Finbar Group sells Gateway Building in Victoria Park, Perth

Australian Securities Exchange-listed apartment developer Finbar Group has sold an office building in Perth to Singapore stock exchange-listed Sim Lian Group, which is buying the property through a wholly owned property trust.

The Gateway Building in Victoria Park, south-west of Perth’s CBD sold for $72.8 million, with the sale price representing a yield of 8.48%.

Finbar Group said the price was consistent with the building’s current external valuation and carrying book value. It expects to realise $20 million in cash from the sale after the repayment of the building’s finance and minority joint venture interests. Finbar Group owned 69% of the property.

“The sale of the Gateway Building represents a timely disposal opportunity where we can seek to deploy more funds into our core business of residential apartment development which has a very robust pipeline of exciting and large scale projects,” Finbar managing director Darren Pateman said in a statement.

Finbar received approval in December for the development of a $120 million mixed-use development including 118 apartments and more than 2,000 square metres of commercial tenancies in South Perth.

The company reported the Gateway Building, which it completed building in July 2010, accounted for 54% of its rental income for the first half of 2014. Rental income contributed 5% to Finbar’s overall earnings, with the majority of its earnings deriving from apartment developments.

The market for office property sales in Perth was sluggish in 2014, with Savills research showing the value of office property sales was down 81% compared with the previous year. Only 16 office buildings changed hands in the city in 2014, down from the five year average of 35, Savills found.

Savills estimates yields for Perth CBD office property at December 2014 were in the range of 7.5% to 8.75% for A Grade buildings, and 8.75% and 10.25% for secondary grade buildings.

CBRE’s research shows there are high vacancy rates and leasing incentives in the Perth office market. The agent expects these challenging conditions for landlords to continue during 2015 with 155,805 square metres of new office space expected to come to market in the second half of 2015.

The Gateway Building has a net lettable area of 12,813 square metres and is 99% leased to retail and office tenants. The major tenant is listed engineering company Monadelphous Group, which has its head office in the building.

The sale is expected to settle in March 2015.