CitySpring – Lim and Tan

• The proposed 11-for-20 rights issue at 39 cents each should be welcomed by investors, even though there could be some disappointment it is not to be privatized :

a. it removes a major overhang which has been bothering investors since the downgrade warning by S&P last November;

b. without this capital raising, CitySpring would be in no position to maintain its distribution, which has been kept at 4.2 cents a unit (or 3.28 cents on pro-forma basis);

c. management has given an undertaking there will not be need to raise further equity down the road (except in the event of CitySpring making yield accretive acquisitions);

d. Temasek, which owns 27.8%, has undertaken to take up to 85% of the new units, with the remaining 15% to be underwritten by DBS, Goldman Sachs.;

e. the $204.8 mln net proceeds will be used to reduce high-cost borrowings; and perhaps more importantly,

f. it better places CitySpring to “pursue organic and inorganic acquisitions and investment opportunities”.

• The subscription price represents a 19% discount to the theoretical ex-rights price of 48.35 cents (53.5×20+39×11/31).

• Temasek has obtained whitewash waiver in the event it ends up having to take up 85% of the rights units, which would raise its stake to 48.1%, and which would have triggered a mandatory general offer.

• We are maintaining BUY on 6.8% pro-forma yield now that major uncertainties have been removed.