• To sell 1/3 stake in MBFC T3
• Valuation at S$2,790 psf
• FV unchanged at S$4.09

To divest 1/3 stake in MBFC T3 for S$2,790 psf

Keppel Land (KPLD) announced yesterday that it has entered into a conditional agreement to sell its one-third stake in Marina Bay Financial Centre Tower 3 (MBFC T3) at a valuation of S$1,248m or S$2,790 psf, including a five-year rental support of up to a total of S$49.2m. This is line with an independent valuation of S$1,245m by Colliers as at 28 Aug 2014 and is broadly within our and the market’s expectations. The purchase consideration will comprise S$710.1m which consists of a part cash payment of S$525.1m and issue of new Keppel REIT units amounting to S$185m. KPLD expects net proceeds of S$658.9m and a net divestment gain of S$95.5m when this transaction is completed.

Continues active capital recycling strategy

Including the divestment of Equity Plaza earlier this year, the group would have gathered total net proceeds and net divestment gains of S$854m and S$155m, respectively. We expect KPLD’s net gearing ratio to fall from 44% as at end Jun 2014 to the mid-30% levels after both divestments are completed. Management continues to actively recycle capital as a core part of their strategy and has, on average from 2010 to 2013, divested ~S$700m p.a. terms of net proceeds and deployed more than S$1b p.a. into acquisitions and investments. Looking ahead, the group expects to expand its presence in overseas office and retail assets, particularly in China, Indonesia and Vietnam.

Expecting special dividends from divestments

During the analyst briefing, management reiterated its policy of paying out about one-third of divestment gains, which translates to an estimated special dividend of ~3.5 S-cents per share from both sales. We continue to like KPLD for its diversified exposure across property segments and geographical markets and a strong balance sheet. Maintain BUY with an unchanged fair value estimate of S$4.09 (30% discount to RNAV).

Source: OCBC Research - 19 Sep 2014