Month: March 2008
A-Reit – SGX
24 March 2008, Singapore – Ascendas-MGM Funds Management Limited (the “Manager”), the manager of Ascendas Real Estate Investment Trust (“A-REIT”) is pleased to announce that A-REIT has signed a put and call option agreement (“Option Agreement”) today to acquire 8 Loyang Way 1, a light industrial property for S$25.0 million from Seow Khim Polythelene Co Pte Ltd (the “Vendor”).
Mr Tan Ser Ping, Chief Executive Officer of the Manager said, “We are pleased to have the opportunity to acquire 8 Loyang Way 1 from Seow Khim Polythelene, a leading manufacturer of consumer plastic products. Being a sale and leaseback transaction, this acquisition will provide us with a stable and predictable income stream and will contribute positively to the DPU for our unitholders. “ The acquisition of the Property will be accretive to A-REIT’s DPU. The annualised pro forma financial effect of the acquisition on the DPU for the financial year ended 31 March
2007 would be an additional 0.03 cents per unit (1).
(1) Assuming that: A-REIT had purchased, held and operated the properties for the whole of the
financial year ended 31 March 2007 (based on 77 properties); the acquisitions were funded using
the optimal gearing level of 40% debt and 60% equity; and in respect of the Properties, the
Manager had elected to receive its base fee 80% in cash and 20% in units and its performance fee entirely in units.
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Suntec – Merrill Lynch
Suntec REIT has completed the issue of convertible bonds to the value of S$250mn to refinance upcoming debt. The bonds will bear an interest rate of 3.25% and a yield to maturity of 4.25%. The bonds are due for expiry in 2013 with a conversion price of S$1.968/share. The proceeds will be used to pay down the S$180mn bridging loan due in April 08 while the balance is intended to be used towards the bridging loan due in Oct 08.
Reduction in fair value estimate
Our FY08 and FY09 net earnings estimates have been reduced (<1%) to account for the marginally increased interest expense (average financing cost at Dec 07 3.13%). We have reduced our DCF derived fair value estimate from S$1.67 to S$1.56 due to dilution when the bonds are converted in 2013.
Debt refinancing in 2008
In addition to the debt refinanced through the convertible bond issuance, Suntec has $490mn of debt due to mature in Oct 08. Of this S$420mn will need to be refinanced (S$70mn paid down from convertible proceeds). Suntec also has short term debts of S$75mn which will need to be refinanced in 2008.
Maintain Neutral
Valuations for the stock remain undemanding however we remain cautious on REITs with sizable near term debt expiry. With no visible catalyst and possible headwinds due to debt renewal we maintain our Neutral rating. Our preferred exposure to the Singapore office market remains CapitaCommercial Trust (CMIAF; B-1-7; S$1.98).
SREIT – JPM
JPM Tips 3 S-REITS To Short Based On “Crash Tests”
JPMorgan tips three Singapore REITS, or S-REITs, to own based on “crash-test” scenarios. “The S-REITs to own have sustainable income streams, relatively conservative asset values and gearing levels at the lower end of the risk spectrum. General risk aversion toward the sector as well as the debt refinancing overhang has created the most obvious valuation anomalies when risk is taken into account,” analysts Christopher Gee and Joy Wang say in report. Expects the market-weighted long portfolio to post 31% total return through end-2008. Says likes A-REIT (A17U.SG) with target price of S$2.93, CapitaMall Trust (C38U.SG) with target price of S$3.67, CapitaCommercial Trust (C61U.SG) with target price of S$2.27; all three rated Overweight. At Thursday’s close, A-REIT ended down 3.9% at S$1.98, CapitaMall +0.3% at S$3.11, CapitaCommercial down 3.6% at S$1.90.
JPM Cuts K-REIT Tgt To S$1.34; Keeps Underweight
JPMorgan cuts K-REIT (K71U.SG) target price to S$1.34 from S$1.52 on prospect of more substantial dilution to equity holders resulting from REIT’s proposed rights issue. Keeps at Underweight. “The key upside risks to our price target for K-REIT could come from an unexpected improvement in the outlook for office property in Singapore, or confidence being restored in real estate capital markets, thus allowing K-REIT to get out of the vicious cycle it is in currently.”
JPM Downgrades CDL Hospitality To Underweight
JPMorgan downgrades CDL Hospitality Trust to Underweight from Overweight, cuts target price to S$1.51 from S$2.55. Cuts follow house running worst-case scenario through valuation models for all S-REITs under coverage. Says S-REITs with highest lease expiries in 2008-09 are most exposed to sudden deterioration in demand conditions if either rental rates or occupancy levels were to drop unexpectedly. Adds, hospitality-oriented S-REITs, such as CDL Hospitality Trust, are most acutely affected in this test.
AllCo – DBS
Re-financing issues laid to rest
Story: Allco REIT (Allco) share price was hit recently by a spate of negative news ranging from a Moody’s ratings downgrade to ‘Ba2’ in view of its high debt expiry and strategic review to a potential fire sale situation given its inability to obtain refinancing. However, Allco has allayed such unfounded fears by securing an in-principal approval for the extension of its S$550m loan facility expiring in July’08 to end Dec’09. In addition, the proposed strategic review raised concerns of a possible dilutive impact on earnings in the near term.
Point: We have previously maintained that re-financing should not pose much of a problem for Allco given its strong asset base of S$2bn, (of which c. 50% is made up of its Singapore properties) but at a higher price of c. 200 bps above its current rates. The group is in the process of divesting its stake in AWPF and is looking to unlock gains from its Central Park in Perth. As such, we have further adjusted FY08 and FY09 DPU to 6.6cts and 6.8cts to reflect the absence of AWPF. A recent re-composition of its board to include a majority of independent directors is a positive signal to investors as a step in the right direction for good corporate governance and should be viewed positively on a operational, asset divestment and future reinvestment standpoint.
Relevance: With re-financing issues put to rest, a re-rating of Allco would hinge on further newsflow with regards to i) the successful execution of its re-investment plans and organic growth strategies to drive DPU growth which will be partially driven by strong rental reversions from Keypoint offsetting the loss of the income from API and distribution income from AWPF, ii) clarity on the positioning of Allco REIT given API and AFG’s restructuring activities. We maintain BUY on Allco with revised TP of S$1.23 based on a 20% discount to its DCF backed price of S$1.54 on the premise of uncertainties arising from the ongoing restructuring activities at its parent level.
AllCo – Nomura
Our view
Allco REIT has successfully refinanced its S$550mn debt due in July 2008. With the market’s misplaced view of refinancing risk and expectations of a “fire sale” of its Australian assets expunged, we see Allco REIT pursuing an orderly review of its portfolio while the market re-focuses on the REIT’s inherent value. STRONG BUY.
Anchor themes
While office supply will remain tight over 2008F, we expect office rents to peak in 1H09F, before seeing cyclical declines of 15.2% in 2010F and 18.0% in 2011F, given increased new office supply.
Strong rental reversions are likely to underpin REIT cashflows. That said, rising concerns over the ability to refinance debt has seen REITs trade below book value. In such an environment, investors need to focus on underlying asset values, with REITs with well-located assets to benefit from rising expectations of M&A activity.