Top Stock Market Highlights of the Week: Keppel DC REIT, CapitaLand Ascott Trust and Elite Commercial REIT

Welcome to this week’s edition of top stock market highlights.

Keppel DC REIT (SGX: AJBU)

Keppel DC REIT issued a letter of demand to its tenant, Guangdong Bluesea Data Development Co (“Bluesea”) concerning the lease agreements for three data centres.

The data centre REIT seeks to recover a total sum in arrears of around S$9.1 million from its tenant.

This amount includes rental arrears of four months and a coupon due on 15 December along with late payment interest and real estate taxes.

Bluesea has also been requested to top up its security deposits of approximately S$6 million.

Earlier, Keppel DC REIT had been in discussions with Bluesea to allow the latter to pay its rental in instalments and for the topping up of its security deposits.

Instalments were received up till October 2023, but the latest payment for November 2023 was not received.

As a result, a breach of the tenancy agreement has occurred and the manager of the REIT has the right to terminate the agreement and seek recourse against Bluesea.

The three data centres made up around 8.5% of Keppel DC REIT’s gross revenue for the third quarter of 2023.

Assuming the rent and coupon cannot be recovered, the manager estimates that there will be a negative distribution per unit (DPU) impact of S$0.00655, which makes up close to 6.4% of the REIT’s 2022 DPU.

CapitaLand Ascott Trust (SGX: HMN)

CapitaLand Ascott Trust, or CLAS, has announced the divestment of three hotels in Osaka, Japan, for a sum of JPY 10.7 billion (approximately S$99.8 million).

The three properties are Hotel WBF Honmachi, Hotel WBF Kitasemba East and Hotel WBF Kitasemba West.

These properties will be sold at a premium of 15% over their book values and the divestment will be completed in the first quarter of 2024.

CLAS will recognise a net gain of around S$10.1 million and receive proceeds of S$36.4 million.

The move is part of the hospitality trust’s portfolio reconstitution strategy that involves the unlocking of the value of properties and redeployment of capital.

Despite the sale, CEO Serena Teo maintains that Japan remains an attractive market for CLAS because of its strong tourism market and steady population growth.

CLAS is also set to complete a turnkey acquisition of a 258-unit rental housing property in Fukuoka in the next quarter.

Following this divestment, the hospitality trust will have a portfolio of 30 properties spanning serviced residences, hotels, rental housing and student accommodation properties in Japan.

Elite Commercial REIT (SGX: MXNU)

Elite Commercial REIT launched a fully underwritten preferential offer to raise gross proceeds of approximately £28 million.

The offer ratio is for 214 preferential offer units for every 1,000 existing units at an issue price of £0.27 per unit.

The good news is that Elite’s sponsors and substantial shareholders have provided irrevocable undertakings to subscribe for up to £24.7 million of preferential offer units.

The money raised will be used to repay debt and strengthen Elite’s balance sheet.

The issue price of £0.27 represents a 10% discount to the volume-weighted average price of £0.30 as of 18 December 2023.

This fundraising exercise was, in part, triggered by the REIT’s recent announcement that it had obtained independent external valuations for its portfolio as of 1 December 2023.

The REIT’s 150 properties were valued at £412.5 million, representing a decline of approximately 9.5% compared with 31 December 2022.

In light of this valuation decline, Elite Commercial REIT’s gearing ratio has jumped to 49.6%, just shy of the Monetary Authority of Singapore’s ceiling of 50%.

With the proceeds from the preferential offer, the manager can lower the REIT’s gearing to 43.5% and open up debt headroom of £58 million to weather any further macroeconomic uncertainties.

The good news is that the REIT has no refinancing requirements until November 2024, so this exercise puts it in a better position to negotiate for more favourable refinancing terms.

A lower gearing also means the REIT will incur less interest expense, leading to an 8.1% increase in distributable income to £14.7 million for the first nine months of 2023.

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Disclosure: Royston Yang owns shares of Keppel DC REIT.

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