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ING Office Fund
European acquisition – Prague, Czech Republic
“Budejovicka Alej”
3 July 2006
Transaction summary
Key benefits
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Improves the Fund’s earnings and growth prospects
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New, fully leased, high quality building
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Blue chip multi-national and national tenants
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Strategically located on key transport nodes
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Attractive total return outlook
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Geographic diversification into European Union (450million people)
2
Transaction summary
Property details
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Location: Prague 4 (midtown)
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Purchase price: €37.0m
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Appraisal: €37.0m
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Initial yield: 5.8%
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Net initial yield (after costs): 5.5%
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Market rent: €174sqm (net)
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Passing rent: €174sqm (net)
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Occupancy: 99%
Entrance to underground car park at Budejovicka Alej
3
Transaction summary
Property details (ctd)
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Type: Grade A (completed 2005)
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Major tenants: Shell, Nissan, Deloitte, SG Equipment, AT Kearney
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Leases: Western style, euro denominated, annual CPI indexation, 3-7yr terms
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Average lease expiry: 4.5 years
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Net rentable area: 11,673sqm (9 storeys)
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Parking: 156 underground and 8 surface spaces
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Land area: 6,307sqm
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Ownership: Freehold
4
The Building
Location
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Situated in major commercial district of Prague 4 – an important centre of commerce
- most sought after and established submarket
- attracts high calibre multinational and national tenants
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Strategically located on key transport nodes
- excellent public transport access via Metro
- direct private transport access from main highway connecting north & south of city
- Bus arrival and departure stations adjoin the property
5
The Building
Location
6
Czech Republic
Overview
¾ Highly liberalised and dynamic
economy growing above EU
average.
¾ Abundant supply of well
educated, technically skilled multilingual workers
Czech Republic
10.2 mill population
4.0% GDP growth 2006
$19,311 GDP per capita
$41.7billl foreign direct investment (1989 – 2004)
¾ Low company taxes complement
low wages, attracting material foreign
investment
¾ Western style accommodation at
Central European rents
Source: Business Week, Cushman and Wakefield.
Note: map adapted from AFR.
7
Czech Republic
Emerging Europe’s top commercial property markets
Country
2005
2004
Czech Republic
1
1
Hungary
2
2
Poland
3
3
Slovakia
4
4
Estonia
5
5
Russia
6
7
Latvia
7
8
Lithuania
8
6
Romania
9
12
Bulgaria
10
10
Croatia
11
11
Slovenia
12
9
Turkey
13
13
Source: 2004 Emerging Europe report, C&W/H&B
8
Ranking by
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Macro Factors –
(EU accession, Politics, Economic
& foreign investment)
Â
Property Market Activity –
(maturity, occupier and investment
activity and values)
Â
Property Market Structure –
(transparency, foreign ownership,
leases, property taxes & costs,
legal structure & planning)
Prague office market
Overview
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Total office stock of 1.8million sqm
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Annual five year net absorption of 99,000sqm (5.5% of current stock)*
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Net absorption expected to remain at stable and high levels
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Increasing land values and construction costs have pushed up economic rents
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Forecast rental growth for 2007 – 2009 of 4% p/a**
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Further yield convergence with Western Europe expected
* Cushman & Wakefield Healey and Baker
** PMA
9
Prague office market
Key metrics
250
20%
200
15%
150
10%
100
Net absorption (left axis)
Net addition (left axis)
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Current overall vacancy of 12% and falling
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Solid forecast net absorption
Source: PMA
10
20
08
F
20
09
F
20
06
F
20
07
F
20
04
20
05
F
20
03
20
02
20
01
20
00
19
99
0%
19
98
0
19
97
5%
19
96
50
19
95
1,000 sqm
Vacancy and its determinants on the Prague office market
Vacancy rate (right axis)
Prague office market
Sub markets
CBD
23%
Out of Tow n
28%
Edge of Centre
20%
Mid Tow n
29%
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CBD covers old city of Prague
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Budejovicka Alej located in midtown (largest sub market)
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Future growth focused in out of town locations
Source: CBRE
11
The transaction
Acquisition funding
A$*
€
New property level debt
44.8m
26.0m
New entity level debt
20.4m
11.8m
65.2m
37.8m
63.8m
37.0m
1.4m
0.8m
65.2m
37.8m
Source of funds
Application of funds
Property
Acquisition costs
* A$/ € spot = 0.58
12
The transaction
FX and interest rate hedging
Hedged
Rate
Duration
Property level debt
100%
4.8%
5.0 yrs
Entity level debt
100%
4.7%
5.0 yrs
EURO income hedge*
100%
0.55
5.0 yrs
* €/A$ spot = 0.58
Indicative rates, incl. margins
13
Transaction summary
Global diversification
Boston 4%
New York 8%
Washington DC 15%
Dallas 3%
Prague 3%
Perth 2%
Melbourne 12%
14
Brisbane 15%
Sydney 34%
Canberra 4%
Summary
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Improves the Fund’s earnings and growth prospects
Â
Highly sought after commercial property market in Central Europe
Â
New, fully leased, high quality building
Â
Blue chip multi-national and national tenants
Â
Strategically located on key transport nodes
Â
Solid rental growth outlook expected to deliver attractive total returns
Â
Geographic diversification into key European Union market
15
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