Frasers-ESR Sell Melbourne Office Project to Ascendas REIT for A$111M

Singapore-listed Ascendas REIT will soon be adding a fourth Australian office property to its portfolio after the real estate investment trust’s manager announced last week that it had agreed to acquire a Melbourne development project.

Ascendas Funds Management, a unit of Singapore’s CapitaLand Group, said in an announcement to the Singapore stock exchange that it would be paying A$110.9 million ($75 million) to purchase the development in Mulgrave, a southeastern suburb of Melbourne, from a joint venture between Frasers Property Australia and the Australian unit of logistics group ESR.

The leadership of the fund’s manager hailed the acquisition of the eight-storey project as adding to the earning potential of Ascendas REIT, which following the completion of the deal for the Melbourne property, will include 171 properties across Singapore, Australia and the UK.

Property Already 65% Leased to Nissan

“We are very pleased with this acquisition as it is well-located in the Monash Technology Precinct in Melbourne, has 65% of the space pre-committed for 10 years and is DPU accretive,” William Tay, Executive Director and Chief Executive Officer of Ascendas Fund Management said in a statement referring to the impact of the purchase on the REIT’s distributions per unit held by its investors.

The purchase price, which is forward-funded, reflects both the land and the development cost associated with the project, which is expected to be completed in the second quarter of 2020. When fully constructed, the freehold property at 254 Wellington Road will provide 17,507 square metres (188,444 square feet) of net lettable area, as well as parking facilities for 911 vehicles.

Located 21 kilometres south of central Melbourne in a high tech development zone, automotive giant Nissan has already agreed to lease 65.2 percent of the space in the project on a ten year lease which stipulates annual rent increases of 3.0 percent, according to the REIT manager’s statement.

As part of the sale and purchase agreement, the Frasers-ESR joint venture takes responsibility for marketing the remaining space in the project while providing a three-year rental guarantee for any space that remains unleased.

The developers aim to achieve 5-star ratings under both the NABERS Energy Rating and the Green Star Design criteria used to certify sustainable buildings in Australia.

Including stamp duty, the manager’s acquisition fee and other transaction costs, the REIT is expected to pay a total of A$112.2 million for the property, which the manager estimates will create a post-transaction cost net property income yield of 5.7 percent in its first year of operation. At A$110.9 million, the REIT will be paying the equivalent of just less than A$6,335 per square metre for the property.

Frasers-ESR Squeeze Value Out of Melbourne Acquisition

Ascendas REIT’s agreement to purchase the office asset follows just over four months after Frasers Property Australia, which is controlled by Singapore-based Frasers Property Group, had joined with ESR to complete their acquisition of the site for the project from Australian fund manager Charter Hall for A$14.5 million.

Frasers are developing 254 Wellington Road, which is part of a four piece business park project built on a former ice cream factory location, under a 50-50 joint venture. The partners began marketing the business park to potential investors soon after acquiring the site in June.