K-REIT: Swap agreement.

"Keppel Land, the Singapore- based developer controlled by Keppel Corp., agreed to sell its stake in the first phase of Marina Bay Financial Center (MBFC) to K- REIT Asia for $1.43 billion, as part of a swap agreement...


"Keppel Land will buy two properties, Keppel Towers and GE Tower (KTGE), from K-REIT for $573 million for redevelopment into about 620 premium residences."

Keppel Land sells Marina Bay property stake to K-REIT: Update
Monday, 11 October 2010

© 2010 - The Edge Singapore

What does this mean for K-REIT?

On 24 Sep, in "FCOT, CCT and K-REIT", I mentioned that "K-REIT closed at $1.31 today. NAV as of Jun 10 at $1.47. K-REIT is trading at an 11% discount to NAV. Gearing ratio is at 15.2%.  This is very attractive to me as it gives the REIT plenty of room to leverage up for potential yield accretive purchases. 1Q 2010 DPU at 1.33c.  Annualised DPU should be 5.32c which means a yield of only 4% based on the current price of $1.31.  K-REIT has, arguably, the strongest balance sheet amongst the three office property REITs discussed here.  The low yield might put off investors but its low gearing paves the way for future acquisitions which could bump up its DPU." Well, it has happened.

Some effects of the swap agreement:

1. The aggregate leverage of K-REIT after completion of the MBFC Acquisition and the KTGE Divestment is approximately 39.1%.

2. K-REIT’s weighted average debt maturity profile will be extended to approximately 4 years. In addition, the portfolio’s average borrowing cost will also be reduced from 3.54% to approximately 3.05%.

3. Weighted Average Lease to Expiry (WALE) from 5.7 years as at 30 June 2010 to 7.8 years.

Read announcement here.

The actual DPU forecast following the completion of the transactions will be disclosed in the Unitholder Circular which is not available yet. Will this swap agreement be DPU accretive?  It should be since we are seeing a more than doubling of gearing ratio from 15.2% to 39.1% and a boost to K-REIT’s assets to about $3.4 billion from $2.5 billion.

Jade Technologies: Rights issue.

A friend asked me what do I think of Jade Technologies Holdings Ltd.  Apparently, it is issuing rights and my friend would like to have my take on this.  Frankly, apart from a faint impression that this company was involved in some scandal in the past, I do not know what it does.  So, I dug around for details.

It seems that the company is now investing in the production of titanium dioxide in China.  It has a substantial stake in Daqing XinLong Chemical Company Ltd, a titanium dioxide producer in China. The decision to move in this new direction has transformed Jade from a loss making company to a profitable one as it reported a profit of S$1.6m in its 3QFY2010 (ending June 2010) after experiencing losses in the first two quarters (and indeed for the last 9 years).  It would be interesting to see if it continues to be profitable by end of FY2010 (September 2010).  By all indications, it seems that it would be so.  See slides here.


As a result of its return to profitability, Jade’s Earnings Per Share (EPS) is now 0.02 cents for 3QFY2010, reversing from a loss of 0.10 cents in 3QFY2009. The Group’s Net Asset Value (NAV) per share also improved from 0.31 cents to 0.67 cents over the same corresponding period. Read announcement here.

Jade is currently trading at 1.5c. With a NAV of 0.67c, it is trading at more than twice its NAV. Assuming that its 4Q could turn in similar results as its 3Q (i.e. a net profit of S$1.6 million), it would mean a full year profit of >$2m.  Assuming that in FY2011, the company is able to replicate $1.6 million in profit every quarter, it would have a full year net profit of S$6.4m.  Based on approximately 2.461 billion shares in issue, it has a market capitalisation of S$36.9 million (at a share price of 1.5c) and we would have a forecast PE ratio of 5.77x.

What about the rights issue? The company is proposing 3 rights for every 4 shares owned.  For every 3 rights accepted and paid for, 1 warrant would be given free.  Price of rights at 1c each.  Warrants must be exercised within 2 years at a price of 0.3c each.  This effectively means that the number of shares in issue will double in the near future.  This means a halving of EPS and a doubling of the PE ratio, ceteris paribus.

Rationale of this exercise: The Company is currently exploring certain business expansion opportunities but none of these plans has progressed to a stage where they may be announced. The Company proposes to undertake the Rights Shares and Warrants Issue to raise funds and to strengthen the capital base of the Company for its expansion aspirations.  Read announcement here.

Anyone who is investing in this company and subscribing to the rights must be a firm believer that it could double (in order to keep its PE at the forecast FY2011 level), triple or quadruple its earnings (post rights and warrants) in the near future.