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This Multi-Million Real Estate Transaction Actually Means A lot to Individual Investors

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Equity Plaza is a 28 story office building located in the heart of Raffles Place, Singapore’s Central Business District.

Its owner recently announced that the property would be sold off. Although this would seem like any other normal multi-million dollar transaction between two wealthy businesses or tycoons, the transaction is actually at the heart of something really important to individual investors.

But first, we have to know more about it.

The sellers: The property is currently co-owned by real estate developer Keppel Land (SGX: 17) and one of the funds managed under its fund management arm, Alpha Investment Partners.

Keppel Land would be selling off Equity Plaza for a cash consideration of S$550 million which will give the company a divestment gain and net proceeds of S$59.5 million and S$195.3 million respectively.

The buyers: The consortium that is buying the property is led by GSH Corporation (SGX: J16), a company linked to the “Popiah King” of Singapore, billionaire businessman Mr. Sam Goi. GSH Corporation will have a 51% interest in the property while TYJ Group and Vibrant DB2 will own 14% and 35% respectively.

TYJ Group is Mr. Goi’s private investment vehicle while Vibrant DB2 is a joint venture between Vibrant Group (SGX: F01) and a private property development company, DB2 Properties.

Rational for the sale and for the purchase: Keppel Land believes that the sale helps unlock the value of the property and it can then recycle the capital for its other investments in Singapore or overseas that it believes can be more rewarding for its shareholders.

Although the disposal will only affect Keppel Land by a small amount (it’s net tangible asset per share would have increased from S$4.52 to S$4.56 assuming the transaction had been completed on 31 December 2013), the sale can help clean up the company’s balance sheet.

Keppel Land is currently sitting on almost S$3 billion worth of net debt (total debt minus total cash and equivalents) with the property markets in Singapore and China – the company’s main markets – both slowing down; any chance to shore up its finances in such a situation would be a good one to grasp.

Meanwhile, Mr. Goi’s consortium believes that the property is located in a prime area which makes it valuable. In addition, the company has plans to upgrade and retrofit Equity Plaza; these are plans that the consortium believes would add even more value to the property.

Why it’s actually important for individual investors: It is interesting to see two parties (who are very knowledgeable about investing and business, I should add) look at the same property and come out with different conclusions. But here’s the hairy thing: Both of them might be right.

If Keppel Land is worried about a short-term slowdown in Singapore’s property market, it might be right for the company to unlock the value of the property now. Similarly, if GSH Corporation and its partners feel that Equity Plaza will steadily increase in value over the next few decades after some upgrading work, they might be right as well.

So, this is why Equity Plaza’s transaction is important for individual investors. It highlights this very important idea in investing: Your timeframe is a key determinant of your investing-related decision-making.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.