Keppel Reit inks deal to sell Bugis Junction Towers

Singapore

KEPPEL Reit is reaping a tidy profit from its investment in Bugis Junction Towers.

The Reit (real estate investment trust) has agreed to sell its strata ownership of Bugis Junction Towers to Village Prop for S$547.5 million. That's S$388 million more than the S$159.5 million it paid in 2006.

The Business Times understands the backer of Village Prop is a fund managed by Angelo Gordon, a US-headquartered global alternative investment manager.

Alongside the fund, Singapore-based property investment manager TCRE Partners is expected to take a minority stake in the acquisition.

The sale price is 6.3 per cent above the property's latest valuation of S$515 million.

The divestment is part of the Reit's ongoing portfolio optimisation strategy, said its manager Keppel Reit Management in a statement on Tuesday.

Bugis Junction Towers has delivered asset-level returns of 19.4 per cent per annum over the holding period, the manager added.

Completed in 1994, Bugis Junction Towers is a 15-storey Grade A office building with about a 70-year lease remaining and close to 250,000 square feet of net lettable area.

It has 100 per cent committed occupancy and a long weighted average lease expiry (WALE) of 6.2 years as at June 30.

Its principal tenants are Enterprise Singapore, InterContinental Hotels Group and UCommune.

Based on the net property income for the 12 months preceding June 30, the sale price translates to a yield of 3 per cent.

The transaction will contribute capital gains of about S$378.1 million, after taking into account capitalised expenditures and divestment costs.

Keppel Reit is expected to recognise an estimated accounting gain of about S$18.3 million from the divestment, said its manager.

Upon the expected completion of divestment in the fourth quarter of 2019, Keppel Reit's S$7.9 billion portfolio will comprise nine commercial Singapore properties (81.1 per cent), and other properties in Australia (15.1 per cent) and South Korea (3.8 per cent).

The Reit's portfolio committed occupancy remains at 99 per cent while portfolio WALE is 5.2 years.

Citi analysts Brandon Lee and Goh Si Xian said Bugis Junction Towers was the last of the properties that were 100 per cent-owned property by Keppel Reit. The sale price of S$2,200 per square foot and the 3 per cent exit yield were in line with their expectations.

Citi viewed the transaction as positive for Keppel Reit due to factors such as the strata nature of Bugis Junction Towers and its low asset yield.

On the other hand, it reckoned there could be a short-term income gap for the Reit. It believed there is a likelihood of the divestment proceeds being redeployed to overseas markets like Australia or Seoul.

It maintains its "neutral" rating on Keppel Reit with a target price of S$1.29.

Shaun Poh, executive director, Capital Markets, of Cushman & Wakefield, the firm that brokered the deal, said: "The sale of Bugis Junction Towers will contribute to Singapore's big-ticket investment acquisitions this year.

"The muted office supply situation over the next three years and projected rental growth during that period have emboldened investors to actively seek out office assets now in the run-up to the peak of the CBD (Central Business District) supply glut, which is expected to be around 2021-2022."

Keppel Reit units closed unchanged at S$1.26 on Tuesday.