PSP backs Charter Hall’s $582m Melbourne acquisition

Canada’s Public Sector Pension Investment Board (PSP Investments) has partnered with Australian fund manager Charter Hall to acquire a Melbourne office asset for A$830 million ($530 million; €518 million) as it continues to build out its Asia portfolio.

PERE understands that 49.9 percent of the stake in the transaction is held by the Charter Hall Prime Office Fund (CPOF), the firm’s flagship unlisted vehicle. CPOF has a gross asset value of A$5.4 billion, with an equity size of more than A$900 million as of March 31, 2019. The remaining stake in the asset is owned by PSP and Charter Hall’s balance sheet, although the firm did not disclose individual commitments.

The asset – 242 Exhibition Street, better known as the global headquarters of the telecommunications company Telstra – was purchased from the Oxford Properties Group, the Toronto-headquartered real estate investment arm of Canadian pension fund OMERS. The asset was originally jointly held between the Investa Commercial Property Fund and the Investa Office Fund – the latter and its 19-asset portfolio having eventually been acquired by Oxford Properties in a take-private deal last December. Since then, Oxford Properties has been on a divestment spree of Investa Office Fund’s $4.4 billion office portfolio, having reportedly earmarked for sale 10 assets worth $1.8 billion.

Charter Hall and PSP’s acquisition of the 47-story tower is understood to reflect a 4.5 percent yield. Matthew Brown, fund manager of CPOF, said the asset, which has a weighted average lease expiry of more than nine years, is expected to have a 3.5 percent fixed year-over-year annual rental increase.

The deal comes a few months after PSP set up its first Asia outpost in Hong Kong to enhance its exposure in the region and develop its local network. According to a report published by the Sovereign Wealth Fund Institute, the investor aims to hire more managers and identify more co-investments in the region.

As of March 31, 2019, 5.7 percent of PSP’s real estate portfolio was held in Australasia, as per the firm’s latest annual report. One of the deals highlighted in the report was the purchase last year of Raffles City, a mixed-use development in Shanghai, in partnership with CapitaLand.

The Canadian investor ended its 2019 fiscal year with C$23.5 billion ($17.9 billion; €16.3 billion) in net real estate assets under management. It made around C$4.1 billion in acquisitions and C$5 billion in dispositions during the period.

The annual report attributed PSP’s 7.6 percent one-year rate of return in real estate during the fiscal year to its Australian office portfolio and other investments, including its Canadian multifamily, London student housing and US residential portfolios. Its real estate performance, however, was lower than its benchmark return of 11.8 percent.

Overall, PSP Investments recorded a return of 7.1 percent. This was driven in large part by the performance of private asset classes, with private equity recording the highest return at 16.1 percent.