Keppel Reit's manager yesterday proposed a private placement of between 235.6 million and 242.8 million new units at an issue price of between $1.112 and $1.146 per new unit to raise at least $270 million in gross proceeds.
The manager said in a bourse filing that it will use about $262.5 million, or 97.2 per cent, of the gross proceeds to partially fund the real estate investment trust's (Reit) $651.5 million acquisition of Keppel Bay Tower from sponsor Keppel Land, the property arm of Keppel Corporation.
The issue price range of between $1.112 and $1.146 per new unit represents an estimated discount of between 2.7 per cent and 5.6 per cent to the volume-weighted average price (VWAP) of $1.1783 per unit in the Reit for trades done the preceding market day on Wednesday and up to the time the placement agreement was signed yesterday.
Based on an adjusted VWAP of $1.1689 per unit, the issue price range represents an approximate discount of between 2 per cent and 4.9 per cent.
The adjusted VWAP subtracts an estimated advanced distribution of about 0.94 cent.
The manager proposed the advanced distribution to ensure the distributable income accrued by Keppel Reit up to the day before the issue of the new units is distributed only in respect of existing units. The manager expects to issue the new units on or around March 1.
After the advanced distribution, the next distribution will comprise Keppel Reit's distributable income starting from the day the new units are issued to June 30. Half-yearly distributions will then resume.
The manager said a further announcement on the actual quantum of the advanced distribution will be made in due course.
DBS, Citigroup Global Markets Singapore and BNP Paribas' Singapore branch are the joint lead managers and underwriters for the placement.
The private placement will be made to eligible institutional, accredited and other investors, the manager said.
It believes the private placement, in combination with debt financing, is an efficient and overall beneficial method of funding the Keppel Bay Tower acquisition.
"Apart from allowing for the participation of more potential institutional and accredited investors, the private placement increases the total number of units in issue and the unit holder base, which is expected to enhance the trading liquidity of the units," the manager noted.
The expected increase in Keppel Reit's trading liquidity would potentially enhance the Reit's weighting in indexes and represent a step towards further index inclusions, which may lead to stronger investor demand for the units, the manager added.
It will use around $4 million to pay professional and other fees and expenses incurred in connection with the proposed acquisition, private placement and loan facilities.
The remaining $3.5 million will be used to repay existing indebtedness and for general corporate and working capital purposes.
Keppel Bay Tower is a Grade A office building located near HarbourFront MRT station. It has a total net lettable area of about 386,600 sq ft, and comprises an 18-storey tower block as well as a six-storey podium block.
As at end-September last year, committed occupancy stood at 99.2 per cent.
The proposed deal is expected to provide accretion in Keppel Reit's distribution per unit of 2.7 per cent for the financial year ended Dec 31, 2019, and 2.9 per cent for the six-month period ended June 30 last year, on a pro forma historical basis.
The initial net property income yield is estimated to be 4 per cent, taking into account rental support.
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