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Is The Latest Keppel-KBS US REIT Rights Issue A Good Deal For Its Investors?

Yesterday evening, Keppel-KBS US REIT (SGX: CMOU) announced a rights issue to raise funds for the acquisition of 21 properties in America. Here are 12 things you need to know:

1. Keppel-KBS US REIT’s Manager is proposing an underwritten and renounceable rights issue to raise gross proceeds of US$93.1 million. A renounceable offer means the rights have a value, and will be publicly traded on the stock exchange.

2. The REIT is acquiring 21 buildings – known as the Westpark portfolio – located in Redmond, Washington, US, for a total sum of US$169.4 million.

3. Substantial unitholders who each own 6.97% of Keppel-KBS US REIT – Capital Investment Holdings Pte Ltd and KBS SOR Properties LLC – have agreed to subscribe fully and pay in full for their share of the rights units, subject to applicable laws and regulations.

4. The rights offer works out out to 295 rights units for every 1,000 existing units of Keppel-KBS US REIT.

5. The issue price is US$0.50 per rights unit, which is a 30.1% discount to the REIT’s closing unit price of US$0.715 on 22 October 2018.

6. The theoretical ex-rights price (TERP) will be US$0.666, and is computed based on the current market capitalization of Keppel-KBS US REIT, plus gross proceeds from the rights issue, divided by the enlarged number of units following the issue.

7. US$3.4 million of the proceeds from the rights issue will be used to pay the fees and expenses relating to the issue.

8. 25 October 2018 shall be the last day of Keppel-KBS REIT trading cum-rights, which means that if we buy the units of the REIT by this date, we are still entitled to participate in the rights issue.

9. The rights entitlement will be traded from 2 November 2018 to 13 November 2018, during which a unitholder of Keppel-KBS US REIT who has received his rights entitlement can sell it on the stock exchange in return for cash.

10. The deal for the Westpark portfolio was announced on 24 September 2018, and the properties have a total occupancy rate of 97.7%. The 21 buildings are all located in the “strong performing” Eastside office market. According to independent research consultant Cushman & Wakefield Western Inc, the Westpark portfolio can enable Keppel-KBS US REIT to benefit from steady rental growth of approximately 4% per year .

11. Keppel-KBS US REIT is helmed by a strong sponsor – namely Keppel Corporation Limited  (SGX: BN4) – and the acquisition is expected to be yield-accretive for the REIT. So, the rights issue looks like a good deal for unitholders to buy more units of the REIT at a cheaper price.

12. Keppel-KBS US REIT’s Manager is also currently conducting due diligence on a potential acquisition of a separate property for a sum that is less than 10% of the REIT’s total assets, but there is no assurance that the acquisition will proceed.

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The Motley Fool Singapore contributor Royston Yang contributed to this article. Royston does not own shares in any companies mentioned.

The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore writer Chong Ser Jing owns shares in Keppel Corporation.