Published 24 September 2005
Australian investors have been offered a range of investment opportunities in the US in the past couple of years, principally through Macquarie Bank’s numerous offshoots and Westfield Group’s ownership of US malls, and some in partnership with US listeds. Now a New York developer, Reckson, has created an Australian listed property trust to invest in its suburban portfolio.
Reckson intends retaining a 25% interest in the portfolios it sells to the trust, and is also retaining 100% ownership of its “strategic assets”, a portfolio of downtown trophy properties.
New York-listed Reckson Associates Realty Corp settled this week on transactions relating to its listing in Australia of $A263 million of units in the Reckson New York Property Trust. It will start trading on Monday 26 September.
On completion of all the related transactions, the trust will own a 75% indirect interest in 25 office properties which it describes as “suburban core plus,” acquired from Reckson, containing 316,000m² of space, for a total purchase price of $US563 million. Reckson will retain a 25% indirect interest in the properties.
The transaction has been structured to be completed in 3 tranches. In the first, closed on Thursday, the trust bought a 75% indirect interest in 17 properties containing 185,800m² for $US367 million. 3 properties will be transferred in the 2nd tranche, in the first quarter of 2006, & 5 in the 3rd tranche, in the 4th quarter of 2006.
Reckson will use the return from the first tranche to fund part of some recently announced acquisitions & repay debt.
Reckson president & chief executive Scott Rechler said formation of the Australian trust furthered the company’s goal of operating locally while financing globally: “We believe our markets offer significant opportunities to acquire attractive core-plus investments, and having global financing options such as the Australian vehicle will better enable us to be more competitive in pursuing these investment opportunities throughout all real estate cycles.”
The trust has a 2-year option to buy an additional 10 suburban core plus office properties from Reckson, comprising about 110,000m², to be priced at fair market value at the time the option is exercised. Reckson anticipates it will continue to maintain a 25% indirect interest in future investments.
Mr Rechler said that, generally, Reckson will continue to wholly own strategic assets, which are class A trophy office properties in key markets that define Reckson’s franchise and enhance its competitive advantage, as well as value-creation opportunities, which include repositioning, development & redevelopment projects.
Reckson put properties into the trust based on an estimated 2005 net operating income yield of 7.15%, 2006 yield of 7.91%, except for one property bought by Reckson recently and passed on at cost.
Mr Rechler said Reckson anticipated an 18% 2006 annualised after-tax cash yield on its trust interest, including one-off fees, and 15% excluding the one-off fees but including recurring fees.
The Australian trust will be managed by Reckson Australia Management Limited (RAML), which is wholly owned by Reckson Operating Partnership LP. Other affiliates of Reckson will serve as property manager, leasing agent, asset manager & construction manager and provide other services to the properties in the trust portfolio.
Reckson Associates Realty Corp. is a self-administered & self-managed US reit specialising in the acquisition, leasing, financing, management & development of class A office properties. Its core growth strategy is focused on the markets surrounding & including New York City. It said it was one of the largest publicly traded owners, managers & developers of class A office properties in the New York tri-state area and wholly owned, had substantial interests in or had under contract 91 properties containing 1.765 million m² of office space.
The Rechler famiy entered the New York development market in 1958, when it developed an industrial park in Brooklyn. The business was listed in 1995, with a substantial proportion of its 72-property portfolio on Long Island. It’s since expanded its interest into neighbouring Connecticut & New Jersey.
Mr Rechler said the new trust would be the first listed in Australia to concentrate on the suburban office market in the US. Generally, he said, the types of property the trust was investing in were under-managed, offering reckson the opportunity to apply its expertise & scale to increase cashflow & enhance value.
Website: Reckson
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