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Suburban office in Sydney acquired by Ascendas Reit

by • September 20, 2020 • Australia property loan, office, Overseas PropertyComments (0)115

Ascendas Reit to acquire a suburban office in Sydney’s Macquarie Park for A$167.2 million

suburban office

image: CapitaLand

Ascendas Funds Management (S) Limited (the Manager), the Manager of Ascendas Real Estate Investment Trust (Ascendas Reit) on September 18, announced that it has proposed acquisition of a suburban office building, to be developed at 1 Giffnock Avenue, Macquarie Park, in Sydney, Australia (MQX4), for A$167.2 million (S$161.0 million) (the Base Purchase Consideration) (the Proposed Acquisition) from Frasers Property Industrial and Winten Property Group (together the Developers). The Developers will design and build MQX4.

The Base Purchase Consideration of A$167.2 million includes the rental guarantee provided by the Developers for the vacant spaces. The purchase consideration is subject to adjustments to be made depending on the final building specifications (e.g. green specifications, net lettable area etc.) as well as actual rental and term of the leases entered into for the vacant spaces during the rental guarantee period.

Mr William Tay, Executive Director and Chief Executive Officer of the Manager said, “We are delighted to secure our first suburban office property in Macquarie Park, Sydney’s premier innovation location, and Ascendas Reit’s fifth suburban office asset in Australia. We believe that decentralisation trends will continue to benefit Macquarie Park which has already attracted many leading companies who have set up their headquarters in the precinct. This DPU accretive investment will enhance the quality and resilience of Ascendas Reit’s Australian portfolio further given its excellent location and sustainable building design.”

Key Attributes of the suburban office at MQX4

1. High quality and sustainable building design

MQX4 sits on freehold land of 3,308 square metres and on completion will comprise a total net lettable area of 19,384 square metres made up of office (17,753 square metres) and retail (1,631 square metres) space. Designed as a nine-storey building comprising eight levels of office space, ground floor retail and 204 car spaces, it is targeted to achieve a 6 Star Green Star Design & As Built rating and 5.5 Star NABERS Energy rating.

2. Well-connected and accessible

MQX4 is well-located in the heart of Macquarie Park, with direct access to the Macquarie Park Metro station, within 100 metres. The opening of the Sydney Metro City Line in 2024, will further reduce travel time to the CBD to 20 minutes.

3. Located in a well-established business precinct that is home to corporate headquarters across resilient industries

MQX4 is located in Macquarie Park, the largest metropolitan market in Australia with a c.860,000 square metres of commercial office accommodation. It is a well-established business precinct occupied by national and international corporate headquarters across the pharmaceutical, technology, electronics and telecommunications industries. It houses the Macquarie University and the Macquarie University Hospital, a digitally integrated hospital undertaking ground-breaking medical research. Other amenities within the vicinity include Macquarie Centre, the largest suburban shopping centre in New South Wales, which comprises of 360 Australian and international retailers plus a multiplex cinema.

Details of the Proposed Acquisition

The Trust Company (Australia) Limited as trustee of Ascendas Business Park Trust No. 3 has today entered into agreements with Australand Industrial No. 122 Pty Limited (wholly-owned by Frasers Property) and Winten (No 35) Pty Limited (wholly-owned by Winten Property Group) for the purchase of MQX4. Includes a contract of sale for the land and development agreement for MQX4, as well as an income support and leasing deed in respect of inter alia the rental guarantee for a period of three years following practical completion and adjustments to be made to the purchase price.

The Base Purchase Consideration of A$167.2 million, which is subject to adjustments, is in line with the “as if complete” market valuation of MQX4 (A$167.2 million as at 1 July 2020). The valuation was commissioned by the Manager and The Trust Company (Australia) Limited (in its capacity as trustee of Ascendas Business Park Trust No. 3) and was carried out by Jones Lang LaSalle Advisory Services Pty Limited using the capitalisation and discounted cash flow methods.

The total investment cost is expected to be A$166.0 million (S$159.8 million) after taking into account coupon received from the Developers, stamp duty, professional advisory fees, and acquisition fee payable to the Manager in cash (being 1% of the Purchase Consideration, which amounts to approximately A$1.672 million (S$1.610 million)). The acquisition fee of A$1.672 million is currently estimated based on the Base Purchase Consideration, which is subject to adjustment upwards or downwards, if applicable, to take into account the various adjustments to the purchase price as well as exchange rates.

The Manager will revise the acquisition fee upon the practical completion and reflect any adjustment to the acquisition fee received or rebated by it in Ascendas Reit’s annual report. Ascendas Reit will fund the construction cost and is entitled to receive monthly coupons from the Developer at a rate of 5.75% per annum on the progressive payments made over the construction period.

Net property income (“NPI”) yield for the first year is approximately 6.1% post-transaction costs. The pro forma impact on distribution per Unit (“DPU”) for the 12 months ended 31 December 2019 would be an estimated improvement of 0.046 Singapore cents assuming MQX4 was acquired and completed on 1 January 2019. The NPI yield is derived from the estimated NPI expected in the first year of acquisition (equivalent to one year of rental guarantee provided by the Developers for the vacant space).

The pro forma DPU for the 12 months ended 31 December 2019 is calculated based on following assumptions (a) Ascendas Reit had acquired the completed MQX4 on 1 January 2019, held and operated MQX4 for the whole of the financial year ended 31 December 2019, (b) the acquisition was funded based on a funding structure of 40% debt and 60% equity, (c) the distribution includes the rental guarantee for the first year provided by the Developers, and (d) the Manager elects to receive its base fee 80% in cash and 20% in units.

The completion of the land sale is expected to occur in 4Q 2020, and MQX4 is expected to be completed around mid-2022. The Developers will provide a three-year rental guarantee from completion of the Property for any vacant spaces.

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