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Keppel Buys Chennai Business Park From CPPIB-RMZ JV for $263M

2024/08/01 by Kevin He Leave a Comment

The One Paramount office complex in Chennai

Singapore’s Keppel Ltd has agreed to buy an office complex in Chennai from a joint venture of Canadian pension giant CPPIB and Indian developer RMZ Corp for INR 22 billion ($263 million), as the Temasek Holdings-backed infrastructure and real estate group continues to expand its property footprint in the South Asian nation.

SGX-listed Keppel is acquiring the One Paramount development as it plans to create a fund tapping investor interest in India’s growing office market, with the grade A complex to be potentially included among the vehicle’s seed assets.

“India continues to see strong commercial leasing volumes driven by solid growth fundamentals, and is a market we are actively looking to further invest in,” Keppel real estate CEO Louis Lim said in a release on Wednesday. “Keppel will deploy our innovative sustainable urban renewal capabilities to improve the asset’s energy efficiency and sustainability performance with the aim of enhancing its value and attractiveness to the investors of our private funds.”

Keppel announced the Chennai acquisition just under seven months after its Temasek-backed stablemate CapitaLand Investment revealed plans to invest $540 million in the southern Indian city over the next five years. CapitaLand now owns six properties in Chennai, with Temasek-owned Mapletree Investments also holding a business park in the city.

Diverse Tenant Mix

In addition to One Paramount, Keppel said the proposed fund could also be seeded with the Bangalore Tower, a 175,120 square metre grade A office project expected to complete in 2027 at a development cost of INR 9.5 billion ($114 million), excluding land costs.

Keppel chief executive for real estate Louis Lim (Image: Keppel)

Keppel chief executive for real estate Louis Lim (Image: Keppel)

News of the One Paramount acquisition surfaced in June, with local media accounts indicating that Keppel is picking up the freehold asset in Chennai’s Porur area at a cap rate of 8.6 percent. CPPIB and RMZ had reportedly put the property along Mount Poonamallee Road up for sale as early as December. CPPIB and RMZ had yet to respond to inquiries from Mingtiandi at the time of publication.

Located within an established office cluster roughly 14 kilometres (9 miles) from Chennai’s city centre, One Paramount spans 2.4 million square feet (222,967 square metres) of gross leasable area across three office towers and ancillary retail and amenity spaces.

The complex’s office space is leased to multinational corporations and domestic companies from sectors including consulting, chemicals, information technology and logistics services, with the tenant roster said to include Hitachi Energy, Maersk, Nielson IQ, UPS, and VMware.

According to local media accounts, the property was 66 percent occupied when the asset was put up for sale last year, with monthly rents averaging INR 65 per square foot at the time. Face rents for Chennai grade A office properties averaged INR 77.8 per square foot in the second quarter, while vacancy stood at 15.5 percent, according to Colliers.

One Paramount is part of a trio of office developments under the CPPIB-RMZ JV, which the partners set up in 2021 to develop and hold commercial projects in Chennai and Hyderabad. CPPIB established that partnership with a planned investment of $210 million and a target portfolio value of $1.5 billion. The Canadian institution committed $350 million to a second Indian office JV with RMZ in 2022.

At the time of the initial JV’s formation, RMZ already had 7.5 million square feet of the portfolio under development, including One Paramount. The complex’s first tower was completed in 2009, and the entire project was completed in 2022.

Growing Market

Following the acquisition, Keppel will manage the LEED Platinum-certified asset and enhance its sustainability features including energy and water use and waste management processes. Keppel also intends to expand use of renewable energy and implement digital and smart building technologies at the property.

Keppel does not expect the transaction to have any material impact on its net tangible assets per share or earnings per share for the current financial year.

Elsewhere in India, Keppel has partnered with Mumbai-based developer Rustomjee Group to develop the 6,047-unit Urbania Township residential project in Mumbai, and last year entered into a forward purchase for a commercial tower in Pune.

Keppel’s acquisition comes as investors pumped $900 million into Indian office assets in the first half of the year after having invested $3 billion into the sector in 2023, according to Colliers. India’s top 6 office markets of Bengaluru, Chennai, the National Capital Region around Delhi, Hyderabad, Mumbai, and Pune saw 15.8 million square feet of leasing volume in the second quarter, jumping 16 percent from the prior quarter.

Singaporean investors have been boosting exposure to the Indian office sector. Earlier this week, SGX-listed CapitaLand India Trust reported a 21 percent year-on-year jump in net property income, with the CapitaLand Investment-sponsored REIT having acquired its second Mumbai area office building last week.

In May, Singaporean sovereign fund GIC teamed up with private equity firm Xander Investment Management to buy the Waverock office campus in Hyderabad.

Real Estate Underperforms

The acquisition comes as Keppel’s net profit from continuing operations in the first six months of the year grew 7 percent year-on-year to S$513 million, according to the company’s results released on Thursday, with stronger performance in the infrastructure and connectivity segments offsetting a decline in real estate contributions.

Including the effects of legacy offshore and marine assets and profit from discontinued operations booked in the first half of 2023, Keppel’s half-year net profit plunged 92 percent year-on-year to S$304 million.

Total revenue declined 13 percent over the same period to S$3.2 billion, while recurring income rose 14 percent year-on-year to S$388 million.

Real estate was the only segment to report year-on-year declines in both revenue and net profit, having slid 44 percent and 31 percent respectively.

Funds under management as of 30 June grew 55 percent from 31 December to S$85 billion, boosted by last year’s buyout of Aermont Capital, with Keppel having completed its purchase of an initial 50 percent stake in the European fund manager. Asset management profit more than doubled year-on-year to S$75 million.

“While 2024 continues to be challenging, we see exciting opportunities ahead as investors’ growing preference for defensive, cashflow generative assets is driving demand for alternative real assets in infrastructure, connectivity and private credit, areas where Keppel has strong expertise,” said Keppel CEO Loh Chin Hua.

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Filed Under: Finance Tagged With: Chennai, CPPIB, daily-sp, Featured, India, Keppel Corporation, RMZ Corp

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