• S$175.4m will be used to fund the development of the hi-tech built-to-suit facility for Singapore Telecommunications (SingTel),
• S$120.6m will be used to fund potential acquisition of income-producing properties and built-to-suit development opportunities in the pipeline, and
• Balance to be used for general corporate and working capital purposes.
The book building process started yesterday and is expected to be completed by 12 Aug 09. Gearing will be reduced from 35.7% to 29.3% after completion of the private placement. There will be an advanced distribution based on distributable income from 1 Jul 09 to the day before the new units are issued.
Improved financial flexibility. A-REIT will redeem Commercial Mortgage Backed Securities (CMBS) of €144.0m (about S$300m) to be completed by 19 Aug 09. The CMBS is secured by the cash flows and mortgages on 17 properties. Fourteen of the 17 properties worth about S$944m will be released from the security. Financial flexibility is enhanced with A-REIT having 30 unencumbered properties worth S$1,868.5m.
Developing built-to-suit facility for SingTel. A-REIT will develop a ninestorey hi-tech industrial building with a gross floor area of 353,600sf at Kim Chuan Road at a cost of S$175.4m. SingTel will lease the completed building for an initial tenure of 20 years with annual rental escalation and an option to renew for another 10 years on expiry. The building is expected to be completed and operational in 2Q10.
We have cut DPU forecast for FY11 by 6.7% to 11.2 cents. We have also factored in contributions from the built-to-suit facility for SingTel starting 1QFY11.
Downgrade to HOLD. Share price has gained 29.4% ytd. Upside is limited after factoring in dilution from the private placement. Our fair price of S$1.81 is based on the dividend discount model (required rate of return: 7.7%; growth: 2.5%).
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