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Keppel Pacific Oak US Reit placement to raise at least US$73.1m for Dallas property buy

KEPPEL Pacific Oak US Reit (KORE), previously known as Keppel-KBS US Reit, is proposing a private placement to raise between US$73.1 million and US$75.6 million, to fund its purchase of an office property in the US.

The proposed placement will comprise 104.3 million new units at an issue price between 70.1 US cents and 72.5 US cents per new unit, the office real estate investment trust’s (Reit) manager said on Thursday morning.

This range represents a discount of 4.8 to 7.9 per cent to the volume-weighted average price of 76.15 US cents for trades in the units done on Oct 16.

Net proceeds from the private placement will partially fund KORE’s proposed US$101.5 million acquisition of One Twenty Five, a Class-A office complex in Dallas, Texas. The acquisition was approved by unitholders on Tuesday.

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Assuming the lower end of the issue price range is achieved, out of the gross proceeds of US$73.1 million raised, up to US$70.4 million will go into financing the acquisition.

The increase in the total number of units in issue and an enlarged unitholder base is expected to improve trading liquidity of KORE units, the manager said on Thursday.

In connection with the private placement, the manager intends to declare an advanced distribution for the period from July 1, 2019 to the day immediately preceding the date on which the new units will be issued. This is in contrast to KORE’s usual policy of paying out its distributions on a semi-annual basis to unitholders.

The advanced distribution is currently estimated to be between 1.91 US cents and 1.99 US cents. A further announcement will be made when the actual amount is finalised.

The next distribution after this advanced distribution will comprise KORE’s distributable income for the period from the date on which the new units are issued until Dec 31. Semi-annual distributions will resume thereafter.

DBS Bank and Credit Suisse (Singapore) are the joint bookrunners and underwriters for the private placement.

The new units will be offered to institutional, accredited and other investors.

The private placement may also include a proposed issue and placement of new units to Keppel Capital Investments (KCI) and to KBS SOR Properties, both of which are substantial unitholders of KORE. The Reit manager has obtained KORE unitholders’ approval at an extraordinary general meeting on Tuesday for these two placements.

KCI and KBS each hold 6.89 per cent of the total number of KORE units in issue as at Thursday. Therefore, the KCI placement may issue up to 7.2 million new units in order to maintain KCI’s post-placement unitholding of up to 6.89 per cent, while the KBS placement may comprise up to 12.9 million new units to maintain a post-placement unitholding of up to 7.5 per cent.

Earlier this week, KORE posted a third-quarter distribution per unit of 1.5 US cents, unchanged from a year ago.

The Reit’s manager called for a trading halt on Thursday morning. Its units closed at US$0.76 on Wednesday.