Singapore’s Keppel REIT acquires a 50% interest in a premium office tower to be built in Melbourne
Keppel REIT Management Limited, as Manager of Keppel REIT announced that Keppel REIT, through its wholly-owned sub-trust, Keppel REIT (Australia) Sub-Trust 5, has 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 million.
The 50% stake in the new office tower will be Keppel REIT’s second asset in Melbourne. The remaining
50% stake will be held by Cbus Property Pty Ltd (Cbus Property), one of Australia’s leading property investors and developers. Cbus Property is also the developer for this development. Construction of the office tower will commence in the third quarter of 2017, and practical completion expected in the fourth quarter of 2019.
The Grade A office tower is strategically located between Melbourne’s central business district (CBD) and
the new Docklands precinct, which is an extension of the CBD. 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 square feet across 42 levels.
When the development is completed, it 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 the Manager, 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%3 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 years. 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 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. The acquisition is expected to be completed by the third quarter of 2017.
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.
Source: Keppel REIT