Keppel REIT's S$610.9 Million Singapore Property Deal Splits Analysts
Keppel REIT's proposed S$610.9 million acquisition of a 51 per cent stake in the newly completed Keppel South Central in Tanjong Pagar has drawn mixed reactions from research houses.
Keppel South Central Acquisition Details
Keppel Real Estate Investment Trust (REIT) announced on Tuesday (Oct 20) its plan to acquire a 51 per cent interest in Keppel South Central, a 33-storey Grade A commercial development in Singapore's Tanjong Pagar district. The proposed S$610.9 million transaction, from sponsor Keppel, values the entire 51 per cent stake at S$626.2 million.
This translates to an asset valuation of approximately S$2,350 per square foot based on net lettable area. The REIT's manager indicated funding for the acquisition would comprise 60 per cent from internal cash and borrowings, 25 per cent from perpetual securities, and 15 per cent from an equity placement.
Cautionary Analyst Views
Several research houses expressed caution regarding the deal. RHB maintained a 'neutral' call on Tuesday but reduced its target price for the REIT to S$0.90 from S$0.99.
RHB analyst Vijay Natarajan cited the property's early leasing stages and potential equity fundraising as concerns, noting that RHB raised its cost of equity assumptions by 50 basis points due to a more hawkish interest rate outlook.
OCBC Group Research kept a 'buy' call but trimmed its fair value estimate to S$0.95 from S$1.03, after increasing its risk-free rate assumption to 2.65 per cent from 2.25 per cent.
OCBC analyst Andy Wong warned that while the transaction could deliver a 2 per cent pro-forma distribution per unit (DPU) accretion for the 2025 financial year, future equity fundraising and rising debt costs might erode this benefit.
Jefferies also maintained a 'hold' call with an unchanged target price of S$0.85, highlighting potential equity fundraising as a near-term overhang.
Positive Outlooks and Income Support
Conversely, other analysts viewed the acquisition favourably. DBS Group Research maintained its 'buy' call and S$1 target price, describing the deal as a 'positive pivot' back to Singapore, Keppel REIT's core market.
DBS analyst Dale Lai pointed out that the transaction allows for quick redeployment of proceeds from recent divestments in Japan and South Korea into a prime Singapore Central Business District asset with strong forward rent growth.
To mitigate the current 60 per cent committed occupancy, Keppel will provide a five-year income support deed, guaranteeing a minimum net property income (NPI) contribution of S$2.23 million per month, resulting in an initial NPI yield of approximately 4.3 per cent.
CGS International also maintained an 'add' call, though it cut its target price to S$0.945 from S$1.09 due to anticipated higher interest rates impacting future dividend present value. CGS analysts noted attractive valuations with guaranteed NPI and upside for rental rates.
This acquisition shows Keppel REIT's strategic focus on the Singapore office market, signalling confidence in its demand and rental growth prospects.
For investors, the deal presents a trade-off between the long-term stability and growth potential of a prime Singapore asset, supported by income guarantees, against near-term concerns over financing structures and potential equity dilution. The projected aggregate leverage of 39.2 per cent post-acquisition suggests a manageable debt level.
Unitholder approval for the transaction is expected in late 2026, with completion targeted for the second quarter of 2027. The market reacted positively on Wednesday, with Keppel REIT units trading 1.3 per cent higher at S$0.795 as of 11:18 am.
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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