The Charter Hall Group (ASX: CHC) share price has dropped lower today following the announcement of a major acquisition.
At the time of writing the property developer and manager's shares are down 0.5%.
What was announced?
This morning Charter Hall confirmed that it has formed a partnership to acquire 100% of the freehold interest in the Global HQ of Telstra Corporation Ltd (ASX: TLS) at 242 Exhibition Street in Melbourne's central business district for a total consideration of $830 million.
The release explains that the property will be owned by a wholesale partnership comprising the Charter Hall Prime Office Fund, the Public Sector Pension Investment Board, and Charter Hall.
242 Exhibition Street.
According to the release, the property comprises a premium 47 storey office tower providing 65,913 square metres of net lettable area.
This incorporates 63,398 square metres of office accommodation over 43 floors and associated retail and car parking. It is currently undergoing an extensive base building upgrade works program, which includes full vertical transportation and mechanical upgrades and enhanced end of trip facilities.
Telstra Corporation currently accounts for 99.6% of the net lettable area and has a weighted average lease expiry (WALE) of 11.9 years with annual fixed rental reviews of 3.5%.
Charter Hall's managing director and CEO, David Harrison, said: "This off market transaction which settles in the 1H FY20, reflects the deep relationships we have across our platform with both investor and tenant customers, with capacity to fund major transactions in the Australian market. We have a strong track record of creating institutional quality investment opportunities that deliver long term sustainable income for our investors."
Mr Harrison also pointed to the strong demand for office space in Melbourne as a reason to be positive on the acquisition.
He explained: "The Melbourne CBD recorded 153,650 sqm of net demand in the year to 31 March 2019 – double that of Sydney CBD (71,800 sqm) – and was the strongest of any Australian CBD office market. Continued strong tenant demand has placed downward pressure on the Melbourne CBD vacancy rate, which now stands at 3.7% the lowest level since 1989."
Charter Hall's shares currently provide a trailing 2.9% partially franked dividend yield.
