The manager of Ascendas REIT has announced the proposed acquisition of two office properties located in San Francisco for a total purchase consideration of US$560.2 million ($768.0 million) on Nov 10.
The independent market valuations of the properties amount to some US$573 million as at Oct 15, 2020.
The properties, which are located at 510 Townsend Street and 505 Brannan Street, were acquired from B505 Industries and ARE-San Francisco No. 47.
Both properties are Class A office properties that were newly completed in 2017.
The property at 510 Townsend Street is fully leased to online payment processing platform Stripe, the third most valuable startup in the US. The company’s lease has a remaining term lease of 7.0 years.
The property at 505 Brannan Street is 100% occupied by Pinterest, who has its headquarters within the space. Pinterest’s lease has a remaining term lease of 12.4 years.
Both companies, according to the manager, will further increase the REIT’s exposure to the growing technology, biomedical and digital media industry in the US to 75% from 65% as at Sept 30, 2020.
The properties, which are sited on freehold land, have a combined weighted average lease expiry (WALE) of 9.1 years, lengthening the REIT’s total portfolio WALE to 4.1 years from 3.0 years.
The structure of the leases is triple-net and have built-in rent escalations of 2% to 3% per annum.
The acquisition is said to be accretive to the REIT’s distribution per unit (DPU). Net property income (NPI) yield for the first year is approximately 4.9% and 4.8% pre-transaction costs and post-transaction costs respectively.
The acquisition will also add diversity to the REIT’s portfolio, with San Francisco accounting for 37% of its US portfolio.
Both properties, which are strategically located in the South of Market (SoMa) submarket, has key tenants such as Adobe, Paypal, Airbnb, Pinterest and Cruise Automation in the vicinity.
“This acquisition allows us to plant a foothold in San Francisco, one of the most dynamic and progressive cities in the US,” says William Tay, executive director and CEO of the manager.
SoMa has consistently been the top performing submarket with an average occupancy rate of more than 96% (for Class A properties) since 2013.
Average rental rate has grown 4.9% per annum since 2013, says the manager.
The area is also home to an abundance of restaurants, bars, museums, as well as the home stadium of the city’s baseball team, the San Francisco Giants.
Ascendas REIT is expected to incur an estimated transaction cost of US$11.9 million. The total acquisition cost, which amounts to some US$572.1 million, will be financed with proceeds from the equity fund raising, debt financing, as well as internal cash resources.
See: Ascendas REIT to raise $1.2 bil through equity fund raising
Units in Ascendas REIT closed flat at $3.19 on Nov 9.
