Author: tfwee
Fortune – BT
Fortune Reit raising funds to buy HK malls
Debt and rights issue to raise HK$5b; unit price dives on fears of yield dilution
Fortune Reit is raising funds totalling close to HK$5 billion (S$930 million) through debt facilities and a rights issue, joining the spate of S-Reits that have rolled out their re-financing plans.
The bulk of the HK$1.9 billion gross proceeds from rights issue and a term loan of HK$480 million will be used to fund Fortune’s latest acquisitions.
Yesterday, the Reit announced that it was acquiring three suburban retail properties from Hong Kong tycoon Li Ka-shing for HK$2.04 billion.
The three properties are Metro Town and Caribbean Bazaar in New Territories and Hampton Loft in Kowloon, with a combined gross rentable area (GRA) of 318,574 sq ft and an average yield of 5.5 per cent, comparable to the average of above 5 per cent yield for Fortune’s existing assets.
ARA Asset Management (Singapore), the Reit’s manager, said these acquisitions will help expand and diversify Fortune’s portfolio in Hong Kong, enlarge its exposure to the resilient suburban retail space, and provide opportunities for asset enhancement.
‘We think that the worst is over. We do hope we could take advantage of this timing to do acquisitions for Fortune Reit,’ said Justin Chiu, chairman of ARA, in a video conference.
This move will raise its total assets under management from 11 retail malls worth HK$8.9 billion to HK$11 billion.
Gains from this divestment are not significant for Cheung Kong, Mr Chiu added. ARA is an affiliate of Mr Li’s Cheung Kong group.
Some of the other Reits that have turned to rights issues in the recent past include Starhill Global Reit, CapitaMall Trust, CapitaCommercial Trust and Ascendas Reit.
Hong Kong-based ARA chief operating officer Justina Chiu noted that given the scarcity of suburban retail assets up for grabs in Hong Kong, this is a good chance to grow Fortune Reit’s portfolio. Only 5 per cent of suburban shopping centres there are not owned by a Reit or a developer.
Analysts noted that the fall in prices of retail space and rental rates in Hong Kong has presented Fortune Reit with the opportunity to acquire retail properties at lower prices and at better yields.
But positive effects from these transactions will not be immediately visible, said SIAS Research vice-president Roger Tan.
‘Investors will only gain higher dividend yields from this acquisition when rentals start to recover and that would not happen until the global economy recovers – hopefully in 2010.’
The combined impact of the acquisition and the rights issue is yield-dilutive. According to the circular issued to shareholders, the proforma distribution yield will fall from 9 per cent to 7.2 per cent for the fiscal year ended Dec 31, 2008.
Investors dumped units of Fortune Reit yesterday on fears of the dilution, driving its price 10.5 per cent down to HK$3.67 at the closing after it resumed trading in the afternoon.
The properties being acquired are valued at HK$2.073 billion and HK$2.07 billion by independent valuers Knight Frank Petty and Savills Valuation and Professional Services Ltd respectively.
The three properties have an average 95.6 per cent occupancy rate as at June 30, with total FY2008 proforma net property income at HK$103.1 million.
For the rights issue, Cheung Kong has offered an irrevocable undertaking to subscribe for up to 50 per cent of the total size, including its pro-rata entitlement under the rights issue based on its stake of about 31.9 per cent.
The rights issue price of HK$2.29 represents a discount of 44.1 per cent to the last traded price of HK$4.10 per unit on Aug 21. Cazenove & Co (Singapore) and DBS Bank are the joint lead managers and underwriters for the rights issue.
With the recovery of Fortune Reit’s unit price this year from HK$1.99 as at end-2008, ARA chief executive John Lim felt that ‘it is the right time to do rights issue’ at the right price.
The debt facilities that Fortune Reit entered with DBS Bank and Standard Chartered Bank (Hong Kong) comprise three tranches. The term loan of HK$480 million is the first tranche and is due on June 28, 2010.
The second tranche is a HK$2.83 billion term loan facility that will be drawn down starting from June 28, 2010, to refinance an existing term loan of HK$2.35 billion and the HK$480 million term loan.
The third tranche of the loan is a HK$270 million revolving loan facility for corporate funding purposes. The loans bear an interest margin of 2 per cent per annum over the Hong Kong Interbank Offer Rate.
With a term of four years, these loan arrangements effectively defer any refinancing risks till 2013 and the Reit’s aggregate leverage is expected to decrease from 25.7 per cent to 24.9 per cent.
Unitholders will vote on the proposed acquisitions and resolutions relating to the rights issue at an extraordinary general meeting on Sept 11.
IndiaBulls – BT
Indiabulls trust may not proceed with rights issue
INDIABULLS Property Management, which manages the Indiabulls Properties Investment Trust listed here, has clarified that it might not go ahead with a proposed $200 million rights issue.
In a statement, Indiabulls said that it is still in the process of evaluating various sources of funding and other means of capital management for its trust fund, including a rights issue and other borrowing facilities,
In evaluating the sources of funding, the manager will take into account the financial requirements of the fund and the prevalent market conditions to continue to build a solid foundation for long-term success and unitholders’ value maximisation.
Indeed, the trust manager said that it has not formally appointed an investment bank to act as the manager and underwriter of the rights issue or the terms of the rights issue.
Instead, it will make these decisions at a later stage depending on the financial requirements of IPIT and the prevalent market conditions at the material time.
However, it did make a listing application to the stock exchange for new units to be issued under a rights issue.
Fortune – CNA
Fortune REIT launching S$352.6 million rights issue
Mainboard-listed Fortune REIT is launching a HK$1.9 billion or about S$352.6 million rights issue to expand its operations.
The REIT will issue about 825 million units in the one-for-one rights offer.
The price of HK$2.29 per unit represents a 44 per cent discount to the last traded price of HK$4.10 per unit.
Fortune REIT said about HK$1.6 billion of the total amount raised will be used to buy three suburban retail properties – Metro Town, Caribbean Bazaar and Hampton Loft. The rest of the money will go towards enhancing its 11 existing malls.
The REIT has also secured debt facilities of up to HK$3.1 billion to refinance an existing facility due in June 2010.
It is bullish about the prospects for its proposed acquisitions.
Justin Chiu, chairman of ARA Asset Management, the Manager of Fortune REIT, said: “They are all part of a major residential development which fits right into the investment criteria for the Fortune REIT portfolio and we find that the existing yield is good at slightly more than five per cent.
“So we think it would bring in very solid income in the long-term interest of our investors. The income is very stable and steady and the quality of tenants is very good. So we are not concerned about the so called asset bubble in Hong Kong or Singapore.” – CNA/vm
Rickmers – BT
Rickmers confounds investors on DPU
THE difference between distributable income and distribution per unit (DPU) became sharply obvious to investors when Rickmers Maritime Trust (RMT) became the last of the three SGX-listed shipping trusts to release second-quarter results at the end of last week.
RMT said back in May that it expected to see an increase in distributable income in Q2 due to the delivery of new vessels. It delivered on that, posting a 42 per cent rise in distributable income to US$19.6 million. Charter revenue and cash flow from operating activities both rose 59 per cent and 56 per cent respectively to US$37.6 million and US$28.7 million from the second quarter the year before.
However, the rub lies in the actual returns to unitholders in the form of distribution per unit – DPU plunged 73 per cent to just 0.6 of a US cent. Like the other two trusts reporting before it, RMT cited conserving cash as a reason for the cut. It also chose to use the results briefing to highlight some major challenges facing the trust’s management, while declining to give a DPU forecast for the coming quarters. In the process, RMT has positioned itself as the shipping trust with the most negative outlook.
Investors naturally reacted negatively on Monday, selling down the trust, which lost over 20 per cent to close at 46.5 cents from 58.5 cents on Friday.
To be fair, the issues that management flagged are not new. The refinancing of RMT’s US$130 million top-up loan facility maturing in April 2010 and unsecured funding for its four 13,100 TEU ships, due for delivery in the latter part of 2010 have been hanging over it for most of the year, as has the question of value-to-loan (VTL) covenants and the need to negotiate a waiver on them.
Analysts have also turned bearish on RMT. Maintaining its ‘sell’ call on RMT, Citigroup’s Rigan Wong said DPU was lower than consensus expectations of 1.5 US cents and went on to add that: ‘We believe RMT’s share price may de-rate, given the low Q209 DPU payout and lack of dividend guidance.’
The question that needs to be asked is why did they choose to reiterate them at this particular juncture. One answer might be that the prognosis has gotten worse and management feels investors should be further warned of the risks. ‘PwC highlighted the ‘existence of a material uncertainty that may cast significant doubt on the group’s ability to continue as a going concern’, noting that RMT’s US$130 million loan maturing in April 2010 has yet to be refinanced and that it is also in talks with banks on its VTL covenants,’ said Mr Wong.
The other possibility is that in depressing the unit price, it helps make the yield look a little better. The 5.9 per cent annualised yield at last Friday’s closing is far below the average 15 per cent yields the other two are producing, but with yesterday’s closing price of 45 cents, it goes up to 7.7 per cent. As the unit price drops, the yield picture might start to look better going forward because, barring some pretty drastic restructuring moves, the future looks very grim indeed for RMT. Barring questions of whether one buys business trusts for capital gains or dividend yields, this may well be the only bright spot ahead.
Rickmers – DBS
That sinking feeling
• 2Q09 DPU cut to 0.60UScts from 2.14UScts earlier – however usage of cash retained not specified.
• No indicative timeline yet on talks with bankers over bullet loan roll-over or covenant waivers
• Unfunded capex woes also persist; downgrade to SELL – target price reduced to S$0.40
DPU cut overshadows healthy operations. While we had highlighted the possibility of more DPU cuts from RMT in our earlier note, the quantum of the DPU cut – by 72% from 2.14UScts in 1Q09 to 0.60UScts in 2Q09 – took us by surprise. As did the fact that management did not provide any concrete guidance on the usage of the cash retained. Distributable income, however, surged 18% q-o-q to US$19.9m, riding on a 15% increase in revenue to US$37.5m. Net profit of US$5.2m was affected by US$7.5m provision on the Maersk Djibouti, which is up for redelivery in Feb-2010 and is currently lying idle.
String of woes still pending resolution. Like other shipping trusts, RMT is currently negotiating a waiver on its loan-to-value covenants. However, unlike peer FSLT (BUY, TP S$0.71), no indicative timeline for conclusion of talks has been provided. The more pressing worry for investors, though, is the refinancing of its US$130m bullet loan due in April’10 – which has been highlighted by the Trust’s auditors as a risk to its going concern assumptions.
Cash retention – how much is enough? While the Trust has resolved some immediate cash flow problems by deferring up to US$20m deposit payments due in 2H09 for the vessels on order, we believe it may even have to suspend distributions over a few quarters to resolve its refinancing woes – similar to what US-listed peer Danaos Corp has done since early’09. We believe this DPU cut and the perceived lack of clarity on negotiations with various stakeholders should weigh heavy on investors’ minds and downgrade the stock to SELL at a reduced TP of S$0.40 (FY09-10 DPU estimates cut by 54-60%). Downward pressure on share price will also make equity fundraising (which is inevitable if it honours its order commitments) more difficult.