K-REIT – BT

K-Reit gains nod to buy Ocean Financial Centre, despite dissent

K-REIT Asia’s plan to buy 87.5 per cent of Ocean Financial Centre (OFC), and raise $976 million through a rights issue to fund part of the cost, was approved by shareholders yesterday – but not without plenty of dissent.

Numerous shareholders took to the floor at a two-hour-long extraordinary general meeting (EGM) at Marina Bay Sands to challenge the rationale behind the deal and the rights issue.

K-Reit on Oct 17 said that it will pay some $1.57 billion to buy parent company Keppel Land’s entire stake in the OFC office building. Excluding rental support from KepLand, the estimated sale price of OFC works out to $2,380 per square foot.

Shareholders questioned the price and timing of the deal.

‘My issue is with the timing of the deal,’ said the representative of an institutional investor. ‘We are paying a price that is at a historic high, at the time when the economy is slowing down. Why can’t K-Reit wait half a year or one year, and then buy something else or even this property at a cheaper price?’

Likewise, a retail investor also said that the price was hefty for a 99-year-leasehold project.

The prime Grade A office building in Raffles Place has a tenure of 999 years with 850 years remaining on the lease. But KepLand is selling its stake with only a 99-year lease.

K-Reit’s management team defended the price. Chief executive Ng Hsueh Ling noted that the building is new (it was completed only in April 2011) and won’t need upgrading work for some time.

Chairman Tsui Kai Chong also noted that the price was arrived at on a ‘willing buyer, willing seller basis’.

‘Our father organisation, Keppel Land, is only willing to sell it (OFC) to us for 99 years,’ he said.

Mano Sabnani, chief executive of Rafflesia Holdings, then noted that K-Reit is paying its manager (which is owned by KepLand) an acquisition fee – even though it is buying the asset from its parent company and no ‘finding’ was involved as OFC was ‘right there’.

Prof Tsui said that he will bring this up at the ‘family talk’, drawing some laughter from the audience.

Shareholders also pointed out that this marks K-Reit’s third rights issue since 2008.

‘When people invest in Reits, they expect certain things . . . (such as) stable dividends and that there won’t be frequent cash calls,’ said an investor.

He wondered if K-Reit should have undertaken a placement exercise instead.

In response, Prof Tsui said that the office trust chose to go with a rights issue to avoid diluting existing shareholders’ stakes, which a private placement would have done.

‘Moving forward, when we are larger, our fund-raising might become easier, then perhaps we will look at placements,’ he said.

But despite the dissent, both resolutions – to buy the OFC stake and for the rights issue – were passed. A motion by the representative of the institutional investor to vote by poll (when shareholders’ votes are allocated based on their holdings) failed, and an overwhelming majority passed both resolutions with a show of hands.

KepLand, which held its own EGM earlier in the day to ask for shareholders’ permission to sell its OFC stake, also gained approval.

K-Reit shares lost one cent to close at $1.015 yesterday, while Keppel Land shed seven cents to close at $2.66.