Keppel REIT's share placement initiative impresses Moody's

By showing commitment to reduce leverage.

Moody's Investors Service said that Keppel REIT's (Baa3 positive) positive outlook has been reinforced, following its successful share placement of 40 million new units. The placement will raise approximately SGD53.2 million in proceeds, to be used largely for debt repayments.

"Although the amount raised from the placement is small, relative to the level of gross debt at Keppel REIT, and that its leverage will only improve marginally, this initiative reflects the trust's commitment in reducing leverage, which is an assumption underpinning our positive outlook," says Jacintha Poh, a Moody's Analyst.

Keppel REIT had gross debt of SGD2.8 billion and a Moody's adjusted debt/total asset ratio of 42.3% as at 31 December 2012.

Assuming net proceeds of SGD52.3 million, minus SGD0.9 million for placement fees and related expenses, will be used to repay outstanding borrowings, Keppel REIT's pro-forma adjusted debt/total assets should improve to 41.5%.

At the same time, Keppel Corporation Limited (unrated) -- ultimate sponsor of Keppel REIT and 75.59% shareholder -- has announced a sale of 75 million units in Keppel REIT. And earlier on 24 January 2013, the sponsor had also announced a distribution-in-specie of approximately 366 million units in Keppel REIT.

Upon completion of the sale and the distribution-in-specie, Keppel Corporation's stake in the trust will decrease to approximately 57.96%, leaving a free float of 42.04%.

"We view favourably the reduction of Keppel Corporation's interest in Keppel REIT as it increases the trust's free float which allows for greater flexibility in equity fund raising," says Poh.

Keppel REIT's current credit characteristics including size, asset quality, lease expiry profiles and tenant base are already indicative of a stronger rating. Further reductions in leverage closer to 40% therefore provide support to the trust's improving credit profile that could lead to an upgrade over the near to medium term.

The principal methodology used in this rating was the Global Rating Methodology for REITs and Other Commercial Property Firms published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Keppel REIT is a commercial Real Estate Investment Trust (REIT), listed on the Singapore Exchange Securities Trading Limited on 28 April 2006. It has a portfolio of nine properties located in Singapore and Australia, with a total appraised value of approximately SGD6.52 billion as of 31 December 2012. It is sponsored by Keppel Land Limited (unrated), one of the largest property developers in Asia.