Singapore-listed Keppel REIT has entered into an agreement with PGIM Real Estate to purchase an office building in Seoul for 252.6 billion won ($220 million).
Keppel REIT will be acquiring a 99.38 per cent stake, while sister firm Keppel Capital will buy the remaining 0.62 per cent stake. Keppel Investment Management Co., Ltd will be appointed the local asset manager for the property, according to a press release.
The acquisition is expected to be completed in 2QFY2019 and will be funded by debt, including the proceeds of 1.90 per cent convertible bonds.
The 28-storeyed T Tower, a freehold Grade A office building located in Seoul CBD, was completed in 2010. The freehold office tower comes with 100 per cent committed occupancy, and currently houses 11 tenants, mainly from the technology, media and telecom (TMT), manufacturing and distribution, and services sectors.
The weighted average lease expiration (WALE) period for its leases is 2.8 years by net lettable area (NLA), and the majority of the leases have fixed annual escalations of 3 per cent. The KRW 252.6 billion transaction value is priced 2.5 per cent lower than the KRW 259 billion independent valuation by Cushman & Wakefield.
The T Tower acquisition is expected to be accretive with pro-forma distribution per unit (DPU) increasing by 2.5 per cent from 5.56 Singapore cents (pre acquisition) to 5.70 Singapore cents (post acquisition), assuming the acquisition is completed on January 01, 2018 (FY 2018).
The net property income (NPI) yield is approximately 4.7 per cent, and the net asset value (NAV) per unit remains unchanged at S$1.39 pre- and post-acquisition.
The aggregate leverage will increase from 35.7 per cent to 38.1 per cent. The mandatory leverage limit cap for Singapore-listed REITs is 45 per cent.