The manager of Keppel REIT says it has entered into an agreement to acquire 100% interest in Blue & William, a freehold Grade A office currently under development in North Sydney.
The total consideration for the development is A$327.7 million ($322.2 million). The amount includes the consideration of A$150 million for the acquisition of the land.
On Nov 30, the REIT’s trustee, RBC Investor Services Trust Singapore, entered into a contract of sale with Pyrmont Union Street Landowner Pty Ltd, William Street Home Units Pty Limited, 4 Blue Street Home Units Pty Limited and Conway Home Units Pty Limited (the vendors) for the acquisition of the land.
It had also entered into a development agreement with Lendlease Development to develop the land into a Grade A office building named Blue & William.
The land is located at 2-4 Blue Street and 1-5 William Street. The office, when built, will offer a total net lettable area (NLA) of around 14,000 sqm.
Blue & William is located 160m from the North Sydney Train Station and 350m from the upcoming Victoria Cross Metro Station. The new metro will reduce commuting time to Barangaroo and Martin Place in the Sydney CBD to around three minutes and five minutes respectively.
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The new property will also feature outdoor terraces that overlook the Sydney Harbour Bridge.
The acquisition is targeted to be completed in end-2021. Practical completion of the development is expected to be around mid-2023.
A three-year rental guarantee will be provided by the developer on any unlet space after the practical completion.
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The investment will be fully funded with Australian dollar-denominated loans for natural hedge. Progressive payments will be made based on construction milestones.
Under the terms of the contract of sale, Keppel REIT will pay an initial amount of A$143.0 million on completion of the land purchase with a balance payment of A$7.0 million around eight business days after the date of the practical completion or on June 30, 2023, whichever is earlier.
Following the acquisition, Keppel REIT will have aggregate leverage of around 39.9%.
Upon the practical completion of Blue & William, Keppel REIT’s assets under management (AUM) will grow to $9.0 billion across 11 properties in Singapore, Australia and South Korea.
The proportion of freehold assets in its portfolio will increase from 30.1% to 32.6% by net lettable assets (NLA).
The development is said to be accretive to the REIT’s distribution per unit (DPU), with pro forma FY2020 DPU rising to 5.90 cents from 5.73 cents. The investment will bring an initial net property income (NPI) yield of 4.5%, based on the estimated NPI for the first operational year after practical completion.
Units in Keppel REIT closed 3 cents lower or 2.63% down at $1.11 on Nov 29.
Photo: Keppel REIT
