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SHARES of Fortune Real Estate Investment Trust (Reit) sank yesterday after it launched a rights issue to raise HK$1.89 billion (S$351 million) to fund acquisitions and service debts.
The Singapore Exchange-listed Reit, which owns 11 retail malls across Hong Kong, is the latest in a string of Reits to fall back on the issuing of new units to raise money.
The cash call was not well received by investors. They bailed out of the stock - causing the Reit's shares to close 43 HK cents down yesterday at HK$3.67 - on the back of the steep discount offered on the new units.
Its manager, ARA Asset Management (Singapore), announced a one-for-one rights issue at HK$2.29 per rights unit - a discount of 44.1 per cent to the last traded price of HK$4.10 per unit last Thursday.
One analyst said that, at first glance, the acquisition appeared unattractive and, coupled with the steep discount of the issue price, he was not surprised at the stock's poor performance yesterday.
The Reit has proposed to acquire three suburban retail properties in Hong Kong - Metro Town, Caribbean Bazaar and Hampton Loft - for HK$2.04 billion from its sponsor Cheung Kong Holdings.
ARA chairman Justin Chiu told reporters yesterday that the acquisitions were designed to expand and diversify Fortune Reit's portfolio in Hong Kong to help boost its income stream.
'We believe the transactions will provide Fortune Reit with a strengthened financial platform for future growth and will enhance overall value to unitholders,' he said.
When the transactions are completed, Fortune Reit's assets under management are expected to increase to HK$11 billion with a total gross rentable area of 2 million square feet.
ARA's chief operating officer, Ms Justina Chiu, said Fortune Reit will have HK$2.1 billion of quality assets unencumbered upon refinancing.
The Reit's trustee, HSBC Institutional Trust Services (Singapore), has entered into an agreement with DBS Bank and Standard Chartered Bank (Hong Kong) to secure debt facilities of up to HK$3.1 billion for four years that mature in 2013.
This is to refinance the existing term loan facility due in June next year and to part-finance the acquisitions.
Fortune's rights issue is backed by Cheung Kong Holdings, which has committed to subscribe to up to 50 per cent of the total issue size.
Fortune is following many other S-Reits down the rights issue route to raise funds.
Earlier in June, Starhill Global Reit, which owns stakes in Wisma Atria and Ngee Ann City in Singapore, raised $337.3 million through its rights issue.
Starhill, together with CapitaMall Trust, CapitaCommercial Trust, Ascendas Reit and Saizen Reit, have raised some $2.5 billion over the recent months.
Industry analysts say it appears S-Reits no longer face so many refinancing problems. Many predicted last year that some Reits could go under as sources of credit dried up, but this has not occurred.
Analyst Jonathan Ng from DMG & Partners Securities noted that the credit market has since improved significantly, with the speed of recovery astonishing many. 'There seems to be more liquidity in the markets now,' added Mr Ng.
Based on the reception received by previous rights issue from Reits, he expects a good take-up for Fortune.
Credit Suisse analyst Tricia Song, however, feels that some refinancing risks will remain as Reits continue to look to roll over debt. There are some, such as Suntec Reit, which still have yet to refinance debts, she pointed out.
'As for share price overhang, there's not so much concern now,' she said.
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