Touch move: Why Equity Plaza sale might hurt KepLand

Everyone is waiting for their next step.

Keppel Land made headlines yesterday after selling Equity Plaza for $550m. While the sale is positive, analysts warn that the property giant has to be careful with its next moves.

According to CIMB, the sale is part of Keppel Land’s asset recycling plan, and that Marina Bay Financial Centre Tower 3 might be next on its list.

“While divestments at good prices could provide short-term upside for the stock, KepLand’s assets and
earnings profile will increasingly be skewed towards China, which is risky, in our view,” stated the report.

Here’s more from CIMB:
KepLand and its property arm, Alpha, have entered into an agreement to sell Equity Plaza for a cash consideration of S$550m or S$2,181psf NLA. KepLand and Alpha hold c.65% and c.35% interests in Equity Plaza, respectively.

The buyers are a consortium consisting of Sam Goi-controlled GSH Corporation, Mr Goi's private investment vehicle, TYJ Group and Vibrant DB2. The transaction is expected to be completed by 3Q14 and result in a divestment gain of S$59.5m and net proceeds of S$195.3m.

Good price but marginal impact on valuation. We estimate the sale consideration to be ~20% above its book value of S$458m or S$1,816psf NLA, a positive for KepLand. The NPI yield on the divestment price is estimated to be around 3.5%. Impact on KepLand's RNAV, while positive, is limited at c.1%.

Part of asset recycling plan. We believe the sale is part of the company’s asset recycling plan and is partly driven by the good pricing. MBFC3, at close to full occupancy, could potentially be divested next to unlock value and its proceeds could result in a special dividend, in our view.