Keppel REIT (formerly: K-Reit Asia)

[swakoo]

The initial analyst commentary was that

a) This will be yield reductive
b) There will be a slight reduction in leverage

I guess that is the reason for the negative reaction

Indeed the reit mgr's slides set itself show ~4 to 6% yield dilution! This is the rare reit that does an acquisition with EFR that is yield dilutive. Getting into pole position to join STI club and lowering leverage slightly doesn't quite cut it as benefits of acquisition. 

Actually years ago, Keppel reit even did EFR a few times without any acquisitions which definitely dilutes yield (as i had previously posted in the Keppel infra trust thread)!

[Shrivathsa]

If I remember correctly, a year or two ago, Keppel gave out a special dividend through Keppel REIT units, which led to a substantial drop in price as it took a while for the selling pressure from those who got those units to stop, prices dropped from 87 cents to around 82 cents level.

Keppel is issuing 1 share for every nine shares
https://links.sgx.com/FileOpen/Keppel%20...eID=874196

Unlike in the past, Keppel REIT has a substantially enlarged base now thanks to a recent EFR exercise.

If history repeats itself, and there is selling pressure from the 'free' shares of this special dividend, this could bring Keppel REIT price to around 93 cents or lower, which will probably annoy all the shareholders of Keppel REIT who subscribed to the Rights issue at 96 cents and are sitting on some profits at the current price of 98 cents.

[weijian]

Keppel South Central is a new development that TOP-ed only in ~1Q2025. Current committed occupancy is slightly <50% with occupancy expected to increase another 400bp based on the leases still pending documentation. The land title is freehold but Keppel South Central is only buying a 70 year lease (controlling stake) from its Sponsor. Therefore, I wonder why isn't it buying over the entire freehold interest? If it doesn't have enough resources to do so, then I wonder why is it only a 70year lease, rather than let's say 50year or 99year? Since this is a related party transaction, it requires an EGM for OPMIs to approve it and so I am sure many of these questions will be asked.

From recent CICT's purchase of Paragon shopping center, we see that CICT bought 2 entities to complete the transaction - one holding the leasehold status and the other holding the freehold status. But for this Keppel South Central transaction, the transaction involves just one entity (ie. K-Commercial Pte. Ltd) with the 70year lease executed via an "Option Deed". Based on the Option Deed, K-REIT Trustee has to sell back the property to the Sponsor (Keppel Ltd) at $1 when it is exercised at the end of 70years. In addition, Sponsor has the right of first refusal to purchase back the "Option Deed" if K-REIT wants to sell in future.

Proposed Acquisition of 51.0% Interest in Keppel South Central

Keppel South Central
Strategically located in Tanjong Pagar, the 33-storey Grade A commercial building comprises office space, together with complementary retail, event and flexible workspace offerings as well as amenities such as an indoor gymnasium, a swimming pool, sky terraces and a social kitchen.

Address: 10 Hoe Chiang Road, Singapore 089315
Tenure: Freehold (with a 70-year leasehold interest for sale to the REIT Trustee)

ppt: https://links.sgx.com/FileOpen/KREIT%20-...eID=907554
full doc: https://links.sgx.com/FileOpen/KREIT%20-...eID=907552

[weijian]

In its 3Q26 reporting, Keppel REIT has announced a capital return plan, funded by its 2026 divestments. First, 15mil will be returned over 1.5 years starting in 2H 2027. Why wait for more than 1 year to start? I suppose there will be EFR (equity fund raising) in the next 1 year to finance the 51% stake purchase for a 70year lease on Keppel South Central

The more interesting announcement is that Keppel REIT will join the "rare S-REIT share buyback (SBB) club", as it also announced that it will be carrying out up to 25mil of SBB.

In my tracking, there are currently 3 members in the "S-REIT SBB club":

(1) Digital Core REIT (SBB period: started Dec2022 and on-going): Spend total ~40mil usd thus far
(2) ESR REIT (SBB period: 2023-2025): Spent total of 29mil sgd
(3) Stoneweg Europe Stapled Trust (SBB period: 2025 and 2026): Spent total 12mil euros thus far

Distribution of $15 million of Divestment Proceeds to Unitholders

• Recent portfolio divestments demonstrate our disciplined approach to portfolio optimisation, while maintaining financial flexibility for future growth.

• Up to $25 million of net sale proceeds from the divestments will be used to undertake unit buybacks on the open market, subject to prevailing market conditions and applicable laws and regulations.

• $15 million of divestment proceeds will be returned to Unitholders in three semi-annual tranches from 2H 2027, following the conclusion of the Anniversary Distribution.

https://links.sgx.com/FileOpen/KREIT%203...eID=909442