General Announcement::Briefing on Proposed Acquisition of Shares in SPH ex-Media - Transcript of the Q&A session

Briefing for Media and Analysts on Keppel Corporation's Proposed Acquisition of Singapore Press Holdings Limited ex-Media ("SPH") (via webcast)

Transcript of the Question & Answer Session

2 August 2021, 10.30am, Keppel Bay Tower

LCH	Loh Chin Hua, CEO of Keppel Corporation
CHC	Chan Hon Chew, CFO of Keppel Corporation
CT	Christina Tan, CEO of Keppel Capital

1. Louis Lim, CEO of Keppel Land

NWK	Ng Wai King, Managing Partner, WongPartnership

Questions from Anita Gabriel, Business Times

This proposed deal could tend to override the narrative of Keppel's pivot to green business/clean energy, not least because of the deal's sheer size. Can you comment?

LCH: As you can see from my remarks, Anita, this transaction is significant for us. It touches on three key segments of Keppel, namely Urban Development, Asset Management as well as Connectivity, which are very important parts of our Vision 2030. It will not, as I mentioned, result in us being unable to pursue the very important pivot, as you say, for the group towards green businesses and clean energy, renewables and providing sustainable urbanisation solutions.

As I shared in my remarks, our asset monetisation programme is going quite well. We have announced $2.3 billion in monetisation so far and we have collected, or received, cash of about half this amount. We do believe that the monetisation programme will allow us, not just to free up more balance sheet space for this transaction, but also to fund new potential organic investments into initiatives such as data centres, connectivity, as well as renewables and decarbonisation solutions.

What are the upsides to this deal versus say one that would have seen Keppel acquire only parts of SPH's business? What led to the decision to acquire the entire company?

LCH: I suppose this is a response when we were invited, I believe with others, to consider, in SPH's parlance, the privatisation of their business post the demerger, or the spin-off, of their media business. So this is something that we are responding to - the RFP (request for proposal) from SPH.

What role did Dr Lee Boon Yang, Keppel's former chairman and current SPH chairman, play in this deal, if any?

LCH: Dr Lee, who retired as the chairman of Keppel after the Annual General Meeting in April 2021, did not play any part in the transaction. He was not involved in any of the discussions, and particularly towards the point where, as part of the process, we had to put in non-binding bids, and finally put in a binding bid, Dr Lee had already retired from the board of Keppel.

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Question from Chang Kwok Wei, Citigroup

Thanks for the briefing. It was mentioned that there is sufficient debt headroom post- transaction to pursue growth initiatives. Can we get a sense of the available headroom remaining? And will net gearing be expected to remain below 1.0x even after pursuing new M&A opportunities in the future?

LCH: We have said, Kwok Wei, at the results briefing on Thursday that our monetisation process is going very, very well. We have a target range of $3 to $5 billion by 2023. We expect to hit the lower end target of $3 billion much earlier than the three years and we are now aiming to hit the higher end of that range, which is $5 billion by 2023.

So, in short, there is actually quite a bit of monetisation coming in. And, just to remind you, we are not stopping at $3 to $5 billion. We have identified up to about $17.5 billion of assets by balance sheet value as at June 2020. So we will keep on going. And this is in pursuit of our asset-light business model. So we believe that there will be more than enough headroom for us to consider M&A opportunities. I can also share that, for instance, on the renewables side, we are now, as a Group - in different parts of the Group - looking at quite significant M&A opportunities there. And this (SPH) transaction will in no way not allow us to do all of that. Thank you.

Questions from Paul Chew, Phillip Securities Research

Why would minority SPH unitholders be attracted to the offer of $2.099 that is close to Net Asset Value (NAV) or book value of $2.08?

LCH: This is something that I believe is for the SPH board to address to its unitholders. We believe this is a good deal for both sides. I think it is win-win, as I mentioned. It is a very unique and rare opportunity, an attractive opportunity for Keppel. But it is also a very good opportunity, we believe, for SPH unitholders to realise their investment, post the media demerger or spin-off.

Is there a lock-up period for SPH shareholders receiving the SPH REIT and Keppel REIT shares?

LCH: There is no lock-up.

Questions from Cheryl Lee, UBS

What is a potential timeline for when asset monetisation would commence?

LCH: Cheryl, I think by that you meant for the SPH portfolio. First and foremost, as I shared in my remarks, what is attractive for us regarding the SPH portfolio is that it comprises different assets. Some of them could be quite liquid and can be monetised immediately; but at the same time, there are also assets like the purpose-built student accommodation (PBSA) portfolio which we can also securitise in quite short order. So I think the timing can be quite quick, quite soon - within the next three years, as an example.

The other aspect to think about this is that when we talk about the synergies, we also have quite a number of retail assets within the Keppel Land portfolio, including i12 Katong in Singapore. If we have a platform like SPH REIT, we can also potentially monetise our own assets. Of course, SPH also has Seletar Mall and Woodleigh Mall that is under construction. When it is completed, it can also lend itself to potential monetisation. Of course, there is a part of Woodleigh Mall that is

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the residential development for sale. Sales are ongoing, so of course, over time, a portion of that asset will also be monetised.

How would Keppel prioritise the order in which the acquired assets would be monetised? Which could be monetised sooner rather than later?

LCH: Well, I think, as I shared, Cheryl, if you look at the portfolio, when I say monetisation, it does not mean that it will all be sold. Some of these could be monetised through asset recycling into a REIT or Trust, or to a new REIT or Trust to be formed. So I think this would be quite soon. We have an integration plan and this would be done quite quickly - within the next three years.

Question from Chin Yongchang, Dow Jones

Could you please elaborate on how Keppel plans to finance the acquisition? Will it be using cash?

LCH: I will direct this next question to Hon Chew.

CHC: Thank you for the question. Just to be clear, the total offeror consideration is $2.237 billion, of which $1.156 billion would be paid through the Keppel REIT units. This was addressed in CEO's opening remarks. So the cash consideration is $1.08 billion. For this cash consideration, we will be drawing on our various sources of funds, such as internal cash, borrowings or even instruments with equity treatment. But of course, as CEO has mentioned, we have asset monetisation plans. We have since last October announced $2.3 billion in asset monetisation, of which half has been completed. We expect another $1 billion or so in cash from July 2021 onwards.

Questions from Lim Siew Khee, CGS-CIMB Research

What due diligence have you done to assess the value of assets in SPH, for example, PBSA? What are your assumptions?

LCH: For the first question, maybe I will ask Christina Tan of Keppel Capital to address.

CT: For PBSA, we commissioned independent appraisals for the assets. The portfolio has been very resilient, even during COVID-19. I think the reason is that there is an increase in terms of the number of applications for university places in the UK. It has grown by 8%. If you look at the UK student population base - it is about 2 million, and 1.18 million of them are studying outside of their home regions. So the demand for PBSA is actually very good. The number of PBSA beds, when we surveyed, was less than 700,000. If you add on the number of international students that we are seeing going into the UK, which has increased for the academic year 2021-2022 to more than 500,000 students right now, we see that there is a huge demand for PBSA. The portfolio itself is doing really well. We are expecting more than 90% in terms of occupancy, and from our surveys, it shows that even for the en suite bedrooms, the average rental has increased by about 17%.

So overall, we are quite happy to be able to adopt this portfolio of PBSA. With Keppel Capital, I think we are able to grow it further through our deal acquisition capabilities - because we have offices in the US and Australia where the PBSA market is pretty strong. So, we are quite confident that this portfolio will do really well through our monetisation efforts.

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LCH: Thank you, Chris. You can see her enthusiasm. As I have mentioned earlier, we see a natural fit between ourselves and SPH. That has also been one of the key drivers. We have been partners with SPH on a number of businesses, for a number of years. I think we were co-founding shareholders of M1 back in 1997. So we have had many ventures together. We know the people, and we know the assets quite well. And you can see that even for PBSA, which is an area that we are not in yet, Keppel Capital has been studying this for the last few years. You can see from Christina's enthusiasm that this is an area that we believe we can add much value to. Of course, SPH has done a great job in terms of growing this ground up into a very large PBSA operator already, in the UK and Germany.

The other thing that I will also share is that we were able to bring together quite a number of our colleagues in different parts of the Group to undertake the due diligence, from real estate, to PBSA, to senior living. So it has been a Group-wide exercise. Of course, this has taken some weeks for us to do, but we are quite confident that we have done a very thorough due diligence on the portfolio.

How many times of NAV are you paying for SPH (ex the 25% dividend distribution)?

LCH: Including the in specie distribution of Keppel REIT, we are paying close to 1. But what I want to highlight here is that we also see that there are a lot of synergies as I have touched on in my presentation. We can drive more value from this transaction, drive more value out of this portfolio. At the same time, there are also some important assets in the Group that perhaps are not captured in the NAV. This would include the REIT management platform and the potential REITS that we can create from the existing portfolio.

How much asset monetisation do you expect from the SPH portfolio?

LCH: As I shared, the portfolio lends itself to quite quick monetisation. I want to stress, when we say 'monetisation', it is not just about a sale. Of course, some of the non-core assets can be sold, but we are also able to look at capital recycling through, I have mentioned before, potential securitisation of the PBSA portfolio.

What if the media sale is not approved by shareholders?

LCH: This deal is on the basis that it does not include the media group. So it presupposes that the SPH shareholders will approve the media spin-off.

Question from Cheryl Lee, UBS

There are concerns over both the Capitol Students and Student Castle portfolios. In particular, can you comment on the oversupply situation in some cities where the Capitol Student portfolio is located, such as Plymouth and Huddersfield? What do you think can drive yields for this portfolio?

LCH: I will direct this question to Christina.

CT: Thanks, Cheryl. For PBSA, we are quite positive about the demand and supply situation, as I have mentioned. In terms of the statistics, the number of students requiring PBSA would be more than about 1.7 million. Whereas PBSA is probably only providing less than 700,000 beds, in terms of supply.

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In terms of overall portfolio, based on our research, the occupancy is strong based on this portfolio. Portfolio-wise, we are looking at above 90% occupancy in the academic year 2021- 2022. We are quite confident that this portfolio will do well. Of course, there would always be assets in the portfolio that might be weaker. I think we will take this opportunity to look through the portfolio, study in detail, look at possible repositioning of the portfolio, look at value-add, which Keppel Capital is really good at, and, from there, put in asset enhancement initiatives (AEI) works, and from there, drive yields up again from the weaker assets.

LCH: Thank you. The yields for this portfolio, PBSA, are quite high.

CT: Yes, that is right.

Questions from Lim Siew Khee, CGS-CIMB Research

Do you need to pay if the deal is not successful? How much is the break-up fee?

LCH: First and foremost, for this deal, we have to go to SIC (Securities Industry Council), amongst others, for approval of the scheme. We do have some conditions. If the conditions are not met, we would have to go back to SIC to get the sanction, their agreement, for us to so-called 'walk'. But I do believe the conditions will be met.

How much is the break-up fee?

LCH: The break-up fee is about 1% of the transaction, which is $34 million.

When will you resume trading?

LCH: We do not expect this trading halt to be too long, but you should wait for the announcement from us. Thank you.

Questions from Pang Kia Nian, Lianhe Zaobao

Can you clarify the approval requirement of the scheme?

LCH: I will invite Wai King, who is the Managing Partner at Wong P, to respond.

NWK: On the approval requirement of the scheme, there are two parts to the approval requirement. We would need to go to court to convene a scheme meeting and at the scheme meeting, shareholders who hold a majority number and 75% in value, present and voting, must vote in favour of the scheme. So that is the shareholder meeting threshold.

After the shareholders have approved, we would need to go back to the court again for the court to then approve the scheme. So it is both the shareholders as well as the court that will approve the scheme.

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