Keppel Reit to buy 75% stake in Sydney mall for A$393.8 million in first pure-play retail purchase
This marks its expansion into the retail sector, the manager’s chief executive says
[SINGAPORE] Keppel Real Estate Investment Trust (Reit) has entered an agreement to acquire a 75 per cent interest in a freehold retail mall in Sydney for A$393.8 million (S$334.8 million) on Tuesday (Oct 7).
Chua Hsien Yang, chief executive of the manager, said on Wednesday that this marks the Reit’s expansion into the retail sector as the mall – Top Ryde City Shopping Centre – will be its first pure-play retail asset.
“The diversification allows Keppel Reit to benefit from enhanced portfolio resilience as Australian retail malls offer attractive yields, with suburban retail assets demonstrating resilience and strong growth potential supported by long-term consumption growth and population increase,” he said.
He added that the acquisition will be accretive to the Reit’s distribution per unit (DPU), and is expected to enhance its overall returns while complementing its Singapore office-focused portfolio.
Top Ryde City Shopping Centre is a high-quality, freehold mall located in the city of Ryde. It is part of a mixed-use development that includes a residential component and offers an aggregate lettable area of about 77,054 square metres with 2,739 car park lots.
With non-discretionary tenants accounting for 77 per cent of the mall’s gross rental income, the property is anchored by strong-performing tenants such as Aldi, Big W, Coles, Kmart and Woolworths.
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The manager said that the mall is a defensive asset with a high committed occupancy rate of 96 per cent and a long weighted average lease expiry of 4.2 years by committed gross rent. It is expected to deliver a fully leased initial property yield of 6.7 per cent and pro forma adjusted DPU accretion of 1.34 per cent.
The acquisition will be funded through debt, equity and perpetual securities. It is scheduled to be completed by the first quarter of 2026.
In a separate announcement, the manager said that Keppel Reit will issue around 112.5 million new units via a private placement to raise S$113 million, of which some S$109.6 million will go to the acquisition and S$3.4 million will be used to pay fees and expenses related to the private placement.
After the acquisition, Keppel Reit’s portfolio value will increase to S$9.8 billion across 14 properties in Singapore (76 per cent), Australia (20.2 per cent), South Korea (2.9 per cent) and Japan (0.9 per cent). This will include office assets, comprising 95.8 per cent of the portfolio value, and retail assets comprising the remaining 4.2 per cent.
What analysts say
Xavier Lee, equity analyst for Morningstar, said that Keppel Reit’s expansion into Australian retail assets appears to be a “pragmatic response” to the limited, inorganic growth options in the office sector.
Inorganic growth refers to expansion through means such as acquisitions and property development, as opposed to increasing rent and occupancy in existing properties.
Office acquisitions in both the Singapore and Australia markets are unappealing, noted Lee. Singapore lacks high-quality, attractively priced office assets, and Australia’s offices have high vacancy rates.
He added: “We think this explains the strategic decision to diversify into Australian retail, a move that is expected to stabilise cash flows because real estate cycles are not perfectly synchronised.”
Veteran Reit investor Gabriel Yap was also of the view that it is “high time” for Keppel Reit to diversify, given its underperformance.
Yap, who has lived in Melbourne for close to two decades, said that suburban Australian retail assets are usually defensive and resilient.
“All you need is mediocre management to eke out better and steady growth,” he noted.
Investors should also not be worried by a pure-play Reit’s move to diversify unless the asset manager makes operational mistakes and missteps, he added.
Units of Keppel Reit finished Tuesday flat at S$1.03, before the manager called for a trading halt on Wednesday morning.
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