K-REIT – BT

K-Reit DPU to fall after rights issue

NAV per unit as at Dec 31, 2008, would also slide, the trust tells unitholders

K-REIT Asia, which last week announced its one-for-one rights issue, has illustrated the dilutive impact of the issue on the trust’s distribution per unit (DPU) as well as net asset value (NAV) per unit in a circular to unitholders issued over the weekend.

The trust is seeking unitholders’ approval for the rights issue at an extraordinary general meeting (EGM) to be held on Oct 21. At the same EGM, K-Reit’s manager will be seeking unitholders’ nod to supplement the trust deed to facilitate equity fund raisings by providing the manager with greater flexibility on issue size of new units and to fix new unit price, among other things.

Following the rights issue, K-Reit’s DPU for financial year ended Dec 31, 2008 and its NAV per unit as at Dec 31, 2008 would slide about 32 per cent.

The trust’s DPU would fall from 8.91 cents (actual) to 6.08 cents (pro forma, post-rights issue) assuming that the trust’s recently announced acquisition of six floors at Prudential Tower was completed on Jan 1, 2008 and that the proposed rights issue was completed and $501 million borrowings repaid on the same date. The trust’s NAV per unit as at Dec 31 last year would fall from the $2.19 actual figure to a pro forma, post-rights issue figure of $1.49. This assumed the Prudential Tower strata acquisition and an asset revaluation of K-Reit’s portfolio as at Sept 29 this year (which shaved 6.3 per cent off the last valuation as at end-December 2008) were completed on Dec 31, 2008 and that the rights issue was completed and the borrowings repaid also on the same date. K-Reit’s manager is proposing to use about $501 million, or about 80.8 per cent of the rights issue gross proceeds, to repay borrowings.

These comprise a $391 million revolving loan facility used to refinance debt incurred to finance the acquisition of K-Reit’s interest in One Raffles Quay which is maturing in March 2011; and a bridging loan of up to $110 million that will be drawn to finance the purchase of the six floors of Prudential Tower and which is expected to mature in January 2010.

In all, K-Reit is proposing to issue about 666.71 million rights units on an underwritten and renounceable basis to unitholders on a basis of one rights unit for every one existing unit held on the books’ closure date, which is scheduled for 5pm, Oct 27, 2009.

The rights proceeds will raise about $620 million in gross proceeds, translating to about $616 million net proceeds. The proposed issue price of 93 cents per rights unit is at a 21.2 per cent discount to Wednesday’s closing price of $1.18 per unit. The trust announced its rights issue on Wednesday night. The counter was last traded at $1.11 on Friday.