Artist's impression of Keppel REIT's office development in North Sydney. (Keppel REIT)

Keppel REIT is acquiring a freehold Grade A office development in North Sydney for AUD327.7 million (SGD322.2 million).

The development, Blue & William, features a total net lettable area (NLA) of about 14,000 square metres.

It sits at the intersection of 2-4 Blue Street and 1-5 William Street, and is 160 metres from the North Sydney Train Station.

“In line with our active portfolio optimisation strategy, this DPU-accretive investment brings an initial net property income yield of 4.5%, which will enhance Keppel REIT’s overall portfolio returns”, said Shirley Ng, Deputy CEO of Keppel REIT’s manager.

“At the same time, regular coupons will be received throughout the development phase, providing robust risk-adjusted returns”.

“The investment will also see Keppel REIT expand strategically into North Sydney, a major commercial district with positive leasing dynamics”, she added.

The acquisition is targeted to be completed in end-2021, with practical completion of the development estimated in mid-2023.

A three-year rental guarantee will be provided by the developer on any unlet space after practical completion.

The investment will be fully funded with Australian dollar denominated loans for natural hedge, with progressive payments to be made based on construction milestones.

Post-acquisition, Keppel REIT’s aggregate leverage would be approximately 39.9%.

Keppel REIT was last done on the SGX at SGD1.11, which presently implies a distribution yield of 5.30% according to data on the Singapore REITs table.

By Shariffa Al-Habshee

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