Month: March 2010
A-REIT – BT
A-Reit boosts capital base to refinance, fund acquisitions
INDUSTRIAL landlord Ascendas Real Estate Investment Trust (A-Reit) has enhanced its capital structure through a series of capital management initiatives.
As a result, the trust has effectively extended its weighted average debt maturity to 4.5 years – from 2.4 years – and secured funds for acquisitions, it said yesterday.
The trust has extended a $300 million loan that was due this month by seven years to March 2017. It also decided to pay off 165 million euros (S$317 million) of debt due in May 2012 now ‘in view of the significant amount of refinancing expected in the Singapore real estate sector in 2012’.
After the euro debt has been paid off, 23 properties valued at $1.2 billion will no longer be mortgaged. A-Reit has 91 properties in Singapore worth about $4.8 billion in all.
The trust also said a $300 million exchangeable collateralised securities issue – which it announced on Monday – has been successful. The issue attracted strong participation from over 70 institutional investors and was 4.5 times subscribed.
The securities, due in 2017, come with a put option in 2015. They were priced at a coupon and yield to maturity of 1.6 per cent and an exchange price of $2.45 – which is a 25 per cent premium to A-Reit’s closing price on March 15.
A-Reit will use the proceeds from the issue to refinance existing borrowings and finance the acquisition and development of properties.
With all of the initiatives, the trust has increased its weighted average debt maturity and managed to gain funds for future acquisitions.
‘Other than the $150 million medium-term notes and the $138 million committed revolving credit facility due in 2011, A-Reit does not have any major debt refinancing till 2014 and is therefore well positioned to capitalise on growth opportunities moving forward,’ the trust said in a filing to the Singapore Exchange.
A-Reit lost two cents to close at $1.94 yesterday.
A-REIT – CNA
| A-REIT enhances capital base to refinance borrowings, fund acquisitions |
Mainboard-listed Ascendas Real Estate Investment Trust (A-REIT) said it has enhanced its capital structure through a series of capital management initiatives.
It said it has conducted a successful offering of S$300 million of exchangeable collaterised securities (ECS) due in 2017 with a put option in 2015. The ECS was priced at a coupon and yield to maturity of 1.6 per cent with an initial exchange price of S$2.45 per unit.
Proceeds from the ECS issue will be used to refinance its existing borrowings, finance acquisitions and development of properties by A-REIT.
A-REIT added that it has recently successfully extended its S$300-million term loan due in March 2010 by seven years to March 2017.
As a result of all the moves, A-REIT's weighted average debt maturity has been extended from 2.4 years to 4.5 years.
K-REIT – Daiwa
No reward for dilution, excess capital
Rating downgraded to 5 (Sell) from 4 (Underperform)
We have downgraded our rating for KREIT to 5 from 4, because we believe the recent three-month unit-price performance is unjustified.
We estimate that the current market value of KREIT, more than any other office S-REIT, can only be justified if investors are willing to pay effective cap rates of 4.5-4.6%, similar to cap rates in the physical market. We regard this as risky, given the historic volatility of the Singapore office market and the imposing CBD supply pipeline for 2010-12.
No reward for rights-issue dilution ahead of acquisitions
We do not believe KREIT should receive the benefit of the doubt for holding excess cash when there is a high degree of risk that it might not come through with a successful, DPU accretive acquisition. The opportunity cost is high, in our opinion, especially for the unitholders that have been diluted already.
A high-yield acquisition in a high-yield market
We do not believe the acquisition of a single asset in Australia (a 50% stake in 275 George Street for A$166m) does much to improve KREIT’s financial efficiency or investment attractiveness. If anything, it only serves to deplete its recent rights issue and divert focus, if the manager’s ultimate objective is to land a major acquisition in Singapore.
DPU forecasts revised down by 2.8-5.6% for FY10-11
We have revised down our DPU forecasts by 2.8% for FY10 and 5.6% for FY11after adjusting downward our rental-renewal assumptions. We have revised up our DPU forecast by 0.6% for FY12 after an upward adjustment to our rental-renewal assumption for KREIT’s associate, One Raffles Quay.
Six-month target price lowered to S$0.96 (from S$1.06)
We have lowered our six-month target price, based on parity to our RNG valuation method (a finite-life Gordon Growth model), to S$0.96 from S$1.06. Our core operating-income estimate assumes average (monthly) passing rents of S$8.50 for Prudential Tower, S$6.50 for Keppel Towers and GE Tower as well as Bugis Junction Towers, and S$10.00 for One Raffles Quay (one-third stake). We have removed the presence of the recently completed Brisbane office acquisition (for A$166m) so that our valuation only considers Singapore income-producing assets discounted at Singapore cap rates and capital-market conditions. We have assumed that all excess cash (as at 31 December 2009) would be used to retire debt.
Suntec – Daiwa
Yield attraction is inadequate
Office-sector and concentration risks still valid
We maintain our 3 (Hold) rating for Suntec and believe the unit price is fairly valued in light of lingering office-sector risks. Suntec has a slightly higher DPU yield (based on our forecasts) compared with other office S-REITs with office exposure, but it also has (arguably) greater concentration risk. We also expect Suntec’s office tenants to feel the pull of the new CBD office supply for FY10-12.
Even though Suntec has a major retail component to buffer the decline in the office segment, Suntec City Mall is not a defensive suburban mall, in our view, and could face some operational weakness in 2010 when the retail sector resettles after the opening of several major malls (indirect competition for Suntec City Mall) on Orchard Road in 2H09.
Opportunities and threats
We believe Suntec City‘s strategic location will be a long-term benefit for its core assets, but that the entire development would have to be refreshed and repositioned to stay relevant against newer projects (Marina Bay Sands and the South Beach project).
Risk of acquiring too soon
We believe the major risk factor would be an over-ambitious acquisition-growth agenda, which could cause Suntec to acquire assets including the Suntec convention centre or MBFC (phase one) before they are suitable (with sufficient income stability and DPU accretion) for injection.
Marginal DPU-forecast revisions
We have revised up our DPU forecasts by 0.7% for FY10 and 0.6% for FY12, but revised down our DPU forecast by 1.9% for FY11 after fine-tuning our forecast assumptions. We still expect a relatively sharp fully-diluted DPU decline of over 21% YoY for FY10 due to a pick-up in borrowing costs, weaker net-property income and the full-year impact of the S$152.9m private placement done on 22 December 2009.
Six-month target price lowered to S$1.30 (from S$1.33)
We have lowered our six-month target price, based on parity to our RNG valuation method (a finite-life Gordon Growth model), to S$1.30 from S$1.33. Our core operating-income estimate assumes average (monthly) passing rents of S$7.50 for Suntec City Office Towers, S$10.75 for Suntec City Mall, and S$10.00 for One Raffles Quay (one-third stake).
CCT – Daiwa
Major challenge: enlarging the office portfolio
Fully-valued for recent stability and future risks
We maintain our 3 (Hold) rating for CCT, and believe the current unit price reflects fully a more stable office market, but with lingering short-term uncertainty ahead of the MBFC phaseone opening (in 2Q10) and an outlook clouded by further supply risks in 2011 and 2012.
Leasing skills likely to be put to the test in FY10-12
The CCT manager’s industry-leading leasing skills were apparent during the most recent office-market peak, as the key buildings in CCT’s portfolio enjoyed high occupancy rates and rents. We believe these skills will be put to the test again as the incoming CBD supply would naturally draw tenants from its existing buildings.
Our thoughts on CCT’s portfolio reconstitution
Before investors get carried away by CCT’s recent portfolio reconstitution announcements, the divestment of Robinson Pointand redevelopment potential of StarHub Centre (almost a done deal, in our opinion, but still subject to approval from other government authorities), we believe it would be critical from a recurrent-income perspective for CCT to be able to swap these assets for investment-grade office assets. With cap rates for Singapore offices starting to narrow, we do not believe it would be easy for CCT to acquire assets in a DPU-accretive manner. We believe potential acquisitions could even be put on hold to facilitate potential debt refinancing for FY11 (when the put option on its S$370m convertible bond could be exercised in May and a S$520m CMBS for Raffles City would be due in September).
DPU forecasts revised down by 0.7-9.0%
We have revised down our DPU forecast by 9.0% to 6.76¢ for FY10. We had assumed (erroneously) that the estimated divestment gain of about S$19m from the disposal of Robinson Point would be distributed to unitholders. The manager has clarified that the proceeds from the disposal would be retained for financial flexibility. Our DPU-forecast revisions for FY11 and FY12 are negligible.
Six-month target-price raised to S$1.19 (from S$1.17)
We have raised our six-month target price, based on parity to our RNG valuation method (a finite-life Gordon Growth model), to S$1.19 from S$1.17, after lowering our (long-term) cost-of-debt assumption to 4.0% from 4.2%. Our core operating income estimate assumes average (monthly) passing rents of S$6.50 for Capital Tower, S$10.00 for Six Battery Road, and S$9.00 for 1 George Street.