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Keppel Reit to buy majority stake in freehold office building in Seoul for 252.6b won
KEPPEL Reit is acquiring a 99.38 per cent stake in T Tower, a freehold Grade A office building located in Seoul’s central business district (CBD), for some 252.6 billion won (about S$301.4 million), its manager Keppel Reit Management announced on Tuesday.
The remaining 0.62 per cent stake will be bought over by a unit of Keppel Corp's subsidiary, Keppel Capital Investment Holdings.
Keppel Reit's subsidiary, Keppel Reit (Korea), has entered into an agreement with a fund managed by PGIM Real Estate to acquire the majority stake in the holding company of the 28-storey T Tower office building.
The manager noted that the distribution per unit-accretive acquisition with a NPI (net property income) yield of 4.7 per cent, is part of the Reit's (real estate investment trust) ongoing portfolio optimisation efforts to improve its portfolio yield.
Paul Tham, CEO of the manager, said: "The acquisition of T Tower in Seoul is in line with Keppel Reit’s long-term strategic growth plan. While Keppel Reit’s portfolio will remain anchored by our prime CBD assets in Singapore, we believe that owning assets across Singapore, Australia and South Korea will enhance our geographical and income diversification, as well as provide greater stability and further opportunities for growth in the long term.
"As Asia’s fourth-largest economy, South Korea has enjoyed stable growth over the past few years, with expectations of continued steady economic progress. Its capital, Seoul, has a deep office market, with high transaction volumes driven by both strong domestic demand and growing interest from international investors. T Tower, located in the CBD of Seoul, will enable Keppel Reit to benefit from potential capital value appreciation, and rental growth amidst steady leasing demand, and limited upcoming supply."
The agreed property value of 252.6 billion won is 2.5 per cent lower than the 259 billion won independent valuation by Cushman & Wakefield as at March 25.
After taking into account the holding company's adjusted net liabilities of 123 billion won as at end January, the amount payable by Keppel Reit (Korea) is about 129.6 billion won, subject to post completion adjustments.
The estimated total acquisition cost is about 141.1 billion won. This comprises the 129.6 billion won purchase amount, 2.5 billion won in acquisition fees to the manager, which is payable in cash or Keppel Reit units as the manager may elect, and the remainder as estimated expenses.
The deal, which is expected to be completed in the second quarter this year, will be funded by debt, including proceeds from an issue of 1.9 per cent convertible bonds announced on April 10. The long stop date for completion of the acquisition is June 14.
Completed in 2010, T Tower is a freehold 28-storey office building with about 228,000 sq ft in net lettable area (NLA). The property is located in Seoul's CBD, and is a five-minute walk to the city's major railway station, Seoul Station. The building is also well-served by various rail, subway and bus networks, including direct connections across the Seoul metropolitan area.
T Tower is also located in the vicinity of a range of amenities and major hotels, and close to retail districts such as Myeong-dong and Namdaemun.
The development is 100 per cent leased to tenants mainly from the technology, media and telecommunications, manufacturing and distribution, and services sectors. Some tenants include Philips Korea, LG Electronics and SK Communications.
As at March 31, the property has a weighted average lease expiry (WALE) of 2.8 years by NLA, and the majority of the leases in the property have fixed annual rental escalations of 3 per cent, the manager noted.
In a regulatory filing on Tuesday, the manager added that the rationale for Keppel Capital to acquire the minority stake is to help the holding company fulfil the requirement under South Korean laws for it to have at least two unitholders, and to leverage Keppel Capital's experience in South Korea.
Christina Tan, CEO of Keppel Capital, said: "Keppel Capital has managed close to S$3 billion of assets with gross floor area of 5.2 million sq ft in South Korea since 2004, including CBD commercial offices such as Seoul Square, Jongno Tower, Pacific Tower and Center Place. Our experienced team on the ground will work closely with Keppel Reit to seek opportunities for growth in the Seoul office market."
Post-acquisition, Keppel Reit's aggregate leverage will be about 38.1 per cent, with its assets under management at S$8.4 billion across 10 properties in Singapore (82.4 per cent), Australia (14 per cent) and South Korea (3.6 per cent), the manager said.
Portfolio WALE will also remain at about 5.5 years, and the freehold portion of its portfolio will increase from 14.9 per cent to 20.6 per cent, as at end March.
As at 9.06am on Tuesday, units in Keppel Reit were trading at S$1.22, down 0.8 per cent, or one Singapore cent.