Keppel Reit buys 51% of Keppel South Central for S$610.9 million
The acquisition from sponsor Keppel includes a guaranteed S$2.23 million monthly income for up to five years, enhancing the Reit's Singapore office market presence.
Keppel Reit Expands Singapore Footprint
Keppel Reit is acquiring a 51 per cent stake in Keppel South Central from its sponsor, Keppel, for S$610.9 million. The transaction, announced yesterday by the real estate investment trust's (Reit) manager, involves a 33-storey Grade A commercial building situated in Singapore's Central Business District (CBD).
The property holds an approximate total valuation of S$1.2 billion, translating to about S$2,350 per square foot (psf) for its 522,500 square feet of net lettable area. Keppel Reit's 51 per cent interest, based on a 70-year leasehold, is valued at S$626.2 million.
Financial Benefits and Strategic Rationale
The acquisition is projected to offer a pro forma distribution per unit (DPU) accretion of 2.01 per cent and an initial property yield of 4.3 per cent, according to Keppel Reit's manager.
The Reit will also receive a guaranteed monthly income of S$2.23 million from the property for up to five years, facilitated by an arrangement with Keppel’s wholly owned subsidiary, K-Commercial Investment.
Chua Hsien Yang, CEO of Keppel Reit Management, stated that the deal increases the Reit's Singapore presence to 82 per cent, solidifying its position in a supply-constrained CBD office market.
Funding Strategy and Analyst View
Keppel Reit's manager intends to fund the acquisition through a mix of bank loans, perpetual securities, internal cash, and/or equity financing. Post-acquisition, the aggregate leverage is expected to reach 39.2 per cent. Investment banking firm Jefferies maintained a “hold” rating on Keppel Reit following the announcement, keeping its target price at S$0.85.
Jefferies analysts noted the positive redeployment of capital from lower-yielding divestments in Japan and South Korea into a higher-yielding Singapore asset. However, they raised concerns about potential near-term overhang from equity fundraising and questions regarding the asset’s underlying earnings yield before stabilisation, due to the income support structure.
Portfolio Impact and Timeline
Completion of the deal is contingent on unitholder approval at an extraordinary general meeting, anticipated in the fourth quarter of this year. The transaction, which includes repaying S$462.1 million in existing shareholder loans, is expected to conclude in the second quarter of next year.
Had this acquisition and the divestments of T Tower in Seoul and KR Ginza II in Tokyo been completed by 30 June, Keppel Reit’s portfolio occupancy would have been 93.9 per cent. The portfolio would also have a weighted average lease expiry of 4.5 years, comprising 13 properties valued at about S$12.1 billion across Singapore and Australia.
This article is journalism, not investment advice; consult a licensed professional before making financial decisions. Market data is indicative, may be delayed, and should be verified with your broker or exchange before use.
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