Two S-REITs acquired projects-under-development in recent days. Keppel REIT announced plans to acquire a 100% of Blue & William, a freehold Grade A office building currently under development in North Sydney. The total development cost is A$327.7 million (or approximately $317.7 million). Blue & William is being developed by Lendlease and is likely to be completed in mid-2023.

During the construction period, Lendlease will pay Keppel REIT a coupon which translates into a net property income (NPI) yield of 4.5% a year based on NPI for the first operational year after completion and taking into account a Rental Guarantee. The rental guarantee starts from completion date till when the building is fully leased. Keppel REIT’s announcement says a three-year rental guarantee will be provided by the developer on any unlet space after 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. Keppel REIT has also said that the Independent Valuer has assessed that the target rental rate on which the Rental Guarantee is calculated is in line with market rents.

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