The real estate investment trust - part-owner of Wisma Atria and Ngee Ann City - will issue one rights unit for every existing unit held at a price of 35 cents, a hefty 45.3 per cent discount to last Friday's closing price of 64 cents.
The proceeds raised will be used mainly to trim Starhill's existing debts, enhance its portfolio of assets and finance its acquisitions.
'The rights issue will reduce refinancing concerns in a tight credit environment, and enhance Starhill Global Reit's financial flexibility to carry out asset enhancement and seize attractive acquisition opportunities near the trough of the property cycle,' Mr Francis Yeoh, the executive chairman of YTL Pacific Star Reit, the manager of the trust, said in a statement yesterday. Mr Yeoh is also the managing director of YTL.
Up to $236 million in debt obligations will be repaid, effectively lowering gearing from 33.4 per cent to 20.7 per cent. This will put Starhill in a much stronger position to bargain for lower-cost financing, said Mr Franklin Heng, the chief executive of YTL Pacific Star Reit.
The trust had total borrowings of about $670 million as of March 31.
While plans for asset enhancements and acquisitions have not been finalised, Mr Heng said the trust is looking to revitalise some properties 'ahead of the increasingly challenging retail sector along Orchard Road'.
In particular, there are plans to upgrade Wisma Atria's frontage facing Orchard Road 'to retain competitive advantage over incumbent retail properties'.
To better utilise the site area of Wisma Atria, the company is looking to add up to 40,000 sq ft of retail space. It plans to do this by pushing the frontage further out towards Orchard Road, as well as by converting some car park space into retail space.
Mr Heng said the plans outlined were highly feasible and that more details on the development - estimated to cost $100 million - would emerge over the next six months.
Starhill, formerly known as Macquarie Meag Prime Reit, owns 74.23 per cent of Wisma Atria and 27.23 per cent of the adjacent Ngee Ann City.
The trust, which owns about $2 billion worth of retail and office properties in Singapore, China and Japan, is also eyeing acquisitions in the region, given their very attractive valuations.
'With the property cycle at a low, we think it is a very good time to look for acquisitions,' in particular, distressed assets, said Mr Heng.
Australia is one of its targets, and it is looking to acquire existing retail and office space in key cities such as Melbourne, Sydney and Brisbane.
It is also considering purchasing assets in Malaysia and its existing markets.
YTL, which in October paid about $285 million to acquire Macquarie Group's entire interest in the trust, which was then known as Macquarie Meag Prime Reit, has committed to sub-underwrite up to 75 per cent of the total rights issue's size.
Source: Straits Times, 23 June 2009
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