Keppel REIT, through its wholly-owned sub-trust, announced on 29 June 2017 that it had entered into an agreement with Australia Postal Corporation to acquire a 50% stake in a premium office tower to be developed at 311 Spencer Street in Melbourne. The acquisition is for an aggregate consideration of A$347.8 million or approximately S$362.4 million1.
The 50% stake in the new office tower will be Keppel REIT’s second asset in Melbourne. The remaining 50% will be held by the tower’s developer, Cbus Property, one of Australia’s leading property investors and developers. Construction of the office tower will commence in 3Q 2017 and practical completion is expected to be in 4Q 2019.
The Grade A office tower is strategically located between Melbourne’s CBD and the new Docklands precinct. Sited on freehold land, the development is within walking distance to the Southern Cross Station, the city’s major railway and transportation hub. Designed by leading architecture firm, Woods Bagot, the office tower will feature an estimated net lettable area of 717,000 sf over 42 levels.
When completed, the development will be fully leased to the Assistant Treasurer for the State of Victoria on a 30-year net lease. Under the agreement, the lease will include fixed annual rental escalations throughout the entire lease term, and options to renew for three additional terms of five years each. The lease is also subject to a market rent review at the commencement of year 16, subject to a cap and collar.
Mr Tan Swee Yiow, CEO of Keppel REIT Management, said, “The new office tower at 311 Spencer Street will provide Unitholders sustainable income growth over the long term and a stable average yield of 6.4%2 per annum over the first 15 years from the lease commencement.
“It will also enhance Keppel REIT’s portfolio, extending its weighted average lease expiry to approximately nine years3. This is part of Keppel REIT’s continuous process to improve its portfolio through strategic divestments and acquisitions, and in line with Keppel REIT’s objective of delivering sustainable returns to our Unitholders over the long term.”
The acquisition, to be completed by 3Q 2017, will be funded through a combination of a part of the proceeds from the divestment of 77 King Street in Sydney in January 2016 and through debt. The Manager will determine the optimal funding structure for the subsequent progress payment tranches, depending on prevailing market conditions, amongst other factors.
Incorporating the latest in green technology, the development is designed to meet the 5-Star Green Star and 4.5-Star energy rating standards by the Green Building Council of Australia and National Australian Built Environmental Rating System, respectively.
|1.||Based on an exchange rate of A$1.00 to S$1.042.|
|2.||Based on the expected net property income of the Building for the first 15 years of the lease to the tenant, over the consideration. There is a market rent review at the commencement of year 16, subject to a cap and collar.|
|3.||As at 31 December 2016, and assuming the 30-year lease to the tenant in respect of the building commenced on 1 January 2016.|