Property developer Keppel Land plans to sell one-third stake of its Phase One of Marina Bay Financial Centre (MBFC) to K-REIT Asia for about S$1.4 billion.
This is part of an asset swap agreement with K-REIT, a real estate investment trust.
Under the deal, K-REIT will in turn sell Keppel Towers and GE Tower (KTGE) to Keppel Land for S$573 million.
The one-third stake of Marina Bay Financial Centre Phase One, once sold to K-REIT, will earn Keppel Land a net gain of about S$321 million.
It comprises two office towers with a net lettable area of about 1.65 million square foot. One is 33 storeys, the other is 50 storeys and the Marina Bay Link Mall.
Major tenants at the two towers include Standard Chartered Bank, Barclays, American Express and Nomura.
Keppel Land said this is a good time for the deal and the pricing is in line with valuation.
Lim Kei Hin, CFO of Keppel Land said: “It allows us to unlock some parts of our commercial space. It enables us to acquire prime, freehold asset in a very good area that’ll have a future development potential. It also allows us to participate in K-REIT’s rental growth as well as their capital value appreciation
“We’ll have enough firepower in our arsenal to be able to pursue acquisitions in both residential and commercial properties. We can swap assets for both companies. K-REIT gains a good grade A building and we in return benefit from getting KTGE which has a very good redevelopment potential for us.”
Keppel Land plans to develop Keppel Towers and GE Tower in about two to three years.
They will become prime residential buildings – one will be 46 storeys high and the other 26 storeys – which will include commercial spaces on the first level.
The properties will have a plot ratio of 5.6. It has a total gross floor area of 481,800 square feet and the development will have about 620 residences.
Ng Hsueh Ling, CEO of K-REIT Asia Management said: “KTGE is 19 years old and 17 years old respectively, so increasingly, there may be more property maintenance that will be needed to maintain the building. And we thought that it would be a good opportunity to upgrade our portfolio as a bundled deal.
“In any case, if we had actually kept KTGE, our aggregate leverage would also go beyond 40 per cent. So we took that as an opportunity to upgrade the portfolio and divest a property that’s old and increasingly needing more maintenance.”
After the asset swap, K-REIT’s portfolio asset size will grow from S$2.5 billion to about S$3.4 billion. This asset swap is expected to be completed by the end of this year.
K-REIT said it will not need to raise any equity funds for this deal.
Its funding sources will come from the divestment proceeds (S$570 million), bank borrowings (S$821 million) and rights issue proceeds (S$41.5 million) from late last year.
Keppel Land said this agreement to swap Phase One of Marina Bay Financial Centre is a win-win deal for both companies.
It said this will help Keppel Land build up its land bank. The net cash proceeds of S$812 million will also enable Keppel Land to shore up additional capital for future investments.
For K-REIT, this will not only help increase its cash flow, it will also generate better returns for its unit-holders.
The swap arrangement is subject to approval by the respective shareholders and unit-holders of Keppel Land and K-REIT Asia.
K-REIT expects to get its unit-holders’ approval at the Extraordinary General Meeting at end November.
Source : Channel NewsAsia – 11 Oct 2010