321 Exhibition Street

We are pleased to advise that Alceon in partnership with Assembly Funds Management (AFM) and have recently secured exclusive rights to acquire a 100% freehold interest in a core A-Grade Office building at a highly attractive entry basis (presentation attached).  

321 Exhibition Street (“321X”) is a high quality, fully refurbished c.30,000sqm commercial building located in the North East precinct of Melbourne’s CBD. The asset is anchored by Origin Energy, a leading ASX50 energy company.

Alceon & AFM believe the current market fundamentals of supply and demand for commercial space in Melbourne’s CBD are at an inflection point. New supply is estimated to slow sharply, with Melbourne anticipated to continue to benefit from strong population growth and the North East precinct having materially cheaper economic rents than the Eastern Core, 321X is uniquely positioned to capture the benefits of a market recovery.

Alceon and AFM have a high level of conviction in this opportunity and intend to jointly cornerstone the transaction with a c.40% co-investment through separate Alceon  and AFM managed funds1, creating a strong level of alignment.   

The transaction provides the rare opportunity to acquire a high quality, core asset with potential to offer value-add style returns. Highlights are summarised below:

• Estimated Net IRR of c.15% net p.a including an average cash distribution of c.8% p.a.  paid quarterly
• Property purchase price reflects c.45% discount to replacement cost, 37% discount to reported peak offer and highly attractive 8.5% fully leased initial yield
• Acquisition at cyclical low presents opportunity for potential outperformance through a market recovery
• c.80% occupancy with 18 month rental guarantee on vacant space with live leasing interest
• Blue chip ASX50 tenant occupying c.50% of the building with the remainder multi-tenanted
• Near island site located in a prominent corner location in the North Eastern precinct which benefits from the lowest vacancy rates in the Melbourne CBD while providing access to the amenity of the Eastern Core
• Well supported exit assumptions below current replacement cost and previous peak pricing
• Substantial c.$25m capex programme already undertaken by existing owner, including significant ESG upgrades (5-star NABERS energy, water and indoor environment ratings)