The proposed asset swap of K-Reit Asia with Keppel Land has increased the trust’s distribution per unit (DPU) by 4 percent without raising its equity.
The trust’s manager said the unit-holder would receive a higher DPU of around 6.68 cents for the 2011 fiscal year, an increase from 6.42 cents upon the completion of the transactions.
In October, the two companies announced a deal under which K-Reit would acquire a one-third stake in Marina Bay Financial Centre (MBFC) Towers 1 & 2, as well as the Marina Bay Link Mall from Keppel Land. In exchange, it would divest GE Tower and Keppel Towers to its sponsor.
Several analysts have questioned if the deal would be beneficial to both companies, and also pointed out that K-Reit would have raised its borrowings to finance the acquisition of MBFC.
The REIT’s manager said the deal would be yield-accretive only if the new borrowings’ interest rates remain at 2.5 percent to 3.25 percent per annum. A 50-basis point raise in the base case borrowing costs would cut the DPU to 6.31 cents. Fluctuations in interest rates would affect the DPU after the transactions.
However, based on the existing low interest rate environment, the trust’s move to accept new debt would lead to a drop in the average borrowing cost to 3.05 percent from 3.4 percent as of September 30 2010. The REIT’s weighted debt maturity would also rise to 4.1 years, from 1.4 years.