Month: August 2009
REITs – CNA
Opportunities for investors in Asian REITs amid rebound
Asian real estate investment trusts (REITs) have bounced back strongly in the first half of 2009, according to a recent analyst report by property consultancy CBRE. Their total market capitalisation rose 14.3 per cent for the period.
Analysts said on Thursday this performance was driven by improving credit conditions, government support for re-financing – especially for Japan REITs (J-REITs) – and successful rights issues as recently seen for Singapore REITs (S-REITs).
Other positive signs include the fact that many large-cap Asian REITs have managed to grow their rental income recently. In Singapore, the latest financial results of several REITs have performed up to or beyond analysts’ expectations.
Frankie Lee, head of property equities, Asia, Henderson Global Investors, said: “REITs have definitely rebounded very strongly, coming out of the issues of refinancing and also the cyclical downturn in the fiscal market. I think going into the second half, there’s still potential upside because some of the REITs are actually quite financially strong now, given some of the recapitalisation that they have done.
“REITs in Japan and also in Australia… can actually outperform further ahead because right now, the valuation is still very favourable. On the other hand, the asset markets have not really recovered as strongly as in other parts of Asia.”
Experts believe that one of the main challenges that will persist for most REITs will be to reduce their financial leverage. CBRE said this is especially so for those which have seen sharp drops in value for their assets, which may lead to potential breach in loan-to-value ratio covenants.
Another challenge is in growing distributions amid the current trend of falling rents. CBRE noted, for instance, that more than three quarters of J-REITs expect to see a drop in distribution dividends for the upcoming reporting period.
While the downturn has hurt many REITs in the region, market watchers said it has also helped investors to filter out the better buys.
Roger Tan, vice president, SIAS Research, said: “In good times, all REITs can raise debts, but it’s the bad time that determines whether the REITs are good or bad. In bad times, only the good REITs are able to repay or refinance their debts.”
Other criteria to consider include the potential of the REIT’s underlying assets and the track record of the REIT manager.
Most experts expect to see further recovery of the Asian REIT market next year, in line with a wider global economic recovery.
But they expect it to be a slow journey, with acquisitions and initial public offering activities unlikely to recover to pre-downturn levels in the near term.
A-REIT – CNA
Moody’s upgrades mainboard-listed Ascendas Reit’s outlook
Credit ratings agency Moody’s has upgraded its outlook on the rating for Singapore mainboard-listed Ascendas Reit.
It has now given the firm an outlook of “stable” rating, up from “negative”.
Moody’s said the upgrade reflects Ascendas Reit’s better credit metrics.
It noted that Ascendas Reit has been making ongoing efforts to improve its capital management, thereby strengthening its balance sheet and enhancing its financial flexibility.
However, Moody’s remains cautious of weaknesses in Ascendas Reit’s operating environment and the new supply of industrial properties coming on-stream, although it said that any weakness will be manageable, given Ascendas Reit’s good quality assets and improved financial workings.
REITs – DBS
Time to be selective
• 2Q09 results in line or at higher end of estimates
• Outlook stabilizing, sector recapitalization largely over
• Focus shifting to acquisition opportunities
• Top picks include CDL HT, ART, FCT, Suntec, MLT
Results generally in line. Sreits continued to put on a good showing in 2Q09, with yoy revenue, NPI and
distribution income growth of 9.2%, 11.7% and 8.2% respectively. On a qoq basis, revenue remained flat while
NPI and distribution income remained in positive territory. The key driver to this set of better results was the ability of retail and office landlords to retain high occupancies despite falling rents as well as better cost management; while hospitality players were able to partially offset a weaker topline with more prudent expense control measures.
Outlook stabilizing. Outlook for retail landlords appear to be stabilizing amid a moderated GDP projection and improving, but still lower yoy, retail sales. FY09 income had been largely secured with only a small quantum of renewals left for the rest of 2009. For office landlords, rentals are expected to be renewed positively in 2009, although negative reversions are expected to start kicking in from 2010 on weak supply/demand fundamentals. Hospitality landlords expect a better 2H09 vs 1H09 with improved forward booking patterns.
Sector has been substantially recapitalized, focus moving to acquisition opportunities. Sreit sector gearing
has declined to 31% with the $3.7b of capital raisings issued YTD. At this point, we believe any further capital raising exercises would be opportunistic or to fund new acquisitions given the current much lower cost of capital. In addition, the credit environment is starting to ease with strong liquidity flows and declining corporate credit spreads. We believe that Sreits that are likely to be better placed to benefit from acquisition growth as driver, would be those with sponsorbacking as well as Sreits in the industrial segment.
Top picks. Sreit sector is currently yielding a weighted average 7.5% on our FY10 estimates and trading at 0.76x P/bk NAV. Within the sector our top picks would be those with near term catalysts such as CDL HT and ART, which are key beneficiaries of the IRs and is projected to experience a recovery in earnings on the back of a better tourism outlook. We continue to favour retail landlords such as FCT for its suburban retail exposure and strong asset injection pipeline as well as Suntec on valuation grounds. Amongst industrial players, we prefer MLT for its higher than average yield of 9.4% and attractive P/NAV multiples.
Fortune – BT
Fortune Reit raising funds to buy HK malls
Debt and rights issue to raise HK$5b; unit price dives on fears of yield dilution
Fortune Reit is raising funds totalling close to HK$5 billion (S$930 million) through debt facilities and a rights issue, joining the spate of S-Reits that have rolled out their re-financing plans.
The bulk of the HK$1.9 billion gross proceeds from rights issue and a term loan of HK$480 million will be used to fund Fortune’s latest acquisitions.
Yesterday, the Reit announced that it was acquiring three suburban retail properties from Hong Kong tycoon Li Ka-shing for HK$2.04 billion.
The three properties are Metro Town and Caribbean Bazaar in New Territories and Hampton Loft in Kowloon, with a combined gross rentable area (GRA) of 318,574 sq ft and an average yield of 5.5 per cent, comparable to the average of above 5 per cent yield for Fortune’s existing assets.
ARA Asset Management (Singapore), the Reit’s manager, said these acquisitions will help expand and diversify Fortune’s portfolio in Hong Kong, enlarge its exposure to the resilient suburban retail space, and provide opportunities for asset enhancement.
‘We think that the worst is over. We do hope we could take advantage of this timing to do acquisitions for Fortune Reit,’ said Justin Chiu, chairman of ARA, in a video conference.
This move will raise its total assets under management from 11 retail malls worth HK$8.9 billion to HK$11 billion.
Gains from this divestment are not significant for Cheung Kong, Mr Chiu added. ARA is an affiliate of Mr Li’s Cheung Kong group.
Some of the other Reits that have turned to rights issues in the recent past include Starhill Global Reit, CapitaMall Trust, CapitaCommercial Trust and Ascendas Reit.
Hong Kong-based ARA chief operating officer Justina Chiu noted that given the scarcity of suburban retail assets up for grabs in Hong Kong, this is a good chance to grow Fortune Reit’s portfolio. Only 5 per cent of suburban shopping centres there are not owned by a Reit or a developer.
Analysts noted that the fall in prices of retail space and rental rates in Hong Kong has presented Fortune Reit with the opportunity to acquire retail properties at lower prices and at better yields.
But positive effects from these transactions will not be immediately visible, said SIAS Research vice-president Roger Tan.
‘Investors will only gain higher dividend yields from this acquisition when rentals start to recover and that would not happen until the global economy recovers – hopefully in 2010.’
The combined impact of the acquisition and the rights issue is yield-dilutive. According to the circular issued to shareholders, the proforma distribution yield will fall from 9 per cent to 7.2 per cent for the fiscal year ended Dec 31, 2008.
Investors dumped units of Fortune Reit yesterday on fears of the dilution, driving its price 10.5 per cent down to HK$3.67 at the closing after it resumed trading in the afternoon.
The properties being acquired are valued at HK$2.073 billion and HK$2.07 billion by independent valuers Knight Frank Petty and Savills Valuation and Professional Services Ltd respectively.
The three properties have an average 95.6 per cent occupancy rate as at June 30, with total FY2008 proforma net property income at HK$103.1 million.
For the rights issue, Cheung Kong has offered an irrevocable undertaking to subscribe for up to 50 per cent of the total size, including its pro-rata entitlement under the rights issue based on its stake of about 31.9 per cent.
The rights issue price of HK$2.29 represents a discount of 44.1 per cent to the last traded price of HK$4.10 per unit on Aug 21. Cazenove & Co (Singapore) and DBS Bank are the joint lead managers and underwriters for the rights issue.
With the recovery of Fortune Reit’s unit price this year from HK$1.99 as at end-2008, ARA chief executive John Lim felt that ‘it is the right time to do rights issue’ at the right price.
The debt facilities that Fortune Reit entered with DBS Bank and Standard Chartered Bank (Hong Kong) comprise three tranches. The term loan of HK$480 million is the first tranche and is due on June 28, 2010.
The second tranche is a HK$2.83 billion term loan facility that will be drawn down starting from June 28, 2010, to refinance an existing term loan of HK$2.35 billion and the HK$480 million term loan.
The third tranche of the loan is a HK$270 million revolving loan facility for corporate funding purposes. The loans bear an interest margin of 2 per cent per annum over the Hong Kong Interbank Offer Rate.
With a term of four years, these loan arrangements effectively defer any refinancing risks till 2013 and the Reit’s aggregate leverage is expected to decrease from 25.7 per cent to 24.9 per cent.
Unitholders will vote on the proposed acquisitions and resolutions relating to the rights issue at an extraordinary general meeting on Sept 11.
IndiaBulls – BT
Indiabulls trust may not proceed with rights issue
INDIABULLS Property Management, which manages the Indiabulls Properties Investment Trust listed here, has clarified that it might not go ahead with a proposed $200 million rights issue.
In a statement, Indiabulls said that it is still in the process of evaluating various sources of funding and other means of capital management for its trust fund, including a rights issue and other borrowing facilities,
In evaluating the sources of funding, the manager will take into account the financial requirements of the fund and the prevalent market conditions to continue to build a solid foundation for long-term success and unitholders’ value maximisation.
Indeed, the trust manager said that it has not formally appointed an investment bank to act as the manager and underwriter of the rights issue or the terms of the rights issue.
Instead, it will make these decisions at a later stage depending on the financial requirements of IPIT and the prevalent market conditions at the material time.
However, it did make a listing application to the stock exchange for new units to be issued under a rights issue.