SINGAPORE (Nov 30): Keppel REIT is divesting a 20% stake in Ocean Financial Centre to Allianz Real Estate.

The agreed property value of the 20% minority stake of $537.3 million is 16.8% above Keppel REIT’s historical purchase price of $460.2 million, says the manager of Keppel REIT in a filing this morning.

Keppel REIT currently holds a 99.9% interest in Ocean Financial Centre through subsidiary Ocean Properties LLP (OPLLP).

Upon completion of the divestment, which is targeted by end-December, Keppel REIT will continue to maintain a majority interest in Ocean Financial Centre through its 79.9% interest in OPLLP.

Keppel REIT Management will continue to be the asset manager for OPLLP in relation to Ocean Financial Centre.

Tan Swee Yiow, CEO of the Keppel REIT Management, says, “The partial divestment of Ocean Financial Centre is a unique opportunity for unitholders to realise part of the capital gains from this premium Grade A office building, while maintaining exposure to the strengthening Singapore office market. Despite this being a divestment of a non-controlling stake, the agreed property value reflects the asset’s quality and underlying value.

“In line with our commitment to deliver sustainable total return to Unitholders, we are pleased that we will be realising approximately $77.1 million of capital gains. This translates to an attractive net asset-level return of 8.3% p.a. over the holding period.”

Rushabh Desai, CEO Asia Pacific at Allianz Real Estate, says, “The Singapore office market is experiencing strong rental growth. From an occupational cost and efficiency perspective it continues to be favourable vis-a-vis other comparable markets like Hong Kong. We are excited to invest in this iconic building in Singapore.”

In a DBS flash note, Mervin Song believes the transaction reaffirms the holding value of KREIT’s portfolio, and robustness of the valuations used for its buildings.

“With KREIT trading close to a 20% discount to book value, its valuation is attractive at current levels. Assuming KREIT redeploys the proceeds into a higher yield property or share buyback, we believe this presents further upside to our and consensus earnings estimates.”

In addition, given the expected multi-year upturn in the Singapore office market, DBS is reiterating its “buy” call with target price of $1.41.

Units of KREIT closed 1 cent lower at $1.15 giving it a yield of 4.85% based on FY19F DPU of 5.58 cents.