Keppel REIT to acquire North Sydney office development for around A$328M

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Correction: A previously published version of this item misstated the initial net property income yield. The correct figure is 4.5 percent.

Keppel REIT has entered a deal to acquire all of Blue & William, a Grade-A office building under development in North Sydney, Australia, for a total development consideration of A$327.7 million, or around S$322.2 million, the REIT’s manager said Tuesday.

The sellers of the property are Pyrmont Union Street Landowner, William Street Home Units, 4 Blue Street Home Units and Conway Home Units, the REIT said in a filing to SGX.

The investment will be funded via Australian-dollar-denominated loans, with payments made based on construction milestones, the filing said.

Shirley Ng, deputy CEO and head of investment for the REIT’s manager, said the acquisition would be accretive to distribution per unit (DPU), with an initial net property income yield of 4.5 percent, and the developer, Lendlease, will pay the REIT a regular coupon of 4.5 percent per annum on progress payments.

The developer will provide a three-year rental guarantee on any unlet space after practical completion, the filing said. Practical completion is reached when a project can be used, but not all works may be completed.

On a pro forma basis, the DPU for fiscal year 2020 would have been 5.90 Singapore cents, compared with 5.73 Singapore cents, if the deal had been completed on 1 January 2020, the REIT estimated

“The investment will also see Keppel REIT expand strategically into North Sydney, a major commercial district with positive leasing dynamics,” Ng said, noting the building will have advanced green features.

North Sydney is the second-largest office market i New South Wales after Sydney’s central business district (CBD), the filing said, citing data from the Property Council of Australia from July 2021. The market is expected to have no significant new supply until 2024, while the completion of the new Victoria Cross Metro Station, expected in 2024, will enhance connectivity and support demand, the REIT said.

Despite the pandemic, North Sydney has posted three consecutive quarters of positive leasing demand as of the third quarter of this year, according to data from JLL Research, the filing said.

The REIT said the deal is expected to be completed by the end of this year, with the development’s practical completion expected in mid-2023.

Once the project reaches practical completion, Keppel REIT’s assets under management (AUM) will reach S$9.0 billion on a pro forma basis across 11 properties in Singapore, Australia an South Korea, the REIT estimated.

Read more details about the acquisition.