Keppel Land to divest Keppel Bay Tower to Keppel Reit at S$657.2m valuation

KEPPEL Land is divesting its 100 per cent interest in Keppel Bay Tower to Keppel Reit (real estate investment trust), based on an agreed property value of S$657.2 million, inclusive of rental support of up to S$3.2 million, according to exchange filings on Wednesday morning.

The agreed property value took into account two independent valuations by JLL and Cushman & Wakefield and represents around a 1.2 per cent and 1.5 per cent discount to the respective valuations with rental support as at Nov 30.

The total acquisition cost for Keppel Reit is estimated to be around S$667 million, after taking into account fees and other costs.

Keppel Reit's manager said it intends to fund the acquisition with the net proceeds from an equity fundraising which is intended to comprise a private placement, and a drawdown of S$70 million from an existing five-year revolving credit facility, and new loan facilities of up to an aggregate amount of S$330 million comprising two six-year loan facilities.

The size and timing of the equity fundraising have not been determined, Keppel Reit's manager said, adding that further details, including proportion of debt and equity, will be announced at an appropriate time.

"The proposed accretive acquisition of Keppel Bay Tower is part of our ongoing portfolio optimisation efforts to enhance the Reit's distributions and improve total unitholder returns," said Paul Tham, chief executive officer of the Reit manager.

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"The strategic addition of a quality CBD-fringe office property such as Keppel Bay Tower, with its established tenant base, complements our existing portfolio and increases income resilience."

The initial net property income yield is estimated to be 4 per cent, taking into account rental support.

Following the divestment, Keppel Land, which is the property arm of Keppel Corporation and sponsor of Keppel Reit, will continue to be the property manager of Keppel Bay Tower.

The resultant gain from this transaction for Keppel Corp is estimated to be about $14.6 million, including fair value adjustment to be recognised in H2 2020. Keppel Corp expects to receive net proceeds of about S$597 million from the proposed divestment, after deducting costs and expenses. The net proceeds will be used for working capital and/or business expansions of the group.

"The divestment of Keppel Bay Tower is in line with Keppel's Vision 2030 and will allow the Keppel group to unlock capital from Keppel Bay Tower and reallocate it to seek new growth opportunities," said Ng Ooi Hooi, president (Singapore) at Keppel Land.

"Through Keppel Land's interest in Keppel Reit, Keppel Land will continue to enjoy the rental income and potential capital value appreciation of Keppel Bay Tower, as well as benefit from the growth of the Reit."

Keppel Bay Tower is a Grade A office building located in the Keppel Bay waterfront precinct in the HarbourFront area in Singapore. It has a total net lettable area of about 386,600 square feet, and comprises an 18-storey tower block as well as a six-storey podium block. As at end-September 2020, committed occupancy stood at 99.2 per cent.

As the acquisition is an interested party transaction, it will be subject to the approval of Keppel Reit unitholders at an extraordinary general meeting which is expected to be held in Q1 2021. Upon approval, the acquisition is expected to be completed in Q2 2021.

In a separate exchange filing on Wednesday, Keppel Corp said Keppel Offshore & Marine (Keppel O&M) has successfully complied with its obligations under the US Deferred Prosecution Agreement (DPA) entered into with the US Department of Justice in December 2017 and the DPA has accordingly concluded.

This was in relation to a global resolution with criminal authorities in the US, Brazil and Singapore in connection to corrupt payments made by a former agent in Brazil.

As part of the fines payable under the global resolution, about US$52.8 million was payable to the Corrupt Practices Investigation Bureau (CPIB) in Singapore within three years from the date of a conditional warning, less any penalties that Keppel O&M may pay to specified Brazilian authorities.

The discussions with the specified Brazilian authorities remain ongoing, and CPIB has agreed to extend this three-year period for a further 12 months until Dec 22, 2021, Keppel Corp said, noting that the sum has been included in accrued expenses since FY2017.

Keppel Corp shares traded at S$5.29 as at 9.57am on Wednesday, down 0.2 per cent or S$0.01. Units of Keppel Reit were down 2.7 per cent or S$0.03 to S$1.08.