Keppel REIT (formerly: K-Reit Asia)

[sreitinvestor]

Proposed acquisition of a one-third stake in MBFC phase 1 and proposed divestment of KTGE:

Key Points

• K-REIT Asia has entered into a conditional share purchase agreement with Bayfront Development Pte. Ltd., a wholly-owned subsidiary of Keppel Land Limited (Keppel Land), for the acquisition of a one-third interest in Phase One of Marina Bay Financial Centre (MBFC Phase One) at an agreed value of approximately S$1,426.8 million (inclusive of rental support).
  
• At the same time, as part of the asset swap, K-REIT Asia has signed a conditional sale and purchase agreement with Mansfield Developments Pte Ltd, a wholly-owned subsidiary of Keppel Land, for the divestment of Keppel Towers and GE Tower (KTGE) at an agreed value of S$573.0 million, which is above the valuation of S$540.7 million as at 31 December 2009, according to a Keppel Land report.
  
• MBFC Phase One comprises two office towers, Marina Bay Financial Centre Towers 1 & 2, with a total net lettable area (NLA) of about 1.65 million sf, Marina Bay Link Mall with a retail NLA of about 94,500 sf and 684 carpark spaces. Fully committed, major tenants at MBFC Towers 1 & 2 include Standard Chartered Bank, Barclays Capital, BHP Billiton, Nomura, Macquarie, American Express and Prudential.
  
• After the asset swap, K-REIT Asia's portfolio asset size will increase from S$2.5 billion to approximately S$3.4 billion. The asset swap is expected to be completed no later than 31 December 2010.
  
• The acquisition of the one-third interest in MBFC Phase One will be funded by a combination of the sale proceeds from the divestment of KTGE, new borrowings and part of the proceeds from K-REIT Asia's November 2009 rights issue.
  

[cyborg]

K-Reit has just released its unaudited results for the third quarter ended 30 September 2010.

Some financial highlights :
1. Distributable income rose 22.2% year-on-year to $62.5 million due mainly to higher net property income (NPI) and lower interest expense.
2. NPI increased 40.5% year-on-year to $49.8 million due mainly to income contribution from the 50% interest in 275 George Street and additional 29% interest in Prudential Tower.
3. Distribution Per Unit (DPU) for January to September 2010 amounted to 4.65 cents.
4. Singapore property portfolio committed occupancy of 99.1% as at 30 September 2010 is higher than Singapore core CBD occupancy of 95.2%.
5. Distribution yield ONLY 4.5% based on price $1.37.

Press Release can be downloaded here, Unaudited Financial Results can be downloaded here, and Presentation Slides can be downloaded here

[sreitinvestor]

Third quarter 2010 results for K-Reit:
Key Points
* The DPU for the reporting quarter is 1.69 cents.
* Distributable income rose 22.2% year-on-year to $62.5 million due mainly to higher net property income (NPI) and lower interest expense.
* NPI increased 40.5% year-on-year to $49.8 million due mainly to income contribution from the 50% interest in 275 George Street and additional 29% interest in Prudential Tower.
* Distribution Per Unit (DPU) for January to September 2010 amounted to 4.65 cents.
* Singapore property portfolio committed occupancy of 99.1% as at 30 September 2010 is higher than Singapore core CBD occupancy of 95.2%.

[Nick]

Any thoughts of the latest M&A ? Seems to be slightly DPU accretive.

Find it odd the sponsor retains a 76% stake in the REIT. The latest acquisition is a 999 year leasehold asset owned by Kep Land and they are selling the 99 year lease to K-REIT !

[d.o.g.]

Keppel Land is learning from Kwek Leng Beng (see CDL-HT): keep the (almost) freehold and sell a leasehold. A few generations later, the land comes back to your descendants, and you can sell a leasehold again!

What a great way to screw the investing public. Hey, they'll all be dead by the time the lease expires anyway.

As usual, YMMV.

[KopiKat]

The clear winner is the REIT Manager,

- AUM +51% (pg 40)
ie. Mgmt Fees going to go up a lot + other Fees (Acquisition?)

vs for shareholders,

- DPU (Proforma FY10) +5.5% (pg 19)
The minute DPU increment will be even smaller if FY11 DPU figures were used as for 1st 3Qs, DPU = 5.68ct vs FY10 = 4.66ct ie. the extra 0.37ct DPU is going to be even smaller in % terms.

This small DPU increase is also at the expense of Aggregate Leverage increasing from 39.8% to 41.6% (pg 28).

So, the biggest winner is the entity who's in control of the REIT Manager and the entity selling the 99-year lease


http://info.sgx.com/webcoranncatth.nsf/V...C003A4AD9/$file/K-REIT_Slides.pdf

[Nick]

I wonder why the Sponsor retains such a big stake in the REIT ? Only 24% of the REIT belong to outsiders. I thought the idea of the REIT is to maintain an asset light regime ? Would seem that Kep family is essentially funding the bulk of the equity portion of the investment. Or am I mis-understanding this ?

I guess DPU will be around 7.6 - 7.8 cents which is fairly attractive compared to the rights share. A number of office reits have declined in valuation so perhaps time should be expended on studying the fundamental of this sector in Singapore.

[Musicwhiz]

Business Times - 18 Oct 2011

K-Reit buying 87.5% of Ocean Financial Centre

Deal with parent Keppel Land costs around $1.57b; rights issue expected to raise around $976.3m

By UMA SHANKARI

(SINGAPORE) K-Reit Asia will fork out some $1.57 billion to buy parent company Keppel Land's entire stake in the Ocean Financial Centre (OFC) office building, both parties said yesterday.

K-Reit, owns commercial properties in Singapore and Australia, will acquire 87.5 per cent of OFC with a 99-year lease.

The prime Grade A office building in Raffles Place - which has about 885,000 square feet of net lettable area - has a tenure of 999 years with 850 years remaining on the lease.

But Keppel Land is selling its stake with only a 99-year lease. At the end of the 99 years, the developer can exercise a call option to re-gain OFC.

K-Reit said it intends to raise around $976.3 million through a 17-for-20 rights issue to fund part of the purchase.

Keppel Land, on its part, is poised to see a net gain of about $492.7 million from the sale.

The price for OFC works out to about $2,600 per square foot (psf) - based on an agreed value of $2.01 billion for the 87.5 per cent stake, which includes rental support of up to $170 million from the completion of the sale to end 2016.

But K-Reit will pay Keppel Land only $1.57 billion after taking into account 'adjustments' such as outstanding loans.

Market watchers said that the psf price of $2,600 marks a new high for an office block deal in this cycle - since Lehman Brothers' collapse three years ago. The previous high was $2,524 psf for the freehold One Finlayson Green in March 2010.

And in the strata office floor segment, the recent benchmark is $2,800 psf for the 20th floor of the 999-year leasehold Samsung Hub on Church Street.

But analysts noted that excluding the support of $170 million, the estimated the sale price of OFC works out to a lesser around $2,400 psf.

'It seems to be a fair price based on the current market,' said Cushman & Wakefield Singapore vice-chairman Donald Han.

The 43-storey OFC was recently redeveloped by Keppel Land and received its temporary occupation permit in April 2011.

The minority interest of 12.5 per cent in OFC is owned by Avan Investments, a privately owned company.

The property is currently around 80 per cent let with an average passing rent of about $9 psf per month, said Ng Hsueh Ling, K-Reit's chief executive, at a briefing yesterday.

Tenants include the Australia and New Zealand Banking Group, BNP Paribas, Drew & Napier and Stamford Law Corporation.

Keppel Land's sale of OFC to K-Reit follows a similar transaction just one year ago. In October 2010, Keppel Land sold its one-third stake in phase one of Marina Bay Financial Centre to K-Reit for $1.427 billion - or $2,450 psf of net lettable area.

K-Reit's Ms Ng said that the acquisition of OFC will enhance the trust's portfolio significantly and boost its distribution per unit to unitholders.

The deal will also reduce the average age of K-Reit's property portfolio by net lettable area (NLA) from around six years to four years, and also improve the lease expiry profile such that no more than 11 per cent of the portfolio by NLA will expire in any one year over the next five years.

K-Reit has proposed a 17-for-20 rights issue, which is expected to raise around $976.3 million, to partly the purchase. New debt of around $602.6 million will cover the rest of the cost.

The 1.16 billion new rights units will be priced at 85 cents each, which represents a discount of 17.5 per cent to K-Reit's last closing price of $1.03 yesterday.

Parent companies Keppel Land and Keppel Corp will take up all of the 76.3 per cent of the new rights units that they are entitled to, K-Reit said.

For Keppel Land, the sale will cut its gearing from 37.6 per cent to about 3 per cent - boosting its financial capacity for more acquisitions.

The property group has already snapped up three sites in Singapore and China for about $900 million in 2011.

'This strategic move will enhance Keppel Land's financial position to capture opportunities in a volatile market and take on more development projects in the region to achieve higher returns,' said Keppel Land group chief executive Kevin Wong.

Noted Standard Chartered analyst Regina Lim: 'We think Keppel Land is likely to invest in more residential sites in Singapore and China in 2012, possibly increasing the weights in its revalued net asset value from the current respective figures of 18 per cent and 20 per cent.'

She added that the developer could also pay a special dividend.

But for K-Reit, the market's immediate reaction to the news is likely to be 'neutral to negative', said Nomura analyst Sai Min Chow. He cited the average rent of 'just' $9 psf per month - among other things - for his view.

'It appears the manager will have to achieve very high rates for the remaining 20 per cent uncommitted office space as well as the retail podium that is scheduled for completion at end-2012 - notwithstanding the rental support from the vendor,' Mr Sai said. 'In an environment of softening leasing demand, this could be optimistic.'

Both Keppel Land and K-Reit yesterday requested a halt in the trading of their shares pending the announcement. Before the halt, Keppel Land gained seven cents to close at $2.72, while K-Reit gained three cents to end at $1.03.

[Nick]

Price plunged to 94.5 cents today. Judging by the annualized 3Q 2011 DPU (and assuming the latest M&A deal is DPU yield neutral), the distribution yield stands at 8.3%.

(Not Vested)

[Contrarian]

Luckily I own Keppel Land shares. The K REIT owners are sucked out of this deal.

The prime Grade A office building in Raffles Place - which has about 885,000 square feet of net lettable area - has a tenure of 999 years with 850 years remaining on the lease.

But Keppel Land is selling its stake with only a 99-year lease. At the end of the 99 years, the developer can exercise a call option to re-gain OF.