Frasers Commercial Trust to cut debt level

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FRASERS Commercial Trust (FCOT) is set to give its business a much-needed boost via a $213.9 million rights issue, the acquisition of a business park building and $675 million of refinancing facilities.

The real estate investment trust (Reit), which has been in the spotlight recently over financing hiccups, will use a 3-for-1 rights issue to address its high gearing and help complete debt refinancing.

FCOT's manager, Frasers Centrepoint Asset Management (Commercial), announced yesterday that the Reit is also acquiring Alexandra Technopark for $342.5 million from a wholly-owned subsidiary of Frasers Centrepoint, Orrick Investments.

The purchase comes with a master lease over the 99-year leasehold park for five years at an annual net rental of $22 million, which works out to a 6.4 per cent yield.

In another move, FCOT said it had secured debt facilities of $675 million to refinance debt maturing this year. FCOT's gearing rose to 58.3 per cent at the end of the first quarter as its property portfolio was hit by a net revaluation deficit.

The company had gross borrowings of $945.5 million, of which $624.5 million is maturing in the second half of the year.

FCOT's highly leveraged capital structure has been a major cause of concern among analysts and investors.

The refinancing facilities, along with a large part of the rights issue proceeds, will be used to repay a significant amount of FCOT's outstanding debt, including all the debt that is maturing this year.

When the refinancing and acquisition are completed, FCOT will not have any debt due until 2012, said the manager's chief executive Low Chee Wah.

And FCOT's gearing will be cut to 38.5 per cent, he added.

FCOT is paying for Alexandra Technopark by issuing convertible perpetual preferred units. These are units which will give a distribution rate of 5.5 per cent per year and FCOT unit holders can subscribe for some of them.

After the non-convertible three-year period, FCOT can choose to redeem the preferred units.

FCOT's rights issue price of 9.5 cents is at a discount of 60.4 per cent to the closing price on Monday. Trading was halted yesterday.

The Alexandra Technopark deal will boost FCOT's asset base to $2 billion and will provide exposure to the business space segment, which is less volatile than the currently weak office sector.

Fraser & Neave's property arm Frasers Centrepoint bought over Allco Commercial Reit last year and dropped earlier plans for the listing of a commercial property trust.

Alexandra Technopark was one of three properties earmarked for that trust.

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