Comments on BT's interview with KReit's CEO

Today's BT, 9th Dec has 2 Letters to the Editor that gave very good rebuttals to Ng Hsueh Ling, CEO of KReitAsia regarding the remarks she made in interviews in 2 articles on Dec 6, as reported by Jamie Lee.

The 1st article was titled " K-Reit nudged parent to get hands on OFC" and the 2nd article
"K-Reit voting prompted query from MAS"

To make the whole discourse meaningful, I excerpted from BT with minimum cropping.....



1st Article excerpts...

It was K-Reit Asia that approached its sponsor Keppel Land to snap up Ocean Financial Centre (OFC). This was to have a say in rental negotiations now underway, get tax exemption and to lower the average age of its property portfolio. The dynamics behind the deal were revealed by K-Reit's chief executive officer Ng Hsueh Ling yesterday, even as the real estate investment trust faces criticism that the deal is too expensive at a time when the office market may soften. Ms Ng also rejected suggestions that Keppel Land got the sweeter deal. She noted that the $1.57 billion that K-Reit paid for Keppel Land's 87.5 per cent stake in OFC is still well short of the peak. 'If you look at the historic peak of the market, the highest transaction was about $3,120 (per square foot) for a plot of land along Robinson Road. We figured that $2,380 psf is very far from the peak, and it's one of the best buildings in Singapore,' said Ms Ng. 'How do we know the bottom? And to go out and get money in a bad market, people will say 'no'.' Ms Ng added that Keppel was not urgently looking to offload the property. 'They are in no hurry to sell,' she said. 'A lot of people have asked me who started the negotiations first. I wanted to buy OFC because I don't want it to be fully leased.' Some 20 per cent of the space in OFC is having its rental negotiated. She wanted to fill this space with tenants who wanted long-term leases, took up large amounts of space, and had a good credit backing. 'I didn't want Keppel to fill up the extra 20 per cent because Keppel is a developer. I want to fill up with Reit-like tenants,' she said. 'I can also wait for Keppel to fill up the space but you can't control the tenants and you will have to pay for a fully valued asset. If the market goes down, sorry, you would have paid at that price.' She remains very confident that the space will be taken up by such tenants. And despite the grim economic outlook, customers have not asked for cuts in the rent rates, with Ms Ng saying these are large firms and long-term players. Touching on the 17-for-20 rights issue to be used to foot the bill - a move that would be dilutive for existing shareholders - Ms Ng said cash calls are inevitable in order to grow the portfolio size, especially since purchases in the office space are big. 'Now that K-Reit is large in size, the chances of going out to do another rights issue will be much lesser than when it was smaller.' Early this year, the Reit asked the Inland Revenue Authority of Singapore (IRAS) whether all income coming from OFC could be exempted from a 17 per cent tax payment if the corporate ownership structure was changed to a limited liability partnership from a private limited structure, under which a company has to pay that amount of tax. The property trust was told by IRAS around June that this would be possible - making it the first time an office building here has been allowed such a tax exemption under this structure. This prompted the Reit to begin serious negotiations, Ms Ng said. With the purchase of OFC - which will not require K-Reit to spend money on asset enhancement initiatives - the average age of the properties in the portfolio will be lowered to 4.4 years, she added. 'No other Reit has that kind of age. It doesn't mean that being young alone is good. You must be young and in the right location,' she said, though she had no figures on the industry average. As for the compensation of Reit managers, Ms Ng argued that her remuneration is based on the performance of the Reit, noting that she needs to meet targets set for the managers. Acquisition fees paid to the manager are in the form of units that can be sold only after a year, which means that the manager has to watch the units' market performance. Ms Ng also defended the sponsor model that Singapore Reits operate under, noting that a sponsor provides a supply of assets to refresh the Reit's portfolio. K-Reit noted that sponsors are also aligned with the Reit as cornerstone investors, and that working under this model gives Reits access to bank funding.             BT

 2nd Article excerpts......

K-Reit Asia had conducted the voting over the purchase of Keppel Land's entire 87.5 per cent stake in Ocean Financial Centre via a show of hands to avoid the ire of minority investors, chief executive Ng Hsueh Ling told BT yesterday. This has prompted a query from the Monetary Authority of Singapore (MAS) - which regulates property trusts - on the proceedings of the unitholders' meeting, she revealed, though no subsequent questions have been posed since then. About a year ago, K-Reit had gone through a similar voting process to gain unitholders' approval for an asset swap with its sponsor Keppel Land. This had Keppel Land selling its one-third stake in Phase One of Marina Bay Financial Centre to K-Reit, while K-Reit selling Keppel Towers and the adjacent GE Tower in Tanjong Pagar to Keppel Land. But during last year's meeting, minority unitholders were upset with the decision to have voting done by poll, arguing that this voting method would silence the unitholders since institutional investors often hold a larger block of units. With poll voting, each share translates to one vote, whereas under a show-of-hands system, each person gets a single vote, regardless of the number of shares he holds. This year, about 350 unitholders present at the extraordinary general meeting were given the option to vote by poll or by show of hands. Minority unitholders can call for a voting by poll so long as this request is supported by unitholders representing at least 10 per cent of the units held by those present - as stipulated in the Reit's trust deed. But the poll request, led by an institutional unitholder and supported by a few retail unitholders, did not meet the requirement. To compound matters, K-Reit's chairman Tsui Kai Chong told unitholders there were proxy votes representing 46 million units that favoured the deal, before calling for unitholders who wanted a poll to register with the company. The 46 million units included votes from institutional investors whom K-Reit had met to discuss the deal during its roadshow, Ms Ng noted. 'Even if every single person present at the meeting had voted against, what the chairman had in terms of the positive proxies would have (seen the deal) more than comfortably passed through the poll,' she said. 'Since people who called for the poll didn't meet the requirements, we thought, 'why should we go against the trust deed and have our discretion?' People might say, why did you use your discretion? 'I guess we could never win it,' she added. The deal also won overwhelming support via a show of hands, with Ms Ng noting that the hands in favour were 'too many to count'. By Ms Ng's account, there were just six to seven hands raised to show disapproval of the deal. Voting through a show of hands is a practice that the Code of Corporate Governance no longer accepts as sound governance. This was reflected in the recent review of the Code, though the findings were announced two weeks after the deal was approved.             BT Click Read More to go to the Letters to the Editor

MAS must clarify threshold levels for demanding a Poll

The following BT article by Jamie Lee, dated 1/12/2011  and titled "Sale of KepLand's Ocean Financial Centre stake to K-Reit surprises analysts. They say it may have been disadvantageous to the Reit's unitholders" have higlighted some points that MAS must clarify...

Excerpt..... (SINGAPORE) The sale of Keppel Land's entire 87.5 per cent stake in Ocean Financial Centre to K-Reit Asia for $1.57 billion has raised eyebrows. Several analysts who spoke to BT on condition of anonymity argued that the deal may have been disadvantageous to K-Reit unitholders. For one thing, while the prime Grade A office building in Raffles Place has a tenure of 999 years, K-Reit will get the stake with only a 99-year lease for now, though it can exercise a call option to re-gain the property after 99 years. Without the income support from Keppel Land of up to $170 million, the sale price of the office building translates to about $2,400 per square foot (psf), which K-Reit unitholders deem high at a time when the economic prognosis is grim. In a third-quarter report, Colliers International noted that the office market has cooled further, with many companies taking a longer time to commit to new space amid caution over expansion plans. The office market remains highly correlated to the country's economic performance and employment in business and financial services, CBRE said in a recent report. 'They should have left some meat on the table for both parties. Otherwise, what is the point of a Reit if the trusts are stuffed with assets at high prices,' said one analyst. A second analyst said: 'Given the economic uncertainty, the deal is overpriced. The crux of the matter is that the deal was done when the office market is at an inflexion point.' Another analyst noted that after stripping out the income support, the yield of about 3 per cent is not attractive. 'The price is at the top of the market. Granted that it's a Grade A office building but why now? Why acquire at a time when the macro-economic situation is deteriorating?' he said. 'The deal is skewed towards the parent.' He also criticised the 17-for-20 rights issue that would raise about $976 million used to foot the bill, arguing that it is dilutive to existing shareholders. 'It's a good idea if it is being used to purchase depressed assets,' he said. Still other analysts, while cautious, were more optimistic over the deal. 'It is too premature to pan the deal, especially when unit prices of office S-Reits have probably over-discounted the severity of the forthcoming downturn,' said a Daiwa report. The big concern is whether the income support is sustainable, it added. Ocean Financial Centre has a committed occupancy rate of 80 per cent, with existing leases at about $9 psf. The income support, by Daiwa's estimates, should raise the overall current rent to $14 psf and be 'just enough' to last until 2016. If in 2015 and 2016 - when nearly 30 per cent of the leases are up for renewal - spot rents hit $10.60 and $11.70 respectively, there would be 'significant decline' in Ocean Financial Centre's contribution in 2017, it said. 'However, if spot rents reach the mid-teens when the renewals take place, there might not be much drop-off, if any.' In a client note, Credit Suisse said 'admittedly, market conditions are a little uncertain, and perhaps timing may not be perfect'. But comparing with the Marina Bay Financial Centre transaction that involved K-Reit and Suntec last year, the acquisition price is fair from a long-term view, it added. The approval from unitholders also came via a show of hands at the extraordinary general meeting - a practice that the Code of Corporate Governance no longer accepts as sound governance - and amid criticisms from minority unitholders over the price and timing. 'Given the size of the deal and the fact it was a related-party transaction, the vote should have been carried out by poll, with the results tabulated to include the percentages of voting for and against the acquisition,' said Lee Kha Loon, head of the Standards and Financial Market Integrity division of CFA Institute for the Asia-Pacific region, in a blog post for the institute. A K-Reit spokeswoman said minority unitholders can call for a voting by poll so long as this request is supported by unitholders representing at least 10 per cent of the units held by those present. But the poll request, led by one institutional unitholder and supported by a few retail unitholders, fell short of this number. All interested parties that included Keppel Land were not allowed to vote. BT also understands that a proxy voter holding a significant block of 46 million units had already been instructed to vote in favour of the deal. Keppel Land said the sale would 'unlock part of its investment holding especially given the strategic commercial reasons and the volatile economic climate'. As for K-Reit, the acquired Ocean Financial Centre will also provide strong branding, making it a key office landlord in the Marina Bay and Raffles Place areas, with the transaction boosting the size of its assets under management from some $3.9 billion to about $5.9 billion. The deal is also expected to be accretive to the Reit's distribution per unit from the cash flows generated, and should improve K-Reit's lease expiry profile such that no more than 11 per cent of its portfolio by net lettable area will expire in any one year over the next five years. BT

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My Thots....

Much of the issues raised in this article has been discussed.

The section highlighted in blue, however raises issues that MAS/MoF must clarify....

In June 2011, there was actually a Rule Change Proposal by SGX to mandate compulsory polling at all shareholder meetings; see proposal.

Unfortunately, after public consultations, the recommendations was that a poll was deemed NOT a necessity altho if U attend any CMA or Capitaland-related AGMs or SGX AGMs or SingTel AGMs (i.e. the more progressive and transparent listcos) , U will have been given a electronic polling device and polling would be conducted; irrespective. Remember all dual listed listcos (i.e HKEX and SGX) must comply with HKEX rules.

What happened, was that at the KReit Asia EGM, the electronic polling device was distributed and the expectation was that polling will be done. So at one stage there was confusion, when the Chairman said polling will not be done becos there was no requirement.
No explanation was given!!

So those who were more knowledgeable, guessed that they were invoking the 10% rule.
See Recommendation 2.2 and a few of us went to the back of the room to register our shareholdings with the scrutineers to see if we had 10% shareholdings.

It was later announced that we did not satisfy the "requisite" holdings requirement and a show of hand voting commenced, immediately, to which those opposing were Out-Voted. But it was never clearly stated what was that % requirement, that we did not meet, during the EGM.

Later, I checked and found that the required % shareholdings threshold have been reduced from 10% to 5%!!!
After the EGM,  I went to read Recommendation 2.2, again and it appears that there is  a 5-members request rule---there are in effect two thresholds in section 178(1)(b)----- the 5 member rule in i) and the now effective 5% rule in ii) !!

In effect, a polling had to be carried out as there were more than 5 of us demanding a poll. We have been "robbed" of a fair poll which Kepcorp and Kepland as IPTs and together own 76.3% of votes, had to abstain.
Yet, we were denied!!!
A poll would be more favourable to dissenting unitholders, since we have some IIs (Institutional Investors) and some big unitholders amongst us!!

 This BT article appears to imply that a 10% threshold was used; which does NOT conform to the Companies Act.

Will MAS or MoF, please clarify!!!

Return on Capital for Reits

Return on Capital
Given the propensity for cashcalls (i.e. Capital Outlays) in SG Reits, the correct metric for a Value Investor, should not be the dividend yield but the ROC ( return on capital).
Teh Hooi Ling of BT's, "Show Me the Money" series, did a calculation for the ROCs of 22 Reits listed on the SGX .

On that metric, of the 22 that she studied, only 17 made it to positive territory.
She did not state the date for the prices she used. But if we take her "prices today" (as at 25/11/2011), then we are taking prices at quite a trough, given current bear market conditions.

KReit Asia Positive ?
For the emblematic KReitAsia, which has been the most prolific in issuing rights, the surprising outcome is that it still managed to eke out a positive return on ROC, even tho the rights issue (at 85c) has pushed prices on that day to 86.5c.
So Reit, has a place in a value investor portfolio, just as Ben Graham, advocated in his book "The Intelligent Investor". Better still if they are trading below intrinsic book value.

Issue
But, the issue as highlighted in the EGM is the timing and frequency, with which the cash calls are made. In effect, the sponsors have abused the Reits vehicle, so that their interests (to monetise the assets at their  timing to recycle cash for sponsor use)  have been done at the expense of unitholders who are subjected to nasty surprises of cash calls, at a time when the markets are on the precipice  of falling and huge opportunities for purchases of  contending "stocks' could be on the horizon.

Against Sponsor's own interests
As pointed out in the EGM, these nasty surprises, if repeated often, work against the long term interests of the sponsors. Such frequent calls necessitate sponsors having to underwrite to take up any excess rights, reducing trading liquidity as the shares are concentrated in the hands of the sponsors. Loyal unitholders and IIs (institutional holders) with high stakes have to rejig and make sudden changes to their "Portfolios"; including selling in a distressed market to cough out the cash. Worst still, retirees and Mom N Pop investors who buy the Reits for dividends only (i.e. defensive plays) may not be able to cough up the extra cash at such short notice, leading to dilution or a need to sell their rights/shares at  "rights"-depressed prices. Other Unitholders, tired and fed up with the frequent and hasty cash calls, will sell.
In the end, the Reit vehicle which is the last piece in the food chain for the "asset recycling model" may fail, much to the detriment of the sponsors own interests.

MAS must act
Growth should never be the over-riding aim of a Reit; and growth for the sake of growth must never be the excuse for any acquisition.
As I have highlighted many times, accretive  property acquisitions ( to DPU) should only be made when it is certain that the property market has more or less bottomed (test is that valuations  are less than NPV for DCFs) or when the property market is stable; not anticipating a fall. The Reits biz model have that luxury to wait  and the regulators (MAS) should see to it that the sponsors stop ramming their cash calls down unitholders throats as and when they fancy!!
The Reits must be  a vehicle where the recurrent incomes have stabilised; those that have not stabilised must be incubated at the Sponsor level, NOT Reit level. Rental support is a gimmick and must be stopped.
Incentives for Reit Managers must be aligned with unitholders, NOT sponsor's interests!!

Reits, A Mystery?

The KReitAsia case has been discussed at length in BT by Wong Wei Kwong. The 3 main issues of Corporate Governance, viz the voting vs the polling process during the EGM, the incentive scheme for Reit managers, the independence of the IDs, were all correctly identified.

But, I guess  the KReitAsia issue has turned out to be a hot topic, so that some in the media wants their one-minute of fame. and  in TodayOnline , there is an article on Reits by Colin Tan  dated 25/11/2011 entitled  "A decade on, REITs remain a mystery".

Wow, what a eye-balls grabbing title; and coming from a property professional, I am quite baffled that he find Reits, a property "staple", a mystery!!

Contrary to the spirit of the BT article, which was to seek clarity and had a a value-add  in pointing to ways to improve Reits, as an asset class on SGX, Colin's article sought to mystify and muddy the Reit vehicle; in fact, the entire fleet of 23 listed Reit vehicles, at that.

First, lets start with the positives, what Colin got right.....

This may have to do with the existing reward structure - the payoff is better with acquisitions than getting the existing assets to perform better. Is this what the Monetary Authority of Singapore (MAS) intended when it drew up the regulatory framework for REITs?

There may be better justification for a hands-off approach in the early days when the industry was in its fledging stages and when the MAS needed to build up the industry.

However, as the recent K-REIT Asia controversy has highlighted, it may be time for further regulation, especially in the areas of independence and avoidance of conflict of interests.

Many times in the past, I had prodded journalists to look further into certain REIT issues but all have declined, citing a lack of understanding of the subject matter.

Also, as pointed out by one reader, most REIT unitholders are not sophisticated enough to look after their own interests because of their lack of understanding. Even a representative of an institutional fund I spoke to immediately after the K-REIT controversy erupted showed a lack of understanding of the issues. They simply trust the management to do the right thing.

Colin thinks that Reit holders, even IIs are not sophisticated enuff to understand the issues.
He probably pushed it too far....
The rest of the article is peppered with  serious assertions that are highly contentious and unsubstantiated.

Colin might be an expert. But he needs to back up his assertions which must be challenged!!

Excerpts...

.....it must be said that REIT managers have mostly had to acquire their properties on the higher side of valuations if only because it is the only way they can get the owners to sell it to them

This is a gross generalisation.
The property market is cyclical.
Reit managers acquire most properties at close to valuations.
Property prices rise and fall; subject to demand and supply, so do valuations.
Remember, property prices and rents are cyclical,  at any time there will always be valuation "gaps" and differing opinions creating opportunities for buy or sell.
Reit managers actually have the luxury to choose their timing so that they buy (only) in a down cycle, when assets are fairly priced or under-priced (hence, my objection to KReit timing for OFC's purchase), so long as the properties are reitable (able to be let out to good tenants and generate NPI  after Op Expenses and Interest charges) and that the Net Present Value of the DCF  exceeds valuations.

Excerpts.....

A REIT can get a property on the cheap only when the owner is ignorant of its true market value or if it is a forced sale - many investors still do not realise this.

Wow, unless the property is miniscule in size terms , which then means that it is not reitable, most  properties will be properly valued before sale. Many investors know this!!  Try taking a  property loan or a Refi, the banks will make U pay for a valuation, not to mention a SPA for a property.

At the same time, the REIT manager can only justify the acquisition to shareholders if it is yield-accretive. Otherwise, the REIT is better off not doing anything.

So, a spot of financial engineering is required to get it to be so. This will buy the REIT manager some time to get the asset to perform to expectations or for the market to turn around and justify the values. In a rising market, this is not a problem.

Otherwise, for the acquisition to be yield-accretive, the REIT will have to buy a property of lower quality or one with higher risk because such properties have higher yields.

Serious accusations!!
If the Reit manager do any of the 3 mentioned above:
1) A spot of financial engineering
2) Buy an asset of lower quality
3) Buy an asset  with higher risk,
 then that Reit is surely headed for disaster.
Of the 23 surviving Reits on the SGX, will Colin care to substantiate with just 1 example, which Reit Manager, do any of the above to get accretive yield?

As more properties in Singapore are acquired by the REITs, there will be fewer available on the market. As such, the asking price by the remaining landlords can only get higher. Given more time, it will become clear, if it is not so now, that the current model is not sustainable in the long run.

Sounds prophetic and self congratulatory.

Contradicts the point he, himself made earlier----- that Reits can only justify their acquisitions, if the DPU are accretive. Reits, can simply say "NO", if prices are too high.
I can cite many cases Katong Mall, Chinatown Mall, Yew Tee Point, Parc or Bugis Junction---- the landlords chose to sell becos of certain internal issues such as a change of strategy or biz direction. For 77 King Street that was acquired by KReit, the owner was a Greek, who had personality issues with the tenants and hence could not get the occupancy higher.

Reits is an asset class that has worked in many jurisdictions eg US, UK and Australia.
The model is sustainable and has worked;  the biz model can evolve as the size grows----- with AEI (Asset Enhancements), Development ( up to 10% of asset value), sale of Old Properties. There is also less need for cash calls as size evolves, since placements will be  smaller  and bite- sized, relative to the size of the evolved Reit (Kreit will become No 2 in size in SG)  and easier to find subscribers; after the growing pains.

REITs are often presented as defensive plays as it relies on revenues generated from income-producing properties held in its portfolio. While it may be so in more mature economies, the situation is different in Singapore.

In mature economies, a typical portfolio of properties in a REIT is a lot more stable. The leases are longer, which means the payout is much more consistent. In Singapore, most REITs are on the acquisition trail and their portfolios are always expanding.

Is SG, not a maturing economy?
Colin should check out the WALE, before and after the acquisition  for most of the acquisitions by Temasek-linked Reits,  before he makes all the bold statements, above.
Almost all the Reits, I am vested in or know of ( i.e. with good sponsors), have no issues with consistent divd payouts.With the exception of some Reits hit by the Japanese triple whammy, most Reits have a stable portfolio of properties.

As a vested Property Professional, Colin should clarify
NOT sensationalise and mystify.

KReit Rights Issue - Important Dates

Despatch of Offer Information Statement to Eligible Unitholders : 21 November 2011
Commencement of "nil-paid" rights trading : 21 November 2011 from 9.00 a.m.
Last date and time for splitting and trading of "nil-paid" rights : 29 November 2011 at 5.00 p.m.

Closing Date(1):
Last day for acceptance/application
of and payment for Rights Units/Excess
 Rights Units and close of the Rights Issue: 5 December 2011 at 5.00 p.m. (2),(3) (9.30 p.m. for Electronic Applications through ATMs of Participating Banks)
Last date and time for acceptance of
and payment for Rights Units by renouncees : 5 December 2011 at 5.00 p.m. (3),(4)

Expected date of issue of Rights Units : 13 December 2011
Expected date for crediting of Rights Units : 14 December 2011
Expected date for refund of unsuccessful applications (if made through CDP) : 14 December 2011
Expected date of commencement of trading of Rights Units on the SGX-ST : 14 December 2011

KReit Rights Issue

Announcement
http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_B7A21BD601A5379B4825792C003A4AD9/$file/K-REIT_AIP_Announcement.pdf?openelement

Press Release
http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_B7A21BD601A5379B4825792C003A4AD9/$file/K-REIT_PR.pdf?openelement

Presentation Slides
http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_B7A21BD601A5379B4825792C003A4AD9/$file/K-REIT_Slides.pdf?openelement

Kepcorp Undertaking
http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_9A98B594E6EAC8434825792C003EC4BC/$file/KCL_undertaking_final.pdf?openelement



Indicative Timetable

Key Events Dates
Announcement of Acquisition 17 October 2011
Expected date of EGM 10 November 2011(2)
Last day of “cum-rights” trading 11 November 2011
First day of “ex-rights” trading 14 November 2011
Book closure date 16 November 2011
Commencement of “nil-paid” rights trading 21 November 2011
Last day of “nil-paid” rights trading 29 November 2011
Close of Rights Issue 5 December 201
Expected date of issuance of Rights Units 12 December 2011
Expected commencement of trading of Rights Units 13 December 2011
Expected Acquisition completion date No later than 31 December 2011 

Proforma
Acq & Rights Issue
----------------NAV---------DPU------Mkt Cap
B4  ------ SGD 1.48------6.37cts-----3.0m
After ---- SGD 1.19------6.72cts-----4.9m

Rights Issue Price SGD--- 0.85cts
TERP ---- 0.947cts
Dilution due to rights 85%
Updates
Circular
Kreit
http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_F00D9A7BCB44FC524825792D0034AE86/$file/Circular.pdf?openelement
Kepland
http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_F165295DE798C63D4825792D003901A6/$file/2.KLL.Circular.Disposal.of.87.51ofOPPL.19Oct2011.pdf?openelement

October 20, 2011, 3.02 pm (Singapore time)

K-Reit assigned 'BBB' rating by S & P By YEO AIQI K-Reit Asia, a Singapore-based commercial real estate investment trust, has been assigned 'BBB' long term corporate credit rating by rating agency Standard & Poor's.'The rating on K-Reit reflects our opinion of the real estate investment trust's good-quality assets, solid market position in the Singapore commercial space, and an intermediate financial risk profile,' said Standard & Poor's credit analyst Wee Khim Loy. 'In our view, K-Reit's proposed acquisition of a majority 87.5 per cent stake in Ocean Financial Centre (OFC) from its parent Keppel Land Ltd (not rated) will enhance its business risk profile,' added Ms Loy. The acquisition will double the value of K-Reit's property portfolio to S$5.9 billion by the end of 2011. S & P believes the S$170 million guaranteed rental support from Keppel Land till Dec 31, 2016, will support K-Reit's business risk profile even if the trust is unable to achieve satisfactory leasing of the remaining OFC space. In the unlikely event that the acquisition is not completed, S & P states that the rating on K-Reit will be unchanged. Moreover, K-Reit's property portfolio has a long lease expiry profile, with a high occupancy rate of 98 per cent. This reinforces K-Reit's cash flow stability.

BT
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My Thots...
Market has been expecting that Kepland will divest OFC to Kreit.
The reasons cited are convincing and makes sense.
Only unknown is the timing.....
Is Mr Market ready for this?

Further thots....
The 99 yr lease is IMHO, not a big factor, since Offices get torn down and rebuilt mostly within that lease period.