KReit placement at S$1.13 a unit works out to higher DPU accretion for Keppel Bay Tower acquisition: analysts

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KEPPEL Reit’s (KReit) private placement has been priced at S$1.13 per new unit, about midway in its indicative range.

This comes after its manager’s proposal on Feb 18 of a private placement of between 235.6 million and 242.8 million new units, at an issue price of between S$1.112 and S$1.146.

The issue price of S$1.13 represents a 4.1 per cent discount to the real estate investment trust’s (Reit) volume-weighted average price of S$1.1783 for all trades done on Feb 17.

A total of 238.9 million new units will be issued to raise gross proceeds of S$270 million, most of which will go towards funding the purchase of Keppel Bay Tower.

Morgan Stanley analysts Wilson Ng and Derek Chang said in a research note on Friday that the issue price is slightly higher than the assumed issue price of S$1.04 used to calculate the expected distribution accretion.

KReit had initially estimated a pro-forma distribution per unit (DPU) accretion of 2.7 per cent arising from the deal.

Morgan Stanley now thinks the DPU accretion will be better, at 2.9 per cent. It has an “overweight” rating on KReit, with a target price of S$1.20.

The counter closed at S$1.15 on Friday, down S$0.04 or 3.4 per cent.

CGS-CIMB analyst Lock Mun Yee told The Business Times that the decline could have been in reaction to the placement price being lower than KReit’s closing price of S$1.19 on Wednesday, before its trading halt on Thursday.

KReit said the placement was about 4.6 times covered and saw “strong participation” from new and existing institutional, accredited and other investors.

The funds raised will partially cover KReit’s purchase of Keppel Bay Tower from sponsor Keppel Land, the property arm of Keppel Corp. The acquisition, which is an interested party transaction, is subject to unitholders’ approval at an extraordinary general meeting scheduled for Feb 24.

Around S$4 million of the proceeds will go towards paying professional and other fees and expenses incurred in connection with the proposed acquisition, private placement and loan facilities. And S$3.5 million will be used to repay existing indebtedness and for general corporate and working capital purposes.

Trading of the new units is expected to commence on or around March 1 at 9am. This is subject to certain conditions in the placement agreement, including the receipt of in-principle approval from the Singapore Exchange for the listing of the new units on the bourse.

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