Australian Defence Housing Authority Defers Sale Leaseback Program

The Australian - April 10, 2008

The Defence Housing Authority plans to sell $200-300 million worth of housing to pension funds and institutional investors in the next six months. DHA managing director Michael Del Gigante said: "We are holding off because of the current credit crunch and the decline in the listed property sector. "We are watching the market and getting ready to hold another tender, probably in the next six months," he said. Mr Del Gigante expects liquidity to improve in time, allowing for DHA to go back to the market to raise capital.

The Authority made its first sale to an institution in 2006, when Westpac won the tender to buy 441 houses in two tranches for a total of $220 million, which seeded Westpac's first unlisted residential trust.

Some institutions were looking for up to a billion dollars worth of assets to set up residential funds, but Mr Del Gigante said DHA would not have enough stock in its inventory to meet their requirement. The authority produces 1500 new houses a year for sale and lease-back.

"In order to meet DHA's growing capital program, I expect the volume of sale and lease-back to grow to between $400 and $500 million a year in the next three to five years." Mr Del Gigante said DHA, set up two decades ago to develop and provide housing to defence personnel, had been raising between $300 and $400 million a year from the program.

However, sales dropped to $270-300 million this financial year because of the weakness in the market, so the DHA held off making a bulk sale. Between 60 and 70 per cent of its capital program is channelled into refurbishment and maintenance of its pool of 17,000 houses across Australia, which are worth about $6 billion.

DHA leases back properties for up to 15 years. The standard lease terms are nine or 12 years, with an option for a three-year extension. At the end of 15 years, the houses are usually redeveloped. Investors are able to resell the houses while they are still leased to DHA, but the lease has to be attached to the sale. Independent valuers set market-based rents for the properties. Currently, the rents range from $370 to under $700 a week, depending on the location and the state or territory. Sphere: Related Content