proposed merger is fair and reasonable and in the
best interests of the unitholders of each trust.
72
The Trustees
Page 2
5 November 1999
The merger will be effected by a consolidation of existing units followed by an issue of
new units in each trust to the unitholders of each other trust. The units of the four
trusts will be “stapled” and the stapled securities will be listed on the Australian Stock
Exchange (“ASX”).
The following table sets out the number of stapled securities in the
Colonial First State Property Trust Group (“the Merged Trust”) that unitholders will
receive together with the proportion of the Merged Trust that will be held by each
group of unitholders.
Unitholders of
Units in Merged Trust
for each unit held
Proportion of Merged
Trust
0.950
29.8%
0.965
23.6%
Commercial Property Trust – CEU
0.850
1.7%
Retail Property Trust
0.585
32.5%
Development Trust
1.025
12.4%
Industrial Property Trust
Commercial Property Trust
1
Total
1
100.0%
Capital entitlement units.
Unitholders may elect to receive a cash alternative rather than receiving stapled
securities in the Merged Trust. Stapled securities relating to such unitholders will be
transferred to Perpetual Trustees Australia Limited. Those stapled securities will be
sold in a bookbuild process managed by Warburg Dillon Read and Deutsche Bank
with the net proceeds being remitted to unitholders.
2.
Conclusion
In our opinion, the merger proposal is fair and reasonable and in the best interests
of unitholders:
· of the Industrial Property Trust taken as a whole;
· of the Commercial Property Trust taken as a whole;
· of the Retail Property Trust taken as a whole; and
· of the Development Trust taken as a whole.
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The Trustees
Page 3
5 November 1999
3.
Key Reasons for Conclusion
The key reasons for these conclusions are:
3.1
Size and Critical Mass
An important motivation of the proposed transaction is to merge a number of smaller
property trusts to create a larger diversified property trust with improved investor
interest and support.
The following table demonstrates that the Merged Trust will be a more significant
member of the Property Trust Index than any of the existing trusts:
Trust
Industrial Property Trust
Commercial Property Trust
2
Commercial Property Trust – CEU
4
Ranking in Property
1
Trust Index (AS20)
343.2
27
263.8
30
3
18.3
Retail Property Trust
361.2
Development Trust
127.9
Merged Trust
1
2
3
Market Capitalisation
29 October 1999
$million
1,114.4
4
na
25
4
na
7
Excluding any potential re-rating of the Merged Trust.
Capital entitlement units.
Not listed on the ASX. This notional market capitalisation is based on the trading price of an ordinary
Commercial Property Trust unit discounted for the lack of a current distribution entitlement.
Not included in the Property Trust Index.
In our view the objective of increasing the size of the trusts by merger is an appropriate
objective and one which is likely to result in benefits being derived by the
Merged Trust and unitholders. This is for the following key reasons:
74
·
the likelihood that a market re-rating will occur, which should result in the value of
the Merged Trust being greater than the sum of the value of the four individual
trusts before the announcement of the merger. This re-rating is discussed further
below;
·
a re-rating and increased investor interest should result in better access to capital,
potentially at a lower cost, that should allow the Manager to better exploit
opportunities as they arise; and
·
greater investor interest should also improve liquidity in the market for investors
interests.
The Trustees
Page 4
5 November 1999
3.2
Reasonable Allocation of Interests in the Merged Trust
The proportion of the Merged Trust that is allocated to each group of existing
unitholders should reflect the value that they contribute to the Merged Trust. This
value has been assessed on the basis of the relative market capitalisation of each trust
and the relative net assets of each trust before the merger. This is set out as follows:
Relative Value of Trusts
100%
11.4%
9.9%
32.2%
32.9%
1.7%
1.7%
24.1%
24.3%
30.6%
31.2%
80%
60%
40%
20%
0%
Market
Capitalisation
30 Day Weighted
Average
Market
Capitalisation
90 Day Weighted
Average
Development
13.0%
12.4%
32.0%
32.5%
2.0%
1.7%
Commercial
24.1%
23.6%
Industrial
28.9%
29.8%
Retail
Commercial CEU
Net Assets
Ownership of
Merged Trust
Based on the above information, in our view, in the event that the merger is
implemented, the unitholders of each of the existing trusts will receive a share of the
Merged Trust that is in a range which would be regarded as equitable.
3.3
Likely Re-Rating of Merged Trust
There is strong evidence that larger listed property trusts are rated more highly than
smaller trusts. This is illustrated in the following table which compares projected
distribution yields for the year ended 30 June 2000 for each of the existing trusts with
the average yield for listed property trusts with market capitalisations greater than
$750 million. The table also indicates that the market may currently be rating
diversified property trusts more highly than sector specific trusts.
75
The Trustees
Page 5
5 November 1999
Trust
Market Capitalisation
$million
Projected 2000
Distribution Yield
Industrial Property Trust
343.2
9.1%
Commercial Property Trust (excluding CEUs)
263.8
9.4%
Retail Property Trust
361.2
9.4%
Development Trust
127.9
-
Weighted average yield (Existing Trusts)
9.3%
1
Weighted average yields
-
1
all property trusts with market
capitalisation > $750 million
8.0%
-
diversified property trusts
7.4%
-
sector specific property trusts
8.0%
Excluding the Development Trust, which is not expected to commence distributions until 2001.
This information indicates that there is the potential for a re-rating of the Merged Trust
to occur.
We note, however, that while some re-rating is likely to occur in the shorter term, the
simple “amalgamation” of the four existing listed trusts may not immediately create a
security that is rated as highly as some of the larger listed property trusts. Reasons for
this include:
·
relative to other diversified property trusts, the Merged Trust will hold a greater
proportion of industrial property. Industrial property generally offers strong
yields but lower capital growth prospects than other forms of property; and
·
the Merged Trust will initially own 43 properties. This is a far greater number of
properties than is held by many other larger property trusts. This may not be
optimal for a trust of the size of the Merged Trust.
In our view, for a full re-rating to occur in the longer term, some rebalancing of the
portfolio in terms of property quality, type, size and location will be required. This is
likely to include the sale of some non-core assets with the reinvestment of funds in
properties more appropriate to a larger diversified property trust.
76
The Trustees
Page 6
5 November 1999
3.4
Forecast Increase in Distributions
The Manager has forecast a small increase in distributions to stapled security holders
of the Merged Trust compared to what the Manager forecasts that unitholders may
receive if the existing trusts remain in their current form. This is reflected in the
following table:
Industrial
Property
Trust
Commercial
Property
Trust
Retail
Trust
17.00
17.35
10.50
-
18.00
16.80
17.45
10.55
15.75
18.10
2000
17.10
17.37
10.53
18.45
na
2001
17.20
17.47
10.59
18.55
na
Development
Trust
Merged
Trust
Cents Per Unit
2000
2001
Cents Per Existing Unit
1
1
Adjusting the per unit distribution for the Merged Trust to be comparable to the units held in the existing trust.
The forecast distributions referred to in this letter and the independent expert’s report
are before taking into consideration any impact of the introduction of the Goods and
Services Tax (“GST”) on 1 July 2000. The likely impact of GST on the net income of the
existing trusts, and therefore on distributions (in 2001), are discussed in the
Explanatory Statement and are forecast by the Manager to be in the range of
0.2 percent to 1.4 percent of distributions for the four existing trusts.
While the forecast increase in distributions will benefit unitholders, in our view these
increases alone are not sufficient to justify the merger. However, there may be long
term advantages in terms of higher future distributions in the event that the Manager
can take advantage of benefits arising from the Merged Trust’s greater scale and
investor support.
3.5
Move to Diversified Property Trust
If the merger is implemented, unitholders will have an interest in a diversified
property portfolio rather than the current position where they are exposed to either a
single sector portfolio or a development portfolio which is also sector specific.
77
The Trustees
Page 7
5 November 1999
The mix of the asset portfolio on completion of the merger is expected to be as follows:
Merged Trust
Property Type Distribution
(by Property Value)
Diversified Property Trust Group
Property Type Distribution
(by Property Value)
Car Park
Industrial
Industrial
28.1%
Office
4.8%
1.4%
Hotel/leisure
Hot./Leis
3.7%
3.7%
40.5%
Retail
45.4%
Office
44.7%
Retail
31.4%
Source: Valuation Reports/Arthur Andersen
Source: Property Investment Research/Arthur Andersen
Investors should consider whether the Merged Trust with this different asset mix
continues to meet their individual investment objectives.
3.6
Taxation Consequence
KPMG has provided a letter explaining the taxation implications of the merger for
unitholders. This is included in the Explanatory Memorandum being provided to
unitholders. Unitholders should review the KPMG taxation advice carefully and seek
their own advice to ensure they understand the taxation implications of the merger.
This advice indicates that unitholders participating in the merger who continue to hold
the stapled securities will generally not be treated as having sold their units and
therefore should not realise a capital gain or loss as a consequence of the merger.
Unitholders accepting the cash alternative or selling their interests will be treated as
having sold their units and may therefore realise either a gain or loss depending upon
their individual taxation positions.
78
The Trustees
Page 8
5 November 1999
Unitholders should note that there are elements of the merger that may, depending on
a unitholder’s individual position, not be favourable to them. These issues are outlined
in the KPMG taxation advice and include:
(i)
Prima facie, the merger may result in the erosion of the “time value” of tax
deferred distributions received by unitholders from the three trusts in which new
units are acquired. This may occur as a consequence of the cost base of $0.01 in
each of the new units. It is our understanding that holders of stapled securities
will realise capital gains to the extent that cumulative tax deferred distributions
in relation to each new unit exceed $0.01.
This apparent erosion of value may, however, be offset in whole or part by the
proposed “CGT discount” outlined in the KPMG taxation advice. Under the
proposed CGT discount rules, where an asset is held for more than
twelve (12) months, individuals and trusts will include in assessable income half
the realised nominal capital gain (ie without indexation) whilst complying
superannuation funds will be assessed on two thirds of the nominal capital gain.
(ii)
The merger potentially results in a loss of value to unitholders who would
otherwise have been entitled to indexation of the cost bases in their original
unitholdings. In the event of a disposal of the stapled securities by unitholders at
some time after the merger, many unitholders are likely to realise a capital loss in
relation to their original unitholdings. It is our understanding that cost bases
may not be indexed to increase a capital loss and therefore indexation would be
of no value to unitholders in these circumstances.
This potential loss of value may, however, be mitigated by the proposed CGT
changes. These proposed changes include, inter alia, the freezing of indexation at
30 September 1999. This proposed change may effectively limit the loss of value
to indexation accumulated by unitholders to 30 September 1999. Whether the
loss of indexation is a disadvantage to unitholders will depend upon their
individual positions and the impact of the GST discount on them.
3.7
Matters Specific to Individual Trusts
The following additional factors should be considered by certain unitholders:
3.7.1 Development Trust
As a consequence of the merger:
·
unitholders in the Development Trust will not be required to pay the final
instalment of $1.00 per existing unit that would otherwise be payable on
30 June 2000;
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The Trustees
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5 November 1999
·
unitholders in the Development Trust are not presently expected to receive
distributions until the year ended 30 June 2001. As holders of stapled securities in
the Merged Trust they are forecast to receive their first distribution in respect of the
six month period ended 30 June 2000; and
· unitholders in the Development Trust previously held an investment focused more
on development profits and capital gains than on distribution yields. As a
consequence of the merger, they will gain an interest in a diversified property
portfolio. This change in nature of their investment is potentially greater than the
change that occurs for the other groups of unitholders.
3.7.2 Commercial Property Trust – Capital Entitlement Units
Colonial Limited presently holds 11.642 million capital entitlement units in the
Commercial Property Trust. Fifty (50) percent of these are due to convert into ordinary
units in the Commercial Property Trust on 30 June 2000 and 50 percent on
30 June 2001. In the interim they are not listed on the ASX and they do not receive
distributions. The merger will result in Colonial Limited in effect exchanging these
units for stapled securities in the Merged Trust. These will be listed on the ASX and are
forecast to pay distributions commencing in the 6 months ended 30 June 2000.
3.8
Cash Alternative
Investors should be aware that should they accept the cash alternative they will not
have certainty as to how much they will receive for their units as this will depend upon
the result of the bookbuild process. The sale of the stapled securities under the book
build process is to occur in the first week of February 2000 or, if market conditions are
not suitable, no later than 24 March 2000. Proceeds will not be received by unitholders
until 14 days after the completion of this process.
This letter is a summary of the opinion of Arthur Andersen Corporate Finance and is
an extract from the complete independent expert’s report which is attached and should
be read in conjunction with this letter.
Yours faithfully
STUART BRIGHT
Director
80
OLIVER KLOTZ
Director
Independent Expert’s Report
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
Contents
Page
LETTER
1.
2.
3.
TERMS OF THE PROPOSAL
1
1.1
1.2
1.3
1.4
1.5
1
1
2
3
3
SCOPE AND APPROACH
3
2.1
2.2
2.3
3
4
4
Purpose of the Report
Basis of the Evaluation
Limitations and Reliance on Information
EVALUATION OF THE MERGER
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
4.
Background
Implementation
The Cash Alternative
Unitholder Approval
Other Matters
Impact of the Merger
Proportion of Merged Trust Allocated to Unitholders
Market Perception of the Merged Trust
Distributions
Tax Profile of Proposed Merger
Gearing
Net Tangible Asset Backing
Cost Savings
OPINION AND CONCLUSIONS
5
7
8
10
20
21
22
23
25
25
APPENDICES:
1.
2.
3.
4.
5.
Profile of the Industrial Property Trust
Profile of the Commercial Property Trust
Profile of the Retail Property Trust
Profile of the Development Trust
Allocation of Value of Individual Trusts
Annexure
ARTHUR ANDERSEN
CORPORATE FINANCE
81
Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
1.
Terms of the Proposal
1.1
Background
Colonial First State Property Limited (“Colonial First State” or “the Manager”)
currently manages four listed property trusts. Three of these are focused on specific
sectors of the property market and the fourth focuses on the development of two
New South Wales properties. The four trusts are:
· Colonial First State Industrial Property Trust (“the Industrial Property Trust”);
· Colonial First State Commercial Property Trust (“the Commercial Property Trust”);
· Colonial First State Retail Property Trust (“the Retail Property Trust”); and
· Colonial First State Development Trust (“the Development Trust”).
The Trustee of the Industrial Property Trust, the Commercial Property Trust and the
Retail Property Trust is Permanent Trustee Australia Limited. The Trustee of the
Development Trust is Perpetual Trustee Company Limited.
Colonial First State is proposing to effect the merger of the four existing trusts to
form a single diversified property trust to be known as The Colonial First State
Property Trust Group (“the Merged Trust”).
1.2
Implementation
If approved, the merger of the trusts will be effected by amending the individual trust
deeds to enable each trust to issue units to unitholders of the other three trusts and to
“staple” the four resulting units to form a single “stapled security”. The stapled
securities will be traded on the Australian Stock Exchange (“ASX”) replacing the
individual trust’s units which will only be able to be traded as part of the stapled
security.
More specifically, and subject to the cash alternative outlined below, the merger will
occur as follows:
· each existing unitholder’s units will be “consolidated” in the following proportions:
- 0.950 consolidated Industrial
Industrial Property Trust unit;
Property
Trust
units
for
each
existing
- 0.965 consolidated Commercial Property Trust units for each existing
Commercial Property Trust unit;
- 0.850 consolidated Commercial Property Trust units for each existing
Commercial Property Trust capital entitlement unit;
1
82
ARTHUR ANDERSEN
CORPORATE FINANCE
Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
- 0.585 consolidated Retail Property Trust units for each existing Retail Property
Trust unit; and
- 1.025 consolidated Development Trust units for each existing Development Trust
unit.
· each unitholder will receive a special distribution of $0.03 per consolidated unit
which will be wholly applied to subscribe for an equal number of fully paid
consolidated units in each of the other three trusts for $0.01 each. At this stage,
unitholders will hold an equal number of units in each trust; and
· the securities held by each unitholder will be “stapled” and listed on the ASX as a
single stapled security.
Therefore, for every unit held before the merger, a unitholder will hold the following
number of stapled securities in the Merged Trust:
Merged Trust Securities
For Every Existing Unit
Existing Trust
1.3
Industrial Property Trust
0.950
Commercial Property Trust
0.965
Commercial Property Trust (Capital Entitlement Unit)
0.850
Retail Property Trust
0.585
Development Trust
1.025
The Cash Alternative
If the merger is approved, unitholders will have the option to either receive stapled
securities in the Merged Trust or a cash alternative. Where a unitholder elects to
receive the cash alternative, does not make an election to retain stapled securities in the
Merged Trust, or has an address outside Australia or New Zealand, the stapled
securities will be transferred to Perpetual Trustee Company Limited (“Perpetual”).
Perpetual or its nominee will then sell the stapled securities in a bookbuild process.
Warburg Dillon Read and Deutsche Bank will conduct the bookbuild process and
invite institutional investors to submit bids to acquire the stapled securities sold by
Perpetual.
The price that will be realised on the sale of the stapled securities through the
bookbuild process is not fixed or underwritten. As set out in the
Explanatory Memorandum, the sale will be undertaken in the first week of
February 2000 unless market conditions are unfavourable in which case the sale will
take place no later than 24 March 2000. Payment of the net sale proceeds will be made
within 14 days of the completion of the bookbuild process.
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Merger of Listed Property Trusts Managed by Colonial First State
November 1999
1.4
Unitholder Approval
In order for the merger to be implemented, three resolutions need to be approved by
the unitholders of each existing trust. These are outlined in the Notice of Meeting and
Explanatory Memorandum.
The first of these (an ordinary resolution) must be approved by 50 percent of the units
voted. The second resolution and the third resolution require 75 percent of the total
units voted to be in favour of the two resolutions and, in the case of the third
resolution, unitholders representing 25 percent of the value of the units in the trust
voting either in person or by proxy.
If any of the resolutions are not approved by the unitholders of any of the
individual trusts, the merger will not proceed.
1.5
Other Matters
Other matters relevant to the merger include:
· Perpetual Trustee Company Limited, upon registration of the trusts as managed
investment schemes, will be appointed as the custodian of the assets of the
Merged Trust;
· the Board of the Manager will not change. Its composition is set out in the
Explanatory Memorandum; and
· the Manager will cap its management fees at 0.6 percent of the gross assets of the
Merged Trust. This is lower than that which is on average currently charged to the
four existing trusts.
2.
Scope and Approach
2.1
Purpose of the Report
The trustees of the four individual trusts have appointed Arthur Andersen Corporate
Finance Pty Ltd (“Arthur Andersen Corporate Finance”) to prepare an independent
expert’s report stating whether in its opinion the proposed merger is fair and
reasonable and in the best interests of:
(i)
the unitholders of the Industrial Property Trust taken as a whole;
(ii)
the unitholders of the Commercial Property Trust taken as a whole;
(iii)
the unitholders of the Retail Property Trust as taken a whole; and
(iv)
the unitholders of the Development Trust taken as a whole.
The merger is to be implemented by amendment to the trust deeds of each trust and
the implementation of the other steps as outlined in Section 1.
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CORPORATE FINANCE
Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
Notwithstanding that the merger is not being affected by Corporations Law
mechanisms (as the entities are trusts and not companies), based on the nature of the
transaction, in our view it is appropriate to prepare the independent expert’s report in
accordance with the guidelines that would apply for a scheme of arrangement
pursuant to Section 411 of the Corporations Law.
Section 411 of the Corporations Law relates to schemes of arrangement between a
corporation and its shareholders and is often used to effect a capital reconstruction or a
merger of the nature proposed in this instance.
This independent expert’s report has been prepared by Arthur Andersen Corporate
Finance to accompany the Explanatory Memorandum and Notice of Meetings to be
sent to the unitholders of each of the existing trusts. This report should not be used for
any purpose other than as an expression of opinion as to whether the proposed merger
is fair and reasonable and in the best interests of the unitholders of the four individual
trusts.
2.2
Basis of the Evaluation
There is no legal definition of the expression “in the best interests”. However,
Australian Securities and Investments Commission (“ASIC”) Policy Statement 75
establishes certain guidelines in respect of an independent expert’s report prepared for
the purposes of Sections 411, 648 and 703 of the Corporations Law. This policy
statement is primarily directed towards reports prepared under Section 648 and, in
particular, the meaning of “fair and reasonable”. This statement gives limited
guidance as to the regulatory interpretation or meaning of “in the best interests” other
than to state that “fair and reasonable” should be taken as a reference to “in the best
interests of the members”.
In our view the proposed merger is very different from a takeover transaction to which
Section 648 of the Corporations Law applies. An assessment as to whether this
transaction is in the best interests of unitholders requires a number of broad
commercial assessments to be made, significantly beyond “price” which is a key focus
in a Section 648 report. Therefore, we have assessed the transaction as a whole and
considered the advantages and disadvantages to unitholders if the merger proceeds
and the advantages and disadvantages to unitholders in the event that it does not
proceed. This is a similar approach to that taken when preparing an independent
expert’s report pursuant to Section 623 of the Corporations Law.
As a consequence of requirements of the trust deeds of certain of the trusts, it has also
been requested by the trustees that we specifically comment upon whether the share of
the Merged Trust which the unitholders of each trust will receive is in a range which
would be regarded as equitable.
2.3
Limitations and Reliance on Information
Arthur Andersen Corporate Finance’s opinion has been drawn on the basis of
economic, market and other external conditions prevailing at the date of this report.
These conditions can change significantly.
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Merger of Listed Property Trusts Managed by Colonial First State
November 1999
This report is also based upon financial and other information provided by the
Manager in relation to each of the trusts and the proposed merger.
The information provided to us included forecasts for each of the trusts for the year to
30 June 2000 (30 September for the Retail Property Trust) and forecasts for the year to
June 2001. We have relied upon the forecasts and have assumed that this information
has been prepared fairly and honestly based on the information available to the
Manager at the time and within the practical constraints and limitations of such
forecasts. It is assumed that the forecasts do not reflect any material bias, either
positive or negative. Arthur Andersen Corporate Finance in no way guarantees or
otherwise warrants the ability of the trusts to achieve the forecasts of future profits.
Forecasts are inherently uncertain. They are predictions of future events that cannot be
assured and are necessarily based on assumptions, many of which are beyond the
control of the trusts or the Manager. Actual results may vary significantly from
forecasts.
The information provided also included independent valuations of the properties of
each of the trusts dated within the period 17 April 1998 to 15 October 1999. The
Real Estate and Hospitality Services Group of Arthur Andersen has reviewed these
valuations for the purpose of assisting in our assessment of the merger proposal. The
results of this review are contained within this report.
3.
Evaluation of the Merger
In considering the impact of the merger on their interests, unitholders are also referred
to:
(i)
the Explanatory Memorandum and Overview of the Merger Proposal, which
describe the merger to unitholders. The former also provides a description of
each property owned by the four existing trusts; and
(ii)
Appendix 1 to Appendix 4 of this report. These appendices provide a detailed
description of each of the existing trusts and provides comment on their existing
property portfolios.
In evaluating the merger, we have given consideration to a number of factors that have
the potential to impact upon the position of unitholders in the event that the merger is
implemented. These include:
(i)
the proportion of the Merged Trust that is allocated to the unitholders of each of
the existing trusts;
(ii)
the likely market perception of the merger and the market “rating” of the
Merged Trust. Importantly, this will include a consideration of the impact of the
increase in size of the listed entity and the change in nature from sector specific
or development trusts to a diversified property trust;
(iii)
the impact of the merger on forecast distributions to unitholders relative to those
that they may have received if each trust remained in its existing form;
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Merger of Listed Property Trusts Managed by Colonial First State
November 1999
(iv)
the likely impact of the merger on the taxation profile of distributions received by
unitholders;
(v)
the level of debt in the Merged Trust compared to the existing trusts;
(vi)
the impact of the merger on the cost structure of the trusts. This is also related to
(iii) above; and
(vii) the impact of the merger on the net tangible asset backing of a unit.
These factors are now considered in turn.
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Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
3.1
Impact of the Merger
Before commencing a detailed evaluation of the merger, it is appropriate to highlight
key changes that will occur to a unitholder’s investment if the merger proceeds.
Industrial Commercial
Property
Property
Trust
Trust
Stapled securities held
after merger (per existing
unit)
Commercial
Retail
Property
Trust
Property Development Merged
1
(CEUs )
Trust
Trust
Trust
0.950
0.965
0.850
0.585
1.025
-
472
355
355
521
282
1,630
334
302
302
370
152
1,158
Market capitalisation ($m)
343
264
18
361
128
1,114
3
Ranking in Property Trust
Index (AS20)
27
30
3
25
na
3
7
4
97
-
-
-
-
28
- Commercial
3
100
100
2
100
41
- Retail
-
-
-
98
-
31
100
100
100
100
100
100
Trust Size and Ranking
Total trust assets ($m)
Net trust assets ($m)
2
na
Property Profile
Property Sector %
- Industrial
Geographic Spread %
- NSW
76
23
23
-
100
44
- QLD
9
19
19
43
-
20
- VIC
15
18
18
25
-
17
- SA
-
15
15
21
-
10
- WA
-
25
25
9
-
8
- ACT
-
-
-
2
-
1
100
100
100
100
100
100
24
7
7
10
2
43
144
118
118
824
41
1,127
5.5
4.3
7.3
5.0
Number of properties
Number of tenants
Weighted average lease
expiry (yrs)
4.7
5.5
1 Capital entitlement units.
2 As at 29 October 1999.
3 Not included in the Property Trust Index (AS20).
4 Assuming no re-rating.
Source: Explanatory Memorandum
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Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
3.2
Proportion of Merged Trust Allocated to Unitholders
An important component of our assessment as to whether the merger is fair and
reasonable and in the best interests of unitholders has been the assessed
appropriateness of the proportion of the Merged Trust that will be allocated to the
unitholders of each existing trust.
This has been considered on two bases:
(i)
the market capitalisation of each of the four trusts prior to the announcement of
the merger; and
(ii)
the net assets of each of the four trusts based on the latest available financial data.
3.2.1
Allocation Based on Market Capitalisation
The bar chart below compares the relative market capitalisation of each existing trust
to the proposed allocation of stapled securities in the Merged Trust. Data underlying
this chart is presented in Appendix 5.
Allocation Based on Market Value
100%
D e v e lo p m e n t
11.4%
9.9%
D e v e lo p m e n t
12.4%
80%
R e t a il
32.2%
60%
40%
R e t a il
32.9%
32.5%
1.7%
C o m m e rc i a l C E U
1.7%
C o m m e rc i a l C E U
24.1%
C o m m e rc i a l
24.3%
C o m m e rc ia l
23.6%
30.6%
In d u s t ria l
31.2%
In d u s t ria l
29.8%
1.7%
20%
0%
Market Capitalisation
Market Capitalisation
Ownership of
30 Day Weighted Average
90 Day Weighted Average
Merged Trust
As set out in Section 3.3.2 below, none of the trusts are considered to have a
particularly high level of liquidity. As a consequence, while we believe that relative
market capitalisations are an appropriate basis to consider, a lack of high levels of
liquidity increases the relevance of a net assets approach as is considered below. It is
noted that the Commercial Property Trust enjoys greater liquidity than all other trusts
with the Development Trust historically having the lowest level of liquidity.
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Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
The bar graph above illustrates that in general the proportion of units allocated to each
group of unitholders approximates the relative market capitalisation of the individual
trusts prior to the announcement of the merger.
Notwithstanding this overall conclusion, we make the following observations:
·
Development Trust unitholders appear to be receiving a marginally higher
proportion of units in the Merged Trust than would occur based solely upon the
market capitalisation of the individual trusts;
·
each of the Commercial Property Trust and Industrial Property Trust unitholders
appear to be receiving a marginally lower proportion of the Merged Trust than
they would solely based upon the existing market capitalisation of these trusts; and
·
unitholders of the Retail Property Trust appear to be receiving a proportion of the
Merged Trust which closely approximates the proportion that they would have
received based solely on the relative market capitalisation of the various trusts.
We have been conscious of these factors as we have assessed the other impacts of the
merger as discussed below.
3.2.2
Allocation Based on Net Assets
The bar graph below compares the relative net assets of each existing trust to the
proposed allocation of units in the Merged Trust. Data underlying this table is
presented in Appendix 5.
Allocation Based on Net Assets
100%
Development
13.0%
12.4%
80%
Retail
32.0%
60%
Commercial CEU
2.0%
40%
32.5%
24.1%
1.7%
Commercial
23.6%
Industrial
29.8%
20%
28.9%
0%
Net Assets
9
90
Ownership of Merged Trust
ARTHUR ANDERSEN
CORPORATE FINANCE
Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
As with the assessment based on relative market capitalisations, the proportion of the
stapled securities of the Merged Trust allocated to each group of unitholders appears
to be closely related to the net assets of the individual trusts.
It is relevant to note, however, that based on net assets:
·
the proportion of the Merged Trust allocated to Development Trust unitholders is
less than they contribute in net assets;
· the proportion of the Merged Trust allocated to Industrial Property Trust
unitholders is marginally higher than that contributed on the basis of net assets;
· the proportion of the Merged Trust allocated to Retail Property Trust unitholders is
slightly greater than the proportion that would be allocated on the basis of net
assets; and
· the proportion of the Merged Trust allocated to Commercial Property Trust
unitholders is slightly less than that contributed on the basis of net assets.
3.2.3
Conclusion – Allocation of Value
Based on the information presented above, in our view the exchange ratios, and
therefore the proportion of the Merged Trust allocated to each group of unitholders are
reasonable after taking into consideration:
· the relative market capitalisation of the existing trusts; and
· the relative net assets of the existing trusts.
3.3
Market Perception of the Merged Trust
In our view there is a strong likelihood that the Merged Trust will be rated more highly
by the stock market than the individual trusts. The reasons for this view are set out
below.
3.3.1
Size
In recent years size and liquidity have become increasingly important in the Australian
and international share markets. This includes the property trust sector. Therefore a
substantial cause of any re-rating will be the size of the Merged Trust in the listed
property trust sector and its greater weighting in ASX indices.
Factors that contribute to this position include:
·
investors prefer stocks with reasonable to high levels of liquidity such that shares
can be readily bought and sold without dramatically affecting the market price;
·
index investors manage their portfolios to track market indices. Smaller entities,
and those that lack liquidity have lesser index weightings and are hence less
attractive to such investors; and
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Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
·
international investors have little interest in stocks that do not have appropriate
size and liquidity.
In general it is notable that institutional investors and the broking community are not
strongly supporting smaller property trusts (for example those with a market
capitalisation below, say $500 million). These trusts have generally underperformed
the sector as a whole.
The following table sets out the market capitalisation of each of the existing trusts
together with the market capitalisation of the Merged Trust in the event that no
re-rating occurs:
Market Capitalisation at
29 October 1999
$million
Existing Trust
Industrial Property Trust
Proportion
of Index
%
343.2
27
1.2
263.8
30
0.9
18.3
N/A
N/A
Retail Property Trust
361.2
25
1.2
Development Trust
127.9
-
N/A
1,114.4
7
3.6
Commercial Property Trust
1,2
Commercial Property Trust – CEU
Merged Entity
1
2
Ranking in the
Property Trust
Index (AS20)
Capital entitlement units.
Not listed on the ASX. This estimate of market capitalisation is based on the trading price of an ordinary
Commercial Property Trust unit discounted for the lack of a current distribution entitlement.
Each of the existing trusts is relatively small in the context of the Property Trust Index
(AS20). The market capitalisation of the largest of the existing trusts (the Retail Property
Trust) represents only 1.2 percent of Property Trust Index.
However, as a consequence of the Merger, even without a re-rating, the Merged Trust is
expected to become the 7th largest property trust included in the Property Trust Index.
Based on the market capitalisation of the existing trusts it would represent
approximately 3.6 percent of the index.
11
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CORPORATE FINANCE
Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
Clear market evidence exists that larger trusts tend to trade on lower yields than
smaller trusts. This is illustrated in the following table.
Market
Capitalisation at
29 October 1999
$million
%
Projected 2000
Distribution
Yield
%
Westfield Trust
4,969
16.7
7.3
General Property Trust
3,837
12.9
7.6
Mirvac Group
1,702
5.7
7.5
Westfield America Trust
1,531
5.2
8.2
Stockland Trust Group
1,451
4.9
7.6
Gandel Retail Trust
1,311
4.4
7.8
AMP Diversified Property Trust
998
3.4
8.0
National Mutual Property
918
3.1
7.6
BT Office Trust
802
2.7
7.5
AMP Shopping Centre Trust
783
2.6
8.1
Trust
Market capitalisation > $750 million
Weighted average distribution yield
8.0
Market capitalisation
$300 million - $750 million
Commercial Investment Trust
667
2.2
7.5
Advance Property Fund
655
2.2
8.5
Prime Industrial Property Trust
617
2.1
9.0
Centro Properties Group
594
2.0
8.7
AMP Office Trust
581
2.0
7.4
Macquarie Office Trust
563
1.9
9.2
Westpac Property Trust
526
1.8
8.2
Commonwealth Office Property Fund
496
1.7
8.4
Prime Credit Property Trust
496
1.7
9.3
BT Property Trust
420
1.4
8.4
Goodman Hardie Industrial Property Trust
393
1.3
8.9
Paladin Commercial Trust
380
1.3
8.5
Macquarie Countrywide Trust
379
1.3
8.7
AMP Industrial Trust
362
1.2
9.0
Colonial First State Retail Property Trust
361
1.2
9.4
Thakral Holdings Group
359
1.2
9.1
Colonial First State Industrial Property Trust
343
1.2
9.1
Weighted average distribution yield
8.6
Other
3,220
10.8
Total
29,714
100.0
Source:
Bloomberg LLP.
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Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
The following table sets out the projected distribution yields for the four existing trusts
for the year ending 30 June 2000 and contrasts these to the projected yields for listed
trusts with a market capitalisation in excess of $750 million.
Market Capitalisation
29 October 1999
$million
Projected 2000
1
Distribution Yield
%
Industrial Property Trust
343.2
9.1
Commercial Property Trust (excluding CEUs)
263.8
9.4
Retail Property Trust
361.2
9.4
Development Trust
127.9
Trust
-
Weighted average (existing trusts)
9.3
Weighted average (all trusts >$750 million)
8.0
1 Excluding the Development Trust which is not expected to commence distributions until 2001.
Source: Bloomberg LLP.
The above table indicates that there is potential scope for a re-rating of the
Merged Trust relative to the existing trusts.
However, it should be recognised that the property portfolio created by merging the
four existing trusts may not immediately be optimal for a larger diversified trust.
Consequently, the balance of the portfolio may need to change over time to reflect the
Merged Trust’s new size and profile. Therefore, while some re-rating is likely to be
achieved in the short term, continued rebalancing of the portfolio over the medium to
longer term is likely to be required for the Merged Trust to be rated as highly as some
of the other larger diversified trusts. This is discussed further in Section 3.3.3. below
and is likely to involve the sale of a number of non-core properties with the
reinvestment of funds in properties more appropriate for a larger diversified property
trust.
3.3.2
Liquidity
Historical levels of liquidity for each of the existing trusts are illustrated in the
following table:
Proportion of Units Traded
Trust
Last 30 days
%
Last 90 days
%
1.0
3.6
13.8
32.2
2.0
10.1
25.1
49.8
Retail Property Trust
1.5
5.8
11.7
32.2
Development Trust
0.4
5.2
11.3
16.4
Industrial Property Trust
Commercial Property Trust
1
1
Last 12 months
%
Excluding capital entitlement units.
13
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Last 180 days
%
ARTHUR ANDERSEN
CORPORATE FINANCE
Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
For comparison purposes the liquidity of the four existing trusts is compared to other
major listed property trusts in the following table:
Proportion of Units Traded
Trust
Last 30 days
%
Last 90 days
%
Last 180 days
%
Last 12 months
%
Westfield Trust
3.1
9.2
19.5
39.4
General Property Trust
3.6
10.7
21.4
39.0
Stockland Trust
4.9
6.6
9.1
14.6
Westfield America Trust
4.2
14.1
26.2
42.5
Gandel Retail Trust
2.2
9.9
17.6
32.3
BT Office Trust
5.4
15.6
32.4
73.7
AMP Shopping Centre Trust
7.6
15.6
25.7
39.7
It should be noted that particular events (for example new issues) has the potential to
distort reported liquidity levels.
Notwithstanding, it is clear that with the possible exception of the Commercial
Property Trust, each of the existing trusts currently experiences lower levels of
liquidity than other major listed property trusts. To the extent that liquidity improves
as a result of the merger, this should benefit unitholders and assist in the re-rating.
3.3.3
Property Profile
If the merger proceeds, units in the Merged Trust will have a risk profile that is
different from the risk profile of the individual trusts.
A summary of the key changes to the property risk profile are summarised below:
a)
Geographic Profile
Geographic
Profile
Industrial
Property
Trust
$m
%
Commercial
Property
Trust
$m
%
Retail
Property
Trust
$m
%
Development
Trust
$m
%
Total
$m
%
State
NSW
349
76
82
23
-
-
275
100
706
44
QLD
VIC
41
9
68
19
218
43
-
-
327
20
72
15
62
18
130
25
-
-
264
17
SA
-
-
52
15
108
21
-
-
160
10
WA
-
-
86
25
45
9
-
-
131
8
ACT
-
-
-
-
8
2
-
-
8
1
Total
462
100
350
100
509
100
275
100
1,596
100
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Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
In general terms, the Merged Trust will have a relatively well balanced geographic
spread, having regard to the population base of each State. By property value, the
Merged Trust will have a 44.2 percent exposure to New South Wales followed by
Queensland (20.5 percent) and Victoria (16.6 percent).
The following pie charts reflect the geographic distribution of the assets of the
Merged Trust and also the geographic distribution for the sector as a whole:
Merged Trust
Geographic Distribution
(by Property Value)
WA
VIC
8.2%
Diversified Property Trust Group
Geographic Distribution
(by Property Value)
VIC
ACT
16.1%
0.5%
16.6%
WA
6.2%
ACT
4.7%
SA
SA
NSW
10.0%
44.2%
3.7%
11.0%
QLD
20.5%
NSW
QLD
52.1%
NT
6.1%
Source: Valuation Reports/Arthur Andersen
Source: Property Investment Research/Arthur Andersen
Notwithstanding that the Merged Trust has a lesser bias towards New South Wales
and a greater bias towards Queensland and South Australia, in our view, the
Merged Trust will still provide a generally well balanced geographic spread.
b)
Property Type
The Merged Trust will have an evenly balanced distribution by property type, with
retail at 31.4 percent, industrial at 28.1 percent and office at 40.5 percent. There will be
no other property types such as carparks or hotels.
A comparison of the asset composition of the Merged Trust to diversified property
trusts as a whole shows that other diversified property trusts generally have a higher
exposure to retail and office assets and a lower exposure to industrial property.
Although industrial property can provide higher than average yields, it generally does
not provide significant capital growth. Therefore, relative to other diversified property
trusts, at least initially, the Merged Trust may be somewhat overexposed to the
industrial sector. Given this sector generally has a lower capital growth profile, this
may restrict the extent to which re-rating occurs.
15
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Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
The following pie charts reflect the distribution of the property types of the
Merged Trust and the sector as a whole:
Merged Trust
Property Type Distribution
(by Property Value)
Diversified Property Trust Group
Property Type Distribution
(by Property Value)
Car Park
Industrial
Industrial
28.1%
4.8%
Hotel/leisure
Hot./Leis
3.7%
3.7%
1.4%
Office
40.5%
Office
Retail
44.7%
45.4%
Retail
31.4%
Source: Property Investment Research/Arthur Andersen
Source: Valuation Reports/Arthur Andersen
c)
Number of Properties and Other Characteristics
Other characteristics of the property portfolio include:
Property Profile
Number of
Properties
Industrial
Property
Trust
Commercial
Property
Trust
Retail
Property
Trust
Development
Trust
Total
24
7
10
2
43
Number of Tenants
144
118
824
41
1,127
Weighted Average
Lease Expiry (Yrs)
4.7
5.5
4.3
7.3
5.0
Vacancies (%)
2.6
1.8
1.4
15.5
2.8
The Merged Trust will have 43 properties, which is more than the other Australian
diversified trusts, which have between 11 and 30 properties each. A larger number of
properties decreases the investment risk assuming that there is an even geographic and
property type distribution. However, it can also increase management and
administrative costs. Therefore, there is a limit to which a larger number of properties
will be viewed favourably by the market.
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Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
The following table compares key characteristics of the Merged Trust with a selection
of other diversified property trusts:
Total
Lettable
Area
sqm
Current
Property
Value
$m
Current
Vacancy
(approx)
%
AMP Diversified Trust
683,073
1,214
1.9
22
Advance Property Fund
317,299
817
3.4
18
BT Property Trust
223,941
466
0.4
11
Colonial First State Property Trust Group
913,747
1,596
2.8
43
1,113,494
3,619
3.1
30
Trust Name
General Property Trust
Number of
Properties
National Mutual Property Trust
418,504*
775
1.1
17
Stockland Trust Group
289,191
773
1.5
13
*
Plus 3,681 car bays
Source: Property Investment Research/Colonial First State Investments
Key points to note include:
· Property value – the Merged Trust will have a total property value of $1.6 billion.
This will place it as the second largest diversified trust, behind General Property
Trust with $3.6 billion.
· Lease expiry – the Merged Trust will have a weighted average lease expiry of
5.0 years. This expiry profile is considered to be generally representative of
diversified trusts.
· Vacancies – the Merged Trust will have a total vacancy of approximately
2.8 percent. This vacancy rate is towards the upper end of the vacancy rate for other
diversified trusts but is still considered to be generally acceptable.
17
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Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
There is also evidence to suggest that on average, diversified property trusts trade on
lower yields than sector specific property trusts. This is demonstrated in the following
table:
Trust
Market
Capitalisation at
29 October 1999
$million
%
Projected 2000
Distribution
Yield
%
Diversified Property Trusts
General Property Trust
3,837
12.9
7.6
Mirvac Group
1,702
5.7
7.5
Stockland Trust Group
1,451
4.9
7.6
National Mutual Property
918
3.1
7.6
Advance Property Fund
655
2.2
8.5
BT Property Trust
420
1.4
8.4
Thakral Holdings Group
358
1.2
9.1
Weighted average distribution yield
7.4
Specialised Property Trusts
Westfield Trust
4,969
16.7
7.3
Westfield America Trust
1,531
5.2
8.2
Gandel Retail Trust
1,311
4.4
7.8
AMP Diversified Property Trust
998
3.4
8.0
BT Office Trust
802
2.7
7.5
AMP Shopping Centre Trust
783
2.6
8.1
Commercial Investment Trust
667
2.2
7.5
Prime Industrial Property Trust
617
2.1
9.0
Centro Properties Group
594
2.0
8.7
AMP Office Trust
581
2.0
7.4
Macquarie Office Trust
563
1.9
9.2
Westpac Property Trust
526
1.8
8.2
Commonwealth Property Office Fund
496
1.7
8.4
Prime Credit Property Trust
496
1.7
9.3
Goodman Hardie Industrial Property Trust
393
1.3
8.9
Paladin Commercial Trust
380
1.3
8.5
Macquarie Countrywide Trust
379
1.3
8.7
AMP Industrial Trust
362
1.2
9.0
Colonial First State Retail Property
Trust
361
1.2
9.4
Colonial First State Industrial Property
Trust
343
1.2
9.1
Weighted average distribution yield
8.0
Other
3,220
10.8
Total
29,714
100.0
Source: Bloomberg LLP
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Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
Therefore the diversified nature of the Merged Trust’s portfolio may also aid in the
re-rating of the stapled securities
3.3.4
Summary – Re-rating Potential
In summary, we believe there is significant potential for the Merged Trust to be
re-rated relative to the existing trusts.
This potential is demonstrated in the following table:
Market Capitalisation
29 October 1999
$million
Projected 2000
1
Distribution Yield
%
Industrial Property Trust
343.2
9.1
Commercial Property Trust (excluding CEUs)
263.8
9.4
Retail Property Trust
361.2
9.4
Development Trust
127.9
-
Trust
1
Weighted average (existing trusts)
9.3
Weighted average (Diversified trusts >$300million)
7.4
Weighted average (All trusts >$750 million)
8.0
Excluding the Development Trust that is not expected to commence distributions until 2001.
The key reasons for a re-rating are as follows:
·
The dramatically increased size of the Merged Trust. Without re-rating it will
have a market capitalisation of approximately $1.1 billion. This would make the
Merged Trust the 7th largest trust in the Property Trust Index;
·
The move from being a sector specific trust to being a diversified property trust.
There is some evidence to suggest that diversified property trusts are presently
rated more highly than sector specific trusts; and
·
Other transactions have achieved similar results. For example: the merger of
Mirvac Limited, Capital Property Trust and Mirvac Property Trust into the
Mirvac Group is considered, for the purposes of comparison, a substantially
similar transaction. In that particular case the market capitalisation of the merged
entity over the 30 days after the merger was implemented was nearly 40 percent
higher than that of the individual entities over the 30 days prior to the
announcement.
While we believe that some re-rating may occur in the short term, a full re-rating is
likely to take a longer period and may require some rebalancing of the property
portfolio.
19
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Merger of Listed Property Trusts Managed by Colonial First State
November 1999
3.4
Distributions
The following table sets out the Manager’s forecast distributions for each of the
existing trusts and for the Merged Trust (assuming the merger proceeds) for the years
ending 30 June 2000 and 30 June 2001.
Industrial
Property
Trust
Commercial
Property
Trust
Retail
Trust
Development
Trust
Merged
Trust
Cents Per Unit
2000
1
2001
Cents Per Existing Unit
2000
2001
1
2
1
17.00
17.35
10.50
-
18.00
16.80
17.45
10.55
15.75
18.10
17.10
17.37
10.53
18.45
na
17.20
17.47
10.59
18.55
na
2
2000 represents the forecast for the six months ended 30 June 2000 annualised.
Adjusting the per unit distribution for the Merged Trust to be comparable to the units held in the existing trust.
In general the increases in distributions are relatively minor. The two exceptions are:
(i)
Colonial Limited currently holds all of the 11.642 million capital entitlement units
in the Commercial Property Trust. Fifty (50) percent of these are to be converted
into ordinary units on 30 June 2000 and 50 percent are to convert into ordinary
units on 30 June 2001. These capital entitlement units would not have been
entitled to receive distributions until converted into ordinary units. However, as
a consequence of the merger, Colonial Limited will receive units in the
Merged Trust that will be entitled to distributions on the same basis as other
unitholders; and
(ii)
holders of units in the Development Trust will receive distributions six months
earlier from the Merged Trust than they would have as continuing unitholders in
the Development Trust.
In effect, the ability to increase distributions arises as a consequence of a number of
factors. These include:
(i)
a reduction in expenses incurred in the management of the Merged Trust;
(ii)
an increase in the interest expense as a consequence of higher debt levels in lieu
of the equity call that would otherwise have been payable by unitholders in the
Development Trust; and
(iii)
transfers from capital reserves increasing amounts able to be distributed. As set
out in the Explanatory Memorandum, transfer from capital reserves are forecast
to be $4.1 million in 2000 and $8.1 million in 2001. In 2001 this would be the
equivalent of approximately $0.014 per unit.
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Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
The forecast distributions referred to in this independent expert’s report are before
taking into consideration any impact of the introduction of the Goods and Services Tax
(“GST”) on 1 July 2000. The likely impact of GST on distributions on net income, and
therefore distributions, are discussed in the Explanatory Statement and are forecast to
be in the range of 0.2 percent to 1.4 percent of distributions for the four existing trusts
for the year ended 30 June 2001.
In our view, the forecast increase in distributions in itself is not a compelling argument
for the merger. The forecast increases are minor and are supported by transfers from
capital reserves which may not be sustainable in the longer term. Notwithstanding,
subject to the performance of the Manager, long term prospects for the Merged Trust,
as a substantially larger trust with greater investor support should be favourable from
a distributions perspective.
3.5
Tax Profile of Proposed Merger
The Manager has received tax advice from KPMG regarding the tax implications of the
merger for unitholders. This advice is set out in the Explanatory Memorandum.
Unitholders are advised to refer to this taxation advice.
In brief, based on the KMPG’s taxation letter, the following general taxation
implications arise:
· the merger will not result in a disposal of unitholders’ original units unless units are
sold prior to the restructure or a unitholder receives the cash alternative at the time
of the restructure;
· the special capital distribution of $0.03 should be treated as a return of capital and
not as assessable income;
· an adjustment to the tax cost base of the original units will be necessary for the
special capital distribution received, in the same way as ordinary tax deferred
distributions require adjustment. This will only result in a capital gain to the
unitholders to the extent the special distribution exceeds the cost base of the original
units;
· the application of the special distribution to the purchase of units in the other three
trusts will be treated as an acquisition of assets for capital gains tax (“CGT”)
purposes. Each new unit will have a cost base of $0.01;
· when a stapled security is sold, the unitholder will be treated as having sold units in
each of the underlying trusts. Depending on the cost base of the units, this may
result in a capital gain or capital loss being realised;
· the calculation of the capital gain or loss will require a reasonable apportionment of
the consideration received across the units of each trust which form the stapled
unitholding;
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Merger of Listed Property Trusts Managed by Colonial First State
November 1999
· it is likely that unitholders will incur a capital loss on the sale of the original units
and capital gains on the sale of the units acquired in the three trusts with the
application of the capital return monies;
· the capital loss on the disposal of the original units will be reduced by any tax free
distributions previously received in respect of these units. Further, when calculating
the capital loss, the cost base of the original units will not indexed for inflation.
Accordingly, unitholders may effectively lose the benefit of indexation and tax free
distributions in respect of their original units;
· the capital loss can be offset against the capital gain on the new units in the three
trusts;
· a CGT discount has recently been proposed for individuals, trusts and complying
superannuation funds. Under the proposal, individuals and trusts will include in
assessable income half (without indexation) of the realised nominal gain whilst
complying superannuation funds will be assessed on two thirds of the nominal
capital gain. For unitholders to qualify for the CGT discount, units must be held for
at least 12 months;
· in relation to trust distributions, unitholders will be assessed on their portion of the
net income of each trust. These distributions will consist of the net income, capital
gains, tax free and tax deferred income components; and
· to the extent the cumulative tax deferred amounts per unit exceed the cost base of
the unit, a capital gain will arise. In respect of the new units with a cost base of
$0.01, the practical consequence of tax deferred amounts in relation to these units
will be capital gains to the unitholders.
The historic tax free and tax deferred distribution components of each of the merging
trusts are shown in the Earnings and Distributions section of each respective Appendix
to this report.
3.6
Gearing
Each of the existing trusts has a different level of borrowings within its capital
structure. The table set out below shows the current gearing ratio (borrowings/total
assets) for each of the existing trusts together with the gearing ratio that will exist for
the Merged Trust.
Industrial
%
Commercial
%
Retail
%
Development
%
Merged
Trust
%
1999 (actual)
27
13
27
341
27
2000 (forecast)
28
14
24
27
28
2001 (forecast)
28
25
25
30
29
Gearing Ratios
1
Net of the final equity instalment due from unitholders on 30 June 2001.
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Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
Key points to note in respect of the above table include:
·
the significant increase in gearing in the Commercial Property Trust reflects the
final payment of approximately $46 million for the SRA building in Sydney. This
payment is due in September 2000;
·
as a consequence of the merger, unitholders in the Development Trust will not
need to pay the unpaid amount on their existing units. The Merged Trust will in
effect borrow to meet the requirement for these funds;
·
excluding the Commercial Property Trust in 2000 and 2001, the level of gearing is
not forecast to be significantly greater in the Merged Trust than it is in the
individual trusts; and
·
for comparative purposes it is relevant to note that the forecast gearing level for the
Merged Trust will be higher than the gearing levels of a number of the other large
property trusts. This is illustrated in the following table:
Trust Name
Gearing
%
Westfield Trust
19.8
General Property Trust
10.5
Mirvac Group
5.6
Stockland Trust Group
5.5
Westfield American Trust
59.7
Gandel Retail Trust
19.2
National Mutual Property Trust
10.6
AMP Shopping Centre Trust
30.2
Commercial Investment Trust
20.0
Advance Property Fund
14.3
Merged Property Trust
28.0
1
1
Debt divided by total assets.
Notwithstanding the above comparison, in our view the Merged Trust’s gearing
ratio is not excessive. It is relevant to note, for example, that based upon the
Manager’s forecasts the interest expense is covered 1 4.5 times in the six months to
30 June 2000 and 4.2 times in the year to 30 June 2001.
3.7
Net Tangible Asset Backing
Property trusts typically trade at either a premium or a discount to their net tangible
assets and therefore net tangible assets are not necessarily reflective of how the stock
market assesses value. Notwithstanding, many investors are conscious of the net asset
backing of their investments.
1 Interest coverage is calculated as net income before interest expense divided by interest expense.
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Merger of Listed Property Trusts Managed by Colonial First State
November 1999
The net tangible asset (“NTA”) position in respect of each of the existing trusts is as
follows:
NTA
Per Unit
Unit Price
Premium/(Discount)
Industrial Property Trust
$1.82
$1.87
+2.7%
Commercial Property Trust
$1.95
$1.84
(5.6%)
Retail Property Trust
$1.14
$1.11
(2.6%)
Development Property Trust
$2.14
$1.80
(15.9%)
Trust
Factors that may affect whether units in a trust trade at a premium or discount to net
tangible assets include:
·
the current stock market perception of the value of the trust and its underlying
assets. In contrast to net tangible assets that are reported at a point in time
(normally six monthly) the stockmarket is dynamic providing continuous valuation
data;
·
the performance and perception of a manager. Unitholders in listed trusts do not
typically have the ability to realise or cause the realisation of underlying property
assets. Therefore investors views of the Manager can be important to the value of
units in a listed property trust;
·
the level of administration cost incurred by the trust. Such costs are generally not
included in individual property valuations; and
·
other stockmarket related factors. Such factors include, for example, the size of a
trust, the indices within which it is included and potentially its overall taxation
profile. The level of liquidity in a stock may also affect investors (particularly
institutional) interest in a stock. In this regard it is relevant to note the information
in respect of the four existing trusts presented in Section 3.3.2.
The NTA of the Merged Trust is estimated by the Manager to be $1.98. On a
comparable basis, allowing for the exchange ratio, this is equivalent to the following
amounts per existing security:
$
Industrial Property Trust
1.88
Commercial Property Trust
1.91
Retail Property Trust
1.16
Development Trust
2.03
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Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
Unitholders of the Commercial Property Trust and the Development Trust will each
experience dilution in their net asset backing as a consequence of the merger. The
dilution represents approximately 2.0 percent and 5.2 percent respectively. It should be
noted that each of these was trading at a discount to net tangible assets prior to the
merger.
3.8
Cost Savings
The Manager anticipates that the merger will result in a number of cost savings. These
include:
· savings enjoyed by the Manager will allow a reduction in the Manager’s fee. The
Manager has agreed that its fee will be capped at 0.6 percent of gross assets per
annum;
· a reduction in listing fees, financial reporting costs and statutory compliance costs;
and
· a reduction in the administration required for maintaining separate entity
accounting records.
The Manager estimates the following management expense ratios in respect of the
individual trusts (assuming the merger proposal is not implemented) and the
Merged Trust (assuming the merger proposal is implemented).
Management Expense Ratio Comparison (based on gross assets)
Industrial
Property
Trust
(%)
Commercial
Property
Trust
(%)
Retail
Property
Trust
(%)
Development
Trust
(%)
Merged
Trust
(%)
2000
0.74
0.73
0.75
0.94
0.62
2001
0.83
0.74
0.78
0.91
0.69
Year ending
30 June
(30 September for
Retail)
The above table indicates that in all instances the forecast management expense ratio is
expected to fall in the event that the merger is implemented.
4.
Opinion and Conclusions
In our opinion, the merger proposal is fair and reasonable and in the best interests of
unitholders:
· of the Industrial Property Trust taken as a whole;
· of the Commercial Property Trust taken as a whole;
· of the Retail Property Trust taken as a whole; and
· of the Development Trust taken as a whole.
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Merger of Listed Property Trusts Managed by Colonial First State
November 1999
The key reasons for our conclusion are drawn from our evaluation of the merger set
out in Section 3.
These include:
The Apportionment of Units in the Merged Trust
Based on the relative market capitalisation of each existing trust and the net assets of
each existing trust, we consider that the allocation of stapled securities in the
Merged Trust to unitholders is within a range that is considered reasonable.
Size and Diversification
The merger will mean that investors will move from having an interest in a single
sector trust to having an interest in a much larger diversified property trust. As a
consequence a re-rating of the security is expected, partially in the short term and
partially over the longer term. This is the key objective of the merger and the most
important element of our conclusion that the merger is fair and reasonable and in the
best interests of unitholders.
Increase in Forecast Distributions
The Managers’ forecasts indicate that as a consequence of the merger a moderate
increase in distributions will occur for the unitholders of each existing trust. While this
is favourable for unitholders, we do not consider this in itself to be a compelling
argument for the merger.
Taxation Consequences
Unitholders
are
referred
to
the
KPMG
letter
contained
in
the
Explanatory Memorandum for a comprehensive description of the taxation
consequences of the merger. In broad terms, the merger should not result in a capital
gains tax event for unitholders accepting stapled securities in the Merged Trust.
Therefore they should not realise either a capital gain or a capital loss for taxation
purposes. Unitholders selling their interests on market or via the book build process
will, however, be treated as having sold their units for tax purposes and therefore may
realise either a gain or a loss.
Unitholders should be aware that a disadvantage of the merger is the potential
reduction in value of the tax deferred component of future distributions.
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Independent Expert’s Report to Colonial
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
Matters Specific to Individual Trusts
The following additional points should be considered by certain unitholders:
(a)
Development Trust
As a consequence of the merger:
(b)
·
unitholders in the Development Trust will not be required to pay the final
instalment of $1.00 per existing unit that would otherwise be payable on
30 June 2000;
·
unitholders in the Development Trust are not presently expected to receive
distributions until the 2001 financial year. As unitholders in the Merged
Trust they are forecast to receive their first distribution in respect of the six
month period ended 30 June 2000; and
·
unitholders in the Development Trust previously held an investment
focused more on development profits and capital gains than on
distribution yields. As a consequence of the merger, they will gain an
interest in diversified property portfolio. This change in nature of their
investment is potentially greater than occurs for the other groups of
unitholders.
Commercial Property Trust – Capital Entitlement Units
Colonial presently holds 11.64 million capital entitlement units in the
Commercial Property Trust. Fifty (50) percent of these are due to convert into
ordinary units on 30 June 2000 and 50 percent on 30 June 2001. In the interim
they are not listed on the ASX and they do not receive distributions. The merger
will result in Colonial in effect exchanging these units for stapled securities in the
Merged Trust. These will be listed on the ASX and are forecast to pay
distributions commencing in the 6 months ended 30 June 2000.
On balance we have concluded that the benefits that may arise from the larger size and
diversification of the Merged Trust relative to the existing trusts is of sufficient potential
benefit to unitholders to cause the transaction to be fair and reasonable and in the best
interests of unitholders.
27
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Merger of Listed Property Trusts Managed by Colonial First State
November 1999
APPENDICES
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Merger of Listed Property Trusts Managed by Colonial First State
November 1999
Appendix 1
Profile of the Industrial Property Trust
Background
The Industrial Property Trust is a property trust which currently invests in and manages industrial
estates, warehouses and high technology facilities in Sydney, Melbourne and Brisbane.
The trust was established in 1971 as the Parkes Property Trust No. 1 by
Parkes Developments Pty Limited, and was listed on the ASX on 9 March 1972. In 1979
Universal Management Holdings Limited, a subsidiary of QBE Insurance Group Limited, was
appointed manager of the Trust. Universal Management Holdings Limited changed its name to
Equitable Group Limited and accordingly, in April 1987, the Trust changed its name to
Equitable Property Trust No. 1.
In January 1989 Colonial Mutual Funds Limited was appointed manager of the Trust. In the
subsequent months, the Colonial Mutual Property Trust No. 1, a Trust managed by
Colonial Mutual Funds Limited, made an offer to acquire all of the issued units of the Trust at
$2.05 per unit. This resulted in Colonial Mutual Property Trust No. 1 holding 73.53 percent of the
Equitable Property Trust. No. 1.
In March 1996 the Trust’s name was changed to Colonial Industrial Property Trust and in
November 1998 the name again changed to Colonial First State Industrial Property Trust.
With
effect
from
1
January
1999
the
Trust
merged
with
the
Legal & General Industrial Property Trust (LGI). This merger significantly increased the Trust’s
market capitalisation. As at 30 September 1999, the Industrial Property Trust had grown it’s property
portfolio to a value of $461.6 million comprising 24 properties.
Profile of Property Portfolio
A summary of the Industrial Property Trust’s property portfolio at 30 September 1999, based on
independent valuations for each property undertaken over a period from September 1998 to
September 1999, is set out in the table below.
1
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Merger of Listed Property Trusts Managed by Colonial First State
November 1999
Property Address
State
Classification
Date of
Construction
Industrial Estate, 42-62 Maddox Street, Alexandria
25 Pavesi Street, Smithfield
390 Eastern Valley Way, Chatswood
91 Mars Road, Lane Cove
13-15 Lyon Park Road, North Ryde
Brodie Industrial Park, 40 Brodie Street, Rydalmere
14 Aquatic Drive, Frenchs Forest
Mascot Central, Gardeners Road, Mascot
77-91 Roberts Road, Chullora
Gateway Estate, Walters Road, Arndell Park
Slough Business Park, Silverwater Road, Silverwater
85 Epping Road and 376 Lane Cove Road, North Ryde
8 Giffnock Avenue, North Ryde
Allders Building, 17 O’Riordan Street, Alexandria
Industrial Estate 317-321 Woodpark Rd, Smithfield
Industrial Estate 364-368 Woodpark Rd, Smithfield
339-345 Military Road, Cremorne
299 Montague Road, West End
60 Enterprise Place, Tingalpa
Boundary Industrial Park, Coopers Plains
100-128 Bridge Road, Keysborough
80 Turner Street, Port Melbourne
197-205 Fitzgerald Road, Laverton North
Lot 1, Old Geelong Road, Hoppers Crossing
NSW
NSW
NSW
NSW
NSW
NSW
NSW
NSW
NSW
NSW
NSW
NSW
NSW
NSW
NSW
NSW
NSW
QLD
QLD
QLD
VIC
VIC
VIC
VIC
Ind. Estate
Warehouse
Ind. High Tech
Warehouse
Ind. High Tech
Ind. Estate
Ind. High Tech
Warehouse
Warehouse
Ind. Estate
Ind. Estate
Ind. High Tech
Develop. Site
Warehouse
Ind. Estate
Ind. Estate
Office
Ind. High Tech
Ind. Estate
Ind. Estate
Warehouse
Warehouse
Warehouse
Warehouse
1950’s +
1997
1988
1985
1990
1980’s
1988
1999
1994
1999
1980’s
1980 & 1985 (est.)
N/A
1995
1990’s
1980’s
1987
1994 (refurbished)
1996
1986 - 1991
1994
1994
1996/97
1990
Total
24 Properties
2
Gross
Building
Area (sqm)
Current
Valuation
$
Date of
Valuation
Portfolio
Composition
(%)
43,600
7,527
5,221
6,794
7,569
19,814
17,815
17,146
32,975
27,928
71,279
13,153
N/A
6,097
14,903
16,729
4,476
5,995
11,564
35,144
6,875
11,820
17,705
52,612
35,000,000
7,450,000
8,250,000
10,600,000
16,250,000
17,400,000
26,300,000
26,800,000
28,000,000
28,500,000
80,000,000
19,000,000
2,400,000
7,800,000
10,300,000
11,400,000
13,100,000
8,400,000
12,140,000
21,000,000
8,800,000
11,000,000
11,725,000
40,000,000
03/99
08/99
08/99
08/99
03/99
08/99
08/99
03/99
08/99
08/99
03/99
08/99
08/99
09/98
03/99
03/99
09/99
03/99
08/99
08/99
08/99
11/98
08/99
08/99
7.6
1.6
1.8
2.3
3.5
3.8
5.7
5.8
6.1
6.2
17.3
4.1
0.5
1.7
2.2
2.5
2.8
1.8
2.6
4.5
1.9
2.4
2.5
8.7
454,741
461,615,000
100.0
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Comments on Trust Portfolio
· Portfolio mix – no single asset dominates the portfolio, however, there is a significant
range of property values within the portfolio with Slough Business Park, Silverwater,
NSW at $80 million representing 17.3 percent of the total portfolio by value and the
development site at 8 Giffnock Avenue, North Ryde at $2.4 million representing only
0.5 percent of total value. The majority of assets have a value range of between
$7.5 million and $35 million and are either fully or substantially leased.
· Geographic distribution – the Industrial Property Trust has a substantial exposure to
New South Wales of (75.5 percent of the portfolio), with the balance of the portfolio made
up by Victoria (15.5 percent) and Queensland (9.0 percent). Following the proposed
merger, a more balanced geographic distribution will exist.
Industrial Property Trust
Geographic Distribution
(by Property Value)
Merged Trust
Geographic Distribution
(by Property Value)
VIC
15.5%
ACT
WA
VIC
QLD
0.5%
8.2%
16.6%
9.0%
SA
NSW
10.0%
NSW
QLD
75.5%
20.5%
Source: Valuation Reports/Arthur Andersen
Source: Valuation Reports/Arthur Andersen
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Merger of Listed Property Trusts Managed by Colonial First State
November 1999
· Property type – The Industrial Property Trust has a relatively balanced exposure to
industrial estates (46.8 percent), warehouses (33.0 percent) and high technology facilities
(16.9 percent). The balance of the fund is made up by office facilities (2.8 percent) and a
development site (0.5 percent). Following the merger, industrial property will form
approximately 28.1 percent of the total assets of the Merged Trust.
Industrial Property Trust
Property Type Distribution
(by Property Value)
Merged Trust
Property Type Distribution
(by Property Value)
Develop.
Industrial
Site
28.1%
0.5%
W'house
Office
33.0%
40.5%
Ind. Estate
46.8%
Office
2.8%
Ind. High
Retail
Tech
31.4%
16.9%
Source: Valuation Reports/Arthur Andersen
Source: Valuation Reports/Arthur Andersen
· Value – Based on current valuations, the Industrial Property Trust’s assets have a total
value of $461.6 million. This places the Trust second in the listed industrial trust sector,
significantly behind the market leader, Prime Industrial Property Trust at $763 million but
also significantly above the third highest, AMP Industrial Trust, at $389.4 million.
This is illustrated as follows:
Listed Industrial Property Trusts (selection)
Trust Name
Gross Floor
Area
sqm
Current
Property
Value
$m
Current
Vacancy
(approx)
%
Current Lease
Expiry (approx)
Yrs
Prime Industrial Property Trust
983,016
763.0
3.9
7.3
Colonial First State Industrial Property Trust
454,741
461.6
2.6
4.7
AMP Industrial Trust
458,812
389.4
1.3
3.2
Goodman Hardie Industrial Trust
328,100
235.7
0.6
5.0
Paladin Industrial Property Trust
280,282
226.2
0.0
4.3
Flinders Industrial Property Trust
650,622
223.8
0.0
4.9
Armstrong Jones Industrial Fund
256,390
168.4
0.0
6.0
Source: Property Investment Research/Colonial First State Investments
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· Vacancies – The current vacancy rate across the entire portfolio is approximately
2.6 percent. This compares satisfactorily with the selection of listed industrial trusts which
range from 0.0 percent to 3.9 percent.
· Lease expiry – The current average remaining lease term (weighted by income) is
4.7 years. This compares with the selection of listed industrial trusts which range from
3.2 years to 7.3 years. In this regard, the lease expiry profile for the Trust is considered to
be average for its sector.
· Age of Assets – Virtually all property assets contained within the Trust have been
constructed progressively over a period of some 20 years, with the oldest buildings
(85 Epping Road and 376 Lane Cove Road, North Ryde) constructed in 1980 and Mascot
Central, Gardeners Road, Mascot, constructed during 1999. The Maddox Street,
Alexandria, New South Wales property was built in stages from the 1950’s onwards. The
average age of the portfolio is 10 years, weighted by value.
· Strengths of Portfolio
- Significant exposure to the Sydney industrial property market, the largest and
currently strongest industrial market in Australia.
- The Industrial Property Trust is only exposed to the Sydney, Melbourne and Brisbane
industrial markets, considered to be the three strongest industrial property markets in
Australia.
- No exposure to properties in non-capital city locations or to secondary markets such as
Adelaide, Hobart and Darwin.
- Properties are generally considered to be well leased, relatively modern assets,
primarily in sound locations within large metropolitan centres.
· Weaknesses of Portfolio
- Some assets are over-rented which will limit rental and capital growth. Property
Investment Research has estimated that the total Trust portfolio is approximately
1.4 percent over-rented. Part of this over-renting is attributed to the major asset at
Old Geelong Road, Hoppers Crossing, Victoria.
- Industrial Property Trust assets require active management and periodic capital
injections to upgrade or redevelop older style structures.
- A significant vacancy of 11,715 square metres will soon arise at Boundary Industrial
Park, Coopers Plains, Queensland with the imminent departure of Coles Supermarkets.
- Capital and rental growth from many of the industrial properties will be limited,
particularly where these properties are located in middle to outer metropolitan
locations and where the buildings are in excess of 10 to 15 years old.
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November 1999
Industrial Property Trust Market Overview
Economic conditions have been favourable over the three months ending September 1999
despite the slowdown in economic activity from January until March of this year. The major
indicators, namely GDP growth of 4.8 percent and improving consumer and business
confidence levels augur well for steady industrial market activity as 2000 approaches.
The demise of certain Asian economies was anticipated to impact negatively on our
economy, but this does not appear to have occurred and many commentators believe an
improvement in Asian trade should begin to occur within the next 6 months. Markets remain
buoyant in line with high levels of industrial activity construction and take-up activity
remains fundamentally sound with the low interest rate environment during the first three
quarters of 1999 continuing to fuel demand. Rents remain stable, or are increasing slightly,
with yields continuing to firm. There is strong investor demand for the limited offering of
good quality, well leased industrial premises coming to the market.
Development activity remains strong across most cities with high levels of completions.
· A significant level of space remains under construction and due for completion during the
last quarter of 1999 and beyond. The Sydney industrial market leads the country with the
largest amount of activity taking place in the north and south-west corridor. ‘Design and
construct’ and pre-lease activity continues to underpin development, despite increases in
small scale speculative developments in Melbourne, Perth and Sydney.
Absorption levels strengthened especially between April and August of this year.
· Brisbane and Adelaide recorded strong increases in demand whilst Sydney, Perth and
Melbourne experienced modest rises.
Vacancies are falling in most metropolitan areas although the secondary markets in Perth
and Adelaide are experiencing a ‘softening’ in performance.
Prime rents have increased marginally in Sydney, Perth and Brisbane, while remaining
stable in Adelaide and reducing in Melbourne.
· While there has been growth in rentals across the board in the last 18 months it has been
rather protracted. Most prospective tenants have been extremely cautious and demanding
when making the final decision on location.
· Rents continue to fall in Melbourne as a highly competitive pre-lease market continues to
place downward pressure on rents generally. Pre-lease rents are now being struck at
levels below existing market rents with lower commencement rentals being accepted by
developers in return for structured leases with fixed rental increases.
Levels of investment sales remain subdued in most cities due to limited stock availability.
· Investor demand remains reasonably strong, especially for quality stock, with the net
result that trusts in particular have become enthusiastic participators in this market,
placing firm pressure on yields.
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· All capital cities except for Brisbane have witnessed an increase in capital values during
the last 12 months. This is due to the shortage of investment grade stock.
Valuation Review
We have undertaken a review of all current valuations of the Industrial Property Trust
properties. A summary of our comments is as follows:
· The majority of valuations have been based upon a capitalisation of either net passing or
net market income, often supported by a discounted cashflow analysis.
· Capitalisation rates range between 9.0 percent and 10.75 percent on market net income,
with internal rates of return ranging between 10.50 percent and 13.00 percent, apart from
Hoppers Crossing, Victoria at 9.0 percent. These yields and discount rates are generally
considered appropriate.
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November 1999
Earnings and Distributions
The following table sets out the Industrial Property Trust’s earnings performance for the two
years ended 30 June 1999, the Manager’s forecast earnings performance for the six months
ending 30 June 2000 and the Manager’s forecast earnings for the year ending
30 June 2001:
Actual
Actual
Forecast
Forecast
Year Ended
30 June 1998
Year Ended
30 June 1999
Six Months Ending
30 June 2000
Year Ending
30 June 2001
$000s
$000s
$000s
$000s
Income
Net property income
18,984
32,345
21,265
41,925
1,053
2,122
187
248
20,037
34,467
21,452
42,173
Trust expenses
1,813
2,613
1,769
3,934
Interest expense
2,616
4,472
4,096
8,395
4,429
7,085
5,865
12,329
1
-
-
11,627
15,587
29,844
1
15
992
15,967
27,382
15,602
30,836
91,661,825
152,062,534
183,551,660
183,551,660
Interest income
Expenses
Abnormal items
Net income
Transfer from/(to) reserves
Distributable income
Weighted number of units in
issue
(1,427)
2
(15,755)
14,181
1,786
15,755
Statistics
Earnings per unit
15.47
7.65
1
16.98
16.26
Diluted earnings per unit
14.54
7.65
1
16.98
16.26
Distributions per unit (June
2000 annualised)
17.40
17.70
17.00
16.80
Tax free amount of distribution
2.28
2.09
N/A
N/A
Tax deferred amount of
distribution
4.86
5.59
N/A
N/A
8.8%
10.0%
N/A
N/A
Distribution yield (based on
balance sheet date unit price)
1
2
Abnormal items for the year ended 30 June 1999 comprise of the writedown of premium on acquisition of a controlled
entity of $13,383,000 and a swap cancellation fee of $2,372,000. Earnings per unit are after this abnormal expense.
In the year ended 30 June 1998, the abnormal expenses represented unit issue costs of $1,427,000.
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Balance Sheet
Industrial Property Trust’s balance sheet as at 30 June 1999 (adjusted to reflect the effect of
property revaluations since that date) and as at 30 June 1998 is summarised below:
30 June 1998
$000s
30 June 1999
$000s
2,897
7,858
44,975
1,355
47,872
9,213
229,680
463,064
229,680
463,064
277,552
472,277
Current Assets
Cash and other current assets
Receivables
Non-Current Assets
Properties
Total Assets
Current Liabilities
Accounts payable
678
2,501
4,220
8,168
12,000
-
16,898
10,669
Borrowings
45,000
127,700
45,000
127,700
Total Liabilities
61,898
138,369
215,654
333,908
Distributions payable
Borrowings
Non-Current Liabilities
Net Assets
Statistics
Units on issue
118,616,456
183,551,660
Net tangible assets per unit ($)
1.82
1.82
Borrowings/Total assets (%)
20.5
27.0
Capital Structure and Ownership
The Industrial Property Trust listed on the ASX on 9 March 1972.
As at 30 June 1999, Industrial Property Trust had 183,551,660 units in issue which includes
64,935,204 units which were allotted on 24 December 1998 pursuant to the acquisition of
Legal & General Industrial Property Trust.
According to the Industrial Property Trust’s unit register as at 30 June 1999, the following
unitholders held in excess of 5 percent of the issued units:
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November 1999
Unitholder
%
Permanent Trustee Australia Limited
12.0
Colonial Financial Corporation Limited
8.8
Westpac Custodian Nominees Limited
7.6
National Nominees Limited
5.0
Sharemarket Performance
Industrial Property Trust Unit Price and Trading Volumes
18,000
2.50
16,000
2.00
14,000
Price ($)
10,000
8,000
1.00
Volume (000s)
12,000
1.50
6,000
4,000
0.50
2,000
0
Jan-95
Jul-95
Jan-96
Jul-96
Jan-97
Jul-97
Volume
Jan-98
Jul-98
Jan-99
Jul-99
Price
Source: Bloomberg LLP
Industrial Property Trust vs. All Ordinaries Index and Property Trust Index
180
170
160
150
Index
140
130
120
110
100
90
80
Jan-95
Jul-95
Jan-96
Jul-96
Industrial Property Trust
Jan-97
Jul-97
All Ordinaries Index
Jan-98
Jul-98
Jan-99
Jul-99
Property Trust Index
Source: Bloomberg LLP
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November 1999
Appendix 2
Profile of the Commercial Property Trust
Background
The Commercial Property Trust is a property trust which invests in and manages office
buildings and office parks throughout Australia.
The Trust was established as the Colonial Commercial Property Trust and listed on the ASX
on 27 November 1995. In September 1996 the manager of the Trust changed from Colonial
Funds Limited to Colonial Investment Trust Limited.
At the time of the initial public offering, the Commercial Property Trust issued 10,000,000
capital entitlement units to Colonial Mutual Life Assurance Society Limited. 50 percent of
these units convert to ordinary units on 30 June 2000 and 50 percent convert to ordinary
units on 30 June 2001. For the period from the date of issue to 30 June 1998, the capital
entitlement units received a capital distribution of 6 percent per annum in the form of bonus
capital entitlement units. The Colonial Group agreed to forego further accumulation of the
capital entitlement units as from 30 June 1998 in order to reduce the dilutionary effect of the
conversion of such units into ordinary units. There are now 11.642 million capital entitlement
units on issue.
In order to enhance future distributions, the Manager announced in February 1999 that:
· Management fees were reduced from 0.85 percent of gross assets to 0.65 percent of gross
assets with effect from 1 January 1999. This represents a saving to the trust of
approximately $710,000 per annum; and
· An interest rate swap of $33 million was renegotiated at a new average interest rate of
5.35 percent per annum down from 7.21 percent per annum. Although a swap
cancellation fee of $1.6 million was incurred, an annual saving of approximately
$614,000 per annum will be enjoyed by the Trust.
As at 30 September 1999, the Commercial Property Trust had grown its property portfolio to
a value of $350 million comprising seven office properties.
Profile of Property Portfolio
A summary of the trust’s property portfolio at 15 October 1999, based on independent
valuations for each property undertaken between April 1998 and 15 October 1999 is set out
below:
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Net Lettable
Area
sqm
Current
Valuation
$
Date of
Valuation
Property Address
State
Classification
Date of
Construction
Portfolio
(%)
SRA Building, 32 Lee Street, Sydney
NSW
A Grade
Est. Sep 2000
14,391
4,550,000
04/98
1.3
150 George Street, Parramatta
NSW
A Grade
1992
21,964
77,800,000
11/98
22.2
300 Queen Street, Brisbane
QLD
A Grade
1984
19,052
67,500,000
09/99
19.3
45 Pirie Street, Adelaide
SA
Prime Grade
1989
19,805
51,500,000
11/98
14.7
Brandon Office Park, Glen Waverley
VIC
A Grade
1988 - 1990
16,862
41,500,000
05/99
11.9
675-679 Victoria Street, Abbotsford
VIC
B Grade
1984 - 1987
9,474
20,750,000
10/99
5.9
197 St Georges Terrace, 1 & 5 Mill Street, Perth
WA
A Grade
1972, 1983
& 1986
39,675
86,400,000
12/98
24.7
141,223
350,000,000
Total
7 properties
Notes
1
2
3
100.0
Notes:
1.
This property is presently under construction. Completion is expected to occur in September 2000. The value upon completion is projected to be
$51.0 million.
2.
Includes vendor income support totalling $1.0 million over the years ending June 2000 and June 2001.
3.
A maximum shortfall indemnity of $6 million has been provided by the vendor. This expires in June 2000.
4.
Building classification – buildings are not officially graded and the classifications provided above are the opinion of Arthur Andersen, with
reference to Property Investment Research Pty Ltd, the Manager and individual valuation reports.
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Comments on Trust portfolio
· Portfolio mix – No single asset dominates the portfolio. The range of property values
extends from the lowest value asset at $20.75 million (Abbotsford) to the highest value
asset at $86.4 million (Perth). Upon completion, 32 Lee Street, Sydney will have a value of
approximately $51 million.
· Geographic distribution – The Commercial Property Trust properties have a generally
balanced geographic spread. However, having regard for the likely continuing dominance
of the Sydney office market within Australia, greater exposure to the New South Wales
market may be regarded as preferable. If the merger proceeds, this increased exposure
will be achieved with the incorporation of the two Development Trust properties. On a
global basis, the Merged Trust will have a 44.2 percent exposure to
New South Wales for all property types.
Commercial Property Trust
Geographic Distribution
(by Property Value)
Merged Trust
Geographic Distribution
(by Property Value)
WA
WA
24.7%
NSW
VIC
23.5%
0.5%
16.6%
SA
QLD
VIC
8.2%
ACT
NSW
10.0%
19.3%
44.2%
17.8%
SA
QLD
14.7%
20.5%
Source: Valuation Reports/Arthur Andersen
Source: Valuation Reports/Arthur Andersen
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· Property Type – The portfolio comprises one Prime grade, five A grade and one B grade
property. Although a greater concentration of Prime grade property would be more
attractive to the market, the current diversification has a similar profile to several other
office trusts and the office component of diversified trusts. Following the proposed
merger, commercial property will comprise 40.5 percent of the total portfolio, though this
ratio will increase to approximately 43.7 percent following the completion of construction
and letting up of 32 Lee Street, Sydney and the absorption of 56 Pitt Street and
60 Castlereagh Street, Sydney.
Commercial Property Trust
Property Type Distribution
(by Property Value)
Merged Trust
Property Type Distribution
(by Property Value)
Prime
Industrial
14.7%
28.1%
B Grade
Office
5.9%
40.5%
A Grade
Retail
79.4%
31.4%
Source: Valuation Reports/Arthur Andersen
Source: Valuation Reports/Arthur Andersen
· Value – With a current value of the trust assets of $350.0 million, the Trust is relatively
small compared to a selection of other similar listed commercial property trusts. The
following table shows a range in total asset values for similar trusts of between
$253 million to $1,060 million.
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Listed Commercial Property Trusts (selection)
Trust Name
Net Lettable
Area
sqm
Australian Commercial Property Trust
Current
Property
Value
$m
Current
Vacancy
(approx)
%
Current Lease
Expiry
(approx)
Yrs
95,293
253.3
8.3
3.6
Armstrong Jones Office Fund
124,152
490.0
21.0
8.0
AMP Office Trust
256,190
523.5
2.9
5.0
BT Office Trust (excl 400 George St, Sydney)
246,187
755.2
1.0
4.4
Commercial Investment Trust
181,068
1,060.0
3.0
5.8
Colonial First State Commercial Property Trust
141,223
350.0
1.8
5.5
Commonwealth Property Office Fund
216,790
619.5
7.0
7.5
Prime Credit Property Trust
251,460
580.0
1.2
7.4
Westpac Property Trust
251,953
687.9
4.0
3.0
Source: Property Investment Research/Colonial First State Investments.
· Vacancies – Based on floor area, the Commercial Property Trust has a current vacancy
rate of approximately 1.8 percent across the total portfolio. This rate generally compares
favourably with the other selected trusts outlined above.
· Lease expiry – The Commercial Property Trust has an average lease expiry of
approximately 5.5 years, which places it in the middle of the range of other sector specific
commercial property trusts. Over 55 percent of leases (by floor area) have expiry dates
beyond July 2004. The Trust has approximately 118 tenants with an exposure to its 10
largest tenants of 64.7 percent. There are two significant lease expiries (Telstra and NEC)
at Brandon Office Park, Victoria in 1999 and 2000. However, discussions with the
Manager indicate that negotiations are at an advanced stage to retain both tenants on new
leases, albeit at lower rentals than those currently being paid.
· Strengths
- Even geographic distribution which partially minimises risks in fluctuating markets.
- Trust assets comprises mainly A grade and one Prime grade buildings.
· Weaknesses
- Only limited exposure to New South Wales market.
- No exposure to Prime grade buildings in either Sydney or Melbourne.
These weaknesses will be partially addressed following the proposed merger with the
Development Trust.
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November 1999
Office Market Overview
There is wide disparity between performance and positioning in the rental cycle of the major
Australian office markets. Although at quite different stages, Sydney CBD and Canberra
stand out as being currently positioned outside the upturn cycle, with Sydney at or close to
the upturn peak and Canberra either static or in decline.
Sydney CBD and Parramatta’s vacancies fall, despite significant supply coming on stream.
·
Driven by the strength of demand and with no major completions in the second quarter
of the year, vacancies declined again in Sydney CBD to 6.1 percent. Parramatta’s vacancy
rate decreased to 5.6 percent, but with approximately 17,000 square metres of supply
pending the rate is expected to generally increase.
· It is apparent that Sydney’s increasingly significant role as a major financial centre, which
has driven the current construction cycle, continues to underpin absorption.
Nevertheless, company rationalisation, mergers and consolidations continue and may
have a bearing on a likely oversupply position in the future.
·
The leasing market remains active and net absorption has been boosted by tenant
relocations to the Sydney CBD and expansion from small space users who have
contributed to 70 percent of leasing transactions. The significant supply of over
190,000 square metres due to come on stream in Sydney CBD over the second half of 1999
has yet to impact on rental levels, with prime gross effective rents remaining stable at
$480 per square metre. Secondary rents have declined for much of this year and currently
stand at $310 per square metre. In Parramatta, both prime and secondary rentals
increased to $290 and $260 per square metre respectively.
·
Despite continuing strength in the investment market nationally, investment yields
remain fixed at 6.0 percent to 7.0 percent for prime space in Sydney and 8.5 percent to
9.0 percent in Parramatta.
Brisbane, Perth and Adelaide are experiencing protracted growth in income stream and
capital values, although Perth’s vacancy factor has increased.
·
No major, new supply has been reported in Brisbane, Adelaide or Perth over the course
of the last six months. Construction activity has increased in Brisbane CBD, however,
with only 50,000 square metres being released to the market, no major detrimental
impact on performance is foreseen.
·
Demand, although remaining positive, has generally been subdued across these markets.
No new tenants of significance have entered these markets. The improvement in
performance can be attributed to expansions by incumbent tenants in the market place.
In Adelaide, with State Government rationalisation taking place the current vacancy rate
of 18.6 percent is expected to rise over the next 18 months.
· Yields remain stable on the back of solid investor interest and the significant weight of
funds looking to secure direct property.
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Valuation Review
We have undertaken a review of all current valuations of the trust’s properties. A summary
of our comments is as follows:
· The majority of valuations have been based upon a capitalisation of either net passing or
net market income, together with a discounted cashflow analysis.
· Capitalisation rates range between 7.75 percent and 10.25 percent on market net income,
with internal rates of return ranging between 10.5 percent and 13.0 percent. These yields
and discount rates are generally considered appropriate.
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Earnings and Distributions
The following table sets out Commercial Property Trust’s earnings performance for the two
years ended 30 June 1999, the manager’s forecast earnings performance for the six months
ending 30 June 2000 and the manager’s forecast earnings performance for the year ending
30 June 2001.
Actual
Actual
Forecast
Forecast
Year Ended
30 June 1998
Year Ended
30 June 1999
Six Months
Ending
30 June 2000
Year Ending
30 June 2001
$000s
$000s
$000s
$000s
32,822
30,102
15,207
33,676
Rental indemnities
895
1,946
925
150
Interest income
311
893
140
350
34,028
32,941
16,272
34,176
Trust expenses
3,636
3,170
1,335
3,050
Interest expense
3,084
3,289
1,408
5,408
6,720
6,459
2,743
8,457
43
4,136
-
-
-
-
29,754
13,529
25,719
(3,272)
(1,089)
27,308
26,482
12,440
26,039
143,387,514
143,387,514
143,387,514
149,208,684
Income
Net property income
Expenses
Gain on revaluation of property
investments
Abnormal items
Net income
Transfer (to)/from reserves
Distributable income
Weighted number of units on
issue
-
(864)
27,351
(43)
1
320
Statistics
Earnings per unit (June 2000
annualised)
19.07
20.75
18.87
17.24
Diluted earnings per unit
18.43
19.19
18.87
17.24
Distributions per unit (June 2000
annualised)
18.176
19.04
17.35
17.45
Tax free amount of distribution
2.34
2.30
N/A
N/A
Tax deferred amount of
distribution
3.90
4.29
N/A
N/A
Distribution yield (based on
balance sheet date unit price)
8.9%
11.5%
N/A
N/A
1
Abnormal items for the year ended 30 June 1999 comprise a capital profit on disposal of an investment property of
$741,000 and a swap cancellation fee of $1,605,000.
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Balance Sheet
Commercial Property Trust’s balance sheet as at 30 June 1999 (adjusted to reflect the effect of
property revaluations since that date) and as at 30 June 1998 is summarised below:
30 June 1998
$000s
30 June 1999
$000s
Current Assets
Cash and other current assets
2,775
3,066
Receivables
2,171
1,079
4,946
4,145
379,397
350,631
379,397
350,631
384,343
354,776
Accounts payable
1,035
1,038
Distributions payable
6,861
6,220
79,000
-
86,896
7,258
-
45,300
-
45,300
86,896
52,558
297,447
302,218
155,029,854
155,029,854
Net tangible assets per unit ($)
1.92
1.95
Borrowings/Total assets (%)
20.6
12.8
Non-Current Assets
Properties
Total Assets
Current Liabilities
Borrowings
Non-Current Liabilities
Borrowings
Total Liabilities
Net Assets
Statistics
Units on issue
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Capital Structure and Ownership
Commercial Property Trust listed on the ASX on 27 November 1995. As at 30 June 1999,
Commercial Property Trust had 143,387,514 ordinary units and 11,642,340 capital entitlement
units in issue. According to Commercial Property Trust’s unit register as at 30 June 1999,
ordinary unitholders with a unitholding in excess of 5 percent of issued units are:
Unitholder
%
Citicorp Nominees Pty Limited
9.80
National Nominees Limited
9.65
Westpac Custodian Nominees Limited
9.33
Chase Manhatten Nominees Limited
5.22
Colonial Mutual Life Assurance Society Limited holds 100 percent of the capital entitlement
units on issue.
Sharemarket Performance
Commercial Property Trust Unit Price and Trading Volumes
25,000
3.00
2.50
20,000
Price ($)
15,000
1.50
10,000
Volume (000s)
2.00
1.00
5,000
0.50
-
0
Nov-95
M a y-96
Nov-96
M a y-97
Nov-97
Volume
M a y-98
Nov-98
M a y-99
Price
Source: Bloomberg LLP
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Commercial Property Trust vs. All Ordinaries Index and Property Trust Index
150
140
Index
130
120
110
100
90
80
Nov-95
May-96
Nov-96
Commercial Property Trust
May-97
Nov-97
All Ordinaries Index
May-98
Nov-98
May-99
Property Trust Index
Source: Bloomberg LLP
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Appendix 3
Profile of Colonial First State Retail Property Trust
Background
The Retail Property Trust is a property trust which currently manages nine shopping centres
and one commercial office building. The focus of the trust is to invest in shopping centres
with some or all of the following characteristics:
· high food base and daily shopping convenience;
· centres which enjoy a degree of dominance;
· location within high population growth areas; and
· centres which present the opportunity to add value through refurbishment or
redevelopment.
The Retail Property Trust was established in July 1984 as the Hooker Property Trust which
was established by Hooker Corporation Limited to acquire a portfolio of commercial,
industrial and retail properties. The trust was listed on the ASX in November 1984.
In June 1989, Colonial Mutual Funds Limited, a wholly owned subsidiary of The Colonial
Mutual Life Assurance Society Limited, acquired the management rights of the trust and
changed its name to Colonial Mutual Australian Property Fund. In April 1990, the
management rights were transferred to Colonial Mutual Funds Management Limited,
another wholly owned subsidiary of The Colonial Mutual Life Assurance Society Limited.
The fund changed its name from Colonial Mutual Australian Property Fund to
Colonial Retail Property Trust in May 1996 and in October 1998 the name was changed again
to Colonial First State Retail Property Trust.
As at 30 September 1999, the Retail Property Trust had grown the value of its property
portfolio to $509.2 million comprising nine retail assets and one office property.
Profile of Property Portfolio
A summary of the Retail Property Trust’s property portfolio at 30 September 1999, based on
independent valuations for each property undertaken between September 1998 and
May 1999, is set out below:
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Property Address
State
Type of Centre
Ownership
(%)
15 Bowes Street, Woden
ACT
Suburban Office
100.0
Grand Plaza Shopping Centre,
Browns Plains
QLD
Sub-Regional
50.0
Runaway Bay Shopping Village,
Runaway Bay
QLD
Sub-Regional
50.0
Clifford Gardens Shopping Centre,
Toowoomba
QLD
Sub-Regional
Castle Plaza Shopping Centre,
Edwardstown
SA
Golden Grove Village Shopping
Centre, Golden Grove
Construction
Date
Total Lettable
Area (sqm)
Date of
Valuation
9,196
03/99
8,000,000
1.6
1994 & 1998
38,209
11/98
71,000,000
13.9
1974 & 1995
37,468
09/98
59,050,000
11.6
100.0
1983
25,384
05/99
88,000,000
17.3
Sub-Regional
100.0
1970’s & 1987
22,766
11/98
57,800,000
11.4
SA
District
100.0
1992 & 1997
14,074
11/98
50,000,000
9.8
Brimbank Central, Deer Park
VIC
Sub-Regional
100.0
1979 & 1997
35,667
05/99
82,500,000
16.2
Corio Village Shopping Centre,
Geelong
VIC
Sub-Regional
100.0
1973
27,723
03/99
48,000,000
9.4
Thornlie Square Shopping Centre,
Thornlie
WA
Community
100.0
1971 & 1987
13,030
09/98
21,750,000
4.3
Rockingham City Shopping Centre,
Rockingham
WA
Sub-Regional
12.5
1972, 1975,
1978, 1989 &
1995
46,444
03/99
1
4.5
1984
Valuation
$
23,050,000
Portfolio
%
Total
10 properties
269,961
509,150,000
100.0
1 Comprises 12.5 percent of total value for shopping centre component at $170 million which is owned outright and 12.5 percent of total value for commercial land and warehouse at
$14.4 million which has been acquired on a terms basis which expires on 30 April 2003.
2
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Comments on Trust Portfolio
· Portfolio mix – No single asset dominates the portfolio, with the lowest value (Thornlie
Square) at $21.75 million and the highest value (Clifford Gardens) at $88 million. This
excludes the office building at Woden, ACT at $8 million.
· Geographic distribution – On a property value basis, the portfolio has a 42.8 percent
exposure to the Queensland market and no exposure to the New South Wales market.
Although exposure to the New South Wales market is not considered essential for a retail
portfolio, it is considered preferable as a risk minimisation strategy. Following the
proposed merger, a more even geographic spread will result relative to the population
base of each State.
Retail Property Trust
Geographic Distribution
(by Property Value)
Merged Trust
Geographic Distribution
(by Property Value)
ACT
WA
1.6%
8.8%
QLD
VIC
VIC
42.8%
25.6%
ACT
WA
0.5%
8.2%
16.6%
SA
NSW
10.0%
44.2%
SA
21.2%
QLD
20.5%
Source: Valuation Reports/Arthur Andersen
Source: Valuation Reports/Arthur Andersen
· Property type – The portfolio comprises nine retail properties and a relatively small office
building in suburban Canberra. The retail properties comprise seven sub-regional centres
and two smaller district and community centres. One of the smaller centres,
Thornlie Square, WA is currently on the market for sale. Sub-regional and district centres
generally provide higher yields than regional centres, though sub-regional centres
generally suffer from lower capital growth and higher vacancies. They can also be
significantly affected by competition if nearby regional centres expand.
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The principal centres at Clifford Gardens, Brimbank Central, Browns Plains and
Runaway Bay are effectively new centres, convenience orientated, located in strong
population growth areas and generally trading strongly. These four centres make up
approximately 59 percent of the total portfolio by value.
Retail Property Trust
Property Type Distribution
(by Property Value)
Office
1.6%
Merged Trust
Property Type Distribution
(by Property Value)
Industrial
District/
Community
14.1%
28.1%
Office
40.5%
Sub-Regional
84.3%
Retail
31.4%
Source: Valuation Reports/Arthur Andersen
Source: Valuation Reports/Arthur Andersen
· Value – At a current value of the trust’s property portfolio of $509.2 million, the trust is
one of the smaller sector specific retail property trusts. Three trusts have assets in excess
of $1 billion (AMP, Gandel and Westfield).
Listed Retail Property Trusts (selection)
Trust Name
Lettable Floor Area
sqm
Current Property
Value
$m
Current Vacancy
(approx)
%
Armstrong Jones Retail Fund
169,096
388.1
1.0
AMP Shopping Centre Trust
582,913
1,004.1
1.2
Centro Properties Group
387,855
727.6
0.7
Colonial First State Retail Property Trust
269,961
509.2
1.4
Gandel Retail Trust
457,378
1,590.7
0.5
Prime Retail Group
122,815
152.3
2.7
1,856,276
4,924.4
Westfield Trust
Negligible
Source: Property Investment Research/Colonial First State Investments
· Vacancies – Current vacancies within the Trust are approximately 1.4 percent, which
although not considered significant, are at the upper end of the vacancy levels
experienced by sector specific trusts.
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· Lease expiry – Analysis of retail centres by overall lease expiry is of limited significance,
as virtually all centres have specialty shop leases between 4 and 6 years duration. The
following graph provides a break-down of all lease expiries within the Retail Property
Trust. However, as the majority of lease expiries for the major tenants are beyond
2003/04, this graph provides a general representation of specialty shop lease expiries over
the next five years. This lease expiry profile is considered to be generally comparable with
other retail property trusts.
Retail Property Trust
Lease Expiry (% of Total Area)
53.2%
11.3%
5.4%
Current
7.6%
8.0%
2000
2001
9.3%
5.2%
2002
2003
2004
2004 +
Source: Colonial First State Investments
In relation to major tenancies (eg department stores, discount department stores, and
supermarkets), our analysis shows that the weighted average lease expiry profile for the
Retail Property Trust is 11.0 years, which is within the range of other retail property trusts
from approximately 10.2 to 12.9 years.
· Strengths of Portfolio
- Good geographic spread, apart from New South Wales.
- Several of the larger assets are modern and in strong population growth areas.
· Weaknesses of Portfolio
- No exposure to regional shopping centres.
- No exposure to New South Wales.
- The small office property in Canberra (Woden) has short term lease profile and is not
well suited to the Trust.
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- Runaway Bay Shopping Centre, Queensland may suffer from increased competition
due to the recently completed Harbour Town Shopping Centre and the proposed
Westfield/QIC centre at Helensvale, both of which are within 5 kilometres of the
subject property.
Retail Market Overview
Retailers’ profitability is improving after a number of years of relative inactivity. The
national retail sector has continued its strong performance this year with generally positive
results reported across most retail categories during the course of this year. While positive
retail conditions exist, retailers especially the larger chains, have been experimenting with
new innovations and strategies in order to gain a competitive advantage. A number of retail
property owners are concerned about future performance degeneration, caused by non-store
competition like the internet.
Retail sales market is generally buoyant
· Retail turnover has been increasing strongly driven by a solid economic performance. The
retail sales volume in percentage terms has risen by 3.7 percent for the year (Westpac
Market Insights report). The low interest rate environment has significantly boosted the
housing and retail sectors. The strength of the local sharemarket has bolstered consumer
confidence.
· The income tax cuts, due to be introduced in mid-2000 to coincide with the introduction
of GST, are anticipated to strengthen consumer demand and maintain growth in retail
spending.
Construction sector still lively
· The retail supply pipeline for 1999 is at record levels, with just under
550,000 square metres due for completion this calendar year. The supply cycle is likely to
peak in the next 9 months. The existing construction remains dominated by the regional
centre sector, where expansion and re-engineering of centres accounts for the majority of
total supply due to complete in 1999. However, the bulky goods sector has increased in
significance over the first half of this year.
On the investment side, sentiment remains strong with most trusts eager to invest in
regional shopping centres.
Valuation Review
We have undertaken a review of all current valuations of the trust properties. A summary of
our comments is as follows:
· All valuations have been based upon a capitalisation of either net passing or net market
income, together with a discounted cashflow analysis.
· Capitalisation rates range between 7.75 percent and 11.50 percent have been applied on
market net income, apart from Woden, ACT at 14.0 percent. Internal rates of return have
ranged between 11.0 percent and 12.6 percent. These yields and discount rates are
generally considered appropriate.
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Earnings and Distributions
The Retail Property Trust has a 30 September year end. Retail Property Trust’s earnings
performance for the year ended 30 September 1998 is set out below. As the other existing
trusts and the Merged Trust have 30 June year ends, for comparative purposes the Manager
has forecast earnings performance for the six months ending 30 June 2000 and the year
ending 30 June 2001.
Actual
Forecast
Year Ended
Six Months Ending
30 June 2000
30 September 1998
$000s
$000s
Forecast
Year Ending
30 June 2001
$000s
Income
Net property income
45,155
22,317
45,010
227
79
158
45,382
22,396
45,168
Trust expenses
3,540
1,868
3,878
Interest expense
7,759
3,587
7,846
11,299
5,455
11,723
34,083
16,941
33,445
259
145
877
34,342
17,086
34,322
306,573,878
325,443,693
325,443,693
Earnings per unit (before revaluations)
11.12
10.41
10.28
Diluted earnings per unit (before revaluations)
10.78
10.41
10.28
Distributions per unit (June 2000 annualised)
10.55
10.50
10.55
Tax free amount of distribution
1.70
N/A
N/A
Tax deferred amount of distribution
2.61
N/A
N/A
8.4%
N/A
N/A
Interest income
Expenses
Net income
Transfer from reserves
Distributable income
Weighted number of units in issue
Statistics
Distribution yield (based on balance sheet date
unit price)
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Balance Sheet
The following table sets out the Retail Property Trust’s audited balance sheet as at
30 September 1998 and 1999:
30 September 1998
$000s
30 September 1999
$000s
Current Assets
Cash and other current assets
4,017
3,901
Receivables
4,524
4,704
8,541
8,605
491,939
512,027
35
-
491,974
512,027
500,515
520,632
Accounts payable
2,637
4,048
Distributions payable
9,119
8,462
11,756
12,510
121,500
138,500
121,500
138,500
Total Liabilities
133,256
151,010
Net Assets
367,259
369,622
325,443,693
325,443,693
Net tangible assets per unit ($)
1.13
1.14
Borrowings/Total assets (%)
24.3
26.6
Non-Current Assets
Properties
Other investments
Total Assets
Current Liabilities
Non-Current Liabilities
Borrowings
Statistics
Units on issue
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Capital Structure and Ownership
The Retail Property Trust listed on the ASX on 8 November 1984. As at 30 September 1999,
the Retail Property Trust had 325,443,693 ordinary units in issue. According to Retail
Property Trust’s unit register, Permanent Trustee Australia Limited, with a unit holding of
13.6 percent of Retail Property Trust’s issued units, is the only unitholder which holds in
excess of 7 percent of the Retail Property Trust’s issued units.
Sharemarket Performance
Retail Property Trust Unit Price and Trading Volumes
1.60
18,000
1.40
16,000
14,000
1.20
Price ($)
10,000
0.80
8,000
0.60
Volume (000s)
12,000
1.00
6,000
0.40
4,000
0.20
2,000
-
0
Jan-95
Jul-95
Jan-96
Jul-96
Jan-97
Jul-97
Volume
Jan-98
Jul-98
Jan-99
Jul-99
Price
Source: Bloomberg LLP
Retail Property Trust vs. All Ordinaries Index and Property Trust Index
180
170
160
150
Index
140
130
120
110
100
90
80
Jan-95
Jul-95
Jan-96
Jul-96
Jan-97
Retail Property Trust
Jul-97
All Ordinaries Index
Jan-98
Jul-98
Jan-99
Jul-99
Property Trust Index
Source: Bloomberg LLP
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Appendix 4
Profile of Colonial First State Development Trust
Background
The Development Trust is a property trust which was established to provide investors with
the opportunity to participate in the forecast development profits and capital gains arising
from two commercial office developments which are located in Sydney’s CBD. These
developments are now complete and substantially let.
The Trust was established by Prudential Property Funds Management Limited, a subsidiary
of Prudential Corporation PLC (“Prudential”) and was listed on the ASX on 27 October 1997.
In September 1998, the Colonial Group acquired the Australian and New Zealand operations
of Prudential, including the manager of the Trust. Pursuant to this merger, the Trust name
was changed from Prudential Development Trust to Colonial First State Development Trust,
effective from 10 May 1999.
Profile of Property Portfolio
A summary of the Development Trust’s property portfolio at 30 September 1999, based on
independent valuations for each property as at 30 September 1999, is set out below:
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1
Ownership
(%)
Date of
Construction
Net Lettable
Area sqm
A Grade
100
1998
(refurbished)
20,911
A Grade
100
1999
26,911
Property Address
State
Classification
56 Pitt Street, Sydney
NSW
60 Castlereagh Street, Sydney
NSW
Valuation
$
Date of
Valuation
Portfolio
(%)
115,000,000
09/99
41.8
160,000,000
09/99
58.2
Total
2 properties
47,822
275,000,000
Net valuations for each property after allowing for all actual and anticipated capital expenditure unpaid as at 30 September 1999.
2
1
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Comments on Trust Portfolio
· Individual properties – The Development Trust comprises two properties in the Sydney
CBD which are now completed and substantially let.
56 Pitt Street is a fully refurbished 27 level building comprising a total area of
21,161 square metres, including a small retail component of 243 square metres and 80 car
spaces. As at 30 September 1999, the property was 81 percent tenanted on a floor area
basis with major tenants including Perpetual Trustee and Paladin. Assuming the property
is fully leased and any outstanding capital payments have been made, the valuer
considers the property value to be in the order of $122.9 million, however, the valuation
as at 30 September 1999 at $115 million reflects an allowance for these outstanding items.
60 Castlereagh Street is a recently completed new building comprising
25,611 square metres of office space over 20 levels, together with 1,300 square metres of
retail and 61 car spaces. The property is 85 percent committed as at 30 September 1999 on
a floor area basis, with the major tenants including Banque Nationale De Paris, Schroders
and Sapient. Upon payment of all outstanding construction costs and assuming the
building is fully leased, the valuer has assessed the value of the property at approximately
$197.1 million. Accordingly, the current valuation of $160 million as at 30 September 1999
makes an allowance for these outstanding items.
· Market comment – Both properties are centrally located within the financial sector of the
Sydney CBD. Although not major assets by floor size, they provide the trust with a
substantial exposure to the Sydney CBD commercial market spread over two assets,
which have been generally successful in attracting tenants on a pre-commitment basis.
· Lease expiry – The average lease term, weighted by income is 7.3 years. This is likely to
change following the completion of the leasing program for both properties. Based on
current lettings, 69.7 percent of leases expire after 2004.
Development Property Trust
Lease Expiry (% of Total Area)
69.7%
15.5%
8.2%
4.3%
0.0%
0.2%
Curent
2000
2001
2002
2.1%
2003
2004
2004 +
Source: Colonial First State Investments
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Valuation Review
Both Trust properties have been valued as at 30 September 1999. The basis of valuation in
each case has been to assess the value of the property assuming completion of all works and
fully tenanted, with deductions as appropriate for letting up allowances and costs to
complete.
The valuation methodology has incorporated a capitalisation approach and discounted
cashflow analysis. The capitalisation rates range from 6.25 percent to 7.0 percent and the
internal rate of return (discount rate) ranges from 10.0 percent to 10.25 percent. These rates
are considered appropriate having regard for the nature of each property.
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Earnings and Distributions
The following table sets out the Development Trust’s earnings performance for the period
ended 30 June 1998, the year ended 30 June 1999, and the Manager’s forecast earnings for the
six months ending 30 June 2000 and for the year ending 30 June 2001.
Actual
Actual
Period Ended Year Ended
30 June 1998 30 June 1999
$000s
$000s
Forecast
Budget
Six Months
Ending
30 June 2000
Year Ending
30 June 2001
$000s
$000s
Income
Net property income
-
129
2,955
20,250
Interest income
-
260
72
131
-
389
3,027
20,381
227
798
1,476
2,895
-
3,529
4,615
5,971
227
4,327
6,091
8,866
1
-
-
-
(6,888)
(3,938)
(3,064)
11,515
Transfer from/(to) reserves
6,661
-
-
(328)
Distributable income
(227)
(3,938)
(3,064)
11,187
71,028,528
71,028,528
71,028,528
71,028,528
(5.54)
(0.32)
(8.63)
16.21
-
-
-
15.75
Tax free amount of distribution
N/A
N/A
N/A
N/A
Tax deferred amount of distribution
N/A
N/A
N/A
N/A
Distribution yield (based on balance sheet
date unit price)
N/A
N/A
N/A
N/A
Expenses
Trust expenses
Interest expense
Abnormal item
Net income
Weighted number of units in issue
(6,661)
Statistics
Earnings per unit (June 2000 annualised)
Distributions per unit (June 2000 annualised)
1
Abnormal item comprises of unit issue costs written off.
5
144
ARTHUR ANDERSEN
CORPORATE FINANCE
Independent Experts Report
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
Balance Sheet
The Development Trust’s balance sheet as at 30 June 1999 (adjusted to exclude the equity
receivable from unitholders and to reflect the effect of property revaluations since that date)
and as at 30 June 1998 is summarised below:
30 June 1998
$000s
30 June 1999
$000s
Current Assets
Cash and other current assets
3,175
Equity receivable
7,239
71,029
-
74,204
7,239
162,748
275,000
71,029
-
233,777
275,000
307 ,981
282,239
28,124
7,445
28,124
7,445
73,659
123,000
73,659
123,000
Total Liabilities
101,783
130,445
Net Assets
206,198
151,794
71,028,528
71,028,528
Net tangible assets per unit ($)
2.90
2.14
Borrowings/Total assets (%)
23.9
43.6
Non-Current Assets
Properties
Equity receivable
Total Assets
Current Liabilities
Accounts payable
Non-Current Liabilities
Borrowings
Statistics
Units on issue
Capital Structure and Ownership
The Development Trust listed on the ASX on the 27 October 1997. As at 5 September 1999,
the Development Trust had 71,028,528 partly paid ordinary units in issue. Unitholders paid
$1 per unit on application in October 1997 and a further $1 instalment on 31 December 1998.
Unless the merger is implemented, unitholders will be required to pay one further
instalment of $1 per unit on 30 June 2000.
According to Development Trust’s unit register as at 30 June 1999, Colonial Portfolio
Services Limited, with a unitholding of 40.02 percent, is the only unitholder which holds in
excess of 6 percent of Development Trust’s issued units.
6
ARTHUR ANDERSEN
CORPORATE FINANCE
145
Independent Experts Report
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
Sharemarket Performance
Development Property Trust Unit Price and Trading Volumes
4,000
2.50
3,500
2.00
2,500
Price ($)
1.50
2,000
1.00
1,500
Volume (000s)
3,000
1,000
0.50
500
-
0
Oct-97
Apr-98
Oct-98
Volume
Apr-99
Price
Source: Bloomberg LLP
Development Property Trust vs. All Ordinaries Index and Property Trust Index
130
120
Index
110
100
90
80
70
60
Oct-97
Apr-98
Oct-98
Development Property Trust
All Ordinaries Index
Apr-99
Property Trust Index
Source: Bloomberg LLP
7
146
ARTHUR ANDERSEN
CORPORATE FINANCE
Independent Experts Report
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
Appendix 5
Allocation of Value of Individual Trusts
Industrial
Property
Trust
Commercial
Property
Trust
Commercial
Property
Trust
CEU
Retail
Property
Trust
Development
Trust
Weighted market
prices1, 2
$
$
$
$
$
Last 30 days
1.86
1.88
1.62
1.11
1.79
Last 90 days
1.90
1.89
1.63
1.13
1.56
Market capitalisations
1
2
$ million
$ million
$ million
$ million
Total
$ million
$ million
Last 30 days
342.3
269.7
18.9
360.4
126.9
1,118.2
Last 90 days
348.3
271.3
18.0
367.4
111.0
1,117.0
Proportion of Total
(%)
(%)
(%)
(%)
(%)
(%)
Last 30 days
30.6
24.1
1.7
32.2
11.4
100.0
Last 90 days
31.2
24.3
1.7
32.9
9.9
100.0
To 29 October 1999.
Implicit weighted market prices for the Commercial CEUs have been calculated by adjusting the respective weighted
market prices of Commercial ordinary units for the present value of distributions which are not receivable by Commercial
CEUs until conversion in June 2000 (50 percent) and June 2001 (50 percent).
Relative Proportions based on Net Asset Value
Industrial
Property
Trust
Commercial
Property
Trust
Commercial
Property
Trust
CEU
Retail
Property
Trust
Development
Trust
Total
1,157.5
Net assets as at
30 June 1999 ($million)
333.9
279.5
22.7
369.6
151.8
Issued units (million)
183.6
143.4
11.6
325.4
71.0
1.82
1.95
1.95
1.14
2.14
Net assets per unit ($)
(%)
Relative values
28.9
(%)
(%)
24.1
2.0
1
(%)
32.0
(%)
(%)
13.0
100.0
ARTHUR ANDERSEN
CORPORATE FINANCE
147
Independent Expert’s Report
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
Annexure
Qualifications, Declarations and Consents
Qualifications
Arthur
Andersen
is
an
international
accounting
and
consulting
firm.
Arthur Andersen Corporate Finance (“AACF”) is a practice entity of Arthur Andersen and
holder of Securities Dealer Licence 15226. AACF provides a full range of corporate finance
services, including the preparation of Independent Expert Reports.
Stuart Bright, a Director of AACF and a Partner of Arthur Andersen, has been responsible
for the preparation of this report. Stuart holds a Bachelor of Business in Accounting from
RMIT, and is a member of the Institute of Chartered Accountants in Australia and the
Securities Institute of Australia. He has extensive experience in the preparation of valuations
and Independent Experts Reports.
Oliver Klotz is the Chief Executive Officer of AACF and a Partner of Arthur Andersen.
Oliver holds a Bachelor of Commerce degree from the University of Melbourne and is a
member of the Institute of Chartered Accountants in Australia and the Development Capital
Association of Australia. He specialises in engagements which involve, inter alia, strategic
corporate advice, valuations and expert reports.
Roger Scrivener, FAPI, FRICS, a Director in Arthur Andersen’s Real Estate and Hospitality
Services, Group was responsible for services provided to AACF by Arthur Andersen’s
Real Estate and Hospitality Services Group.
Independence
At the date of this Report, AACF does not have any interest in the outcome of the proposed
merger.
The fee to be received for the preparation of this Report is based on the time spent at
professional rates plus out of pocket expenses. The fees are not dependent upon whether or
not unitholders approve the proposed merger. With the exception of those fees, neither
AACF nor Stuart Bright, or any persons associated with this report, nor Arthur Andersen
have received, nor will or may they receive, any pecuniary or other benefits, whether direct
or indirect, for or in connection with the preparation of this Report.
Neither AACF nor Arthur Andersen hold any securities in Colonial Limited. There are no
pecuniary or other interests of AACF, or Stuart Bright, that could be reasonably argued as
affecting their ability to give an unbiased and independent opinion in relation to the
proposed merger.
1
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ARTHUR ANDERSEN
CORPORATE FINANCE
Independent Expert’s Report
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
Declaration
This Report has been prepared at the request of the Trustees of Industrial Property Trust,
Commercial Property Trust, Retail Property Trust and Development Trust (“the merging
trusts”) in order to assist the unitholders of all above Trusts in their assessment of whether
the proposed merger is to their overall advantage. This Report has been prepared for the
benefit of the above unitholders and those persons only who are entitled to receive a copy of
the Report as part of the proposed merger.
AACF does not imply, and it should not be construed, that it has carried out any procedures,
audit or investigation on the accounting or other records of the merging trusts.
A draft copy of this Report was provided to the Manager of the merging trusts, for comment
on any factual matters contained within the report. Changes were made to the Report as a
result of comments by the Manager and their advisers, however, no alterations were made to
the opinions or conclusions we have expressed in relation to the proposed merger.
Neither the whole or any part of this Report, nor any reference thereto may be included in or
with, or attached to any document, circular, resolution, letter or statement, without the prior
written consent of AACF to the form and context in which it appears.
AACF will receive an estimated fee of $240,000 for the preparation of this Report. This fee is
not contingent on the outcome of the proposed merger. AACF will not receive any other
benefit for the preparation of this Report.
Disclaimer
This Report has been prepared by AACF with care and diligence. However, except for that
responsibility which by law cannot be excluded, no responsibility arising in any way
whatsoever from errors or omissions (including responsibility to any person for negligence)
is assumed by AACF, its Directors, employees or consultants for the preparation of this
Report.
AACF is not obliged to amend the Report to reflect events or changes in market conditions
which occur subsequent to the date of this Report, however AACF reserves the right to make
amendments at AACF’s sole discretion.
2
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CORPORATE FINANCE
149
Independent Expert’s Report
Merger of Listed Property Trusts Managed by Colonial First State
November 1999
Indemnity
With respect to the proposed engagement, we will seek the following indemnification from
Colonial First State.
“Colonial First State agrees to indemnify Arthur Andersen Corporate Finance Pty Ltd,
Arthur Andersen, their related entities, successors, directors, officers or employees
against all losses, claims, liabilities, damages and litigation (collectively “the losses”)
resulting from reliance on information supplied by Colonial First State or with their
knowledge (except information originating, created or supplied by persons or entities
other than Colonial First State) and failure by Colonial First State to disclose material
information, except to the extent that the losses arise from wilful misconduct, breach of
law, recklessness or negligence by Arthur Andersen Corporate Finance Pty Ltd,
Arthur Andersen or their associates. This indemnity shall survive the termination or
completion of the engagement.”
Consents
AACF was involved in the preparation of this Independent Expert’s Report only.
Notwithstanding that the Report may be referred to elsewhere in the
Explanatory Memorandum, we shall not be taken to have been involved in the preparation
of, or to have authorised or caused the issue of, the abovementioned Explanatory
Memorandum.
AACF and Stuart Bright hereby consent to the inclusion of this Report in the form and
context in which it is included in the Explanatory Memorandum and dispatch to the merging
trust unitholders.
The statements and opinions contained in this report are given in good faith.
3
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CORPORATE FINANCE
8. Trust Deed Amendments
The following is a description of the effect of the proposed amendments of the Trust Deeds.
Except where otherwise indicated the amendments will be made to each of the four Trust Deeds.
On-going Stapling Amendments
1.1: Number Of Units and Options
While Stapling applies, the number of Units issued at any time must equal the number of Stapled Units issued at that time
in each of the Stapled Trusts and the number of Options issued at any time must equal the number of Stapled Options
issued at that time in each of the Stapled Trusts, and Units and Options must not be issued to a person unless at the same
time an identical number of Stapled Units or Stapled Options (as the case may be) in each of the Stapled Trusts are issued
to that person.
1.2: Consolidation and Division of Units
Units may be consolidated or divided as determined by the Manager but while Stapling applies there must occur
contemporaneously a corresponding consolidation or division of a corresponding number of Stapled Units in each of
the Stapled Trusts so that each Unit Holder continues to hold an equal number of Units and Stapled Units in each of the
Stapled Trusts.
1.3: Transfer of Units and Options
While Stapling applies, a transfer of Units will only be accepted as a proper transfer in registrable form if, in addition to the
requirements of the relevant Trust Deed and applicable law, the transfer relates to or is accompanied by, a contemporaneous
transfer of an identical number of Stapled Units in each of the Stapled Trusts by the transferor to the transferee.
1.4: Units To Remain Stapled
Subject to applicable law and while Stapling applies, Units must not be dealt with without a contemporaneous dealing in a
corresponding number of Stapled Units in each of the Stapled Trusts. The Manager, the Trustee and the Unit Holders must
not do any act, matter or thing or refrain from doing any act, matter or thing, if to do so or refrain from doing so, as the
case may be, would result directly or indirectly in a person not holding at any time an equal number of Units and Stapled
Units in each of the Stapled Trusts.
1.5: Rights Issues
While the Trust is Listed, the Manager may offer Units for subscription at a price determined by the Manager to those
persons who were Unit Holders on a date determined by the Manager not being more than 30 days immediately prior to
the date of the offer if:
the Manager complies with the Listing Rules applicable to the issue and any applicable ASIC relief;
the Application Price of the Units is not less than:
–
50% of Average Market Price on the day preceding the date the issue was announced to the ASX; minus
–
while Stapling applies, the total issue price of the Stapled Units in each of the Stapled Trusts issued
contemporaneously with the Units; and
while Stapling applies, any offer of Units must be accompanied by a contemporaneous and corresponding offer of
Stapled Units in each of the Stapled Trusts, which offer is capable of acceptance only if the Unit Holder or other
subscriber takes up an identical number of Units and Stapled Units in each of the Stapled Trusts.
1.6: Placements
While the Trust is Listed, the Manager may at any time issue Units to any person, whether by way of a placement or
otherwise, and at a price and on terms determined by it, if the Manager complies with the Listing Rules applicable to the
issue and any applicable ASIC relief and if the Application Price is not less than:
90% of the Average Market Price on the day preceding the date the Manager (or its agents) offered the Units to
potential investors; minus
the total issue price of the Stapled Units in each of the Stapled Trusts issued contemporaneously with the Units.
While Stapling applies, any offer of Units which are to be issued pursuant to the previous clause must be accompanied by
a contemporaneous and corresponding offer of Stapled Units in each of the Stapled Trusts, which offer is only capable of
acceptance if the recipient takes up an identical number of Units and Stapled Units in each of the Stapled Trusts.
151
8. Trust Deed Amendments (continued)
1.7: Contemporaneous Applications for Stapled Units
While Stapling applies, an applicant for Units must contemporaneously apply for an identical number of Stapled Units in
each of the Stapled Trusts and an applicant for Options must contemporaneously apply for an identical number of Stapled
Options in each of the Stapled Trusts.
1.8: Manager Must Reject Certain Applications
While Stapling applies, the Manager must reject an application if the applicant does not apply at the same time for an
identical number of Stapled Units in each of the Stapled Trusts or if an identical number of Stapled Units in each of the
Stapled Trusts will not be issued to the applicant at the same time as the issue of Units to the applicant.
1.9: Forfeiture of Partly Paid Units
While Stapling applies, if Partly Paid Units are forfeited by the Manager under the Trust Deed, the consideration, if any,
given for a forfeited Unit on any sale thereof must be applied:
first, towards the payment of all costs and expenses incidental to the forfeiture and sale;
secondly, in satisfaction of the instalment owing at the date of forfeiture together with interest (if any) payable thereon
under the Trust Deed;
thirdly, if the terms of the issue so provide and while Stapling applies, in paying up forfeited Stapled Units previously
held by the person who was on the date of forfeiture the Unit Holder in respect of the forfeited Unit; and
fourthly, by payment of the balance remaining to the person who was on the date of forfeiture the Unit Holder in
respect of the forfeited Unit.
While Stapling applies, the Manager must take all reasonable steps to ensure that if Partly Paid Units are forfeited, a
corresponding number of Stapled Units in each of the Stapled Trusts are also forfeited and dealt with in the same way as the
forfeited Units.
1.10: Bonus Issues
While Stapling applies, a distribution by way of bonus Units under the Trust Deed may not be made to a Unit Holder unless
the Unit Holder is contemporaneously issued with an identical number of Stapled Units in each of the Stapled Trusts. The
Manager may provide for and pay the application moneys for those Stapled Units to the Stapled Trusts on the Unit Holder’s
behalf out of the amount otherwise available to be distributed.
1.11: Reinvestment of Income
While Stapling applies, if a Unit Holder is permitted to reinvest in additional Units under the Trust Deed, the Manager must
ensure that the Unit Holder is simultaneously issued with a corresponding number of Stapled Units in each of the Stapled
Trusts (whether or not paid for out of an income entitlement or other distribution).
If Stapling applies, the Application Price for each additional Unit upon reinvestment is the Average Market Price on the fifth
trading day after the record date for the distribution less:
such discount, if any, not exceeding 10% of the Average Market Price as the Manager may determine; and
while Stapling applies, the total issue price of the Stapled Units in each of the Stapled Trusts issued contemporaneously
with the Units.
1.12: Buy Back and Redemption of Units
While Stapling applies, the Manager must ensure that no Units are bought back or redeemed unless at the same time for an
identical number of Stapled Units in each Stapled Trust are bought back or redeemed.
152
1.13: Powers of Manager When Stapling Applies
It is intended that, once and for so long as Stapling applies:
each Unit Holder at all times holds an identical number of Units and Stapled Units in each of the Stapled Trusts;
the Trust and the Stapled Trusts are jointly listed on the ASX;
Units and Stapled Units are jointly traded on the stock market of the ASX and, so far as the law permits, the Units and
Stapled Units are traded and otherwise dealt with as though they were a single security; and
so far as the law permits, the Trust and the Stapled Trusts are managed and dealt with by the Manager as though they
were assets of a single trust,
and the Manager has power:
to take such action as it reasonably considers necessary or appropriate to ensure that Stapling applies and that, once
Stapling applies, Units and Stapled Units continue to be Listed as Stapled Securities; and
to the extent permitted by law, to deal with the Assets as though the Assets and the assets of the Stapled Trusts were
assets of a single trust including, for example, giving any form of security over the Assets in connection with
obligations and liabilities incurred in connection with any of the Stapled Trusts.
1.14: Joint Meetings of Unit Holders
While Stapling applies, meetings of Unit Holders may be held in conjunction with meetings of the holders of Stapled Units
and the chairman may determine such procedures for the conduct of such meetings as the chairman considers necessary.
1.15: Other Attendees at Joint Meetings
While Stapling applies, the Manager, the auditor of the Trust and the representatives of the Manager of the Stapled Trusts
may attend and speak at any meeting, or invite any other person to attend and speak.
1.16: Expenses
All expenses reasonably and properly incurred by the Manager in relation to the Stapling of the Trust to the Stapled Trusts
and the Listing and maintenance of Listing of Stapled Securities are payable or reimburseable out of the gross income to the
extent that such reimbursement is not prohibited by the Corporations Law.
1.17: Stapled Trusts’ Expenses
The Manager may pay or reimburse the Stapled Trusts for expenses properly incurred by the Stapled Trusts in connection
with the listing of Stapled Units and such other expenses as the Manager considers appropriate for the Trust to bear on
behalf of the Stapled Trusts.
1.18: Notice of Termination to Manager of Stapled Trusts
On or before commencement of the termination of the Trust, the Manager must give the manager or managers of the
Stapled Trusts written notice that the Trust is to be terminated.
1.19: Modification of Trust Deed
While Stapling applies, the Manager must not modify the Trust Deed if the effect of the modification would be to cause or
allow Stapling to cease to apply except with the approvals by special Resolution of the Unit Holders and the members of
each of the Stapled Trusts.
1.20: Paramountcy of Stapling Provisions
If there is an inconsistency between any of the Stapling Provisions and any other provision of the Trust Deed, then the
Stapling Provisions prevail to the extent of the inconsistency, except where this would result in a breach of the Corporations
Law, the Listing Rules or any other law. The Stapling Provisions prevail in this way, even if the other provisions are
expressed to apply notwithstanding any other provisions of the Trust Deed.
153
8. Trust Deed Amendments (continued)
Implementation of Stapling Amendments
2.1: Consolidation and Division
The Manager must on the Stapling Date consolidate or divide Units in the proportions previously advised to Unit Holders.(1)
2.2: Distribution to Unit Holders
Following the consolidation or division of Units under clause 2.1, the Manager must on the Stapling Date cause a
distribution to be made to each Unit Holder out of the Assets of the Trust of $0.03 per Unit held by that Unit Holder
at that time and this distribution must be applied in subscribing for one unit in each of the Stapled Trusts at an issue price
of $0.01 per unit. Each Unit Holder appoints the Manager as the Unit Holder’s attorney and agent to:
apply for units in the Stapled Trusts on the Unit Holder’s behalf and agree to the Unit Holder becoming a member
of each of the Stapled Trusts and be bound by the Trust Deed of each of the Stapled Trusts; and
execute any other document that the Manager reasonably considers necessary or appropriate for the Unit Holder
to become a member of each of the Stapled Trusts.
2.3: Issue of Units to Members of Stapled Trusts
Simultaneously with the subscription for units in the Stapled Trusts under clause 2.2 (or as soon as practicable thereafter
on the Stapling Date), the Manager must issue Units to unit holders of each of the Stapled Trusts on the basis of one Unit
for each unit held in the relevant Stapled Trust immediately before the subscription for units in the Stapled Trusts under
clause 2.2 at an issue price of $0.01 per Unit.
2.4: Stapling
Forthwith after completion of the subscription for units in the Stapled Trusts under clause 2.2 and the issue of Units under
clause 2.3 the Stapling commences to apply for the purposes of the Trust Deed.
2.5: Tranfers of Stapled Securities
Forthwith after Stapling commencing to apply under clause 2.4, the Manager must execute one or more instruments of
transfer on behalf of all Unit Holders other than Unit Holders who:
have registered addresses in Australia or New Zealand; and
have elected in writing, in a form acceptable to the Manager, to have Stapled Securities issued to them in respect of
all Units held by those Unit Holders
transferring all of the Stapled Securities held by those Unit Holders to the Cash Alternative Nominee at a price per Stapled
Security equal to the Cash Alternative Price and each Unit Holder whose Stapled Securities are to be transferred under
this clause appoints the Manager as the Unit Holder’s attorney and agent to execute that transfer or those transfers
together with any other document that the Manager reasonably considers necessary or appropriate to complete the
transfers of those Stapled Securities to the Cash Alternative Nominee.
2.6: Sale of Stapled Securities transferred to Cash Alternative Nominee
The Manager must take all steps necessary to arrange for the sale of the Stapled Securities comprising the Units transferred
to the Cash Alternative Nominee and the units in the Stapled Trusts issued to the Cash Alternative Nominee and for that
purpose may enter into an arrangement with such persons as it considers appropriate to have the Units offered for sale
using such process as the Manager reasonably considers appropriate. The sale of the Stapled Securities must however be
completed by no later than 24 March 2000.
(1) See Section 3 of this Explanatory Memorandum under the heading ‘The Merger Proposal’ for the
relevant proportions.
154
8. Trust Deed Amendments
Definitions Applying to Amendments
Other Amendments
3.1: Capital Entitlement Units
This section applies only to Colonial First State Commercial Property Trust.
As from the Stapling Date the Units issued pursuant to the Trust Deed of Colonial First State Commercial Property Trust
and referred to in the terms of issue as ‘Series 2000 Capital Entitlement Units’ and ‘Series 2001 Capital Entitlement Units’
(together referred to in this section as ‘CE Units’) are, on the Stapling Date, consolidated in the ratio of 0.850 CE Units for
each existing CE Unit and the Manager may agree with the holder of CE Units to vary the terms of issue of the CE Units to
shorten the period during which the holder is entitled to capital distributions.(2)
3.2: Partly Paid Units
This section applies only to Colonial First State Development Trust.
The Manager may cancel unpaid instalments on partly paid Units but may only do so in respect of all partly paid Units issued
under the same terms of issue. On cancellation of an unpaid instalment, the Issue Price of the partly paid Unit will be fully paid.(3)
3.3 Income entitlements for December 1999 quarter
This section applies to each of the four Trusts.
The record date for determining entitlements to the income distribution for each Trust for the quarter ending 31 December 1999
will be brought forward to 16 December 1999 (ie. the day before the meeting). The effect of this amendment is that unit holders
in each of the Trusts will be entitled to the income of the relevant Trust for the quarter ending 31 December 1999 based on their
unit holding on 16 December 1999. Their entitlement to income from the Trust in which they held units prior to the Merger for
the quarter ending 31 December 1999 will therefore not be affected by the Merger Proposal.
3.4: Definitions
In the amendments set out above, the following words have the following meanings:
Application Price: the price paid on application for a Unit.
Average Market Price: the average weighted market price of fully paid Stapled Securities (or, while Stapling does not apply,
Units) sold on the ASX in the ordinary course of business during the five trading days ending on the relevant date, or, if no
sale occurred in the ordinary course of business during that five day period, the average market price is the last price at
which a sale took place on the ASX immediately preceding the relevant date. If the Manager believes that the calculation of
average market price does not provide a fair reflection of the market price of a Stapled Security (or, while Stapling does not
apply, Unit) on that day, the average market price will be the price determined by an Independent Valuer.
Cash Alternative Nominee: the party selected by the Manager to hold Stapled Securities transferred under clause 2.5
pending the sale of those Stapled Securities under clause 2.6. The Cash Alternative Nominee may but need not be a
party independent of the Manager.
Cash Alternative Price: the total selling price of all the Stapled Securities sold by the Cash Alternative Nominee under
clause 2.6 (minus expenses, stamp duty and brokerage) divided by the number of Stapled Securities sold.
Listed: admitted to the official list of ASX whether or not quotation is deferred, suspended or subjected to a trading halt.
Listing Rules: the listing rules of ASX as amended, varied or waived (whether in respect of the Trust or generally) from
time to time.
Unit Holder: the person registered as the holder of a Unit (including persons jointly registered).
Partly Paid Unit: a Unit on which the Application Price has not been paid in full.
Manager: the company which is management company of the Trust under the Corporations Law.
Stapled Option: an option to subscribe for a unit in one of the Stapled Trusts.
Stapled Security: a Unit and the Stapled Units which are issued contemporaneously with it.
Stapled Trusts: whichever of Colonial First State Industrial Property Trust, Colonial First State Commercial Property Trust,
Colonial First State Retail Property Trust and Colonial First State Development Trust (in each case by whatever name
known) is not the Trust.
Stapled Unit: means a unit in one of the Stapled Trusts.
Stapling: the restriction on issue, transfer, redemption or any other type of dealing with a Unit that results in all such
dealings having to occur simultaneously with a similar dealing with Stapled Units.
Stapling Date: 4 January 1999.
Stapling Provisions: the clauses set out above.
Trust: the trust governed by this Trust Deed.
Unit: an undivided share in the beneficial interest in the Trust.
(2) The Manager has agreed with Colonial Mutual Life Assurance Society Limited, the holder of all of the CE Units, if the
Merger Proposal proceeds to vary the period during which the holder is entitled to capital distributions so that it ends on
the Stapling Date. The effect of this is that the CE Units will be the same as ordinary units as from the Stapling Date.
(3) The Manager will, if the Merger Proposal proceeds, cancel the unpaid instalment on all partly paid Units currently
on issue.
155
9. Additional Information
Rights Attaching to Units in COC, CIP, CMF and CFD
General
A number of rights attach to units in the Trusts. These rights arise from the Trust Deeds for the Trusts, the law of trusts
and the Corporations Law. Some of the most significant rights are summarised in this section. However, this summary is
not exhaustive. For further information about rights attaching to units, reference should be made in particular to the Trust
Deeds and the Corporations Law.
Beneficial Interest in the Trusts
The beneficial interest in each Trust is divided into units which may be fully or partly paid units. The units in the Trusts
to be issued to unitholders under the Merger Proposal are fully paid units and the rights attaching to the units in a Trust
to be issued to unitholders in the other Trusts are substantially the same as the rights attaching to all other fully paid units
in that Trust.
A unit in a Trust does not confer any interest in any particular part of the trust fund of that Trust and no unitholder is
entitled to require the transfer to them of any of the investments comprised in the trust fund of that Trust nor (subject to
the rights of unitholders created by the Trust Deed and by law) is any unitholder entitled to interfere with or question the
exercise or non-exercise by the Trustee or Manager of any of the trusts, powers, authorities or discretions conferred upon it
in respect of a Trust.
Entitlement to Trust Income
The distributable income of a Trust is determined by the Manager and allocated between unitholders on a quarterly basis
in accordance with the Trust Deed of the Trust. Distributable income is allocated and distributed to the holders of units in
proportion to their unitholdings (except for units issued during the quarter, where units rank for distribution according to
the number of days in the period that the unit has been on issue).
Units issued in each Trust will rank for distributions from the date of allotment and will confer a proportionate entitlement
to the distribution based on the number of days the units have been on issue during the quarter.
Transfer of Units
Subject only to the proposed restrictions to be imposed by the Trust Deed of each Trust in relation to the stapling of units
in the Trusts, by law and by the ASX Listing Rules, the units are freely transferable.
Voting
Every unitholder is entitled to receive notice of unitholders’ meetings, to attend those meetings and, subject to certain
restrictions on voting by interested parties, to vote at unitholders’ meetings. On a poll, a unitholder has one vote for each
unit held. On a show of hands every unitholder who is present in person or by proxy has one vote.
Accounts
Every unitholder has a right to receive copies of a Trust’s annual accounts and accompanying reports which will be sent
with the annual accounts and accompanying reports of each other Trust.
Limitation of Liability
The Trust Deeds for COC, CIP and CMF provide that a unitholder need not indemnify the Trustee or Manager of a Trust if
there is a deficiency in the net assets of the Trust, or meet the claim of any creditor of the Trustee or Manager in respect of
the Trust and the right (if any) of the Trustee or Manager or of a creditor to seek indemnity is limited to the assets of the
Trust. The Trust Deed for CFD provides that, to the extent permitted by law, no unitholder will be personally liable for any
obligation of, or liability incurred by, the Trustee or the Manager.
Winding Up
Upon winding up, the unitholders will be entitled to the proceeds of sale of the Trust’s assets (after deducting fees and
winding up expenses and paying any distribution entitlements) in proportion to their unit holdings at the time of
winding up.
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Application for Units by Foreign Persons
Under the Foreign Acquisitions and Takeovers Act 1975, notification of acquisitions of interests in Australian urban land
by certain persons is compulsory in certain circumstances. Investors requiring further information as to whether notification
to the Foreign Investment Review Board is required in respect of the issue of units in a Trust to them should consult their
professional adviser.
How to Transfer Your Units
Subject to the proposed restrictions to be imposed by the Trust Deeds, all units are transferable either through the electronic
transfer and sub-register system known as Clearing House Electronic Subregister System (‘CHESS’) subject to complying
with the requirement in relation to the stapling of units in the Trusts. Every instrument of transfer must be executed by the
transferor and the transferee and must be lodged at the unit registry.
Litigation
There is no litigation of a material nature pending or threatened which may significantly affect any of the Trusts.
Continuous Disclosure by the Trusts
As each of the Trusts has been listed on the ASX for a number of years a substantial amount of information concerning the
Trusts has previously been notified to ASX and is therefore publicly available.
Each of the Trusts is a ‘disclosing entity’ for the purposes of the Corporations Law and, as such, is subject to regular
reporting and disclosure obligations under the Corporations Law and the ASX Listing Rules. These obligations require the
Manager to notify the ASX of information about specified events and matters as they arise for the purposes of the ASX
making that information available to the stock market conducted by the ASX. In particular, the Manager has an obligation
under the ASX Listing Rules (subject to certain limited exceptions), to notify the ASX immediately of any information of
which it becomes aware concerning the Trust which a reasonable person would expect to have a material effect on the price
or value of units in the Trust. Copies of documents lodged in relation to the Trusts may be obtained from, or inspected at,
an office of the ASIC.
The Manager will make copies of the following documents available for inspection (free of charge) during normal business
hours at its registered office:
the financial statements of the Trusts for the last financial year for the Trust; and
all other financial statements (if any) lodged with ASIC and any documents used to notify the ASX of information
concerning the Trusts under the ASX Listing Rules relating to continuous disclosure during the period after
lodgement of the financial statements for the last financial year for the Trust and ending before the issue of this
Explanatory Memorandum.
Managed Investments Act
The Managed Investments Act 1998 (‘the Act’), which amends the regulation of managed investment schemes (including
unit trusts such as the Trusts) under the Corporations Law, took effect as from 1 July 1998. There is a transition period of
two years after 1 July 1998 for existing schemes which are ‘managed investment schemes’ under the Act (such as the Trusts)
to become registered by the ASIC.
The effect of the Act is that the regulation of managed investment schemes (such as the Trusts) under the Corporations Law
will be substantially altered. In particular, the existing split responsibility between the manager and the trustee will cease
and be replaced with a single scheme operator called the ‘responsible entity’. As a result, the role of the trustee in holding
the assets of a scheme and protecting the interests of unitholders of the scheme will cease and the single ‘responsible entity’
will become solely responsible for the management and operation of the scheme.
In the case of the Trusts, the Trustees have each provided the Manager with a notice of their retirement as trustee of the
Trusts on registration of the Trusts as ‘managed investment schemes’. It is expected that the Manager, Colonial First State
Property Limited, will become the ‘responsible entity’ of the Trusts and will appoint Perpetual Trustee Company Limited to
hold the assets of the Trusts as custodian. The Act sets out the procedures for the retirement of existing trustees of schemes,
the appointment of the new ‘responsible entity’ and the registration of schemes as ‘managed investment schemes’ under the
Act. At this stage, it is anticipated that an application will be made in December 1999 for the Trusts to be registered as
‘managed investment schemes’ under the Act.
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9. Additional Information
Rights Attaching to Units in COC, CIP, CMF and CFD (continued)
Other significant effects on the operation of the Trusts include the following:
independent directors/compliance committee members: a ‘responsible entity’ will be required to have either 50%
independent directors, or establish a compliance committee with a majority of independent committee members;
compliance plan: a compliance plan setting out the measures that the responsible entity is to apply in operating the
scheme to ensure compliance with the Corporations Law and the Trust Deed must be prepared and lodged with the
ASIC. The compliance committee (where one is required) will be required to monitor and report to the responsible
entity on compliance with the compliance plan; and
Trust Deed: it is likely that significant amendments will be necessary so that the Trust Deed complies with the new law,
and does not contain requirements that are no longer relevant.
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10. Glossary
Arthur Andersen
Arthur Andersen Corporate Finance Pty Limited
ASIC
Australian Securities & Investments Commission
ASX
Australian Stock Exchange Limited
Bookbuild
The institutional bookbuild conducted by the Joint Managers
through which Stapled Securities will be sold on behalf of
unitholders who either do not elect to retain their Stapled Securities,
or who have a registered address outside Australia or New Zealand.
Bookbuild Price
The average gross price of Stapled Securities sold through the
Bookbuild.
Cash Alternative
Parties not receiving Stapled Securities will have those Stapled
Securities sold through the Bookbuild with the net proceeds of sale
distributed to those parties.
Cash Alternative Nominee
The party selected by the Manager to hold the Stapled Securities
to be sold through the Bookbuild.
CFD
Colonial First State Development Trust
CIP
Colonial First State Industrial Property Trust
CMF
Colonial First State Retail Property Trust
COC
Colonial First State Commercial Property Trust
Colonial First State
Colonial First State Investment Managers (Australia) Ltd
Consolidated CFD Unit
CFD units after consolidation of existing CFD units in the ratio of
1.025 consolidated CFD units for each existing unit.
Consolidated CIP Unit
CIP units after consolidation of existing CIP units in the ratio of
0.950 consolidated CIP units for each existing unit.
Consolidated CMF Unit
CMF units after consolidation of existing CMF units in the ratio of
0.585 consolidated CMF units for each existing unit.
Consolidated COC Unit
COC units after consolidation of existing COC units in the ratio of
0.965 consolidated COC units for each existing unit.
Consolidated COC Capital Entitlement Unit
COC Capital Entitlement Units after consolidation of existing COC
Capital Entitlement Units in the ratio of 0.850 consolidated COC
Capital Entitlement Units for each existing unit.
Consolidated Unit
Any of Consolidated CMF Unit, Consolidated CIP Unit,
Consolidated COC Unit, Consolidated COC Capital Entitlement
Unit or consolidated CFD Unit, as the case may be.
CPG or Colonial First State Property Trust Group
Colonial First State Property Trust Group following the
implementation of the Merger Proposal in full.
Deutsche Bank
Deutsche Bank AG
DRP
Distribution Reinvestment Plan
Group
Colonial First State Property Trust Group
GST
Goods and Services Tax
Independent Expert
Arthur Andersen
Joint Managers
Warburg Dillon Read Australia Limited and Deutsche Bank AG
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10. Glossary (continued)
160
Manager
Colonial First State Property Limited
Merged Group or Merged Group Trusts
The combination of Colonial First State Industrial Property Trust,
Colonial First State Retail Property Trust, Colonial First State
Commercial Property Trust, and Colonial First State Development
Trust following implementation of the Merger Proposal in full.
Merger or Merger Proposal
The arrangement by which units in each of the Trusts are stapled to
each other so that units in one of the Trusts may not be dealt with,
without the units in the other Trusts being dealt with in an identical
manner and at the same time.
NLA
Net lettable area
NTA
The net tangible asset backing of units or Stapled Securities.
Perpetual
Perpetual Trustee Company Limited
Stapled Securities or Securities
The securities created as a consequence of the Merger Proposal.
Trustee(s)
Permanent Trustee Australia Limited or Perpetual Trustee Company
Limited as the case may be.
Trust
As the context requires, any or all of Colonial First State Retail
Property Trust, Colonial First State Industrial Property Trust,
Colonial First State Commercial Property Trust, or Colonial First
State Development Trust.
Trust Deed
The trust deed of a Trust.
Warburg Dillon Read
Warburg Dillon Read Australia Limited
Directory
Manager of the Trusts
Solicitors for the Manager
Colonial First State Property Limited
Level 12
330 Collins Street
Melbourne VIC 3000
Mallesons Stephen Jaques
Rialto, 525 Collins Street
Melbourne VIC 3000
Adviser to the Manager
Directors of the Manager
PL Polson (Chairman) BCOM, MBL, PMD
A Carstens BCOM (HONS), CA (SA)
GS Ray LLB, BCOM, FCPA, FTIA
FS Grimwade LLB (HONS), BCOM, MBA (COLUMBIA), ASIA
CE Cuffe BCOM, ACA, ASIA
A Bird BSC (URBAN LAND ADMIN) ARICS
Trustees
Permanent Trustee Australia Limited
Level 6
294-296 Collins Street
Melbourne VIC 3000
Perpetual Trustee Company Limited
Level 7
39 Hunter Street
Sydney NSW 2000
Auditor for the Trust and Manager
KPMG
KPMG House
161 Collins Street
Melbourne VIC 3000
Warburg Dillon Read
Level 25
Governor Phillip Tower
Sydney NSW 2000
Registry
Corporate Registry Services Pty Ltd
Level 12
565 Bourke Street
Melbourne VIC 3000
Client Services
Colonial First State Property Limited
Telephone: 1 300 360 636
Level 9, 330 Collins Street
Melbourne Victoria 3000
Telephone 1300 360 636