Ascendas Reit acquires Australian suburban office for A$110.9m

ASCENDAS Real Estate Investment Trust (Reit) is acquiring its fourth suburban office property in Australia for A$110.9 million (S$104.4 million), the Reit's manager announced on Thursday after market close.

The purchase, from ESR FPA (Wellington Road) Pty Limited, is for the freehold land at 254 Wellington Road in Melbourne and the subsequent development of the office building there, which will have a net lettable area of 17,507 square metres.

Said the Reit manager's executive director and chief executive officer William Tay: "We are very pleased with this acquisition as it is well-located in the Monash Technology Precinct in Melbourne, has 65 per cent of the space pre-committed for 10 years and is DPU (distribution per unit) accretive."

Net property income yield for the first year is approximately 5.8 per cent before transaction costs, or 5.7 per cent post-transaction costs.

The annualised pro forma financial effect of the acquisition on FY18/19 DPU would be an improvement of 0.014 Singapore cent.

The consideration, comprising the land and development cost, is in line with the "as if complete" market valuation of the property, A$110.9 million as at Aug 1, 2019. The valuation was carried out by Urbis Valuations Pty Ltd using the capitalisation and discounted cash flow methods.

The acquisition will be funded through internal resources and/or existing debt facilities. Ascendas Reit is expected to incur an estimated total transaction cost of A$1.3 million, including stamp duty, professional advisory fees and acquisition fees payable to the manager in cash.

The property is expected to receive practical completion in the second quarter of 2020, at which point Nissan Motor Co (Australia) will start a 10-year lease for 65.2 per cent of the space, with a built-in rent escalation of 3 per cent per annum.

ESR FPA will continue to market the remaining space in the property, and will provide a three-year rental guarantee - from the practical completion - for any remaining vacant space.

The acquisition brings Ascendas Reit's portfolio up to 36 properties in Australia, along with 97 in Singapore and 38 in the United Kingdom. The Australian portfolio's pro forma weighted average lease term to expiry is expected to improve to 4.5 years from 4.3 years as at June 30, 2019, said the Reit manager.