Keppel REIT buys Seoul office for $301.4m

The 28-storey freehold Grade A office offers approximately 228,000 sqft in net lettable area.

Keppel REIT has entered into an agreement with a value-add strategy fund managed by PGIM Real Estate to acquire an approximate 99.38% stake in T Tower, a freehold Grade A office building in Seoul's Central Business District (CBD), for $301.4m (KRW252.6b), an announcement revealed.

The remaining 0.62% stake will be acquired by a wholly-owned subsidiary of Keppel Capital Holdings. Concurrently, Keppel Investment Management Co., the asset management arm of Keppel Capital in South Korea, will be appointed the local asset manager for the property.

According to Paul Tham, CEO of Keppel REIT Management, the acquisition of T Tower in Seoul is in line with Keppel REIT's long-term strategic growth plan. With an initial net property income yield of approximately 4.7%, the distribution per unit (DPU)-accretive acquisition of T Tower is part of Keppel REIT's ongoing portfolio optimisation efforts.

Also read: Keppel REIT net property income up 0.3% to $31.31m in Q1

“Whilst 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,” he said in a statement.

Tham further added that the firm will benefit from T Tower’s potential capital value appreciation and rental growth amidst steady leasing demand and limited upcoming supply in South Korea.

Completed in 2010, T Tower is a freehold 28-storey office building offering approximately 228,000 sqft in net lettable area (NLA). T Tower is 100% leased to established national and international tenants, mainly from the technology, media and telecommunications (TMT), manufacturing and distribution, and services sectors. Some of the notable tenants include Philips Korea, LG Electronics and SK Communications.

The property has a weighted average lease expiry of 2.8 years by NLA as at 31 March 2019. The majority of the leases in the property have fixed annual rental escalations of 3%.

Post-acquisition, aggregate leverage will be approximately 38.1%, according to Keppel REIT. Assets under management (AUM) is expected to grow to $8.4 billion across 10 properties in Singapore (82.4%), Australia (14.0%) and South Korea (3.6%).

“Portfolio weighted average lease to expiry (WALE) will remain long at approximately 5.5 years, whilst the freehold portion of the portfolio will increase from 14.9% to 20.6%,” the firm highlighted.

The acquisition is expected to be completed in Q2 2019.