Keppel REIT to buy office building in North Sydney for A$328m

Keppel REIT to buy office building in North Sydney for A$328m
Image: Keppel REIT

Singapore-based Keppel REIT has agreed to acquire a 100% interest in Blue & William, a freehold Grade A office building currently under development in North Sydney for A$327.7 million (approximately S$322.2 million).

Shirley Ng, Deputy CEO and Head of Investment of the Manager, said, “In line with our active portfolio optimisation strategy, this DPU-accretive investment brings an initial net property income yield of 4.5%, which will enhance Keppel REIT’s overall portfolio returns. At the same time, regular coupon will be received throughout the development phase, providing robust risk-adjusted returns.”

“The investment will also see Keppel REIT expand strategically into North Sydney, a major commercial district with positive leasing dynamics. Designed with tenant experience and wellness as a priority, Blue & William, which will include advanced green features and offer panoramic views of the Sydney Harbour Bridge, is set to be the preferred business address for corporates,” she added.

Offering a total net lettable area (NLA) of about 14,000 sm, the property sits at the prime intersection of 2-4 Blue Street and 1-5 William Street, and is 160m from the North Sydney Train Station. With the upcoming Victoria Cross Metro Station, which will be located about 350m from the property when completed, commuting time to Barangaroo and Martin Place in the Sydney CBD will be reduced to approximately three minutes and five minutes respectively.

Designed by the global architecture firm Woods Bagot, Blue & William will feature outdoor terraces overlooking the Sydney Harbour Bridge, as well as an on-site café and end-of-trip facilities.

In line with Keppel REIT’s commitment towards sustainability, the property is designed to achieve the 5 Star Green Star Design and As Built Rating by the Green Building Council of Australia, as well as the 5.5 Stars National Australian Built Environment Rating System (NABERS) Base Building Energy Rating. In addition, it will incorporate smart building technologies such as destination control lifts and motion detection lighting control systems. The developer of the property, Lendlease, is a globally integrated real estate and investment group headquartered in Australia.

The acquisition is targeted to be completed in end-2021, with practical completion of the development estimated in mid-2023. A three-year rental guarantee will be provided by the developer on any unlet space after practical completion. The investment will be fully funded with Australian dollar denominated loans for natural hedge, with progressive payments to be made based on construction milestones. Post-acquisition, Keppel REIT’s aggregate leverage would be approximately 39.9%.

According to the company, North Sydney is New South Wales’ second largest office market after the Sydney CBD, and a location of choice for diverse industry sectors including technology, media and telecommunication, as well as the professional services and insurance sectors.

”Notwithstanding the pandemic, North Sydney recorded its third consecutive quarter of positive leasing demand in 3Q 2021, with new and refurbished buildings continuing to be drivers of leasing activity. With no new significant supply anticipated for North Sydney until 2024, the market is well placed to absorb the current availability of stock and drive vacancy down,” said the company.

”The completion of the new Victoria Cross Metro Station in 2024 will also enhance connectivity to North Sydney and support future demand in the market.”

Upon practical completion of Blue & William, Keppel REIT’s assets under management (AUM) will grow to S$9.0 billion across 11 properties in Singapore (77.1% of AUM), Australia (19.5% of AUM) and South Korea (3.4% of AUM), and the proportion of freehold assets in its portfolio will increase from 30.1% to 32.6%(by NLA).