[SINGAPORE] Market rumours were proven right on Thursday with Keppel Land's announcement that it will divest its one-third stake in Marina Bay Financial Centre (MBFC) Tower 3 to Keppel Reit.
The price tag for the stake is S$1.248 billion; this includes a rental support of up to S$49.2 million for the vacant space and lower-than-market tenancies at the building, which Keppel Reit can draw from over five years.
Without this rental support, the net price will translate to S$2,680 per square foot, in line with recent office transactions.
That said, Keppel Reit will only be paying S$710.1 million in cash and new units for the holding company of the one-third stake, after subtracting the latter's adjusted net liabilities.
Ng Hsueh Ling, the CEO of the Reit manager, told reporters that if the deal goes through, it will give Keppel Reit ownership interest in all three office towers at MBFC, along with greater flexibility to optimise leasing and operational efficiencies.
The deal is still subject to minority unitholders' approval at an extraordinary general meeting to be convened.
Keppel Reit had announced the divestment of its 92.8 per cent stake in the 16-year-old Prudential Tower in May, which fuelled talk that it was looking for funding to buy over Keppel Land's stake in the two-year-old MBFC Tower 3, as has been reported in this newspaper.
With this deal, the Reit's average portfolio age will go down from 6.2 years to 5.5 years, making it the youngest portfolio of premium assets in Raffles Place and Marina Bay.
Ms Ng said: "It is kind of a significant upgrade of Keppel Reit's portfolio. It reduces our need for extensive (refurbishments) or large capital expenditure."
The Reit will become the third largest in Singapore, up from fourth in terms of assets under management, after CapitaMall Trust and Suntec Reit.
To help fund the acquisition, Keppel Reit will issue some units to Keppel Land at market price for S$185 million, raise about S$228 million gross from a placement of 195 million new units, and top it up with sales proceeds from the divestment of Prudential Tower additional borrowings.
For Keppel Land, the divestment will enable it to recycle capital to reinvest in other projects in its core markets of Singapore and China, and growth markets of Indonesia and Vietnam, said Tan Swee Yiow, the President (Singapore) of Keppel Land.
Besides getting a war chest of over S$1 billion and net divestment gain of about S$95.5 million, Keppel Land will later on also likely benefit from the Reit's share of rental income, portfolio capital appreciation, and any upside in unit price.
Keppel Land will own 44.9 per cent of the reit post-acquisition.
Ms Ng said issuing units to Keppel Land will require the Reit to raise less equity from the market in placement.
Asked if it would have been more equitable for unitholders if the Reit had instead issued them a rights issue, she said that would have resulted in a greater price discount, and "forever from henceforth, you have to always distribute your income across this huge denominator base". The current funding structure is a "win-win" for both vendor and buyer.
She added that if rentals were to increase over the next few years, as has been forecast by various consultants, rendering any drawdown from the rental support unnecessary, "there is a good chance" that it might be distributed to unitholders.
MBFC Tower 3's committed occupancy was 94 per cent at the end of August. DBS Bank takes up about half its total space; other tenants include WongPartnership, Rio Tinto, Booking.com, McGraw-Hill, Mead Johnson and Lego. The remaining two-thirds of MBFC Tower 3 is held by DBS Group and Hongkong Land.
Keppel Land and Keppel Reit last closed at S$3.40 and S$1.23 respectively, before halting trade at about 2.30pm on Thursday. Both counters resume trading on Friday.