Keppel REIT Buying Sydney Office Project From Phoenix Property JV for $234M

Singapore-listed Keppel REIT is jumping back into Sydney’s booming office market, with the trust adding a sixth asset to its Australia portfolio for a total development consideration of A$327.7 million ($234.1 million), according to an announcement to the Singapore stock exchange this week.

The REIT’s latest office acquisition will boost the total value of its assets under management from S$8.6 billion to S$9 billion ($6.5 billion), just less than a month after its sponsor was outbid in an attempt to acquire Singapore Press Holdings’ real estate business by a S$3.9 billion offer from a Temasek-led consortium.

“In line with our active portfolio optimisation strategy, this DPU-accretive investment brings an initial net property income yield of 4.5 percent, which will enhance Keppel REIT’s overall portfolio returns,” said Shirley Ng, the manager’s deputy CEO and head of investment in a press release.

Keppel is buying Blue & William, the grade A office project in North Sydney, from a joint venture between Hong Kong’s Phoenix Property Investors and Australian developer Thirdi, at a per-square-foot price of ​​A$2,174, based on its approximate net lettable area of about 150,694.7 square feet (14,000 square metres). The trust is tackling its new project together with Sydney-based developer Lendlease, which has agreed to take over as project developer and manager.

More Sydney Offices

Keppel REIT’s latest Sydney buy comes just over one year after the listed trust purchased Pinnacle Office Park in the city’s Macquarie Park suburb from local developer Goodman Group for A$306 million.

At A$342.9 million, the estimated total project cost of the Singapore-listed trust’s new building will include the development consideration, as well as an acquisition fee payable to the manager of A$3.3 million, and transaction costs of A$11.9 million, including stamp duty and applicable taxes.

Phoenix Property Investors and Thirdi broke ground on the 10-storey office project in April of this year. The freehold property, which spans a 24,853.8 square foot site, is located on the intersection of 1-5 William Street and 2-4 Blue Street in North Sydney, a business district just across the harbour from the city’s CBD.

Designed by international architecture company Woods Bagot, Blue & William is scheduled for completion in mid-2023, around one year before the Victoria Cross Metro Station, which is located 350 metres from the property, is set to connect the area with the city’s central business district and the Barangaroo commercial hub, the trust noted in its announcement.

Market Upswing

Keppel’s buy of Blue & William followed a year of “record development activity” for North Sydney in 2020, when about 1 million square feet of supply was added to the market, according to a Knight Frank report.

The REIT’s latest office asset, only 160 metres (174 yards) from the North Sydney Train Station, is expected to support future market demand once complete, with the trust’s manager pointing out that, apart from its new project, no significant new office developments are expected to be added to the North Sydney market before 2024.

Keppel REIT’s new acquisition followed a 51 percent increase in office investment transactions across Australia in the third quarter, according to property services firm Cushman & Wakefield, with the property services firm tallying A$5.9 billion in deals during the period, compared to A$3.9 billion in the preceding three months,

Australia Expansion

Four months after parting ways with a half-stake in a 31-storey office building in Brisbane which had been its earliest Aussie acquisition, Keppel REIT is replenishing its portfolio down under.

The trust, which in its home city of Singapore owns a one-third interest in One Raffles Quay and a 100 percent interest in Keppel Bay Tower south of the city’s central business district, posted encouraging results in the first nine months of 2021.

Keppel REIT’s distributable income rose 20.8 percent from the same period in the previous year to reach S$159.9 million ($117.2 million). This was due in part to contributions from its Victoria Police Centre asset in Melbourne, and the Pinnacle Office Park in Sydney, the REIT reported.

Another Singapore-listed trust, AIMS APAC REIT, expanded its Australia portfolio in October by agreeing to acquire the Woolworths corporate campus, a business park located 35 kilometres (21.7 miles) northwest of central Sydney, for A$463.3 million.