China sovereign fund to buy biggest Aussie office assets

The nine office towers - in Sydney (above) and Melbourne - would make up the biggest of several offshore commercial real estate purchases by CIC in recent months.
The nine office towers - in Sydney (above) and Melbourne - would make up the biggest of several offshore commercial real estate purchases by CIC in recent months.PHOTO: AGENCE FRANCE-PRESSE

China Investment Corp expected to pay $2.5b to Morgan Stanley for nine office towers

SYDNEY • Sovereign fund China Investment Corp (CIC) plans to buy Australia's biggest office block portfolio from Morgan Stanley for US$1.82 billion (S$2.5 billion), highlighting Beijing's appetite for stable assets offshore as the mainland economy sputters.

CIC, which established its international unit in 2011 to invest in overseas assets, will acquire the nine office buildings, held by Investa Property Trust, from Morgan Stanley Real Estate Investing, the US firm said in a statement on Monday.

Blackstone Group, Brookfield Asset Management and Dexus Property Group were also competing to purchase the Investa property assets, people familiar with the matter had said earlier.

The bid by the US$200 billion CIC comes just as Sydney's commercial property market braces itself for a glut of new office space, despite little apparent appetite from tenants to expand their footprints in the country's main business hub.

"It's a gamble, particularly considering US interest rates might be going up for the first time this year and when they rise, we'll probably rise as well," said CLSA senior real estate analyst Michael Scott.

Spotlight on property The bid by the US$200 billion CIC comes just as Sydney's commercial property market braces itself for a glut of new office space, despite little apparent appetite from tenants to expand their footprints in Australia's main business hub.

"The big tenants aren't expanding that much, everyone's a bit cost-conscious," he said. "To be doing it at this sort of magnitude really is a sign of how the Chinese want to get set in this market."

The nine office towers - in Sydney and Melbourne - would make up the biggest of several offshore commercial real estate purchases by CIC in recent months.

In June, French media reported that CIC had bought 10 malls in France and Belgium from US real estate group CBRE for €1.3 billion (S$2 billion).

The CIC purchase would be the biggest by a Chinese state-owned enterprise (SOE) of an Australian real estate asset and the fourth largest by an SOE of an Australian asset of any kind, Thomson Reuters data shows.

Massive gyrations on the Shanghai and Shenzhen share markets have sent domestic Chinese stocks tumbling in recent weeks. On Monday, Chinese shares saw their biggest one-day fall in eight years, underscoring CIC's need for a safe-haven investment.

The Morgan Stanley purchase, which needs Australia's Foreign Investment Review Board's (FIRB)approval, indicates that China's interest in real estate Down Under is broadening from the residential sector.

China invested A$27.65 billion (about S$28 billion) in Australia in 2013-14, overtaking the US as the largest source of foreign investment, with almost half of that sum going into real estate, FIRB says.

The deal bodes well for the Australian government as it counts on interest from China to support a wave of large privatisation sales, including a A$17 billion government- owned electricity distribution network and ports serving some of the country's biggest cities.

Morgan Stanley will still seek to sell the commercial property management business which it put up for sale with the office blocks, a source told Reuters. That business has contracts to manage A$8.9 billion worth of buildings, including those bought by CIC.

Tenants in the office blocks to be bought by CIC include government regulator the Australian Prudential Regulation Authority, telecommunications giant Telstra and miner Rio Tinto. REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on July 29, 2015, with the headline 'China sovereign fund to buy biggest Aussie office assets'. Print Edition | Subscribe