SP: Keppel REIT (KREIT SP): Private Placement to raise S$120m.

Keppel REIT (KREIT SP)   HOLD
Price/Tgt: S$1.305/S$1.46        Mkt Cap: S$3,500m/ US$2,759m        Daily Vol:  US$15.4m        1-Yr Hi/Lo: S$1.61/S$1.10              Current/Forward Dividend Yield: 6.0%/6.1%

SP: Keppel REIT (KREIT SP): Private Placement to raise S$120m. 
Analyst: Vikrant Pandey/Terence Khi       Tel: (65) 6590 6623/6590 6614 

·        Private placement of 95m units.  Keppel REIT (KREIT) has announced a private placement of 95m new units at an issue price of S$1.26 per unit to raise gross proceeds of S$119.7m.  Net proceeds are approximately S$118.3m after fees.  The issue manager is DBS Bank. 
·        Placement price at 2.6% discount to adjusted VWAP. The placement price of S$1.26 per unit is at a 2.58% discount to the adjusted Volume Weighted Average Price (VWAP) of S$1.2934 per unit for trades done on 25 July (less the proposed advanced distribution) and at a 3.4% discount to the last traded price of S$1.305 per unit.  The issue price also represents a 0.8% discount to the adjusted NAV per unit of S$1.27 as at 30 Jun 2013. 
·        Proceeds used to fund acquisition of 8 Exhibition Street. The net proceeds of S$118m will be used to fund the S$192m acquisition of 8 Exhibition Street, Melbourne, which was announced on 26 June.  Based on the acquisition price, the equity/debt funding ratio of 61:39 is in-line with our earlier estimates of a 60:40 equity/debt funding ratio for the property which we have already factored in. 
·        DPU accretive despite minimal 3.5% dilution. The 95m new units represents a minimal 3.55% increase in the total number of units from the 2.676b units in issue.    Given that the new units will be used to fund the acquisition, the acquisition and equity fund raising remains DPU accretive to the portfolio.  We had factored in a 0-2% increase in 2013-15F DPU in our previous note. 
·        Advance distribution of S0.69-0.75c. KREIT has also announced an estimated advanced distribution of S0.69-0.75c for the period 1 July to the date prior to which the new units are issued (estimated 6 August 2013).  Details will be announced at a later date when the management accounts for the period has been finalised. 
·        Near-term equity overhang removed.  The private placement removes the current near-term equity fund raising overhang for the acquisition which we had highlighted in our earlier note.  We currently have a HOLD on KREIT with a target of S$1.46 based on DDM (required rate of return:7.1%, terminal growth: 2.2%).  Entry price is at S$1.27. 


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