Keppel REIT - RHB Invest 2019-04-25: Maiden Entry Into The Seoul Office Market


Keppel REIT - Maiden Entry Into The Seoul Office Market

  • KEPPEL REIT (SGX:K71U) announced its maiden entry into the Seoul office market with the acquisition of a 99.38% stake in T Tower from a fund managed by PGIM Real Estate. See Keppel REIT's announcements
  • The 28-storey freehold CBD Grade A asset was purchased at KRW252.6bn (SGD301.4m). The remaining 0.62% stake will be acquired by Keppel Capital. Post acquisition, South Korea will account for nearly 3.6% of Keppel REIT’s total AUM.
  • Keppel Investment Management, the asset management arm of Keppel Capital in South Korea, will be appointed the local asset manager for the property.
  • The asset is currently 100% leased to established national and international tenants, mainly from the technology, media and telecommunications (TMT), manufacturing and distribution, and services sectors. Some notable tenants include Philips Korea, LG Electronics and SK Communications.


  • The purchase price represents a 2.5% discount to the latest valuation of KRW259bn. The initial NPI yields (pre-tax) for the asset stands at 4.7%. Withholding tax for the property is estimated to be around 15%. The transaction is DPU accretive with a pro-forma (FY2018) DPU accretion of 2.5%.
  • The proposed acquisition will be funded by a combination of local KRW debt (management guided interest cost of slightly below 3%) and proceeds from recently issued convertible bonds (coupon 1.9% pa).
  • The majority of leases in the property have fixed annual rental escalations of 3%, giving organic rental growth. The property has a weighted average lease expiry (WALE) of 2.8 years by NLA as at end 1Q19.
  • Gearing post acquisition will increase to 38.1% from 35.7% currently, and management noted that its generally comfortable with gearing levels of up to 42%.
  • Overall, we are slightly positive on the transaction due to the freehold nature of asset, good location and geographical diversification benefits.

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-04-25
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