Frasers Centrepoint Trust divest Hektar REIT. Following my previous post Frasers Centrepoint Trust Hektar REIT Diversifies, Frasers Centrepoint Trust has decided to divest all units of Hektar REIT.
Rationale for Divestment of Hektar REIT
As shared in the announcement, the manager share that Frasers Centrepoint Trust’s unitholding in Hektar REIT is non-core to its portfolio and investment strategy. The Divestment enables Frasers Centrepoint Trust to recycle the net proceeds to be deployed for capital management, working capital and/or investments that are consistent with its core suburban retail strategy.
In my opinion, the divestment make senses
- Frasers Centrepoint Trust has a high gearing of 40.2%. After divestment of Changi City Point, the gearing is 37.1%. With the possibility of Hektar REIT asking for more money via placement, Frasers Centrepoint Trust is receptive against this.
- The divestment benefits Frasers Centrepoint Trust as the proceed can be used to pay off debt and lower its gearing.
- Shareholders of Frasers Centrepoint Trust may sell their unit holdings if the manager continues to hold on Hektar REIT given that Hektar REIT diversifies beyond retail. I am not familiar with Malaysian REITs but I am also not confident in Hektar REIT’s investment into schools.
The Proceeds From Frasers Centrepoint Trust Divestment of Hektar REIT
As at 31 August 2023, the book value of Hektar REIT is S$0.29 per Hektar REIT Unit. The divestment consideration payable for the sale of Hektar REIT Units is approximately MYR128.1 million (approximately S$37.4 million), based on the value of MYR0.89 (approximately S$0.26) for each of the Sale Hektar REIT Units.
The sale represents a premium of approximately 48.3% over the Closing Price and a discount of approximately 26.9% to the net asset value per Hektar REIT
Unit of MYR1.217 (approximately S$0.36) as at 30 June 2023. I am not impressed because as you can see from the price chart above, the share price of Hektar REIT has been on the downtrend.
Completion of the Divestment is expected to take place in the fourth quarter of 2023. After taking into account the divestment fee of approximately S$0.2 million payable in cash and other divestment-related expenses of approximately S$0.1 million, the net proceeds from the Divestment would be approximately S$37.1 million.
Impact of the Divestment to DPU
As shared in the announcement, the divestment of Hektar REIT is not expected to have any material impact on the net tangible assets or Distributions Per Unit (DPU) of Frasers Centrepoint Trust and its subsidiaries for the financial year ending 30 September 2023.
Long term wise, it will be dependent on Frasers Centrepoint Trust to grow its Distribution Per Unit (DPU) via their forward strategy instead of relying on non core investments.