Pinnacle Office Park. (Photo: Keppel REIT)

Keppel REIT has acquired a Grade A office property known as Pinnacle Office Park in Sydney for AUD306 million (USD222 million).

The property comprises three office buildings within Macquarie Park, and it will be acquired from the Goodman Group.

“With an initial net property income yield of 5.25%, 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”, said Paul Tham, CEO of Keppel REIT’s manager.

“The expansion into the Grade A metropolitan office space strengthens our portfolio as it complements our prime CBD offering”, he added.

“In the wake of COVID-19, we believe 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”.

“The acquisition of Pinnacle Office Park allows Keppel REIT to gain exposure to this key metropolitan office market”, said Tham.

The property features a total net lettable area (NLA) of 35,132 square metres.

It is sited close to the Macquarie Park Metro Station and a major bus interchange.

The expected completion of the City and Southwest metro rail in 2024 will also improve the commuting time between Macquarie Park and the CBD to just 20 minutes, said Keppel REIT.

One of the three free-standing buildings, 6 Giffnock Avenue, has the potential to be re-developed into a new office building with higher NLA in future, subject to approval by local authorities, the REIT added.

Pinnacle Office Park has a committed occupancy of 96.3% and key tenants include ASX-listed Aristocrat Technologies, Konica Minolta and Coles Supermarkets.

The property has a weighted average lease expiry (WALE) of 4.8 years by NLA, and its existing leases have fixed annual rental escalations of between 3% and 4%.

The acquisition is targeted to be completed in 4Q 2020 and will be fully funded with Australian dollar denominated debt for natural hedging.

Post-acquisition, Keppel REIT’s aggregate leverage would be approximately 38.7%.

Assets under management will grow to SGD8.2 billion across 10 properties in Singapore (77.0%), Australia (19.4%) and South Korea (3.6%).

Portfolio WALE will be approximately 6.9 years, while the freehold portion of the portfolio will increase from 30.3% to 37.1% by NLA.

Keppel REIT was last done on the Singapore Exchange (SGX) at SGD1.07, which implies a distribution yield of about 5.2% according to data compiled on the Singapore REITs table.

By Shariffa Al-Habshee

Shariffa joined REITsWeek in 2017, and monitors Asia-Pacific REITs for the publication.