Abacus Property Group to spend $142 million on 2 properties

Abacus Property Group (ASX: ABP) is one of the largest ASX property groups in Australia with a market capitalisation of over $2 billion.

It describes itself as a leading diversified real estate business with a focus on investing in commercial property markets in Australia and New Zealand. It invests in office, storage, retail and industrial properties.

Property is big business in Australia of course, so it’s no surprise that Abacus announced two huge deals to the market today.

The first property Abacus is acquiring is 452 – 484 Johnston Street, Abbotsford in Melbourne for $93.5 million. The suburb is located on the fringe of inner Melbourne, only 4 kilometres away from the CBD, making it a good spot for capital growth without being too expensive.

This property is fully tenanted, with one major tenant being the global HQ for a major ASX-listed company on a ‘triple net lease’. With a tiny a bit of research, this appears to be the HQ of Computershare Limited (ASX: CPU). The property will have a weighted average lease expiry of over five years at settlement.

The second property is 11 Bowden Street, Alexandria in Sydney for $48.85 million. Alexandria is a similar sort of suburb to Abbotsford, it is 5 kilometres south of the Sydney CBD.

The Sydney property is fully leased out to five tenants with long leases. The weighted average lease expiry will be six years at settlement.

Abacus said that both properties are strategic long-term investments. They have been acquired at attractive rates per square metre and provide access to stable and growing cash flows from high quality tenants.

The properties should hopefully provide longer-term growth prospects as market rates improve and inner suburban areas continue to undergo gentrification and enhanced appeal for occupants with amenity and accessibility to the CBD and driven by elevated levels of infrastructure spend.

It is anticipated that both properties will settle by the end of March 2018.

Foolish takeaway

This seems like a decent move by Abacus. It’s currently trading with a distribution yield of 4.89%, but I wouldn’t call it a screaming buy at the moment. Rising interest rates could harm its property values in the medium-term, whilst oversupply of office buildings could hurt potential rental increases.

If you’re looking for an income play, I’d rather buy this top dividend stock over Abacus.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Computershare. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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