Month: August 2007
REITs – UOBKH
Mixed Performances In Turbulent Times
Growth was 1H07 theme. For the most part of this year, growth has been the main theme of the real estate investment trust (REIT) sector. The best-performing REITs for 1H07 were high-growth REITs such as CapitaRetail China Trust (CRCT), Capital Mall Trust (CMT) and CDL Hospitality Trust which saw returns in excess of 40%. As the market has turned cautious with the bottoming out of interest rates in April and May, most REITs have fallen from their highs in May and June. The recent correction has resulted in the decline of most REITs.
Boring REITs offer capital protection. In turbulent times, the market’s appetite for risk falls sharply and risk premiums shoot up. The focus then shifts from growth to capital protection and income preservation. Investors should consider boring REITs. Though less exciting, they have the lowest growth premiums built into their stock prices. We look for REITs with low price-to-book values for capital protection and high-yield REITs for income preservation. In addition, we prefer REITs with a greater focus on the Singapore economy given the latter’s safe haven status. ParkwayLife REIT (Parkway) and Macquarie MEAG Prime REIT (MMP) stand out in terms of yields and price-to-book ratios.
Avoiding logistic REITs for the time being. With slower asset appreciation and rental reversion, REITs focusing on the logistics segment rely on acquisitions to drive growth. As risk premiums go up, the increase in cost of capital makes it more expensive to fund new acquisitions on yield-enhancing terms.
Buying opportunities for the brave. The current market turbulence may represent an opportunity to pick up some high-quality REITs at depressed prices. For the bottom-fishing investor, we recommend CapitaCommercial Trust (CCT), K-REIT Asia (K-REIT), CRCT and CMT for their ability to grow organically and via acquisitions. As the market recovers, these higher-quality REITs are likely to be the first to stage a rebound. As seen in the market rebound this week, these REITs had the bigger price appreciation.
MI-REIT – SGX
MACARTHURCOOK INDUSTRIAL REIT EMBARKS ON GROWTH WITH S$91.0 MILLION ACQUISITION OF OFFICE PARK PROPERTY
Singapore, 27 August 2007 – MacarthurCook Investment Managers (Asia) Limited
(“MCKIM Asia”), the Manager of SGX-ST listed MacarthurCook Industrial REIT ( “MIREIT”), is pleased to announce that through HSBC Institutional Trust Services (Singapore) Limited (the “Trustee”), MI-REIT has signed a conditional put and call agreement ( the “Agreement”) to acquire Plot 4A, International Business Park ( “Plot 4A IBP”) from Eurochem Corporation, a member of Tolaram Group ( “Eurochem” or the “Vendor”), for a total consideration of S$91.0 million in a sale and leaseback arrangement.
Under the Agreement, Eurochem will sign a head lease over the entire facility for 10 years with an option to extend for another five years, commencing from the date of completion, which is scheduled for December 2009. Eurochem is a Singapore-based company that operates within the petrochemical sector.
The acquisition of the Property will be accretive to MI-REIT’s distribution per unit (“DPU”) following completion.
Source : SGX
MapleTree – CNA
MapletreeLog acquires 4 Singapore properties for S$36.8m
By Asha Popatlal, Channel NewsAsia | Posted: 26 August 2007 1926 hrs
SINGAPORE: Mapletree Logistics Trust Management Ltd., also known as MapletreeLog, has signed a ‘put and call option’ agreement to acquire four warehouse properties for S$36.8 million.
The properties in Pioneer Road, Neythal Road and Tuas will be leased by two subsidiaries of Union Steel Holdings Limited, a public listed company.
Lease tenure for all the properties is six years, with an option to extend for another six years.
Rents and capital values of industrial property in Singapore have been on the rise, according to CB Richard Ellis’ report of figures for the first quarter of this year.
The average monthly rent for warehouses increased for the first time since 2003.
The acquisition, expected to be funded wholly by debt, is likely to be completed by the fourth quarter of this year.
However, in a statement, MapletreeLog says this does not preclude it from exploring alternative means of funding should the need arise.
REIT News – BT
Reits a safe choice in roily market: Goldman
SINGAPORE’S real estate investment trust (S-Reit) market could be just the place to park your funds while weathering the storm in the equity markets, says Goldman Sachs executive director (Asia-Pacific Investment Research) Leslie Yee.
In a report on S-Reits, Mr Yee said: ‘We reiterate our positive view on S-Reits and recommend investors to buy in the prevailing choppy equity markets.’
S-Reits were sold down recently but Mr Yee believes the market is ‘under-appreciating the defensive qualities and overstating risks’.
Goldman Sachs highlighted four attributes that make Reits ‘defensive’. These are: low gearing, typically about 40 per cent; income payout which is often 100 per cent; secured leases, usually for three years; and limited development risk.
The report said that the current market volatility will affect the near-term ability of Reits to access capital market funding, but Goldman Sachs believes Reits have the necessary debt capacity and expect that equity markets will be willing to fund good acquisitions.
Goldman Sachs S-Reit Index has fallen by 11.8 per cent since July, which is slightly less than the decline in the Singapore property stock index of 15.3 per cent.
It has also lowered its target price for the nine S-Reits it covers by 0.5-10 per cent. Based on revised target prices, these S-Reits offer an upside of 7-37 per cent.
In particular, Goldman Sachs has added CapitaMall Trust to its ‘Conviction Buy’ list. It has upgraded Suntec Reit to ‘Buy’ from ‘Neutral’, and reiterates ‘Buy’ on K-Reit.
Goldman Sachs also likes sponsored Reits. And it does not matter if a Reit does not pay top dollar for a sponsor’s asset. ‘Our analysis on the sale of a completed asset shows the net benefit to a developer is roughly the same from selling to a Reit or from selling to a third party at a price that is nearly 20 per cent more,’ explained Mr Yee.
He said: ‘We see the current market providing a good entry point into Reits’, noting the sector leader’s – CapitaMall Trust – pull-back of 20 per cent from its share price two months ago.
In the near term, it does see cost of funding for acquisitions like the one-third stakes in One Raffles Quay by K-Reit and Suntec-Reit as a major risk.
But in the long term, it sees potential for growth through acquisition and argues that ‘win-wins’ can be created when a developer sponsor sells assets to Reits.
Goldman Sachs launched its Reit coverage in January when it also forecast the nine S-Reits would make $15 billion in acquisitions within a three-year period, boosting portfolio sizes by 75 per cent.
Based on announced acquisitions to date, the nine Reits have made $3.9 billion worth of acquisitions, which is 27 per cent of the target.