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 $657.2 million, inclusive of rental support of up to $3.2 million, according to exchange filings yesterday morning.
The agreed property value took into account two independent valuations by JLL and Cushman & Wakefield and represents a discount of around 1.2 per cent and 1.5 per cent on the respective valuations with rental support as at Nov 30.
The total acquisition cost for Keppel Reit is estimated to be around $667 million, after taking into account fees and other costs.
Keppel Reit's manager said it intends to fund the acquisition with proceeds from equity fund raising through an intended private placement, as well as a drawdown of $70 million from an existing five-year revolving credit facility, and two new six-year loan facilities of up to an aggregate amount of $330 million.
The size and timing of the equity fund raising have not been determined, Keppel Reit's manager said, adding that further details, including the proportion of debt and equity, will be announced at an appropriate time.
Mr Paul Tham, chief executive of the Reit manager, said: "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 unit holder returns.
"The strategic addition of a quality CBD (Central Business District)-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 gain from this transaction for Keppel Corp is estimated to be about $14.6 million, including fair value adjustment to be recognised in the second half of this year.
Keppel Corp expects to receive net proceeds of about $597 million from the proposed divestment, after deducting costs and expenses. The net proceeds will be used for working capital and/or business expansion 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 Mr Ng Ooi Hooi, president for 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 in the Keppel Bay waterfront precinct in the HarbourFront area. It has a total net lettable area of about 386,600 sq ft, and comprises an 18-storey tower as well as a six-storey podium block. As at the end of September, the 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 unit holders at an extraordinary general meeting, which is expected to be held in the first quarter of next year. If approved, the acquisition is expected to be completed in the second quarter of next year.
In a separate exchange filing yesterday, Keppel Corp said Keppel Offshore & Marine (Keppel O&M) had complied with its obligations under the Deferred Prosecution Agreement (DPA) entered into with the US Department of Justice in December 2017. The DPA has accordingly concluded.
This was in relation to a global resolution with the criminal authorities in the United States, Brazil and Singapore in connection with corrupt payments made by a former agent in Brazil.
As part of fines under the resolution, about US$52.8 million (S$70.4 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.
Discussions with the Brazilian authorities continue, and CPIB has agreed to extend the three-year period by 12 months until Dec 22 next year, Keppel Corp said, noting that the sum has been included in accrued expenses since FY2017.
Keppel Corp shares closed at $5.37 yesterday, up 1.32 per cent. Units of Keppel Reit were down 0.9 per cent to $1.10.
THE BUSINESS TIMES