Author: tfwee
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.
AIMSAMPIReit – BT
Moody’s upgrades AIMS-AMP Capital Reit
Re-rating follows recapitalisation exercise
MOODY’S Investors Service has upgraded AIMS-AMP Capital Industrial Reit’s corporate family rating to Ba2 from Caa1 following its recent recapitalisation exercise.
The industrial trust – which was formerly known as MacarthurCook Industrial Reit – underwent a change of name after a recent debt-and-equity-raising plan. The Reit placed out shares to new investor AMP Capital Holdings and existing sponsor AIMS Financial Group as well as other cornerstone investors. This was then followed by a rights issue and a new term loan.
Concluding a rating review that was started on Nov 9, Moody’s said that the rating outlook for the Reit is stable.
‘The upgrade reflects AIMS-AMP Capital Industrial Reit’s remarkably improved liquidity profile and capital structure following the successful completion of its recapitalisation plan and refinance of the maturing Singapore dollar loan,’ said Moody’s analyst Kaven Tsang.
The Reit has applied part of the proceeds from the issuances to complete its acquisition of a building (4A International Business Park) and will also acquire four new properties from AMP.
‘These new properties are cash flow generative and will to some extent support its income diversification and debt service coverage,’ Mr Tsang added.
In addition, its liquidity profile has improved substantially, without material refinancing needs in the near term, Moody’s noted. The Reit’s debt/capi-talisation leverage has fallen to 30 per cent, from 47 per cent as of Sept 2009. The Reit’s major borrowing, a new $175 million term loan, is only due in December 2012.
But Moody’s also noted that while new sponsor AMP’s ‘established market presence and solid track record’ could benefit AIMS-AMP Capital Industrial Reit as it pursues growth and seeks new funding, AMP still needs to establish a track record in managing the Reit’s business as planned.
MapleTree – BT
Mapletree buys $68m warehouse
The warehouse in Japan has a property yield of 7.26%
MAPLETREE Logistics Trust acquired its ninth piece of property – a warehouse – in Japan for about $68 million, announced its managers, Mapletree Logistics Trust Management Ltd (MLTM), yesterday.
The warehouse has a property yield of 7.26 per cent, higher than the implied property yield of its existing Japan portfolio of 4.5 per cent.
Based on the actual nine-month financial results for 2009, the proforma financial effect of the acquisition on the annualised distribution per unit is an additional 0.103 cents or 1.75 per cent, assuming a unit price of 69 cents.
The warehouse, which is located in Chiba on freehold land, is leased to a major Japanese multinational corporation.
‘We are very pleased with the acquisition of this property, which is located in a popular logistics hub for in-land distribution for the Kanto region,’ said Chua Tiow Chye, chief executive officer of MLTM.
‘We continue to find the Japan logistics market attractive due to its breadth and depth which is currently unmatched in Asia. We will continue to expand our portfolio in Japan by selectively acquiring yield-accretive logistics assets of good quality and location.’
The acquisition, which will be fully funded by debt, is expected to be completed in Q1 2010, and brings Mapletree’s Japan portfolio to about 43 billion yen in value.
In November, the trust launched a private placement of 115 million new units to raise up to $82 million in order to create debt headroom for the funding of the acquisition.
The private placement had been launched in order to finance two local acquisitions – a six-storey warehouse in the west of Singapore and a multi-storey warehouse in the east of Singapore, for about $43 million and $34 million, respectively.
These acquisitions are expected to be completed by the end of this month.
Mapletree’s latest logistics play in Japan comes on the back of an announcement by its sponsor , Mapletree Investments Pte Ltd, that it had signed a memorandum of understanding on a joint venture with Itochu Corporation to develop logistics facilities in Japan, earlier this month.