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FKP Property to raise $232 million to reduce debt

Property and investment group FKP Property (ASX: FKP) has taken the next step towards becoming a focussed owner and manager of retirement villages with the announcement of a 5-for-9 non-renounceable rights issue to raise $232 million.

With the shares closing on Friday at $2.03, the offer, which is priced at $1.30, represents a 36% discount to the closing price and a 52.5% discount to pro-forma net tangible assets. The capital raising is forecast to reduce gearing to 19.3% post-raising and along with planned sales of all other non-retirement assets, which have a book value of $767 million, FKP’s balance sheet is expected to be vastly strengthened in the near future.

FKP’s decision to focus on the retirement sector is appealing given Australia’s aging demographics. FKP has reported that momentum from financial year (FY) 2013 has continued into FY 2014 with retirement unit sales for the first quarter nearly double the previous corresponding period. In response to the retirement sector focus, the company also plans to change its name to Aveo Group — Aveo being the brand name going forward for its retirement villages — at its upcoming Annual General Meeting.

FKP’s decision to conduct a rights issue comes in the wake of Galileo Japan Trust’s (ASX: GJT) decision to undertake an institutional placement, a Eurobond issue and refinancing of a senior loan to recapitalise the heavily indebted property trust last month. It also comes at a time when the listed property sector has been performing particularly well. FKP’s share price is up 39% in three months, while fellow listed property players such as Lend Lease (ASX: LLC) and Abacus Property Group (ASX: ABP) are up 29% and 22% respectively.

Foolish takeaway

FKP’s weak balance sheet has acted as a drag on the company’s performance for some time. With this latest move to strengthen the balance sheet, FKP is on a much sounder footing, making its future look a lot brighter.

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Motley Fool contributor Tim McArthur owns shares in Galileo Japan Trust.

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