Commonwealth Property Office Fund announced a 7.8 per cent fall in annual net profit but recorded a strong year in spite of weakness in the office market.
The profit fall was reversed once the proceeds from the 2003 sale of its industrial portfolio was stripped out.
After excluding the $42.2 million profit on the sale of the Colonial First State Industrial Trust in April 2003 in the 2002/03 accounts, the fund recorded a net profit increase of 7.8 per cent to $139.1 million for 2003/04.
The previous year's result was $150.85 million.
The quality office property fund's final distribution was 4.80 cents per unit, making a total of 9.58 cents for the year, an increase of 3.6 per cent on the previous year.
Manager Colonial First State Property said the fund had a strong year, in spite of weakness in the Australian office market.
However, it said the sector was poised to improve on the back of a firm labour market and strong macro economic indicators.
"In the year ahead, we will again concentrate on strengthening CPA's defensive income profile through the execution of new long term leases to extend the fund's average weighted lease expiry and the negotiation of rent reviews aimed at providing the fund with sustainable rental growth," fund manager Charles Moore said.
Its current weighted average lease term to expiry is 4.6 years.
An average rental increase of 4.1 per cent was achieved in the 2004 year.
"Coupled with a continued positive outlook for business confidence over the next 12 months, lease incentives are expected to decrease which should translate into real effective rental growth," he said.
Some 309,515 square metres of office space is subject to rental reviews this financial year and the fund expects to achieve increases of three to six per cent for at least 75 per cent of those.
Mr Moore said the 2003/04 result was supported by additional income from acquisitions settled in the second half of the previous year, and the purchase of an indirect 25 per cent leasehold interest in Grosvenor Place in Sydney's CBD.
"This financial year was another active period for CPA, building on a number of initiatives commenced last year and further enhancing the fund's reputation as a strong and consistent performer," he said.
The annual average weighted distribution per unit since the fund delivered its first in 2000 was 5.4 per cent.
In 2003/04, total assets increased to $2.6 billion, from $2.2 billion, while net tangible asset backing per unit was unchanged at $1.14 per unit.
Even though the fund underperformed the relevant benchmark index in the second half of 2003/04, it recorded a positive return.
"After allowing for the accumulated carry over outperformance from prior periods, the fund recognised a performance fee for the period of $500,000," the manager said.
The total performance fee for the year was $4.1 million and will be paid in the form of units to the manager.
The manager acknowledged a "considerable" increase in borrowings in the year for acquisitions, payments and construction drawdowns.
Gearing was at 33 per cent at year end, although below the office trust industry average of 37 per cent.
It said a callable deposit of $205 million which expires next January will be used to retire short term debt included in current outstanding borrowings of $864.6 million.
The fund's portfolio includes 26 properties in capital cities across Australia.
Commonwealth Property Office Fund units closed steady at $1.19.