Month: March 2008
MI-REIT – SGX
For immediate release
31 March 2008
COMPLETION OF ACQUISITION OF 7 CLEMENTI LOOP
MacarthurCook Investment Managers (Asia) Limited (“MCKIM Asia”), the Manager of MacarthurCook Industrial REIT (“MI-REIT”), refers to its announcement on 30 August 2007 in relation to the acquisition of the property at 7 Clementi Loop.
The Manager is pleased to announce that the acquisition was completed today.
KREIT – BT
K-Reit may raise more funds after its rights issue
K-REIT Asia will look at more forms of financing once its $551.7 million rights issue is completed, Tan Swee Yiow, chief executive of the trust’s manager, told BT.
The real estate investment trust (Reit) is holding an extraordinary general meeting today to get shareholder approval for a rights issue to raise $551.7 million in gross proceeds – partly to repay the $942 million bridging loan it took from Keppel Corp when it purchased its one-third stake in One Raffles Quay (ORQ) last year.
K-Reit is expected to get the mandate for the rights issue easily enough. But shareholders will want to know what plans the trust has to raise the balance needed to repay the loan.
Mr Tan said that the management is well aware of the need to raise more funds, and will address the issue with ‘appropriate debt instruments’ after the rights issue.
‘The $942 million is a bridging loan and we will have to resolve it somehow,’ said Mr Tan. ‘We will have to address that, but we are not addressing it at the same time as the rights issue because we want to do the rights issue first,’ Mr Tan said.
The rights issue, which will significantly reduce the Reit’s gearing, will put the trust in a better place to negotiate with banks, he said.
Upon completion of the rights issue, K-Reit’s gearing will be cut to 27.7 per cent, from 53.9 per cent at present, which is approaching the maximum allowable limit of 60 per cent.
To raise more funds, K-Reit will look at a variety of options, including convertible bonds, commercial mortgage-backed securities and straight debt, Mr Tan said.
Right now, the rights issue means that Keppel Corp and Keppel Land, which have both given irrevocable undertakings to take up their respective allocations of the rights units, could increase their stakes in the Reit. As at end-February, KepCorp and KepLand together owned 72.7 per cent of the Reit.
Mr Tan said that this ‘can’t be helped’. K-Reit had initially decided to go with a convertible bond and unit issue to finance its ORQ purchase. But the plan had to be called off because of weak equity and credit markets. If the issue had gone through, both KepCorp and KepLand would have reduced their stakes, Mr Tan said.
‘Moving forward, if the situation is appropriate, there is nothing to stop them (KepCorp and KepLand) from reducing their stakes, which is the long-term plan,’ Mr Tan said. He is also Keppel Land’s chief executive for Singapore Commercial.
Suntec – DBS
Making hay while the sun shines
Story: We believe Suntec’s depressed share price performance in recent months could be due to concerns about the refinancing of its bridging loan that is due Oct 2008 and is already priced in. Its current yields of 6.2- 6.7% are already higher than industry peers’ 5.3-5.8%. To put things into perspective, funding is unlikely to be a problem given its “Baa1” rating and low gearing, the
S$421m to be refinanced represents only 23% of total debt, and any incremental funding costs would have a marginal impact on total average interest cost and earnings.
Point: More importantly, investors should focus on the strong recurrent income stream from the group’s properties. Positive office rental reversions thanks to the sharp surge in rentals in the past 12 months should underpin earnings growth. There is further room for upward earnings revision when the group rejuvenates Park Mall, including developing two adjoining land parcels it bought recently. With gearing at 31%, funding these activities should not stretch its balance sheet significantly.
Relevance: The investment case for Suntec is its strong organic growth amid a positive office rental reversion cycle as well as attractive FY08F and FY09F yields of 6.2-6.7%. There is also room for earnings expansion as Park Mall has not been factored into our estimates. At the current price, valuations are undemanding vis-à-vis its sector peers. Our price target of S$1.98 is adjusted to reflect higher funding cost for the bridging loan, higher terminal cap rate of
4.5% (vs 4% previously), and dilution from CB conversion. Maintain Buy.
KREIT – UOBKH
Clarity on the rights issue
8-for-5 rights issue at S$1.39/unit. K-REIT Asia has finalised detailed for the proposed renounceable rights issue. The rights ratio is 8-for-5 (equivalent to 16-for-10). The rights units are priced at S$1.39 each, representing 8.3% discount to prevailing market price. Keppel Corporation and sponsor Keppel Land, who own 72.7% of K-REIT in aggregate, have given irrevocable undertaking to take up their respective allocations of rights units.
K-REIT will raise gross proceeds of S$551.7m (higher than S$446.5m based on our previous assumption of 3-for-2 rights issue at S$1.20), which will be utilised to repay bridging loan from Kephinance Investment, a subsidiary of Keppel Corporation. K-REIT will seek refinancing for the balance of bridging loan of S$391.3m due in Sep 08 with long-term debt. We estimate gearing will be reduced from 57.3% to 29.4% after completion of the rights issue. The rights issue will reduce book NAV from S$3.78 to S$2.26 per share.
Benefiting from positive rent reversions. K-REIT is well positioned to ride the upswing in office rentals with 44.5% of net lettable area (NLA) due for expiry and another 21.9% of NLA due for rent review between 2008 and 2010. Occupancy is 100% for Prudential Tower and Bugis Junction Tower and 99.8% for Keppel Towers & GE Tower. Current asking price is S$15 to S$18psf pm for Prudential Tower and beyond S$10psf pm for Bugis Junction Tower, Keppel Towers and GE Tower. Average portfolio gross rental was only S$4.65psf pm (excluding contribution from One Raffles Quay) in 4Q07. There is significant room for positive rental reversion as leases are renewed at higher rental rates.
K-REIT provides FY08 distribution yield of 7.55%, a whopping spread of 5.24% over 10-year Singapore government bond yield at 2.31%. Our target price is S$1.99 based on two-stage dividend discount model with distribution per unit (DPU) diluted for rights issue starting 3Q08.