Keppel REIT: Acquiring SGD 321 Million Office Asset in Sydney

Keppel REIT is acquiring a 50% interest in 255 George Street, a Grade A office building in the central business district, or CBD, of Sydney, Australia, for SGD 321 million. The asset is currently 93% occupied, and the seller is providing up to SGD 46.8 million of rental guarantee, lease incentives, and committed capital expenditures. Management guided for the first-year yield to be about mid-6%, and it expects a distribution per unit, or DPU, accretion of 1.4%. After the acquisition, management expects gearing to rise to 41% from 38.9% as of December 2023. After updating our model for this transaction, we retain our fair value estimate of SGD 1.16 and raised our DPU estimates for fiscal 2024-26 by 0.7% to 2.2%. Keppel REIT remains our top pick for Singapore REITs for its high-quality office portfolio and attractive dividend yield of 6.6%. Overall, we are positive on this transaction as it is yield-accretive, has a long lease expiry profile of 6.8 years, and has a solid tenant register including the Australian Taxation Office and Bank of Queensland.