Singapore’s Keppel REIT Buys Half-Stake in Sydney Office Tower From Mirvac for $237M

Singapore-listed Keppel REIT is paying A$363.8 million ($237.09 million) to acquire a 50 percent stake in an office tower in central Sydney from a fund managed by Mirvac, confirming an earlier account by Mingtiandi.

The REIT’s manager announced on Monday that it has agreed to buy a half-stake in 255 George Street, a 29-storey Grade A office building near Sydney’s harbourfront, from Mirvac’s first Wholesale Office Fund. The trust is acquiring the property at a yield of over 6 percent, as it continues to ramp up its presence in its biggest market outside of Singapore.

“With the core precinct’s positive office market outlook and the property’s prime specifications, this DPU-accretive acquisition will enhance the quality of Keppel REIT’s portfolio and we are confident that it will continue to attract companies looking for quality office spaces in Sydney,” Koh Wee Lih, chief executive officer of the manager, said in a disclosure on Monday.

Keppel REIT pointed to the much-cited flight of occupiers to higher quality buildings and to tightening office vacancy in central Sydney as major factors in its acquisition decision. Citing estimates from JLL, the trust said office vacancy in Sydney’s core precinct has dipped for five straight quarters to 11.5 percent in the last three months of 2023, the lowest rate among the city’s four major commercial hubs.

Upgraded and Leased

Set to be completed within the next six months, the deal requires Mirvac’s flagship fund to provide the REIT with rent guarantees, leasing incentives, leasing commission and capital expenditures worth up to A$46.8 million.

The ASX-listed property group will retain the remaining half stake in 255 George Street while serving as the property manager for building opposite Bridge Street Light Rail Station for the next three years.

The total agreed consideration values the asset at A$727.6 million on a 100 percent basis, equivalent to A$18,658 per square metre of the asset’s net leasable area of around 39,000 square metres (419,793 square feet). Market observers who spoke with Mingtiandi earlier estimated that the price represents a 10 to 20 percent discount from the asset’s book value.

The property is currently 93 percent occupied, with its top tenants including the Australian Taxation Office and Bank of Queensland and other major public and commercial institutions. The property has an weighted average lease expiry term of 6.8 years, with the majority of existing leases not set to expire until after 2028.

Built in 1985, 255 George Street underwent a A$50-million major renovation in 2022 that updated flooring, public areas and the central plant in addition to adding flexible workspace and amenities such as a wellness studio, a ground floor cafe and end-of-trip facilities. The building was known as NAB House until National Bank Australia relocated in 2021.

Discounts Down Under

The acquisition will expand Keppel REIT’s portfolio by 4 percent to S$9.6 billion ($7.12 billion) from S$9.2 billion at the end of 2023, with assets in Australia comprising nearly one-fifth of its assets.

The deal is the latest in a series of 50:50 investments by Keppel REIT in Mirvac assets, with the trust also holding a half stake in 8 Chifley Square, a 30-storey commercial building about 10 minutes’ walk from 255 George Street, as well as in the 33-level David Malcolm Justice Centre commercial tower in Perth’s city centre. JLL and Cushman & Wakefield jointly advised Mirvac on its sale of 255 George Street.

For Mirvac, offloading the half-stake in 255 George Street gives its flagship investment vehicle some wiggle room after S&P Global in August revised its outlook on Mirvac Wholesale Office Fund to negative from stable due to “large and ongoing unitholder redemption requests.”

The credit rating agency had pointed to high borrowing costs and declining occupancy as compelling Mirvac to sell assets from the vehicle and cut distributions to shield its “A-” issuer credit rating.

Over the past year, overseas investors have been flocking to Australia to shop for discounted office deals.

In February, members of Singapore’s Ho family paid A$95.5 million to buy the 18-storey office block at 124 Walker Street in North Sydney from a fund managed by Dexus. The deal led by brothers Ho Ninghao and Ho Ningchi was struck at 20 percent below the asset’s A$120 million valuation in June of last year.

Last October, Japan’s Mitsubishi Estate, together with local partner AsheMorgan, made Australia’s largest single-asset acquisition of 2023 with their A$777 million purchase of the 60 Margaret Street office tower and its MetCentre retail podium from a joint venture between Mirvac and Blackstone.