Brookfield's listed office property trust has secured a large 10-year lease at its under-let office towers in Perth, with proposed BHP Billiton spin-off South32 signing on as a tenant and taking naming rights over the building.
The ten-and-half-year lease deal is a firm indication BHP Billiton is pushing ahead with the planned demerger of non-core businesses.
The offshoot is set to move into a new office away from its parent.
Last year, the mining giant revealed a plan to spin-off its lower performing Illawarra coalmine and its aluminium, manganese and silver assets into a new $US15 billion ($18.4bn) vehicle that would be listed on the Australian Securities Exchange.
Under the proposal, a slimmed down BHP Billiton would retain its iron ore, copper, coking and thermal coal assets and its oil and gas business. It would also keep its unloved nickel business after investors baulked at the idea of the assets being rolled into South32.
BHP Billiton is now housed in another Brookfield property — Brookfield Place, at 125 St Georges Terrace.
If shareholders approved the spin-off proposal, South32 would move into offices nearby at 108 St Georges Terrace, 50 per cent-owned by listed office owner Brookfield Prime Property Fund (BPA) and 50 per cent-owned by the Canadian construction behemoth’s unlisted investment manager, Brookfield Asset Management
South32 signed a lease for 8300sq m at the property previously known as Bankwest Tower after the Commonwealth Bank subsidiary vacated the building last year.
South32 will take up about 10 floors of space in the high-rise component of the building, refurbished in 2010.
Also tenanted at the building is law firm Norton Rose, housed over three floors, and Apache Energy, which takes up a further four floors in the 52-level building.
The lease deal is conditional on the proposed demerger winning the support BHP Billiton shareholders, who will vote on the spin-off option in May.
“The agreement for lease may also be terminated by BHP Billiton in other circumstances with appropriate compensation being payable,” BPA said in a statement.
The deal is also very important for BPA, which late last year fielded a takeover offer from 80 per cent shareholder Brookfield, which was rejected by the remaining shareholders as being too low.
BPA owns stakes in six office properties together valued at $895 million.
If executed, the lease would substantially reduce the vacancy across the building and take the building’s occupancy to 75 per cent and the weighted average lease expiry to seven years.
“If the conditions are satisfied, the agreement represents an important step in de-risking part of the vacant space at 108 St Georges Terrace,” the statement from the fund said.
However, the company noted it did not expect the lease to result in any value uplift for its $166m stake in 108 St Georges Terrace because the proposed transaction “is broadly in line with current valuation assumptions”.
BPA closed up 1c at $5.06.