Author: tfwee
MI-REIT : BT
MACARTHURCOOK Industrial Reit (MI-Reit) has failed in a legal bid to have the termination of an option agreement on a proposed $32.5 million acquisition – Liang Huat Industrial Complex – declared invalid. But the Reit is considering an appeal.
Its manager, MacarthurCook Investment Managers (Asia), said yesterday the High Court has dismissed the Reit’s originating summons. The Reit and its trustee sought to set aside the termination of the option agreement by KWD, the vendor of Liang Huat.
The agreement comprised a call and put option. Under the call option, MI-Reit could exercise its right to buy Liang Huat for $32.5 million between Dec 5, 2006, and April 30, 2007. Under the put option, KWD had the right to sell the property during a period of one business day – or any other mutually agreed period – starting from the expiry of the call option.
Earlier this year, KWD sought to terminate the option agreement, alleging that certain pre-conditions were not satisfied within the required time period.
As mentioned in its IPO prospectus, MI-Reit started proceedings in the High Court in response, seeking a declaration that the termination by KWD was invalid. An MI-Reit spokeswoman said the Reit’s originating summons was dismissed by the court because of a technicality.
Chris Calvert, chief executive of MacarthurCook Investment Managers, said: ‘We are extremely disappointed with the result and are presently working through the judgment in detail in conjunction with our lawyers and considering any avenues of appeal that might be open to us. Any decision will be based on what we consider to be in the best interests of MI-Reit’s investors.’
MI-Reit’s manager also said the outcome of the proceedings is not expected to have a material impact on the Reit’s financial performance or results.
MI-Reit was listed on the Singapore Exchange in April this year. Its initial portfolio of 12 industrial properties in Singapore did not include Liang Huat.
In its prospectus, the Reit, which has forecast a distribution yield of 6.18 per cent based on this initial portfolio for the year ending March 2008, said the yield would be 6.45 per cent if Liang Huat were added on July 1, 2007, and 6.36 per cent if it were added on Oct 1, 2007.
For the year ending March 2009, the projected yield is 6.68 per cent if Liang Huat were in the portfolio, compared to the base case of 6.32 per cent.
MI-REIT : SGX
Singapore, 15 June 2007 – MacarthurCook Investment Managers (Asia) Limited (the “Manager”), the Manager of MacarthurCook Industrial REIT (“MI-REIT”) announced today that the High Court of Singapore (‘High Court”) had dismissed its Originating Summons in respect of MI-REIT’s proposed acquisition of Liang Huat Industrial Complex (“Liang Huat”).
As disclosed in its prospectus, MI-REIT and the Trustee had sought to set aside termination of the Put and Call Option Agreement by the vendor of Liang Huat.
Chris Calvert, Chief Executive Officer of the Manager, said, “We are extremely disappointed with the result and are presently working through the judgment in detail, and considering any avenues of appeal that might be open to us, in conjunction with our lawyers. Any decision will be based on what we consider to be in the best interests of MI-REIT’s investors.”
The Manager confirmed that the outcome of the proceedings was not expected to have a material impact on the financial performance or results of MI-REIT.
Source : SGX
SREITS – OCBC
Surprise rule change on REIT M&A. In our 2007 strategy report dated 11 Dec 2006 “M&A theme a strong possibility in 2007/08”, we had articulated that M&A could be another avenue for growth. This scenario is now coming closer to reality with the Securities Industry Council’s (SIC) surprise announcement on Friday that it will extend the Singapore Code of Takeover & Mergers to REITs. This move is significant as it means that there is now clarity on M&A rules for S-REITs. Now anyone who acquires 30% or more of any REIT must make a general offer (GO) for the remaining units. Furthermore, anyone who owns 30%-50% of any REIT and acquires a further 1% of the units must also make a GO for the rest of the units.
Market getting more competitive. The key issue with the high-beta REITs such as CCT, MLT, CMT, ART, AREIT is the ability of the managers to meet market growth expectation. This is particularly so in a property up-cycle where fewer properties are available to be acquired. Some are venturing overseas, while others remain domestic focus (AREIT, Cambridge). Another avenue for asset size growth is via own development (AREIT, CMT), but this is a riskier strategy and is constrained by REIT guidelines. However with the SIC rule change on M&A, the REIT manager has another avenue to meet market’s growth expectations
A function of risk appetite. In our opinion, the market has segmented SREITs into two camps, i.e. REITs with high and low growth expectations. The key differentiating factor is the P/B ratio. We see potential for both camps, and the choice for investors for either is a function of their risk appetite. The high-beta REITs are those with high P/B ratio. As the market has already priced in growth, the risks are higher. On the other hand lowbeta REITs, we see minimal downside risks. In fact with them now being eyed as targets for acquisitions, we see a strong upside possibilities.
Potential winners in M&A. We see the likely winners in the new M&A rules to be those trading with higher yield and low price to book relative to their peers in the same sector. We see these REITs to be Allco, Cambridge, Macarthur, MM Prime and First REIT. (Winston Liew)
CCT – DBSVickers
Wisma Technip sale. CCT intends to sell Wisma Technip to Quill Capita Trust (“QCT”) for RM125m (S$56.1m) through asset securitisation vehicle Aragorn in which CCT owns 100% of the junior bonds. CCT would gain about S$2m from transaction, expected to complete by 4Q07, pending a funding raising exercise by QCT for the acquisition.
QCT as main channel of growth in Malaysia. While it’s the first asset sale by an S-REIT since its inception, it’s CCT’s strategy to focus on growth in the Malaysian office market through its 30% strategic stake in listed investment vehicle QCT. We believe this is a positive for QCT (Buy, TP RM2.37) which would benefit from growth through acquisitions as Capitaland’s main platform for opportunities in Malaysia and Capitaland’s 28%-owned incubator, Malaysia Commercial Development Fund (MCDF).
Minimal impact, TP S$2.97 unchanged. We like CCT’s platform of growth in Malaysia through QCT, but see a small, albeit positive impact on CCT in the near term. While CCT would primarily remain Singaporecentric, we continue to see organic growth through strong positive rental reversions for CCT’s portfolio. On the acquisitions front, 3rd party acquisitions continue to elude CCT at this point since the HSBC acquisition in 2005, apart from the injection of 60% stake in Raffles City from developer sponsor Capitaland in 2006. With the sale of Wisma Technip, this would reduce distribution income estimates in FY08 by 0.8% with DCF based target price of S$2.97 unchanged. Maintain Hold.
Office REITs – DBS
All-time high for office property. Office asset values continue to heat up, with transacted prices hitting new highs and now past the last peak, driven by property funds active in asset transactions. With the previous high for office assets set by the sale of 7 floors of Prudential Towers by Straits Steamship Land (Keppel Land), a record of S$2,200 psf set in 1996, office capital values have now hit an all-time high with latest sale of 1 Finlayson Green by Hong Leong to UK-based property fund Develica at unit price of S$2,650 psf (S$2,470 assuming full efficiency). This transaction is hot on the heels of the recent sale of Parakou Building at Robinson Road for S$2,013 psf.
Asset revaluation across office REITs set to continue. Along with the latest year-end revaluation, the Singapore office portfolio for S-REITs has been revalued upwards (CCT +10%, Suntec +30%, K-REIT +7.3%, Allco +7%). We expect asset reflation for office S-REITs to continue, with growth in average rents to boost office asset appraisals.
Boom and bane for office Reits. Office REITs are direct beneficiaries of asset reflation from potential upward revaluation based on market comparison of market transactions. However, with the current bullish outlook for Singapore office rentals, price expectations of asset owners have also escalated, compressing physical yields to lower levels (below 3% for the case of the Temasek Tower acquisition by MGPA). Yield accretiveness of acquisitions are reduced, and coupled with strong competition for assets from private property funds with more flexibility and less stringent regulations on investment and access to funds, S-REITs in our view are currently priced out of the market for commercial assets.
Overseas expansion would be a natural course to drive acquisition growth. K-REIT stands out in asset reflation scenario. While we prefer the DCF approach in valuing S-REITs because it takes into account the intrinsic cashflows generation ability of the underlying assets, RNAV approach could also possibly breach the gap, as it factors in asset pricing by market players acquiring assets at capital values pricing in future rental growth prospects. In an asset reflation scenario, K-REIT stands out with potential upside of 93% versus CCT (-2.7%), Suntec (+7.3%) and Allco (+48%). We have BUY recommendation for K-REIT with target price of S$3.70 per unit based on DCF estimates.