Macquarie Office continues European growth

13 March 2007

Please click here to view the European acquisition presentation (pdf 827KB).

Macquarie Office Trust (ASX:MOF) today announced its second acquisition in Europe with the purchase of the City Central property in Milan, Italy for €151.9 million (A$257.5 million).  The acquisition consolidates Macquarie Office’s growing position in Europe.  It is a newly developed, high quality and well located property that positions the Trust well to capture future upside in a tight market.  This opportunity allows us to use our asset management skills to add value to the property.

Chief executive officer Adrian Taylor said, “The transaction represents a continuation of Macquarie Office’s strategy of diversifying investments into European growth markets seeking to increase returns to investors.”  The transaction closely follows the Trust’s first European acquisition in Berlin, Germany, announced late December 2006. 

Located in the Semi-Centre submarket of Milan, City Central is an A-Grade property comprising two adjacent and interconnected buildings, Building Macchi and Building Lepetit, which have recently been completely refurbished to an A-grade standard.  With refurbishment completed in 2005, Building Macchi comprises 7,788 square metres and is 100 per cent let to a government tenant, the Ministry of Employment & Social Policies (“Ministry of Labour”), until 2012 at rates below market rents.  Building Lepetit is a 22,386 square metre building.  With refurbishment completed in December 2006 it is attracting strong interest from corporate tenants due to its high quality, strong location, large floor plates and lack of newly completed contiguous accommodation in central Milan.

The vendor will provide a two year rental guarantee by underwriting a property level yield of approximately six per cent.  Standard lease terms have also been agreed.  A price reduction mechanism is in place to provide added security if minimum rental levels are not reached.

Milanis one of Europe’s largest office markets, comprising 11.4 million square metres.   Considered the economic capital of Italy, Milan is the preferred city for national and international companies to locate their Italian headquarters.   Milan’s central business district is characterised by small heritage buildings with limited new buildings due to strict planning regulation, heritage architecture and high levels of strata ownership.  

The Semi-Centre submarket is a highly desirable business location with a limited stock of modern, high quality accommodation with larger floor plates – attractive to international companies.  In 2006, over 60 per cent of Milan’s absorption took place in this area driving the vacancy rate down to below six per cent.  With limited future supply and strong demand for A-grade office space, City Central has the potential for rental growth and capital value appreciation.

City Central is one of the newest offerings in the Semi-Centre submarket and features large floor plates, typically over 1500 square metres in size and easily divisible into four sections.  The property is located within 250 metres of Milan’s Central Station and benefits from dual street frontages and a high parking ratio, which is rare in the precinct.

Settlement of the transaction is anticipated to take place mid 2007 once regulatory approvals have been obtained.  The transaction will be funded through new Euro-denominated debt facilities at the time of closing. 

Macquarie Global Property Advisors introduced the deal to the Macquarie Office team.  Mr Taylor said, “This transaction is another example of how the Macquarie network has benefited the Trust in its efforts to seek high growth opportunities that continue to diversify the existing portfolio.”  

He added, “We are excited about increasing our presence within Europe’s growth markets as well as the potential to increase unit holder returns from this transaction.  We believe there is considerable upside value in the property from acquiring it at an early stage in its leasing up.”  Following completion of this transaction, Macquarie Office’s European portfolio will represent approximately seven per cent of total assets under management.   

Macquarie Office Trust is a listed property trust with assets under management of $A5.4 billion (including associates) comprising 42 properties located across Australia and the United States.  Macquarie and its associates manage more than $A22 billion of real estate assets, across a portfolio of listed and unlisted REITs, unlisted investment and development funds, globally.

For further information please contact 1300 365 585 or propfunds@macquarie.com

City Central - Fact Sheet

Macchi & Lepetit Combined

* Conversions to Australian dollars using a €/A$ spot of 0.59, assuming all leasing performance payments are made to the Vendor.
** Market practice is to quote rents net of Lessee operating expenses but before Lessor non-recoverable taxes (which amount to approx €14m²).

Artists impressions
Macchi Building: 7-13 via Mauro Macchi, Milan - Artist Impression