First Reit plunges 34.6% after announcing proposed rights issue

Singapore

UNITS of First Real Estate Investment Trust (First Reit) sank on Monday after its manager proposed a rights issue with an indicative issue price of 20 Singapore cents per unit.

The counter closed on Monday at 26.5 cents, down 34.6 per cent or 14 cents from the previous close on Dec 24.

Around 41.8 million units worth S$12.7 million changed hands on Monday, more than 17 times the daily volume of 2.4 million units traded on average in this quarter.

In an exchange filing on Monday morning, First Reit's manager proposed the renounceable rights issue to raise gross proceeds of around S$158.2 million, which it said was "critical" for the Reit to meet its debt covenants, and "avoid an imminent default" of 39.8 per cent of total debt, or about S$196.6 million, due on March 1 next year.

It is proposing to issue some 791.1 million units, representing 98 per cent of the total units in issue as at Dec 23, on a pro rata basis of 98 rights units for every 100 existing units.

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The issue price of 20 cents apiece is at a 50.6 per cent discount to the closing price of 40.5 cents on Dec 24, and a 33.3 per cent discount to the theoretical ex-rights price of 30 cents, based on the closing price on Dec 24.

The manager said First Reit currently faces a "significant refinancing hurdle" with around 80.2 per cent, or about S$395.7 million, of its debt coming due within the next 18 months, including the S$196.6 million coming due in March next year.

The manager said the S$158.2 million in gross proceeds, together with up to S$260 million in new bank facilities, which was announced on Dec 24, will allow First Reit to refinance its existing S$400 million secured loan facilities, including the repayment in March.

In support of the proposed rights issue, the manager and OUE Lippo Healthcare have provided irrevocable undertakings to take up their respective total provisional allotments of the rights units. They have a combined interest of around 19.7 per cent of the total units in issue as at Dec 24.

The manager is 40 per cent owned by OUE Lippo Healthcare and 60 per cent owned by OUE Limited.

In the event that the proposed rights issue is not underwritten, OUE Limited has also provided an irrevocable undertaking that it will procure that its wholly-owned subsidiary Clifford Development (CDPL) applies, subscribes and pays in full any excess rights units to the extent that they remain unsubscribed after the satisfaction of all applications for excess rights units.

Should the proposed rights issue be underwritten, OUE will commit to the underwriters to procure that CDPL subscribes and pays in full, the rights units to the extent that they are not successfully subscribed for.

The manager said the viability of the proposed rights issue is dependent on it being able to provide certainty in respect of the valuations and cash flows of First Reit's assets through the proposed restructuring of master lease agreements for the hospitals leased to Lippo Karawaci, announced last month.

First Reit will be convening an extraordinary general meeting on Jan 19 next year where unitholders will be required to approve the resolution in respect of the master lease agreement restructuring.

Unitholders will also need to vote on an ordinary resolution for the proposed waiver by unitholders other than CDPL and its concert parties of their rights to receive a general offer for their units in First Reit from CDPL.

The manager said the two resolutions are not inter-conditional upon each other. The manager will not launch the proposed rights issue unless the resolution on the master lease agreement restructuring is passed.

If the resolution on the waiver is not passed, the manager said it will not launch the proposed rights issue unless it is able to arrange for the rights issue to be underwritten.

The undertakings by OUE, OUE Lippo Healthcare and the manager are also conditional to the passing of both resolutions.

"If the proposed rights issue does not proceed, First Reit will be faced with a critical need to re-evaluate other funding options to avoid going into financing default," the manager said.

Victor Tan, executive director and chief executive officer of the manager, said the recapitalisation of First Reit through the rights issue, and the proposed master lease agreement restructuring will "allow First Reit to emerge from its current challenges and provide the foundations for First Reit to be repositioned and focused on delivering long-term returns for unitholders moving forward".