Keppel Land / Keppel REIT

Keppel Land / Keppel REIT: Very much in line with our house expectations, Keppel Land yesterday announced the divestment of its one-third stake in Marina Bay Financial Centre Tower 3 (MBFC 3) to 44.9%-owned associate Keppel Reit for $710.1m. The interest is valued at $1,245m (or $2,790psf, in the higher range of Grade A office valuations) by an independent valuer, and the agreed value is 0.24% higher at $1,248m. The consideration of $710.1m is derived after accounting for net liabilities. Occupancy at MBFC 3 is about 94% as at end of August, Keppel Land will be providing five years rental support of up to $49.2m at pre-determined sums for each calendar year up to 31 Dec 2018. Excluding rental support, the price psf is $2,680, 4.9% above $2,555psf that DBS paid for a 1/3 interest on the same property in Dec 2012. The outstanding $658.9m will be paid by $185m worth of new REIT units and $473.9m cash, of which $228.2m have been raised via an over-subscribed private placement to institutional investors. For Keppel Land, the transaction will book a net divestment gain of $95.5m, bringing cash holdings to approx. $1.4b. Pro-forma on Dec 2013 balance sheet, BVPS would have increased 6cents from $4.52 to $4.58 and gearing would have been lowered from 38.3% to 29.1%. For Keppel REIT, the Manager believes the acquisition is strategically beneficial for portfolio and DPU-accretive for unitholders. For starters, it improves the average portfolio age and reduces the need for extensive AEIs, lengthens the WALE and provides long-term income stability, enhances quality of REIT’s tenant base and provide greater diversification to income streams.