Keppel REIT (KREIT), the second-biggest office property trust in Asia excluding Japan, is seeking buyers for its 30-story Prudential Tower in Singapore’s financial district, according to two people familiar with the matter.
Keppel REIT owns a 92.8 percent stake in the tower, which was valued at S$490 million ($384 million) as of Dec. 31 by independent valuers, according to the company’s filing on Jan. 20. The property is fully occupied, the report showed.
“Keppel REIT does from time to time receive interest to acquire our properties,” the trust said in an e-mailed response to Bloomberg News queries yesterday. “We will consider all potential divestments and acquisitions, and will make an announcement if and when any such deals materialize.”
The Singapore real estate investment trust is seeking to sell the building after the city’s office rents increased about 1.3 percent last year following a 1.3 percent decline in 2012, according to government data. Leasing rates in the central business district bottomed last year and are set to increase in 2014 and 2015, property brokerage Cushman & Wakefield Inc. said in a report last month.
Keppel REIT’s shares fell 0.9 percent to S$1.135 at the close of trading in Singapore, while the benchmark Straits Times Index (FSSTI) rose 0.7 percent.
The REIT is looking to sell older assets to help fund acquisitions, Chief Executive Officer Ng Hsueh Ling told reporters on Jan. 20. The REIT may approach Keppel Land Ltd., its biggest shareholder, to buy Keppel Land’s stake in the city’s Marina Bay Financial Centre Tower 3, she said.
“Keppel REIT is looking to sell assets so it will have to raise significantly lower equity to fund new acquisitions,” said Vikrant Pandey, an analyst at UOB Kay Hian Pte in Singapore. “If they get a good price, then the asset sales, revaluation gains and debt will minimize the equity raising needed for funding a possible acquisition of a stake in Marina Bay Financial Centre Tower 3.”
The acquisition of the building in the Marina Bay area, the city’s new financial center, could be funded by debt, Singapore-based analysts Kai Yip and Regina Lim at Standard Chartered Plc said in a note to clients on Jan. 21.
“We believe KREIT could fund a potential S$1.24 billion acquisition from its sponsor with 100 percent debt if it divests Prudential Tower for S$490 million,” they said.
Keppel REIT is seeking S$2,400 a square foot for Prudential Tower, one of the people said, declining to be identified as the information is private. The price would value the trust’s stake at S$531 million, based on the 221,241 square feet of space it owns in the building, according to the filing on Jan. 20.
Tenants include Prudential Assurance Co. and UniCredit Bank AG, according to the trust’s website.
Singapore office rents may rise 10 percent over the next two years, property brokerage DTZ Holdings Plc said in a statement on Jan. 13. Capital values for offices rose by an average 3.6 percent in 2013, the broker said.
Keppel REIT has a market capitalization equivalent to $2.5 billion, making it the biggest office REIT in the region after CapitaCommercial Trust, which said last week it expects rental growth to accelerate in the second half.
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