OUE Commercial REIT: Following OUECT’s recent proposal to acquire 61-68% of indirect interest in One Raffles Place (ORP), management disclosed its intention to finance the entire acquisition cost related to the proposed acquisition through a combination of debt and equity financing.
The financing structure (31.4% debt, 20.6% rights issue and 47.1% convertible perpetual preference units (CPPU) at 1% distribution) would minimise the dilution impact on DPU. The issuance of CPPUs would minimise the dilution to DPU in FY15-17 to -2.3% to -0.7%. Leverage would increase slightly to 41-42% upon completion of the acquisition. Management highlights that earnings from ORP could improve as it focuses on driving occupancy and raising rental rates going forward.
In view of the better-than-expected funding structure for the ORP acquisition, mainly supported by the sponsor, CIMB upgrades OUECT from HOLD to ADD with higher TP: $0.85 (prev. $0.82), after factor in lower-than-expected dilution to DPU for period FY15-17.
On the other hand, OCBC downgrades its rating to HOLD with TP: $0.84.
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