Keppel Reit is acquiring a 51 per cent interest in Keppel South Central from its sponsor Keppel for a purchase price of S$610.9 million, boosting its presence in Singapore's premium office sector, the Reit manager announced on Tuesday (Oct 20), shares down 2%.

The 33-storey Grade A commercial building, located in the central business district (CBD), carries a total value of approximately S$1.2 billion. With 522,500 square feet of net lettable area, this equates to an overall building valuation of roughly 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 amounts to 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 transaction will require the approval of unitholders at an extraordinary general meeting, anticipated to take place in the fourth quarter of this year. The deal, which includes the repayment of S$462.1 million in existing shareholder loans, is expected to close in Q2 next year.

The manager of Keppel Reit stated that the acquisition provides 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 divestments of T Tower and KR Ginza II been completed on Jun 30, Keppel Reit's portfolio occupancy would stand at 93.9 per cent with a weighted average lease expiry of 4.5 years, according to the manager. The Reit's portfolio would consist of 13 properties with a combined value of approximately 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, backed by current rents at the property.

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

This exceeds 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 in the process of documentation for Keppel South Central rose to approximately 60 per cent.

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