SINGAPORE (Dec 3): Keppel REIT (KREIT) on Nov 30 announced that it will be divesting a 20% stake in Ocean Financial Centre to Allianz Real Estate for $537.3 million.
The consideration is 16.8% above the REIT’s historical purchase price of $460.2 million.
Following the completion of the acquisition, KREIT will be left holding 79.9% interest in Ocean Financial Centre via its subsidiary Ocean Properties LLP.
See: Keppel REIT divests 20% stake in Ocean Financial Centre to Allianz RE for $537 mil
This divestment should help address high gearing concerns and reduce the need for potential fundraising, says RHB Research analyst Vijay Natarajan in a Monday report.
The research house also has maintained its “neutral” call on the stock with a target price of $1.06.
Among the Singapore REITs, KREIT’s 3Q18 gearing came in the higher at 39.1%. And the analyst expects this to increase further to about 41% by next year with the progressive payments of 311 Spencer Street (31SS), raising potential equity fund raising concerns.
The divestment will help these concerns, as the management has said that a significant amount of the proceeds will be used to pare down debt, and gearing is expected to fall to 35.9%, post transaction.
Nonetheless, the analyst has lowered his FY19-20 DPU projections to take into account loss of income and debt repayment.
“We believe management may use some of the gains from the proceeds to offset some of the shortfall in near-term DPU,” says Natarajan.
On the other hand, CGS-CIMB Securities is keeping its “add” recommendation on KREIT with a target price of $1.34, seeing the REIT’s divestment as a mild positive.
The sale consideration represents 2.3% above the independent valuation of $525.3 million. Upon completion of the deal, the REIT’s proforma book NAV could be lifted by about 1.4%.
In a Friday report, analyst Lock Mun Yee and Eing Kar Mei says, “In addition to partially unlocking value in its asset, we think the transaction will focus investor attention on the robustness of its underlying NAV.”
From the divestment, the REIT will recognise an accounting gain of $11.9 million and a net-of-transaction-cost gain of $6.9 million. And after the sale, the income vacuum (net of interest savings) is expected to lower proforma DPU by 2.6%.
As at 11.35am, units in KREIT are trading at $1.15 or 0.8 times FY19 book with a dividend yield of 4.8%.
