Month: January 2010
FCT – BT
Frasers Reit buys two malls for $290m
FRASERS Centrepoint Trust (FCT) said yesterday that it will buy two suburban malls for $290.2 million.
The retail real estate investment trust (Reit) also said it plans to issue up to 152 million rights units to help finance the mall acquisitions. The remaining amount will be borrowed.
The structure and timing of the issue of new units has not been determined, FCT added.
The Reit will acquire Northpoint 2 at Yishun for $164.55 million and YewTee Point in Choa Chu Kang for $125.65 million from its sponsor Frasers Centrepoint, the property arm of Fraser and Neave.
The transactions are subject to approval by FCT unitholders. The two acquisitions will grow the trust’s portfolio 25 per cent to $1.5 billion.
‘Northpoint 2 and YewTee Point are excellent suburban retail malls strategically located in the town centres of established high-density housing estates,’ said Christopher Tang, chief executive of FCT’s manager.
‘Both malls are in the immediate vicinity of MRT stations, which deliver a high level of shopper traffic. With captive shopper catchments, occupancy rates at or close to 100 per cent and diverse bases of quality tenants, both malls would be invaluable additions to FCT’s portfolio of high-quality suburban malls.’
The trust now has three malls – Causeway Point, Northpoint and Anchorpoint. Northpoint 2, a new extension to Northpoint, has a net lettable area of 85,530 sq ft. YewTee Point has 72,382 sq ft.
FCT said the two additions will enhance its asset, income and tenant diversification, the trust said. The malls will add more than 70 new tenants. And the larger asset and unit base – after the issue of the rights units – is expected to enhance the trust’s overall capital management flexibility.
FCT said that the price of the rights units will be determined closer to the launch date.
FCT units gained four cents or 2.8 per cent to close at $1.45 yesterday.
FCT – DMG
Proposed acquisitions set to be yield accretive
New acquisitions to grow AUM by 25% to S$1.5b. FCT announced the proposed acquisitions of Northpoint 2 and YewTee Point for S$165m and S$126m, respectively. The acquisitions will grow FCT’s portfolio value to S$1.5b and enhance its position in the resilient suburban retail property market as well as improve income diversification. Maintain BUY, TP of S$1.66.
Strong traffic footfall expected with strategic connectivity. Northpoint 2 and YewTee Point are strategically located in high density residential estates, both of which are located close to major transportation nodes, which deliver high shopper traffic to the malls. Occupancy for both malls stand at almost 100% with average passing rents at between S$12-13/sqft.
Acquisition likely to be yield accretive. Management indicated that the NPI yields from these acquisitions work out to be 5.8%, in-line with our estimates. The final funding structure has yet to be put in place. However, management has set out a realistic illustrative debt/equity structure of 45% and 55%, respectively. This suggests a debt requirement of S$130.6m, raising gearing from 30% to 33%. Approximately 128m new units may be issued at S$1.30, raising its share capital by 20%. Under the current capital financing structure, we expect FCT’s WACC to be ~4.9%, implying a DPU accretion of ~3.5%.
Expanded AUM may address liquidity and compress yields further. With a low cost of equity, we expect the above acquisitions to be accretive, strengthening FCT’s retail oligopoly status in the northern region of Singapore. With an expanded AUM and equity base, concerns over FCT’s poor stock liquidity will be addressed. We expect a further re-rating on the stock as yields could compress closer to its heyday levels seen in 2006-08. We maintain our earnings forecast as we have previously factored these acquisitions. We raise our TP to S$1.66 from S$1.53 to account for higher terminal growth rate assumption of 3% (2.5% previously). At our TP, FCT trades at 5% FY10 yield, a reasonable peg, in our view. Note that FCT traded at 4.6% during heydays of 2006 and 2008, suggesting that the stock has further legs to ride up the
economic recovery.
FCT – BT
FCT to buy Northpoint 2, Yew Tee Point for S$290.2 mln
Shopping centre real estate investment trust Frasers Centrepoint Trust (FCT) is planning to buy Northpoint 2 and Yew Tee Point for $164.55 million and $125.65 million respectively.
The trust’s manager has proposed an equity fund raising of up to 152 million new units in FCT to part finance the acquisitions, with the balance to be funded by borrowings.
FCT unitholders will vote on the proposed transactions at an extraordinary general meeting on Jan 25.
FCT chairman Philip Eng said: ‘The proposed acquisitions …reinforce FCT’s positioning as a leading Singapore retail REIT.
With these proposed acquisitions, FCT’s portfolio value will grow to $1.5 billion.
The addition of these two malls would increase FCT’s already strong position in the resilient suburban retail property market and improve income diversification.’
First Reit – SGX
ACQUISITION OF PRIVATE LOT A0439900 TUAS VIEW LANE – TERMINATION OF OPTION AGREEMENT
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SREITs – OCBC
Our wish list for 2010
2009 has been an interesting year for the S-REIT sector, with the Great Financial Crisis exposing weaknesses in a structure many thought of as invulnerable. Keeping both the S-REITs’ strengths and weaknesses in mind, here are a few changes we would like to see in 2010…
(1) Increased alignment of incentives. Most REIT managers are currently earning fees based on asset value and on net property income (NPI). Historically, S-REITs have relied heavily on acquisitions to grow both NPI and portfolio size, especially with the added kicker of acquisition fees. Depending on the pricing and financing structure, these two metrics can be increased with no net benefit (or even a cost) to unitholders. A recent RiskMetrics report1 suggests pegging a substantial part of manager fees to total shareholder return. No fee structure is perfect but we feel this issue warrants further attention and discussion.
(2) More transparency of relationship with sponsor. The S-REIT sector has traditionally had a bias towards developersponsored REITs. These REITs are inextricably tied to their sponsors on several levels including property management, REIT management and through acquisition pipelines. In the current de-leveraging environment, we believe several sponsors will sell their assets to their REITs. Pipelines can be a competitive advantage – ultimately an investor may be buying access to quality assets. But pricing and strategic benefit to the REIT is always a concern. We would like to see increased transparency of the acquisition decision-making process that goes beyond a comparison of the acquisition cost versus the independent valuation of the target property.
(3) Renewed focus on value accretion. We expect REITs to return to their growth-via-acquisition strategy. We note that historically the market has focused primarily on yield accretion, which may be more a function of the amount of leverage used to make the purchase than anything else. Third-party or pipeline-driven, we would like to see more attention on the value-add of the proposed acquisition. The market needs to ask harder questions including: Why is the REIT making this purchase? Does this purchase enhance the overall portfolio? What are the strategic considerations behind this decision? Is this a good buy on an un-leveraged basis?
Valuation. Our key ratings drivers in 2010 are 1) earnings trends; 2) leverage and outstanding issues; 3) manager commitment to protecting and creating value; and 4) relative valuations. We maintain our NEUTRAL rating on the REIT sector. Mapletree Logistics Trust [BUY, FV: S$0.78] and Ascott Residence Trust [BUY, FV: S$1.25] are our top picks for the sector.