Kohlberg Kravis Roberts & Co. (KKR) forayed into the Australian real estate market by entering into a joint venture with local property management firm Abacus Property Group to acquire 70% stake of the World Trade Centre (WTC) in Melbourne. The ownership interest will be purchased from the privately-owned group Asset 1 WTC for A$120.4 million (excluding transaction costs).
Acquisition Details
Per the definitive agreement, Kohlberg Kravis, in partnership with Abacus, will buy a controlling stake in Towers 2, 3 and 4 of the WTC complex, which adds up to 70% of the total ownership interest. The seller company will retain the remaining ownership.
Kohlberg Kravis will finance 75% of the partnership deal. Moreover, the remaining 25% will be funded by Abacus, which will also render local property, asset and development management services to WTC. The transaction is expected to generate a yield of 9.3% every year in the beginning.
Further, the deal is already in progress for receiving approval from the senior bank facility. Also, the agreement is subject to FIRB approval and is expected to be completed by Oct 2014.
About Melbourne’s WTC
The property to be acquired is a part of the Northbank precinct, which is located in proximity to Melbourne's central business district. Also, the three towers encompass around 50,000 square metres of net lettable area, which consists of 43,500 square metres of office space, 4,600 square metres of retail space, an 1800 square metres childcare facility and a commercial car park.
Moreover, approximately 90% of the area is presently occupied by more than 50% of the office section leased to the State Government of Victoria.
Our Take
Kohlberg Kravis has been consistently investing in real estate assets in Asia Pacific markets including China, India and South Korea. The company’s efforts to further expand its footprint in the Australian real estate market will prove to be profitable going forward.
Currently, Kohlberg Kravis carries a Zacks Rank #5 (Strong Sell). Some better-ranked finance stocks include Ameriprise Financial, Inc. (AMP), The Blackstone Group L.P. (BX) and Invesco Ltd. (IVZ). All these stocks hold a Zacks Rank #2 (Buy).
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