Month: December 2009
REITs – BT
Acquisitions back on radars of Singapore Reits
SINGAPORE real estate investment trusts (Reits) are poised to take advantage of lower commercial property prices to grow portfolios and boost dividends to shareholders, after spending over a year on the sidelines.
Singapore Reits, which own about US$34 billion of properties across Asia, have come through the financial crisis better than counterparts elsewhere and are well capitalised to weather potential risks from a shaky global economic recovery.
‘Reits offer good value for investors at current prices,’ said Roger Tan, vice president at SIAS Research, adding yields were attractive at double the levels seen during the property boom of 2007.
Singapore Reits currently give investors yields averaging 7.3 per cent compared with 2.5 per cent for 10-year Singapore government bonds and 3.5 per cent for 10-year US Treasuries.
Its Reit index has doubled since hitting a low in March this year, marginally outperforming a 92 per cent rise in the benchmark Straits Times Index, though still one-third off its all-time high in early 2008.
While residential property prices in Singapore have rebounded to their pre-crisis peaks, the recovery in commercial property has lagged and so is now ripe for a pick-up in activity and prices.
‘With the improved operating environment and easing credit conditions, the focus of Reit managers, regardless of asset class, has now shifted to making accretive acquisitions,’ Ascott Residence Trust CEO Chong Kee Hiong told Reuters.
For instance, Parkway Life Reit last month bought eight Japanese nursing homes for $78 million or at a net yield of 8.3 per cent, while its yen borrowing cost was 3.22 per cent, CEO Yong Yean Chau told Reuters.
‘Acquisitions will be a key driver for Reits heading into 2010,’ said BNP Paribas analyst Sandeep Mathew, who has an ‘overweight’ recommendation on Singapore’s Reit sector and ‘buy’ recommendations on Ascott, CDL Hospitality and CapitaMall Trust.
However, some analysts, including CIMB and OCBC Securities, are less upbeat on Reits, warning gains from acquisitions could be offset by the still uncertain global economy. Rentals for offices and factories are still soft and could face renewed pressure if a double-dip recession takes hold in the West.
While Asia’s Reit sector was hammered during the financial crisis when property values plunged and some banks and bondholders refused to roll over existing debt, Singapore’s Reit sector, the region’s third largest, refinanced about $5 billion of debt maturing in 2009.
Frankie Lee, who manages US$950 million of property stocks including Reits as co-head of Asia property equities at Henderson Global Investors, said he preferred Singapore Reits to their regional counterparts as they tend to be better managed and more diversified.
Investor demand for financial instruments that pay higher returns than the miserly interest rates currently given by bank deposits is likely to drive interest in the sector and enable Reits to raise new capital for acquisitions.
Sutha Kandiah, joint head of equity capital markets for Asia at UBS, said there are several Reits listings in the pipeline, although he declined to name the firms.
ARA Asset Management and Qatar’s Regency Group said on Monday they plan to launch the first Reit in Singapore that will comply with Islamic principles in the second half of next year.
Other IPOs in the pipeline include a commercial Reit from Temasek-owned Mapletree Investments that will include Singapore’s largest shopping mall Vivocity. — Reuters
Suntec – CIMB
Private placement to pare down debt
Private placement to raise gross proceeds of S$153m
Maintain Outperform; target price down to S$1.51 (from S$1.59). Suntec REIT completed a private placement of 128.5m units on 11 Dec that was fully subscribed at an issue price of S$1.19/unit. Gross proceeds of S$153m would be chiefly used to pare down debt, lowering its gearing to 31.5% from 34.3%. Our FY10-11 DPU estimates have been diluted by 5% and our DDM target price lowered in tandem to
S$1.51 (from S$1.59) with an intact discount rate of 8.1%. We are positive on this placement in the context of the manager’s overall capital management which minimises dilution for unitholders. We continue to like Suntec REIT for its retail catalysts in 2010 and relative attractiveness (0.64x P/BV and forward yields of 7.3%) vs. its closest peer CCT (0.79x P/BV and yields of 5.6%).
Leverage down to 31.5% (-2.8% pts). Gross proceeds of S$152.9m will be primarily used to pare down debt which totalled some S$1.9bn as at 30 Sep 09. Suntec REIT’s reported gearing of 34.3% would fall to 31.5% after the private placement.
6.5% discount in issue price moderately in line with AREIT and MLT. The issue price represents a discount of 6.5% to the volume-weighted average price of S$1.2724 per unit for trades done on 10 Dec 09. The discount is broadly in line with those given in the last two private placements by AREIT (7.8%) and MLT (5.6%).
Advance distribution for existing unitholders. Existing unitholders (including deferred units issued on 9 Dec 09 as part satisfaction of the purchase consideration for Suntec REIT’s IPO portfolio of properties) will be entitled to receive an advance distribution income for the period 1 Oct-21 Dec 09 (i.e. to the day immediately before the private placement units were issued). New unitholders will only receive distribution income from the date of listing on 22 Dec 09.
Valuation and recommendation
FY10-11 DPU down 5%. After adjusting for dilution from a higher number of units and reduced interest expense, our FY10 DPU estimate decreases by 5% to 9.3cts (from 9.9cts). Our DDM target price has been lowered in tandem to S$1.51 (from S$1.59) with an intact discount rate of 8.1%.
Positive in context of capital management. Although there would be no acquisition in relation to this equity-raising, we remain positive on this placement in the context of the manager’s overall capital management. Debt expiry in Dec 09 will be chunky at S$700m. However, as early as April this year, the manager had already secured an S$825m term loan to refinance the debt, avoiding alternative dilutive rights issuances. The small quantum of the units issued at the current stronger unit price results in much smaller dilution.
FY10 yields of 7.3% still attractive vs. CCT (5.6%). Despite the dilution, Suntec REIT remains our top pick for the sector in anticipation of catalysts from an increased population catchment from two new MRT stations at Suntec City, and direct linkage to the Marina Bay integrated resort by 1H10. Valuations are not demanding at 0.64x P/BV and forward yields of 7.3% vs. its closest peer CCT’s 0.79x P/BV and yields of
5.6%.
REIT – BT
Syariah compliant Reit on its way here
Reit is targeted for listing around the second half of next year
ARA Asset Management has partnered a Qatar- based property group to list a Syariah compliant real estate investment trust (Reit) in Singapore – possibly the first for the country.
The Reit – targeted for listing around the second half of next year – could hold some $1 billion worth of properties largely from the hospitality sector in Qatar.
ARA, an affiliate of Li Ka-shing’s Cheung Kong group, said yesterday that it inked a memorandum of understanding with Regency Group chairman and founder Ibrahim H Al-Asmakh to jointly manage the Reit.
Regency is a real estate developer and investor with a portfolio of hospitality, residential, commercial and retail properties in Qatar. It will sponsor the Reit and inject mainly hospitality assets – including hotels and service apartments – into the trust. Total gross floor area in the initial portfolio could come up to around 164,000 square metres.
ARA group CEO John Lim told BT that Regency will maintain a stake of around 30-40 per cent in the Reit, with the balance to be floated on the market. The eventual amount to be raised would depend on market conditions.
The partners chose to list the Reit in Singapore because of the large and deep Reit market here, Mr Lim said. Singapore also has ‘the most established guidelines in the region’, while the Middle East has yet to draw up a code for Reits, he added.
Mr Lim is positive on Qatar’s potential. As a member of the Gulf Cooperation Council, Qatar is the world’s largest exporter of liquefied natural gas and third largest holder of natural gas reserves.
Dubai’s recent debt woes have introduced doubts to the region’s stability but Mr Lim believes that Qatar may benefit. ‘Given the Dubai situation, we sense that there is an opportunity, that in fact a lot of expatriates are actually moving from Dubai to Doha.’ Doha is the capital of Qatar.
CB Richard Ellis Middle East managing director Nicholas Maclean also told Reuters: ‘Qatar sees an opportunity to take some of the market share from Dubai’.
He noted that Qatar has been building offices and hotels to draw firms building a presence in the Middle East.
According to CIMB analyst Janice Ding, the Syariah compliant Reit could see fairly good interest from investors in the Middle East and Malaysia because there are few such investment vehicles around.
But she added that some investors might also be more cautious because they are less familiar with the property market in Qatar.
ARA gained one cent yesterday to close at 87 cents. According to Mr Lim, the real estate fund manager will continue to build on its Syariah compliant product offerings.
Suntec – Phillip
Long-Awaited Placement
Suntec REIT announced that it has placed out 128.5 million new units at an issue price of $1.19 per unit to raise gross proceeds of $152.9 million in a private placement.
The placement units are priced at a discount of 6.5% to the volume weighted average price of $1.27 on 10 Dec 2009. The REIT manager intends to use the net proceeds of approximately $149.0 million to repay debt, bringing down total debt from $1.88 billion to $1.73 billion. Gearing will improve from 34.3% to 31.5%. The new units represent 7.7% of the total units. The new units are expected to commence trading on 22 Dec 2009.
We feel that the fund raising was long overdue, considering that most REITs have completed their recapitalization in the past few quarters. Furthermore the year-end portfolio revaluation might see a downward revaluation to Suntec’s asset and so the fund raising provides some degree of buffer. In the current credit environment, most REIT managers prefer to keep gearing below the 35% level as it allows them the flexibility to gear up if there is any acquisition opportunity.
Management has guided a distribution for the period of 1Oct – 21 Dec 2009 of approximately 2.44 to 2.54 cents per unit. Together with the distribution for the prior 3 quarters, total distribution for the year is at least 11.26 cents, which has exceeded our original forecast of 10.56 cents. In view of the year-end, we rolled forward our projections to FY10F. We have a DPU forecast for FY10F of 8.46 cents, which is
lower than FY09F mainly due to the additional units from the placement as well as the issue of the last two installments of the deferred payment units (69 million units). Our fair value is raised slightly from $1.13 to $1.14 and we keep our Hold recommendation.
Suntec – BT
Suntec Reit raises $149m from placement
Aggregate leverage cut to 33.4% if all proceeds go towards debt repayment
SUNTEC Real Estate Investment Trust (Suntec Reit) yesterday raised net proceeds of about $149 million from a private placement to reduce debt, joining a host of other Reits that have made cash calls this year.
Suntec Reit called for a trading halt in the morning to announce the launch of the private placement. The Reit manager said that book-building closed within three hours. Suntec Reit managed to place out 128.5 million new units at $1.19 apiece.
The issue price was a 6.5 per cent discount to the volume weighted average price of $1.2724 per unit, based on trades done on Thursday. The new units represent around 7.7 per cent of the number of units in issue on Thursday.
According to Suntec Reit, the private placement was more than five times oversubscribed by existing unitholders and new investors. More than 60 institutional investors bagged the new units.
Assuming that all net proceeds go towards debt repayment, its aggregate leverage is expected to fall from 36.2 per cent at Sept 30 to 33.4 per cent.
Presentation slides on the Reit’s third-quarter 2009 results show that it had total debt of $1.877 billion at Sept 30. No debt will mature in FY2010, but around $532.5 million will be due in FY2011.
‘The proceeds from the private placement will strengthen Suntec Reit’s balance sheet and put us in a stronger position to take advantage of growth opportunities,’ said Yeo See Kiat, chief executive of Reit manager ARA Trust Management (Suntec).
In a report on Wednesday, OCBC Investment Research flagged a potential dilution risk in the counter. ‘With declining office income and book value risk, Suntec could decide to go the acquisition route in 2010,’ said analyst Meenal Kumar. ‘It is likely to keep aggregate portfolio gearing unchanged or lower, necessitating a combination of both equity and debt financing on any purchase.’
DMG & Partners analyst Jonathan Ng believes that Suntec Reit is expecting potential asset write-downs at year-end, and is preparing to keep its gearing below 40 per cent.
‘We expect Suntec to register a 7 per cent devaluation on its book in Q4 2009 to $5 billion, from the current $5.4 billion,’ Mr Ng said in a note yesterday. ‘There are unlikely to be further cash calls unless further asset write-downs are expected in H2 2010.’
He estimates that there will be a ‘mild’ dilution of 1.2 per cent, or 0.11 cents per unit, to the Reit’s distribution per unit in FY 2010.
Suntec Reit units closed unchanged at $1.28 each yesterday after resuming trading in the afternoon.
Several Reits, such as Ascendas Reit and Fortune Reit, have raised funds from the stock market this year. Analysts expect more cash calls next year, as the sector continues to pare debt or build capacity for acquisitions.