Month: December 2007
MI-REIT – SGX
APPLICATION FOR THE LISTING OF NEW UNITS
MacarthurCook Investment Managers (Asia) Limited (“MCKIM”), as manager of MacarthurCook Industrial REIT (“MI-REIT”), is pleased to announce that it has today submitted to Singapore Exchange Securities Trading Limited (the “SGX-ST”) an additional listing application in relation to new units of MI-REIT (the “New Units”) to be issued under a proposed equity fund raising by MI-REIT (the “Equity Fund Raising”), together with a draft circular to unitholders of MI-REIT (“Unitholders”) for the purpose of seeking Unitholders’ approval for the Equity Fund Raising (the “Unitholders’ Circular”).
The Manager intends to carry out the Equity Fund Raising in order to part finance the acquisition of certain properties which the Manager is in the process of sourcing as well as to part refinance certain loan facilities drawn down for the purpose of the acquisition of certain properties, with the balance of the proceeds to be utilised for refinancing MI-REIT’s other existing debt obligations and for other general corporate and working capital purposes.
The terms of the Equity Fund Raising, including the manner in which it will be carried out, are in the process of being finalised by the Manager and will be set out in the Unitholders’ Circular. The issue of the Unitholders’ Circular is subject to the approval of the SGX-ST for the Equity Fund Raising. The Manager will announce the receipt of the approval of the SGX-ST for the Equity Fund Raising once this has been received. The Equity Fund Raising is subject to the finalisation of the terms of the Equity Fund Raising as well as market conditions.
MI-REIT – SGX
MacarthurCook Investment Managers (Asia) Limited (“MCKIM Asia”), the Manager of MacarthurCook Industrial REIT (“MI-REIT”), refers to its announcement on 26 November 2007 in relation to the acquisition of a property known as the Asahi Ohmiya Warehouse, located at 1-398-3, 11, 13 Yoshinocho, Kita-ku, Saitama, Japan.
The Manager is pleased to announce that the acquisition was completed today.
Source: SGX
REITs – BT
Reits may well have to go down development path
REAL estate investment trusts listed in Singapore (S-Reits) must look at developing their own assets going forward, instead of just buying from sponsors or third-party vendors.
Right now, most of them are suffering from a double whammy – potential assets are lacking and capital is getting more expensive.
Too many Reits are competing for a fixed number of assets in Singapore. Since the first S-Reit was listed in 2002, the market has grown by leaps and bounds. Currently, there are 20 Reits listed on the Singapore Exchange.
In addition, foreign funds are also snapping up commercial properties, making assets even scarcer. These funds are also eyeing assets identified by developer-sponsored Reits as being in their asset pipelines.
For example, CapitaCommercial Trust (CCT) did not buy CapitaLand’s Temasek Tower and Chevron House. Market watchers said that a third-party buyer’s offered price must have been at a level that was not accretive to CCT. This means that a sponsor’s portfolio is a guaranteed asset pipeline for a Reit only if no third party is willing to offer a higher price – an unlikely scenario in a hot property market.
Compounding the problem is the jittery market, which makes raising funds for acquisitions difficult.
For example, K-Reit Asia recently decided not to proceed with a convertible bond and unit issue to finance its one-third purchase of One Raffles Quay, citing weak equity and credit markets. Parent company Keppel Corp instead provided a revolving loan facility of up to $960 million.
This pushed up the Reit’s gearing to a relatively high 55 per cent – not far from the regulatory cap of 60 per cent – giving K-Reit little room to fund future acquisitions with debt.
Citigroup recently downgraded K-Reit Asia to a ‘sell’ from a ‘buy’, citing stalling acquisition growth. The bank also cut the stock’s target price to $2.17, from $2.87 previously.
‘Acquisitions will be constrained by limited debt headroom of about $100 million,’ the bank said in a research note.
Analysts have identified four other S-Reits – Allco Reit, Mapletree Logistics Trust, Cambridge Industrial Trust and Saizen Reit – as also having relatively high gearing.
Faced with these constraints, many Reits here will sooner or later have to go down the development route.
‘So far, A-Reit is the only Reit that has pursued this route with some success,’ notes OCBC Investment Research. ‘Going forward, with less opportunity for growth, we anticipate to see more S-Reits take on development projects.’
In particular, developers looking to list Reits in 2008 should look at setting up stapled trusts. Right now, there is just one such Reit listed here – CDL Hospitality Trusts, which consists of a hospitality Reit and a business trust, although the business trust is dormant at present.
In a stapled trust in which both parts are functional, investors will get stable returns from the Reit, which could be solely used as a vehicle for holding assets.
The stapled business trust, on the other hand, can take on development jobs and guarantee a pipeline of assets for the Reit. Such a product should prove to be popular with investors, and will also be a fresh and differentiated offering in Singapore’s Reit market.
Shipping Trusts – BT
Shipping trusts to gain higher proilfe
Like Reits, they will shed their low-profile status when investors get a better feel of the asset class, reports
ON THE very night when the Dow shed 294 points after the Fed cut rates, Warren Buffet came forward to comment on the possibility of the much dreaded ‘R’ word that all investors did not wish to hear, particularly during this jolly festive season – recession.
With a possible US recession looming in 2008, yield and defensive plays may possibly be the flavour of the next season. The question then is: What are some examples of local listings that provide investors with a shield from the volatile markets. Today, we take a closer look at a fairly new asset class – shipping trusts.
Concept of a shipping trust
A shipping trust is essentially a hybrid product of an equity and a fixed income asset, providing high dividend yields and accretive growth.
As a business trust, a shipping trust is made up of a legal entity (trustee) which controls and manages assets on behalf of the unit holders that effectively own the assets and receive a regular stream of payouts.
In the case of shipping trusts, the trustee manager buys and leases vessels for a period of time in return for a steady flow of lease payments from the shipping firms (lessees). The lease period is typically between five and 10 years, during which the trust will lock in the fixed charter rates, thereby providing cash flow visibility and stability to investors.
The long-term lease period also means that unit holders of the trust are shielded from the volatility of the highly cyclical shipping industry as ‘these leases will expire on a staggered basis . . . allowing the charters to take advantage of higher charter rates in the future by managing the timing of fixing of charters’, says DBS Vickers’s Jasvinder Sandhu in a recent report.
Not well understood
Despite offering some of the highest yields in the markets today – 9-11 per cent – these shipping trusts have yet to win the hearts of local investors. Indeed, the three locally listed shipping trusts – First Ship Lease (FSLT), Pacific Shipping Trust (PST) and Rickmers Maritime Trust (RMT) – have all been lagging behind the broader market ever since their respective debuts on the SGX between half and one-and-a-half years ago. In fact, all are still trading below its IPO prices to date.
SGX vice-president of listing Tan Suan Hui attributed the lackluster performance of the shipping trusts to investors’ unfamiliarity with the sector at this point in time.
‘Shipping trusts are relatively new investment instruments compared to, say, Reits. As such, it is expected that investors will take some time to learn about their features including their stable dividend yields, potential capital gains through acquisition of assets and the generally tax efficient structures which allow dividends to be distributed to investors free of tax at both the trust and individual investor level,’ she said.
Such a view is supported by a November report published by UOB Kay Hian which has attributed the underperformance of the three shipping trusts to the perception among investors that a portion of their high dividend yields is a return of capital to investors as ships are depreciating assets with a lifespan of 30 years.
The report adds that accretive acquisitions will drive a re-rating of the three shipping trusts soon. UOB Kay Hian has ‘buy’ calls on all of them.
High and stable dividend yields, potential capital gains and generally tax-free structures – both at trust and individual investor’s level. Sounds too good to be true?
Well, there are, of course, a number of risks involved as well. The fundamental risk in the trust is the credit risk of the lessees where the latter may default on payments in the event of sharp economic downturn. However, such a risk can be mitigated on the part of the trustee manager by structuring a diversified portfolio of charterers.
Says FSLT chief executive Philip Clausius in an earlier BT report: ‘The true risk is the creditworthiness or counterparty risk. We invest in various sectors because there is limited correlation between the sectors.’
When asked if he agreed that the growth of shipping trusts may be limited, Mr Clausius says: ‘It is true that the growth of the shipping trusts do not come from the existing portfolios but from acquisitions due to the typically flat long-term fixed lease rate. Therefore, the capital structure of the trust at IPO is critical.’
Citing figures from shipping yield plays in the US, Mr Clausius adds: ‘Shipping yield plays in the US have delivered annual total shareholder returns in excess of 20 per cent as distributions have grown and the yields have compressed.‘
Raising investor awareness
Looking ahead, both Mr Clausius and Ivy Lim, chief financial officer of PST, agree that the local investors’ understanding of shipping trusts is improving even though there is still much room for improvement. Both liken the current situation of the shipping trusts in Singapore to the early stages of Reits in the Singapore market and are optimistic about their prospects.
Says Ms Lim: ‘If we look towards the Reit model, when Reits were introduced in Singapore just five years ago, the yields were in the range of 6.5 to 8 per cent. However, the market has since rewarded Reits with growth stories, pricing them at much lower yields . . . it will only be a matter of time before there is a re-rating of this asset class and we (should) see yield compression.’
For now, an increase in investor awareness and a better understanding of shipping trusts is something that all three are proactively working towards to. Recently, they jointly conducted a seminar with SGX to educate investors on this asset class.
In addition, all three share the view that the possible listing of more shipping trusts on the SGX would be good for the industry as a whole, because it will mean more publicity and analyst coverage in this fairly under-researched industry.
And with more shipping trusts expected to be listed on the SGX soon, as revealed by KPMG executive director Leonard Ong at a maritime conference in September, one thing is for sure: The local shipping trusts will soon say goodbye to its low-profile status as new players add critical mass to this fledging sector – and more joint efforts are taken to raise the average investor’s awareness about this novel asset class.
REITs – BT
Pressure building up in crowded S-Reit sector
Mergers seen as one response to slowing growth as assets, funding get scarce
THE Singapore real estate investment trust (S-Reit) market is expected to face waning investor appetite and a short supply of potential acquisitions next year.
The S-Reit sector could also enter a consolidation phase, triggered by the implementation of a takeover code for Reits, analysts say.
‘Reits are under pressure at the moment,’ said Mark Ebbinghaus, the head of Asian real estate at investment bank UBS. ‘Many Reits have been sold off because of money leaving Asia.’
S-Reits have taken a beating over the past few months as large chunks of capital fled Asia on the back of the US sub-prime crisis. Many Reits are now trading at about 20 per cent below their June or July peaks.
Despite this, the sector will grow, with analysts predicting that at least three to five Reits will be listed in Singapore next year. This compares to five Reits in 2007 and seven in 2006.
Mr Ebbinghaus, for one, expects at least five Reits to go public here next year. The Reits are more likely to come to the market in the second half of 2008 as global financial markets recover, he said.
Others see a smaller number. ‘Going into 2008, we can expect at least a further two to three Reits to come into the market,’ said OCBC Investment Research analyst Wilson Liew.
However, he cautioned that the success of these new Reits is not assured. To do well, the Reits have to offer ‘something new’ to differentiate themselves from the others in a now fairly crowded market space, Mr Liew said.
The S-Reit sector has grown substantially since the first trust – CapitaMall Trust (CMT) – was listed back in 2002. Right now, there are 20 Reits listed on the Singapore Exchange. Their combined market capitalisation is about $27.2 billion.
This compares to 15 S-Reits with a total market capitalisation of $24.4 billion at end-2006.
Right now, most S-Reits are based on properties in Singapore. A few are based on properties in China, India, Indonesia and Japan.
More diversity is needed, market watchers said. ‘A Reit based on properties in Thailand or Vietnam could do well,’ said Mr Ebbinghaus.
The S-Reit sector has to some extent become a victim of its own success, said OCBC’s Mr Liew.
‘The success of early Reits encouraged more players into the market, all hoping to replicate the same growth strategy,’ he said.
This quickly led to an asset squeeze, made worse as other new players – such as private equity and property funds – entered the market. The buying spree mopped up all the quality properties, pushing up valuations while bringing down yields, Mr Liew said.
BT understands that some Reit managers are putting off buying assets from the sponsor companies due to the high capital values of properties, which reduces the yields.
Acquisitions are slowing down as some S-Reits are also having trouble raising funds to buy the properties they want amid poor market conditions.
One theme for 2008 could be merger and acquisition activity in the S-Reit market.
Singapore’s Securities Industry Council (SIC) announced in June this year that it will extend the Singapore Code on Takeovers & Mergers to Reits. Now, anyone who acquires 30 per cent or more of any Reit must make a general offer for the remaining units.
Underperforming Reit managers could also be removed under the code. Guidelines allow for the removal of a Reit manager if at least 50 per cent of unit-holders are present and the majority votes for it.
OCBC Investment Research said that the industrial sector is most likely to see some consolidation. ‘The candidates could be either Mapletree Logistics Trust (MLT) or A-Reit buying and/or merging with Cambridge,’ Mr Liew said.
How well the S-Reit market will do going forward will depend on how quickly global financial markets can recover next year, observers said.
CIMB economist Song Seng Wun noted that Singapore is heading into a turbulent patch in 2008, although the country’s economic engine has never been in a better shape. ‘While we have faith in the domestic drivers, we note that external threats to growth are real and visible,’ he said.
Reits listed here have raised some $4.0 billion this year, compared to $3.2 billion in 2006, according to data compiled by UBS.
With more Reit listings on the table, the amount of capital raised next year could well be higher – provided the S-Reit market comes out of the current turbulence intact.