First Reit announces proposed rights issue at S$0.20 per unit to raise S$158.2m

THE manager of First Real Estate Investment Trust (First Reit) has announced a proposed rights issue to raise gross proceeds of around S$158.2 million, which it said was "critical" for the Reit to meet its debt covenants, and avoid an imminent default of 39.8 per cent of total debt due on March 1 next year.

According to an exchange filing on Monday, the manager is proposing to issue around 791.1 million units, which represents around 98 per cent of the total units in issue as at Dec 23, 2020. The renounceable rights issue will be on a pro rata basis of 98 rights units for every 100 existing units, at an indicative issue price of 20 Singapore cents per rights unit.

The issue price is at a discount of around 50.6 per cent to the closing price of 40.5 cents on Dec 24, and around 44.4 per cent discount to the pro forma net asset value per unit after the completion of the proposed rights issue. It is also approximately 33.3 per cent discount to the theoretical ex-rights price of 30 cents per unit.

"The proposed rights issue is critical for First Reit," the manager said. It noted that First Reit currently faces a "significant refinancing hurdle" with around 80.2 per cent, or about S$395.7 million, of its debt coming due within the next 18 months, with 39.8 per cent, or about S$196.6 million, coming due on March 1 next year.

The manager said the S$158.2 million in gross proceeds, together with up to S$260 million in new bank facilities, which was announced on Dec 24, will allow First Reit to refinance its existing S$400 million secured loan facilities, including the repayment in March.

In support of the proposed rights issue, the manager and OUE Lippo Healthcare have provided irrevocable undertakings to accept, subscribe and pay in full for their respective total provisional allotments of the rights units.

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In the event that the proposed rights issue is not underwritten, OUE Limited has also provided an irrevocable undertaking that it will procure that its wholly-owned subsidiary Clifford Development (CDPL) applies, subscribes and pays in full any excess rights units to the extent that they remain unsubscribed after the satisfaction of all applications for excess rights units.

Should the proposed rights issue be underwritten, OUE will commit to the underwriters to procure that CDPL subscribes and pays in full, the rights units to the extent that they are not successfully subscribed for under the proposed rights issue.

The manager said the viability of the proposed rights issue is dependent on it being able to provide certainty in respect of the valuations and cash flows of First Reit's assets through the proposed restructuring of master lease agreements for the hospitals leased to Lippo Karawaci, announced last month.

First Reit will be convening an extraordinary general meeting on Jan 19 next year where unitholders will be required to approve the resolution in respect of the master lease agreement restructuring.

Unitholders will also need to vote on an ordinary resolution for the proposed waiver by by unitholders other than CDPL and its concert parties of their rights to receive a general offer for their units in First Reit from CDPL.

The manager said the two resolutions are not inter-conditional upon each other. The manager will not launch the proposed rights issue unless the resolution on the master lease agreement restructuring is passed.

If the resolution on the waiver is not passed, the manager said it will not launch the proposed rights issue unless it is able to arrange for the rights issue to be underwritten.

The undertakings by OUE, OUE Lippo Healthcare and the manager are also conditional to the passing of both resolutions.

"If the proposed rights issue does not proceed, First Reit will be faced with a critical need to re-evaluate other funding options to avoid going into financing default," the manager said.

Victor Tan, executive director and chief executive officer of the manager, said the recapitalisation of First Reit through the rights issue and the proposed master lease agreement restructuring will "allow First Reit to emerge from its current challenges and provide the foundations for First Reit to be repositioned and focused on delivering long-term returns for unitholders moving forward."

First Reit units closed at 40.5 Singapore cents on Thursday, down 1.2 per cent or 0.5 cent.