CapitaCommercial Trust (CCT) is a real-estate investment trust (REIT) which owns 11 properties in Singapore, mainly commercial properties located in downtown core region. Properties include Capital Tower, Six Battery Road, One George Street, etc. CCT has investments in Malaysia too.
CCT is offering 1,403,891,006 Rights Units to eligible unitholders based on the Rights Ratio of one Rights Unit for every one existing unit held. The issue price is S$0.59 per Rights Unit. The gross proceeds from the issue are approximately S$828.3 million.
The valuation of CCT properties as at 22 May 2009 was S$6.029 billion. (a drop of S$871 million from value at 31 March 2009 of S$6.9 billion)
The issue price is at a discount from the following reference prices:
1. discount of 44.3% to closing price per unit on 21 May 2009 of S$1.06 (date before announcement of Rights Issue)
2. discount of 60.9% to net asset value per unit of S$1.51 (based on first quarter 2009 results, valuation of properties as at 22 May, and the effects of the rights issue)
3. discount of 28.5% to the theoretical ex-rights price (TERP) of S$0.825 per unit based on 21 May closing price.
Since the announcement of the rights issue, CCT has traded lower than S$1.06 to S$0.94 on 9 June (date is before trading of “nil-paid” rights). The 44.3% is reduced to 37.2%.
On 12 June, CCT closed at S$0.91 and the CCT’s nil-paid Rights closed at S$0.295. To own 2,000 units of CCT, a new investor needs to pay $$0.91 + S$0.295 +S$0.59 =S$1.795 resulting in S$0.8975 per unit of CCT. The 44.3% discount is now reduced further to 34.2%. Furthermore, S$0.8975 price on 12 June is only slightly better than TERP of S$0.825.
The rationale of the Rights issue is to reduce borrowings of CCT. The Rights issue will reduce Aggregate Leverage1 from 38.3% to 30.7% as at 31 March 2009. This is to strengthen the balance sheet and is a good thing.
1 Aggregate Leverage is ratio of value of borrowings and deferred payments to value of deposited property
If you are already an existing unitholders, would you still subscribe to the Rights Units? I would and the decision will be based on the long term prospects of CCT. Granted that the commercial properties took a beating during this economic downturn, you can decide on your investment horizon. You can wait for the next economic recovery cycle before deciding on disposing these units at a better price. There are risks involved in investing in REITS in this economic environment. One must read these risks in the Offer document before deciding whether the risk commensurate with one’s risk appetite.
Written on 6/13/2009 10:29 AM
Copyright © 2009, the author known as LKT in Singapore.
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