Category: ESR
Cambridge Reits – CL
Cambridge – SGX
CIT ACQUIRES 120 PIONEER ROAD AND 7 UBI CLOSE FOR A TOTAL OF S$47.0 MILLION
1. Cambridge Industrial Trust Management Limited (the “Manager”), the Manager of Cambridge Industrial Trust (“CIT”), has identified 120 Pioneer Road and 7 Ubi Close (the “Properties”) to be acquired by CIT at a purchase price of S$26,500,000 and
S$20,500,000 respectively (the “Acquisitions”).
2. In connection with the Acquisitions, RBC Dexia Trust Services Singapore Limited, as trustee of CIT (the “Trustee”), has entered into separate conditional put and call option agreements (the “Option Agreements”) with Compact Metal Industries Ltd (“Compact”), a SGX-listed company and Group Exklusiv Pte Ltd (“Group Exklusiv”) respectively, to acquire the two Properties.
3. The acquisitions are expected to be financed by debt or alternative funding sources in line with the Manager’s capital management strategy in optimizing the funding of the Trust. The above Property will be accretive to CIT’s distributable income.
4. Information On The Properties (Extracts)
120 Pioneer Road
– Purchase Price : S$26.5 million
– Leasehold estate of 30 years + 28 years wef 16 Feb1997
– Lease term : 7 years with 5% rental escalations on the commencement of the third
and fifth year.
– DPU Impact : +0.0557 cents
7 Ubi Close
– Purchase Price : S$20.5 million
– Leasehold estate of 30 years wef 1 Aug 1994
– Lease term : 7 years with 5% rental escalations on the commencement of the third
and fifth year.
– DPU Impact : +0.1687 cents
Note : DPU Impact is based on simple annualisation on the audited results for the financial period ended 31 December 2006 and the assumption that CIT had purchased, held and operated the respective property for the same annualised period based on long term gearing ratio of 40%.
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)
Cambridge – Announcement
Completion of Acquisition of Armorcoat International Building Located At 361 Ubi Road 3 Singapore 408664 for S$18.0 Million
2. RBC Dexia Trust Services Singapore Limited as trustee of CIT (the “Trustee”), has on 8 June 2007 exercised the call option under the put and call option agreement (the “Option Agreement”), entered into with Armorcoat International Pte Ltd (the Vendor) on 15 December 2006.
3. Pursuant to the Trustee’s exercise of the call option under the Option Agreement, the Trustee and Vendor have entered into the sales and purchase agreement for the Property and completed the sales and purchase today.
4. The purchase price and other acquisition costs of the Property are fully funded by debt.
5. Located along Ubi Road 3, the property comprises a five-storey industrial building with a basement carkpark level and a roof top swimming pool. It has a gross floor area of 8,931.0 sqm, and it is situated on land area of 4,563.7 sqm. The land is on leasehold title of 30 years with an option to renew for a further 30 years which expires on 31 January 2057. Armorcoat International Pte Ltd and Chartered World Academy Pte Ltd will jointly leaseback the Property for 10 years, with 7% rental escalations on the commencement of the fourth and seventh year.
6. CIT is a real estate investment trust constituted by the Trust Deed entered into on 31 March 2006 between the manager of CIT and RBC Dexia Trust Services Singapore Limited as the Trustee of CIT. Since its listing on the Singapore Exchange Securities Trading Limited (SGX-ST) on 25 July 2006 (the Listing Date), CIT has an asset portfolio comprising 30 properties worth S$640 million, all of which are currently located in Singapore. Cambridge Industrial Trust Management Limited, the Manager of CIT, is a joint venture
between Cambridge Real Estate Investment Management Pte Ltd (CREIM), CWT Limited (CWT), a Singapore incorporated company listed on the Main Board of the SGXST which is engaged in the business of cargo logistics and distribution, and Mitsui & Co., Ltd (Mitsui). Mitsui is one of Japans largest business conglomerates and they listed Japan Logistics Fund, Inc., the first REIT dedicated to investing in logistics facilities, in May 2005. 60% of the issued share capital of the Manager is held by CREIM, 20% is held by Mitsui, and the remaining 20% is held by CWT.
7. In relation to the initial public offering of CIT, the joint global co-ordinators and joint financial advisers were ABN AMRO Rothschild and CLSA Merchant Bankers Limited, and the joint lead underwriters and bookrunners were ABN AMRO Rothschild and CLSA Singapore Pte Ltd. The public offer co-ordinator and sub-placement agent was Philip Securities Pte Ltd.
Singapore Reits – UBS
Global Equity Research PT adjustments following rise in spot risk free rate
We have moved the spot risk free in our DCF model to 2.9% for yr0-10, from 2.7% following recent interest movements. Our terminal rate (yr10+) is unchanged at 3.6%.
Impact – Downgrade CCT and SUN
Action – Overweight Industrial & Retail
Valuation