FCOT – BT
FCOT in loan facility extension
IN a move to refinance the debt of Frasers Commercial Trust (FCOT), its trustee British and Malayan Trustees Limited yesterday entered into an agreement with lenders to extend a transferable term loan facility of $500 million for a term of three years.
This extended facility is part of $675 million debts facilities which FCOT’s manager, Frasers Centrepoint Asset Management (Commercial) Ltd, unveiled in June in a recapitalisation move for the real estate investment trust.
DBS Bank, OCBC Bank, Standard Chartered Bank and Commonwealth Bank of Australia, Singapore branch are lead managers for the $500 million facility.
The interest rate for this loan facility is the Singapore swap offer rate plus a margin of 2.65 per cent, excluding upfront fees. It will be secured by Singapore assets, namely KeyPoint, 55 Market Street, China Square Central and Alexandra Technopark.
The loan facility will be used mainly to repay the outstanding amount owed by FCOT on a loan note facility of up to $550 million that had been arranged by Commonwealth Bank of Australia, Singapore branch and CBA Asia Limited. The amount outstanding under the loan note facility is $475 million following the use of proceeds from a recent rights issue.
FCOT had received approval to acquire Alexandra Technopark in July from its sponsor, Frasers Centrepoint Limited (FCL), for $342.5 million. This acquisition will be financed by the issuing of convertible perpetual preferred units (CPPUs), which will entitle FCL to a distribution of 5.5 per cent a year.
FCL will also undertake the master lease for the property for five years, giving FCOT an annual rent guarantee of $22 million.
On Aug 26, Series A CPPUs were issued to FCL Investments Pte Ltd and FCL Trust Holdings (Commercial) Pte Ltd, as nominees of the vendor of Alexandra Technopark.
As at the end of March, FCOT had gross borrowings of $945.5 million, $624.5 million of which would mature in the second half of this year.
In June, FCOT announced its cash call for $214 million in a three-for-one rights issue.
After the completion of the rights issue, the issue of the CPPUs and the refinancing exercise, FCOT will have no debt maturing until 2012.
K-REIT – UOBKH
Office Market: Not Out Of The Woods Yet
Semblance of stability. Management has started to see signs of stability in the office leasing market. The freefall in office rents has abated. Tenants who previously wanted to release space back to K-REIT Asia (K-REIT) have retracted their requests. Management has seen more enquiries since Jun 09. Some of these enquiries have translated into actual commitment in Sep 09. Tenants have also renewed for longer lease terms as they find current office rents attractive. The gap between office rents at Raffles Place and business parks outside the central business district (CBD) has also narrowed. Management expects average rents for Grade A offices to level out at about S$7psf.
A fragile office market. We are not as sanguine. We expect the office market to remain fragile due to the supply of 8.0m sf coming on stream from 2H09 to 2013, representing 11.0% of total office stock. A massive 2.8m sf and 2.6m sf will hit the market in 2010 and 2011 respectively, compared with the average annual take-up of 1.3m sf for the past 10 years. An estimated 87.2% of the known supply is concentrated within the CBD at Raffles Place, Marina Bay, Shenton Way and Tanjong Pagar. Take-up for office space was negative 570,000sf in 1H09. Take-up is likely to remain in negative territory in 2H09 as there is usually a time lag between retrenchment exercises and the release of excess office space. We continue to expect average rents for Grade A offices in Raffles Place to slide further to S$6.00psf by end-10, representing a two-third correction from the last peak of S$17.90psf pm recorded in 3Q08.
Maintain BUY. K-REIT is our only BUY call among office REITs. Our target price for K-REIT is S$1.32, based on a dividend discount model (required rate of return: 8.25%, growth: 2.5%).