Keppel Reit to buy 51% stake in Keppel South Central for S$610.9 million

[SINGAPORE] Keppel Reit is buying a 51 per cent stake in Keppel South Central from its sponsor Keppel for a purchase consideration of S$610.9 million, strengthening its footprint in Singapore’s prime office market, the Reit manager said on Tuesday (Oct 20).

The total value of the 33-storey Grade A commercial building in the central business district (CBD) stands at about S$1.2 billion. With 522,500 square feet of net lettable area, this translates to an overall building valuation of about S$2,350 per square foot (psf).

Based on this total valuation, the agreed property value for Keppel Reit’s 51 per cent interest on a 70-year leasehold basis is S$626.2 million.

“The proposed acquisition of Keppel South Central increases our presence in Singapore to 82 per cent,” said Chua Hsien Yang, CEO of Keppel Reit Management. “(It) reinforces Keppel Reit’s leading position in this supply-constrained CBD office market, which continues to benefit from resilient business demand and limited new supply.”

Completion of the deal will be subject to the approval of unitholders at an extraordinary general meeting, expected to be held in the fourth quarter this year. The transaction, which includes repayment of S$462.1 million in existing shareholder loans, is expected to be completed in Q2 next year.

The manager of Keppel Reit said the acquisition offers a pro forma distribution per unit accretion of 2.01 per cent and an “attractive” initial property yield of 4.3 per cent.

Had the proposed acquisition of Keppel South Central and both the divestments of T Tower and KR Ginza II been completed on Jun 30, Keppel Reit’s portfolio occupancy would be 93.9 per cent with a weighted average lease expiry of 4.5 years, said the manager. The Reit’s portfolio would comprise 13 properties with a total value of about S$12.1 billion across Singapore and Australia.

An arrangement with Keppel’s wholly owned subsidiary K-Commercial Investment will provide the Reit with a guaranteed monthly income of S$2.23 million for up to five years – supported by current rents at the property.

Committed leases and leases which are in the process of documentation for Keppel South Central comprised 52.7 per cent of net lettable area at an average rent of about S$11.30 psf per month as at Sep 30.

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This is above the rent of S$11.15 psf per month assumed under the arrangement, said Keppel Reit management. The average rent “largely reflects leasing activity on the lower-to-mid floors, with potential for higher rents from the remaining available space on the mid-to-high floors”, it added.

As at Oct 15, committed leases and leases which are in the process of documentation for Keppel South Central increased to about 60 per cent.

Keppel Reit’s manager said it intends to fund the acquisition through a combination of bank loans, perpetual securities, internal cash and/or equity financing, with post-acquisition aggregate leverage expected to be 39.2 per cent.

Units of Keppel Reit closed flat at S$0.825 on Monday.