Commonwealth Office Trust (CPA)

By Jason Fittler

CPA owns and operates a portfolio of office properties located in capital cities and suburban locations across Australia.

Geographic diversification is low with the vast majority of the portfolio located in Sydney and Melbourne.

Tenant diversification is also low with the top ten tenants accounting for nearly half of the income. The Commonwealth Bank is the biggest tenant and the rest of the top ten are blue chip companies or government bodies.

CPA is well placed to benefit from a cyclical upswing in Australian office markets on the back of improving demand while supply remains limited. At the current price of $0.88, CPA trades at an attractive 20% discount to Net Tangible Assets (NTA) and offers a 6.3% distribution yield based on an 80% payout ratio.

Vacancies and tenant incentives remain high post GFC but strengthening demand and limited supply suggest a positive medium-term outlook.

NTA slipped 2.7% to $1.10 with dilution offsetting a mild $36m property revaluation gain.

Balance sheet is in good shape with gearing of 25.8%, up marginally. CPA granted a call option to GDI Property Group allowing it to buy three Perth offices for $152m, 2% below June 2010 book values. If exercised, settlement should occur before December 2011. Sale proceeds could fund a unit buyback.

CPA is a long term buy; it represents good value in the Property sector and should be a core holding for exposure to property.

For more information on (CPA) please contact us on 07 4771 4577.