Highlights

• KREIT has agreed to acquire a 51% interest in Keppel South Central from its sponsor, Keppel Ltd, for S$626.2m, equivalent to S$2,350psf and 3-4% below independent valuations. The acquisition provides an initial net property yield of 4.3% and is accretive to DPU by 2%.
   
• Sponsor Keppel Ltd will provide a guaranteed monthly income of S$2.23m for a period of five years. The guaranteed amount is based on 95% stabilised occupancy, average rent of S$11.15psf and an operating margin of 79%.
   
• Maintain BUY with a higher target price of S$1.06.
   

Analysis

• Tapping on sponsor pipeline. Keppel REIT (KREIT) has entered into a conditional agreement to acquire a 51% interest in Keppel South Central from its sponsor, Keppel Ltd. The transaction is based on an agreed property value of S$626.2m for the stake, equivalent to S$2,350psf and 3-4% below independent valuations that include the income support arrangement. KREIT is acquiring a 70-year leasehold interest in Keppel South Central. The proposed acquisition requires unitholder approval at an EGM expected in 4Q26, with completion targeted for 2Q27.
   
• Refocusing on home base in Singapore. Keppel South Central is a 33-storey Grade A commercial building in Tanjong Pagar with net lettable area of 522,500sf and was completed in Jan 25. It combines offices with retail, event and flexible workspace, alongside amenities including a gymnasium, swimming pool and sky terraces. Existing tenants include Manulife (insurance), Industrious (coworking) and the Competition & Consumer Commission of Singapore (government agency). The acquisition would expand KREIT’s portfolio to S$12.1b across 13 properties and increase Singapore’s share of portfolio valuation from 79% to 82%, assuming divestments of T Tower and KR Ginza II are already completed.
   
• Still ramping up occupancy. Committed occupancy was 48.8% as of Sep 26, rising to 52.7% when leases undergoing documentation were included. Committed occupancy is expected to increase to 60% by 15 Oct 26. Average rents for committed leases and those undergoing documentation were S$11.30psf per month, largely covering lower-to-mid floors. This exceeds the S$11.15 assumption underpinning the income support arrangement. The remaining mid-to-high floors are expected to fetch potentially higher rents.