Keppel Reit acquires Sydney commercial property for A$306m

KEPPEL Reit is acquiring a freehold commercial property in Sydney for A$306 million (S$303.3 million), the real estate investment trust's manager said on Sunday.

It entered into an agreement with Sydney-based Goodman Group to acquire a 100 per cent stake in Pinnacle Office Park, a freehold Grade A commercial property comprising three office buildings in Macquarie Park, the Reit manager said in a press release.

The acquisition is set expected to be completed in the fourth quarter and will be fully funded with Australian dollar-denominated debt for natural hedging, it said. Post acquisition, aggregate leverage would be approximately 38.7 per cent.

Assets under management will grow to S$8.2 billion across 10 properties, with 77 per cent held in Singapore, 19.4 per cent in Australia and 3.6 per cent in South Korea.

"With an initial net property income yield of 5.25 per cent, 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," Paul Tham, chief executive of Keppel Reit Management, said in a statement.

Mr Tham said the company believes 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 in the wake of the Covid-19 pandemic.

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The acquisition of this property allows Keppel Reit to gain exposure to this key metropolitan office market, while strengthening its portfolio, he added.

The property has a total net lettable area of 35,132 square metres and is well served by public transport and major arterial roads that provide direct links to the central business district (CBD), the Reit manager said .

While there are on-site amenities such as a childcare centre, a gymnasium, end-of-trip facilities and a cafe, the property is also close to a range of retail, food and entertainment options at Macquarie Centre, the city's largest suburban shopping centre, it added.

Commuting time to Macquarie Park, the second largest office market in New South Wales, is expected to improve to 20 minutes when the new City and Southwest metro is completed in 2024, the Reit manager said.

One of the three free-standing buildings, 6 Giffnock Avenue, has the potential to be redeveloped into a new office building with higher net lettable area in future, subject to approval by local authorities, it noted.

With an established tenant base, Pinnacle Office Park has a committed occupancy of 96.3 per cent, the Reit manager said. Key tenants include Australia-listed Aristocrat Technologies, Konica Minolta and Coles Supermarkets.

The property has a weighted average lease expiry of 4.8 years by net lettable area, and its existing leases have fixed annual rental escalations of between 3 per cent and 4 per cent, it said.

Mr Tham said the company believes 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 in the wake of the Covid-19 pandemic.

The acquisition of this property allows Keppel Reit to gain exposure to this key metropolitan office market, while strengthening its portfolio, he said.