Keppel REIT Buys Sydney Office Park Asset From Goodman for A$306M

The manager of Singapore’s Keppel REIT announced today that it has agreed to acquire an office building in suburban Sydney for S$306 million ($223 million), adding a sixth Australian commercial asset to its portfolio.

The SGX-listed trust is acquiring a 100 percent interest in Pinnacle Office Park, a 35,132 square metre (378,165 square foot) complex in Macquarie Park from local developer Goodman Group, with the goal of improving its property income and diversifying a portfolio spread across Singapore and South Korea as well as Australia, according to an announcement today.

“With an initial net property income yield of 5.25 percent, the acquisition of Pinnacle Office Park is in line with our active portfolio optimisation strategy to improve Keppel REIT’s income resilience and portfolio yield,” said Paul Tham, CEO of Keppel REIT Management Ltd, which manages the listed trust. “The expansion into the Grade A metropolitan office space strengthens our portfolio as it complements our prime CBD offering.”

The property, which is currently 96.3 percent occupied according to Keppel, will be the REIT’s first large footprint business park asset and will join a portfolio dominated by nine high rise office towers located in central business districts across Asia Pacific.

Buying the Dip

Keppel REIT is paying the equivalent of A$8,710 per square metre for its latest asset at a time when corporate tenants have been giving up office space in Sydney. Net absorption of grade A space shrank by some 98,290 square metres during the six months of this year as occupiers scaled back, according to a report last month by Colliers International.

However, Keppel REIT has some insurance against near term market pressures, as Goodman Group has provided a rental guarantee for a period of at least six months following completion of the purchase.

Keppel REIT’s Tham expressed confidence that despite the current downturn, its new acquisition, which it is acquiring at a net property income yield of 5.25 percent, is well-positioned for growth.

“In the wake of COVID-19, we believe demand in Australia for quality and well-networked metropolitan locations, such as Macquarie Park, will increase as more companies seek cost-effective solutions or adopt a hub-and-spoke business model for office locations,” Tham said. “The acquisition of Pinnacle Office Park allows Keppel REIT to gain exposure to this key metropolitan office market.”

The three-building complex, which is leased to tenants including ASX-listed Aristocrat Technologies, Konica Minolta and Coles Supermarkets, has a weighted average period to lease expiry (WALE) of 4.8 years and the existing leases include annual rent escalations of between 3 and 4 percent, according to a presentation by the REIT manager.

The property in northern Sydney is expected to benefit from the completion of the City and Southwest metro rail links which are slated for 2024, which would give tenants access to the centre city in under 30 minutes.

Getting Big Below the Equator

Keppel REIT is making its latest Sydney acquisition just two months after 311 Spencer Street, another project invested by the trust, reached completion in Melbourne. The trust had purchased a 50 percent stake in that development during 2017 for A$347.8 million as its most recent Aussie investment prior to today’s deal.

Once its latest acquisition is completed, which is expected in the fourth quarter of this year, Keppel REIT has the option of doing some further development in Sydney, with 6 Giffnock Avenue, one of the three free-standing buildings in Pinnacle Office Park, holding the potential to be re-developed into a larger office building, subject to approval by local authorities, the REIT’s manager said.

In addition to its new business park and 311 Spencer Street, Keppel REIT also owns the David Malcolm Justice Centre in Perth, 275 George Street and 8 Chiffley Square in Sydney, and 8 Exhibition Street in Melbourne.

In April of last year, Keppel REIT expanded its Korean presences by agreeing to acquire the 28-storey T Tower office building in Seoul from PGIM Real Estate for KRW 252.6 billion (then $221 million).

Note: This story has been amended to show that that asset is currently 96.3 percent occupied. An earlier version had indicated a 93.6 percent occupancy rate. Mingtiandi regrets the lazy Sunday typing.