Dijaya gets 8% yield boost from new assets

PETALING JAYA (April 10): Dijaya Corp Bhd is poised to get an income boost after an amalgamation exercise where its major shareholder Tan Sri Danny Tan would inject assets with long-term lease arrangements and a rental yield of at least 8% yearly.

Dijaya said in a statement yesterday, as part of the deal, Tan has irrevocably agreed and covenanted with Dijaya, via a letter of undertaking, to procure the relevant parties to be identified, on or before the completion of the proposed acquisitions, to enter into long-term lease.

The lease would be for three years with an automatic extension of a further two terms of three years each, it added.

Under such lease terms, it said the average annual lease rental investment yield for all the properties will not be less than 8% per annum or aggregate gross rental of RM42.7 million per annum, whichever is higher.

An analyst said this would mean that Dijaya would have sustainable income from these group of properties for the next three to eight years, apart from its Tropicana mall and office development.

"Compared to 6% yield offered by the real estate investment trusts (REIT) and 3% to 4% by other investment properties, a return of 8% is very attractive and favourable for the company. Such a yield would effectively cover the financial interests Dijaya has to pay over the next eight years," said an analyst.

"An 8% yield implies a payback period, before tax, of 12 years. Dijaya will enjoy this yield for up to eight years or two-thirds of the payback period. This deal is structured very positively for the company and minority shareholders", he said.

Dijaya last month proposed an amalgamation exercise where Tan will inject 73 of his privately held assets worth some RM1.1 billion into Dijaya, making it one of the largest property firms in the country by market capitalisation.

This comprises 49 parcels of land totalling 68.32 acres (27.33ha) with a market value of RM720.29 million, as well as 24 parcels of investment properties in 16 locations, with total net lettable area of 807,780 sq ft and a market value of RM385.2 million. For the investment properties, the implied valuation is RM477 per sq ft.

The undeveloped land parcels are located in the Klang Valley, Penang, Negri Sembilan, Johor and Sabah.

With the land injected, Dijaya will have access to several parcels of prime land in the heart of Kuala Lumpur.  

They include 3.26 acres on Jalan Bukit Bintang valued at RM175 million or RM1,232 psf; 1.45 acres on Jalan Kia Peng valued at RM88 million or RM1,393 psf and a 0.9-acre plot along Jalan Tun Razak valued at RM20 million or RM510 psf.   

Other notable land parcels include 25.95 acres on Jalan Tun Razak in Johor Bahru, valued at RM146 million or RM129 psf and 2.09 acres along Penang's Jalan Macalister, valued at RM41.5 million or RM456 psf.  

Dijaya has also proposed a rights issue to facilitate the exercise and separately, an issue of commercial paper/medium-term notes to raise up to RM500 million for capital expenditure and working capital.

Post-injection of the assets, the company will have a market capitalisation exceeding RM1 billion.

Tan, who is group CEO of Dijaya, owns some 67.22% of the company, based on its latest annual report.

The purchase of assets by Dijaya will be satisfied by RM250 million cash and the remainder via an issuance of 10-year 2% coupon Dijaya redeemable convertible unsecured loan stock (RCULS), with a staggered conversion price range of RM1.30 to RM2.50.

To facilitate the exercise, Dijaya has also proposed a rights issuance to raise up to RM441 million. The exercise involves up to 491.3 million new shares at an issue price of RM1.20, together with a one-for-four bonus issue of up to 122.83 million new shares.

Tan and parties related to him will provide Dijaya with undertakings to subsribe for RM250 million in value pursuant to the rights issue.

"With the RCULs being done in staggered basis and at a 2% coupon rate, it won't detriment the company's cash flow," added an analyst.

Astramina Advisory Sdn Bhd, RHB Investment Bank Bhd and AmInvestment Bank Bhd were appointed as the joint-advisers for Dijaya for the proposed amalgamation exercise.