Sustainable and resilient earnings. Contribution from retail properties in Singapore was bolstered by long-term retail master lease structure at Ngee Ann City and doubling of shopper traffic at Wisma Atria basement after the linkway to Orchard MRT station was reopened. Renewed and new office leases for 6,250sf were signed at 28.0% higher than the preceding rates.
Write-down in asset values. Independent valuers had valued SGREIT’s portfolio of investment properties at S$1,954.6m as at 15 Jun 09, a decline of 7.1% from the valuation conducted on 31 Dec 08. The company's gearing has therefore increased from 31.1% to 33.4%. The 1-for-1 rights issue will reduce the gearing to 20.7%, thus providing financial flexibility. However, NAV/share will be reduced by 37% from S$1.27 to S$0.80.
Embarking on campaign for regional expansion. SGREIT intends to pare down its existing debts, pursue acquisitions and embark on asset enhancement initiatives. It is scouting for opportunities to invest in distressed assets in Singapore, Malaysia, China, Japan and Australia, particularly from distressed sellers having difficulties in refinancing debt. In Malaysia, SGREIT could potentially acquire retail assets from Starhill REIT listed on Bursa Malaysia. The company targets an asset size of S$3b within two years.
SGREIT plans to invest S$100m for an asset enhancement initiative at Wisma Atria (plan not finalised yet), which will add 40,000sf of retail space fronting Orchard Road. Reducing debt will also help it to attain a lower cost of borrowing when refinancing S$617m of debt facilities due next year.
Our target price is S$0.52 based on the Dividend Discount Model (required rate of return: 7.7%, terminal growth: 2.0%).
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