CMT, CCT to raise debt, issue new units
Moves are to fund $2.19b Raffles City purchase which will raise Reits’ DPU
CAPITALAND’S real estate investment trusts (Reits) - CapitaCommercial Trust (CCT) and CapitaMall Trust (CMT) - will both raise debt and issue new units to help pay for the $2.19 billion Raffles City complex.
The complex is owned by Tincel Properties, which is in turn 45 per cent owned by Raffles Holdings. Raffles City was sold to CCT and CMT in March, with CCT to own a 60 per cent stake and CMT to hold the remaining 40 per cent stake.
CMT intends to fund its 40 per cent stake through long-term borrowings and a bridge loan facility. The bridge loan will then be repaid with the proceeds from a proposed issue of new units of between $240 million and $420 million.
Depending on the final combination of funding, CMT’s gearing could range from 37.1-41.1 per cent.
The acquisition is expected to increase CMT’s distribution per unit (DPU) from 11.11 cents to 11.21 cents for the period from Sept 1 to Dec 31, based on an estimated issue price of $2 per new unit. For the financial year ending Dec 31, 2007, DPU projection is 11.43 cents.
CMT’s asset size will also rise from $3.5 billion to $4.3 billion. CMT CEO Pua Sek Guan said it is looking into enhancing the value of the Raffles City complex by rezoning areas like the convention centre into more profitable retail zones.
Taking advantage of its increased size, Mr Pua also said that the Reit will undertake local development projects with CapitaLand in the future. Under the government’s guidelines, Reits can take on development projects which are no more than 10 per cent of its deposited assets.
Mr Pua highlighted that there is a potential upside from rental increases. ‘If you strip away the anchor tenants, the Raffles City rent is not that much higher than rents at suburban malls like Tampines Mall.’ Currently, average monthly rental at Raffles City Mall is $13.80 psf. The office tower commands a rent of between $7-$7.50 psf.
As part of its growth strategy, CMT will also invest up to a 20 per cent stake in CapitaLand’s proposed China Retail Reit. Mr Pua, however, reiterated that it plans to expand its portfolio within Singapore as there are still opportunities here.
CCT, which will acquire a 60 per cent stake in Raffles City, hopes to raise up to $803.2 million by issuing new shares. The Reit also intends to borrow up to $519.8 million. This will raise gearing to 33 per cent.
CapitaLand Group president and CEO Liew Mun Leong said: ‘As a sponsor of CCT, we are pleased to provide a firm commitment to the trust by undertaking to subscribe new units to maintain our existing stake of 37.4 per cent, and we could even increase it to about 46 per cent to demonstrate our confidence in this transaction.’
CCT’s portfolio size will increase from $2.2 billion to $3.6 billion. It is forecasting an increase of 8.6 per cent in its distribution per unit (DPU) to 7.34 cents for the period from Sept 1 to Dec 31 with the acquisition at an estimated issue price of $1.65 per unit. For the year ending Dec 31, 2007, forecast DPU is 7.56 cents.
Alluding to the timing for the issue of new shares in light of current initial public offer (IPO) woes, David Tan, CEO of CCT manager CapitaCommercial Trust Management Ltd said that an IPO is very different from a secondary offer as CCT already has a good track record.
‘We expect the secondary offer to do much better than an IPO,’ he added.
An extraordinary general meeting will be convened on July 13 to seek unitholders’ approval.
Source : Business Times - 27 Jun 2006
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