Singapore’s Keppel REIT in Talks to Buy Half-Stake in Sydney Tower From Mirvac

Keppel REIT continues to ramp up its presence Down Under with the Singapore-listed trust now in talks to buy into an office tower near Sydney’s Circular Quay owned by a Mirvac fund, according to market sources.

Keppel REIT is in exclusive due diligence to buy a half-stake in 255 George Street, currently wholly owned by the ASX-listed property group’s flagship Mirvac Wholesale Office Fund, at an estimated 6.5 percent yield, an industry source familiar with the deal told Mingtiandi on Monday, confirming news first reported by the Australian Financial Review.

The deal is said to value the Grade A commercial building at approximately A$700 million ($456 million), which would represent around a 10 to 20 percent discount from book value, based on local media accounts. The SGX-listed trust is making its play for the property near Sydney’s harbourfront after trades of Australian office assets rebounded to A$2.3 billion in the fourth quarter, according to Cushman & Wakefield, which was up 58 percent from the preceding quarter, although still falling short of levels seen during the same period earlier years.

Without confirming the transaction, a spokesperson from Keppel REIT, which already owns six Aussie commercial assets, told Mingtiandi, “we evaluate deals regularly and will make an announcement if and when there are any material developments.”

Newly Refurbished Building

In August ratings agency S&P Global had revised its outlook on Mirvac’s flagship fund to negative from stable, predicting that, “large and ongoing unitholder redemption requests will continue to weigh on Australia-based Mirvac Wholesale Office Fund’s (MWOF) key credit metrics in the next 18 months.”

S&P said at the time that, facing rising interest costs and declining occupancy, the fund’s manager was looking into both reducing distributions and selling assets to protect its credit rating. Mirvac is said to have put the half-stake in 255 George Street on the market in October and is expected to retain the remaining 50 percent interest.

Spanning 419,793 square feet (39,000 square metres) in net leasable area, the building has 29 office floors along with space for dining outlets, end-of-trip facilities and a wellness room on the ground floor. The tower is anchored by the Bank of Queensland and has a weighted average lease expiry of 7.5 years.

The 1986-vintage block, which underwent a A$50 million facelift in 2021, was part of an 11-asset A$7-billion portfolio which came under Mirvac’s control when it took over management of the AMP Wholesale Office Fund from Sydney-based fund manager AMP Capital in mid-2022.

Known as NAB House until National Bank Australia shifted out of the building in 2021, the tower is located at the junction of George and Bridge Streets in Sydney’s central business district, within a five-minute walk of Wynyard Station on the city’s underground system. It is also 1.3 kilometres from Sydney Opera House.

Second Home for Singapore Trust

Should the deal proceed, the asset will add to Keppel REIT’s six office and retail assets in Australia, which had a combined book value of A$1.7 billion at the end of 2023 and accounted for 16 percent of its portfolio at that juncture.

By share of net property income in 2023, Australia is the trust’s second-largest market with a 25 percent market share, trailing only its home city Singapore which contributed nearly three-quarters of its net property income last year.

Among Keppel REIT’s existing holdings in Sydney is a 50 percent interest in the 30-storey 8 Chifley Square commercial tower located within a few blocks of 255 George Street.

Selling into a Downturn

Cushman & Wakefield, one of the agents appointed to market the stake in 255 George Street, declined to comment on the deal, but a spokesperson from the consultancy said they are seeing property investors positioning themselves in the Australian market on expectations borrowing costs will be trimmed later this year.

“This optimism fuels hopes for a resurgence in deal-making activities, which have been subdued amidst low transaction volumes over the past year,” the spokesperson said on Monday. In research published earlier this year, the property consultancy reported that trades of office properties led all sectors in Australia during the fourth quarter, as the country recorded A$8.1 billion in property investment in its most active three-month period of the year.

Mirvac declined to comment on the transaction while JLL had not responded to inquiries from Mingtiandi by the time of publication.

Despite the fourth quarter rebound, trades of income-generating real estate Down Under slumped by 56 percent year-on-year to $16.5 billion in 2023, primarily due to slumps in the office and retail markets, data from MSCI showed.

Amid that decline, Mirvac was able to clinch the country’s largest single-asset deal last year, with a joint venture between the Sydney firm and Blackstone selling the 60 Margaret Street office tower and its MetCentre retail podium to a tie-up of Japan’s Mitsubishi Estate and local player AsheMorgan for A$777 million in October.