Author: tfwee
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.
Suntec – DBS
A positive move
• Private placement of S$152.9m
• Balance sheet strengthened, minimal DPU dilutive impact
• Maintain Buy with TP of $1.38
S$152.9m private placement. Suntec Reit has completed a private placement of 128.5m new units at S$1.19 each, which was >5x oversubscribed. The issue price represents a 6.5% discount to the VWAP price of $1.2724 and 4.6% discount to the adjusted VWAP of $1.2475. Gross proceeds of S$152.9m (net S$149m) will be used to reduce bank borrowings. The new units will not be entitled to the advance dividend distribution.
Minimal dilutive impact. We view this exercise as a positive strategic move on the group’s capital management exercise. Post placement, gearing is anticipated to decline to 31.5% from 34.3%, increasing the flexibility of its balance sheet. In terms of DPU impact, FY10 DPU estimate of 9cts is lowered by 3.3% to 8.7cts, after adjusting for interest savings.
Maintain Buy. We maintain our Buy call for Suntec. Post placement, FY10 DPU yield remains attractive at 6.8%, on the higher end of its comparable peer range. Suntec’s properties are well located and is expected to benefit from the expected increased vibrancy of the Marina Bay area when the Marina Bay Sands IR is opened. Our adjusted target price of $1.38 offers potential absolute return of 14.6%.
Suntec – MS
Wait For Clearer Signals
Downgrade to Equal-weight, wait for clearer signals: Suntec Reit has out-performed the STI by 19% from 3 months ago and is now marginally below our price target. Given the recent strong share price performance and our view that fundamentals have not substantially improved to warrant a change in our DCF-driven valuation, we are downgrading Suntec Reit to an Equal-weight rating.
Rental decline appears to be stabilizing, but for Office rents – rent increase is still some time away: Office rental declines appear to be stabilizing, with office rents down 12% and down 13% in 2Q09 and 3Q09 respectively, having declined 55% since the peak in 3Q08. 3Q09 showed a marginal positive net absorption of 32k sq ft and anecdotal evidence suggests that leasing activity has picked up recently given the
stabilization of the global and Singapore economy. However, given the large upcoming supply of ~2.6m sq ft in the next 2 years, we think it is too early to hope for positive office rental growth and we expect rents to bottom in 2011. Retail rents paint a more upbeat tone, with median central rents down 7% from the peak and down 1% QoQ. A study of upcoming retail supply in our report “Look Through The Cycle”, dated October 22, 2009, suggests that upcoming supply is well spread out in Singapore and we expect positive retail rent growth of 4% in 2010 as demand picks up with the improving economy and opening of two new integrated resorts.
What’s next: In the near term, we believe that the market will be focused on Suntec Reit’s 2009 asset valuations. We only expect a relatively small 4% decline in asset values, and for gearing to reach 38% by the end of 2009. We believe the risk of Suntec Reit undertaking an equity raising to shore up its balance sheet post asset devaluation is low, but believe the perceived risk will continue to be an overhang on the share price until details of the asset valuations are known.