Keppel Reit sells Bugis Junction Towers for $547.5m, $388m above purchase price

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 sq ft of net lettable area. PHOTO: KEPPEL LAND

SINGAPORE (THE BUSINESS TIMES) - Keppel Reit has sold Bugis Junction Towers to Village Prop for $547.5 million or $2,200 per sq ft, $388 million more than the $159.5 million the property was acquired for in 2006.

The Business Times understands that the main buyer is a fund managed by Angelo Gordon, a global alternative investment manager headquartered in the United States.

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 $515 million and more than triple Keppel Reit's purchase price.

The divestment is part of the real estate investment trust's (Reit) ongoing portfolio optimisation strategy, said the Reit's manager Keppel Reit Management.

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 sq ft of net lettable area.

It has a committed occupancy of 100 per cent and a long weighted average lease expiry (Wale) of 6.2 years as at June 30, 2019.

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

Based on the net property income for the 12 months preceding June 30, 2019, the sale price translates to a yield of 3 per cent.

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

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

Upon the expected completion of divestment in the fourth quarter of 2019, Keppel Reit'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.

Mr Paul Tham, chief executive of the manager, said: "Post-divestment, Keppel Reit's portfolio will remain firmly anchored by our assets in the Central Business District of Singapore, which account for 81.1 per cent of the portfolio."

Mr Shaun Poh, executive director of capital markets at 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 supply glut, which is expected to be around 2021-2022."

Keppel Reit units traded up 1 cent or 0.8 per cent to $1.27 as at 9.49am, after the deal was announced before the Singapore market opened.

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