Month: June 2008
SREIT – UOBKH
Risk-reward balance tilted negative as yield curve steepens
Long-term interest rates pulling SIBOR higher. Benchmark 10-year Singapore government bond yield has further increased from 3.3% to 3.61% last week. 3-month SIBOR has remained relatively stable to 1.25% but 6-month, 9-month and 12-month SIBOR have trended marginally higher. 3-month SIBOR is likely to have bottomed and a move towards 1.5% by end-2008 is highly likely.
Crude oil prices continue to climb despite signs of demand attrition. Indonesia has cut fuel subsidies and raised petrol prices from Rp4,500/litre to Rp6,000/litre on 24 May. Malaysia has just raised petrol prices by 41% to RM2.70/litre and diesel prices by 63% to RM2.58/litre on 4 Jun. Similar adjustments are also implemented in Bangladesh, India, Sri Lanka and Taiwan. Current high level of energy prices is starting to curb consumption. Airlines have started to cut frequency of flights. Logically, consumers will also start to moderate consumption. However, crude oil prices continue to climb by 4.5% last Thursday and 8.4% last Friday to end the week at historic high US$138.54/barrel despite signs of demand attrition.
Fighting inflation with higher interest rates. Bank Indonesia has raised 1-month interest rate by 25 basis points to 8.5%. The Philippines central bank has similarly raised overnight rate by 25 basis points to 5.25%. The European Central Bank has also signalled possible hike in interest rate in Jul 08 due to mounting inflationary pressures. Interest rates are on the rise on a worldwide basis, except maybe the US, as central banks combat inflation.
Mounting challenges for Singapore REITs from higher interest rates. MAS has raised CPI inflation forecast to 5-6% in 2008, an upward revision from previous 4.5-5.5%. Although downside risk has heightened in recent months, MAS has maintained Singapore GDP growth forecast of 4-6%. The strong S$ is expected to provides some cushion again inflation.
The steepened yield curve pose challenges for Singapore REITs as it hamper efforts to secure longer-term funding. Investors will be concerned that REITs may face difficulties refinancing short-term borrowings and to grow via acquisitions. We have further adjusted our target prices for Singapore REITs to factor in a higher risk-free rate of 3% vs previous 2.50%. We are using required rate of return of 8.5% for our dividend discount models.
We have cut our target prices for Singapore REITs by another 4% to 6%. We have also downgraded our recommendation for CapitaMall to HOLD as the stock provides upside of only 2.1%.
Ascendas REIT (BUY/S$2.44/Target: S$3.00)
• A-REIT has benefitted from strong demand for suburban office space as Business & Science Park accounted for 25% of its portfolio by property value. Renewal rate for Business & Science Park was S$3.76psf pm in 4QFY08, 68.8% higher on a yoy basis.
• A-REIT had a portfolio of 84 properties and total assets of S$4.2b as at Mar 08. The weighted average lease to expiry is 5.9 years. A-REIT has a well-diversified tenant base of over 790 international and local companies.
Parkway Life REIT (BUY/S$1.21/Target: S$1.52)
• The minimum rent payable by each hospital is set at Consumer Price Index + 1% above rent payable in the preceding year. Assuming CPI is 5.5% in 2007, the minimum rental increase for Gleneagles, Mount Elizabeth and East Shore hospitals is 6.5%.
• Parkway Life REIT will be acquiring two nursing homes Yokohama City and Ibaraki City in Japan for S$34.9m. Nursing home operator ZECS Community Co Ltd will lease back the properties for 15 years with option to extend for an additional five years. The properties provide net operating income yield 6.1% and 6.7% respectively and rental income is indexlinked to inflation with rent reviews every five years.
Suntec – SGX
ISSUE OF 34,500,362 NEW UNITS IN SUNTEC REAL ESTATE INVESTMENT TRUST
The Board of Directors of ARA Trust Management (Suntec) Limited, as manager of Suntec REIT (the “Manager”), wishes to announce that the Manager has today (9 June 2008) issued 34,500,362 units in Suntec REIT (the “New Units”), the first of six instalments of deferred units in part satisfaction of the purchase consideration for Suntec REIT’s initial portfolio of properties.
With this issue of New Units, the total number of units in Suntec REIT (“Units”) in issue is 1,527,998,838. The New Units will commence trading on the Main Board of Singapore Exchange Securities Trading Limited (the “SGX-ST”) at 2.00 p.m. today.
The New Units will be traded under a separate temporary stock counter which will be maintained for the period commencing from today to the last day of “cum-distribution” trading for the current distribution period, which is expected to be in early August 2008. Thereafter, both the New Units and the existing Units will be aggregated and traded under the existing Suntec REIT stock counter on the Main Board of the SGX-ST on the next market day.
The separate temporary stock counter is necessary to differentiate the entitlement of existing Units to the distributable income of Suntec REIT for the period from 1 April 2008 to 30 June 2008 versus the entitlement of the New Units to distributable income of Suntec REIT for the period commencing from today to 30 June 2008, in line with current market practices.
Other than in respect of entitlement to the distributable income of Suntec REIT, the New Units will otherwise rank pari passu in all respects with the existing Units.
Source : SGX
Indiabulls – BT
MUMBAI – Indiabulls Properties Investment Trust said on Friday it had priced its initial public offer of shares in Singapore at $1 (73 US cents) each, the lower end of the indicative price band, to raise $353.5 million (US$259 million).
The real estate investment trust, a unit of Indiabulls Real Estate, India’s fourth-largest developer by market value, had extended the retail portion of the offer by one day to Friday as it was not fully subscribed.
The offer opened on June 2 with an indicative range of $1 to $1.10. The shares are set to list on June 11, a filing to the Singapore Stock Exchange showed, marking the first Reit listing in Singapore since November.
The 353.5 million shares issue is made up of a public offer of 262.5 million shares and an already completed sale of 91 million shares to a firm owned by LN Mittal, the chief executive of Arcelor Mittal, the world’s largest steel maker.
The last two Reits to list in Singapore, Lippo-Mapletree Indonesia Retail on Nov 19 last year and Saizen Reit on Nov 9, tanked on their debuts amid turmoil in global markets.
Deutsche Bank and Merrill Lynch arranged the share sale. The Reit has two Mumbai projects under development carrying a total of 3.4 million square feet of space.
Indiabulls Real Estate shares, which have fallen 43 per cent so far in 2008, rose 4.6 per cent at 424.10 rupees on Friday in a Mumbai market that fell 1.25 per cent. — REUTERS
IndiaBulls – OCBC
Indiabulls Properties Inv
New Indian property trust on SGX. Indiabulls Properties Investment Trust (IPIT) is a business trust focused on office spaces in India. This is the second India-centric trust on SGX after Ascendas India Trust. IPIT is sponsored by Indiabulls Real Estate Ltd, one of India’s largest property developers. As per its public listing on the SGX Mainboard, IPIT is offering 262.5m shares, priced between S$1.00 and S$1.10. At the same time, IPIT is issuing cornerstone1 units and consideration2 units that will partly fund the purchase of the initial portfolio. All in, IPIT will raise S$2592.2m in gross proceeds, based on the S$1.10 price.
Two Mumbai properties. IPIT will use the IPO proceeds to acquire two properties in Mumbai, India – One Indiabulls Centre and Elphinstone Mills – which are slated to be ready by 30 June and end 2008 respectively. The properties are designed for IT and financial firms, and together offer 3.3m square feet of office space. One Indiabulls Centre also features 438,000 sf in retail space and has a residential component as well. The two properties are characterized as Grade A and Knight Frank values them at S$4,368m in total. IPIT will pay S$2559.2m in cash and units.
Large pipeline, no gearing limit. IPIT sees great opportunity in the Indian office market, which is currently seeing 98-99% occupancy levels. Mumbai is said to be the fourth most expensive city in the world in terms of office rents, with Singapore coming in at number nine (CB Richard Ellis). IPIT’s sponsor has granted the trust a Right of First Refusal (ROFR) for five other properties. While structured as a business trust – which has no gearing limit – IPIT says it will limit its gearing to 35% by 31 Mar 2010 (or 60% if it obtains a credit rating). This puts IPIT on equal footing with the S-REITs.
4.7% to 5.1% DPU yield projected for FY09. The trust is projecting an FY09 dividend yield of 5.1% and 4.7% based on the minimum and maximum offering price of S$1.00 and S$1.10 respectively. This yield assumption is based on certain entitlement and subordination agreements. Without those agreements, FY09 yield comes to 2.6% to 2.9%. For FY10, IPIT is projecting a 8.9% to 9.8% yield based on the IPO price range. Ascendas India Trust, its closest comparable, is trading at a 6.5% yield. Meanwhile, the last two REITs to list in Singapore – Lippo Mapletree Indonesia Retail Trust (Indonesia) and Saizen REIT (Japan) – are currently trading at deep discounts to their IPO prices. We do not have a rating on the stock.
1 Cornerstone investor: Wellmark Investments Ltd (91m common units)
2 The consideration units will partly fund the acquisition of the initial portfolio. They comprise of 504.9m common units and 1,498.2m subordinated units (their entitlement to distributions is subordinated to common units for FY09 and FY10).
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Indiabulls – BT
MUMBAI – Indiabulls Properties Investment Trust said on Thursday it had extended the retail portion of its US$284 million initial public offer of shares in Singapore by a day to Friday.
The company, a unit of India’s fourth-largest developer by market value Indiabulls Real Estate, did not give a reason, but a banker involved in the deal said the extension was because the retail component, comprising 5 per cent of the total offering, was not fully subscribed.
The banker, who did not want to be identified, said 1,000 subscribers were required to close the retail portion and had reached 700.
The 353.5 million share sale in an indicated price band of S$1-S$1.10 had opened on June 2.
‘The joint issue managers, financial advisers, book-runners and underwriters have closed the book of orders for the placement tranche,’ the company said in a statement, suggesting the institutional book was covered.
Deutsche Bank and Merrill Lynch are the joint managers of the offering.
The parent Indiabulls has handed over two properties under development in Mumbai with a total of 3.4 million sq ft to the trust, the offer document showed.
Shares in Indiabulls Real Estate, whose market value has halved to US$2.5 billion in 2008, were trading 6.6 per cent lower at 385 rupees in a firm Mumbai. — REUTERS