Queensland government cutbacks hurt Westlawn Property Trust

The Queensland government's well-documented cost-cutting drive has impacted on the performance of the Westlawn Property Trust, an unlisted property fund managed by Clarence Property.

In its latest newsletter to investors, Clarence Property, based in Ballina, writes that the vacancy rate at its 29 level office building at 307 Queen Street in the Brisbane CBD has increased from 4.91% to 19.56% following Queensland government staff cutbacks.

The building, which offers 20,000 square metres of lettable office space, currently has four floors vacant.

This compares to a vacancy rate across the whole portfolio of just 3.89% as of June 2012 an 19.1% improvement on the June 2011 vacancy rate of 4.81%.

“The government cutbacks, combined with a slowing in the mining industry are likely to create difficulty leasing this space in the near-term.

“This vacancy has an obvious detrimental impact on rental income,” says Clarence Property.

The trust paid investors a distribution rate of 4c per unit per annum for the year to June 2012, unchanged from the previous year, after reporting a 7.1% improvement in net operating profit of $5.46 million.

In its newsletter, Clarence Property notes that it has continued to monitor the trust’s cash flow position with a view to being able to increase the distribution rate, but due to the increased vacancy at 307 Queen Street it remains “unable to announce a distribution rate increase”.

A further update will be provided to investors in December.

Clarence Property managing director Peter Fahey described the 2012 financial year performance of the trust as “acceptable” in what transpired to be a “difficult leasing year”.

Looking ahead, Fahey says the trust expects “moderate returns from direct commercial property (office) over the next 12 months".

“Performance will be largely dependent on tenant demand. Vacancy levels in Australian office markets are expected to rise slightly as white collar employment growth continues to be modest at best.

“Vacancy rates in the Brisbane office market, where the trust has its largest exposure, are expected to increase over the next year or so as a result of government staffing cutbacks and a pause in the mining industry," he says.

Fahey says the trust’s primary short-term focus is to fill the vacant space at 307 Queen Street.

Clarence Property paid $76.5 million when it acquired the Queen Street office tower in September 2002.

In currently has a book valuation of $127 million and comprises 46% of the value of all the properties in the trust, which stands at $274 million.

Other properties in the trust include a five-storey office building at 29 Molesworth Street in Lismore leased to the NSW government and Family Law Court of Australia, the Byron West Shopping Fair in Byron Bay, the Easy T Centre in Robina and the Yamba Shopping Fair.