Keppel REIT is acquiring a one-third stake in Marina Bay Financial Centre Tower 3 for $937.5 million in what appears to be a distribution per unit dilutive (DPU) acquisition.
The purchase price is pegged to an agreed property value of $1.453 billion, or $3,268 per square foot. This values the whole property at around $4.36 billion. The seller is Sageland Private, a subsidiary of Hongkong Land Holdings.
The agreed property value represents a discount of 1.0% to the property’s independent valuation of $1.467 billion. Post completion of the transaction, Keppel REIT will hold a two-thirds interest in MBFC Tower 3. The remaining $529.5 million difference between the purchase price and agreed valuation is likely to comprise the debt rollover.
The dilution is 6.4% if the blended interest cost of debt is 3.3% a year, and the dilution 3.6% if the blended interest cost is 2.2%.
To fund the acquisition, Keppel REIT has launched an underwritten non-renounceable preferential offering of new units to raise some $886.3 million. Keppel REIT’s unitholders will be offered 23 new units for every 100 existing units held, at 96 cents per unit. This represents a discount of 6.8% to the undisturbed unit price as of Dec 10.
This transaction reflects Hongkong Land’s ongoing strategy to monetise its assets. Most notably, in September, it sold its residential property developer unit MCL Land to Malaysia’s Sunway for $738.7 million.
See also: Acrophyte Hospitality Trust to sell Hyatt Place Detroit Livonia for US$10 mil, 2.9% below valuation
MBFC Tower 3 has a committed occupancy of approximately 99.5% as at Sept 30 and a weighted average lease expiry of 3.5 years.
“The exercise of our pre-emptive right to acquire the incremental one-third share of MBFC Tower 3 presents a rare opportunity to increase our interest in an iconic asset in the prime Marina Bay area, with potential for future rental upside and capital appreciation over the long term,” says Chua Hsien Yang, CEO of the manager.
“This acquisition reflects our confidence in Singapore’s prime office sector and reinforces our focus to anchor and continue to grow our portfolio of Grade A commercial assets in the market,” he adds.
See also: Manulife US REIT warns of ‘risk of liquidation’ should EGM resolutions fail
Keppel, the REIT’s sponsor, together with Keppel REIT Investment, Keppel Capital Investment Holdings and the REIT manager have provided an irrevocable undertaking to subscribe for their respective total provisional allotment of the new units based on their respective entitlements.
Units in Keppel REIT, which were halted for trading before market opened, closed flat at $1.03 on Dec 11. Hongkong Land shares, which were not halted, gained 3.19% at US$6.78.
As evidenced in the Keppel REIT announcement, Hongkong Land is looking to recycle some its office assets in Singapore. The two REITs, Keppel REIT and Suntec REIT have right of first refusal over the properties (ROFR). This ROFR expires on Dec 11 after which the offers would lapse.
Marina Bay Financial Centre Towers 1 and 2 and Marina Bay Link Mall were valued at $1.794 billion in Keppel REIT's annual report based on its one-third stake, and One Raffles Quay was valued at $1.313 million based on its one-third stake.
