Here's how Keppel REIT's Ocean Financial Centre sale could help its buy-back programme

It sold its 20% stake in the building to help pare down debt.

Keppel REIT’s (KREIT) decision to sell its 20% minority stake in Ocean Financial Centre to Allianz Real Estate could help the REIT to enhance its financial flexibility by helping it to pare down debt, CGS-CIMB said.

The research firm noted that the REIT will recognise an accounting gain of $11.9m and a net-of-transaction-cost gain of $6.9m from the sale. Moreover, the management indicated that the REIT’s gearing could be reduced by 3ppt from the 39.1% recorded in Q3.

“After the sale, the income vacuum (net of interest savings) could lower proforma DPU by 2.6%,” CGS-CIMB said.

According to the research firm, an amount of $537.3m is 2.3% above the independent valuation of $525.3m and 16.8% above its acquisition price of $460.2m. This would make the deal work out to be around $3,061 psf and translates into a stabilised historical annualised FY18 NPI yield of around 3.1%.

“Post-sale, KREIT’s proforma book NAV could be lifted by around 1.4%,” CGS-CIMB said. “In addition to partially unlocking value in its asset, we think the transaction will focus investor attention on the robustness of its underlying net asset value (NAV).”

In an announcement, KREIT had said that the move to divest the 20% stake is part of the REIT’s ongoing portfolio optimisation efforts in which the proceeds will be used to continue the firm’s DPU-accretive unit buy-back programme, as well as distribute capital top-ups, pare down debt and fund growth through reinvestments.