Category: MP REIT
SREITs – BT
MacarthurCook, Cambridge and Allco seen as potential takeover targets
CAMBRIDGE Industrial Trust, MacarthurCook Industrial Reit and Allco Commercial Reit are among potential takeover targets among Singapore real estate investment trusts (S-Reits), says Goldman Sachs in a report this week.
‘We believe that Reits with relatively smaller market caps, fragmented shareholdings or larger shareholders which may be open to exiting their stakes, and relatively high yields compared with sector peers are likely takeover targets,’ the report authored by analyst Leslie Yee said.
The current S-Reit climate, with disparity in distribution yields at which Reits in the same asset class are currently trading on the stock market, provides fertile ground for merger and acquisition (M&A) activities, the bank contends.
‘Hypothetically, a Reit trading at a lower yield that acquires a Reit trading at a higher yield, would be making an accretive acquisition, if the acquirer trades at the same yield post-acquisition,’ it added.
It may be easier for S-Reits to grow by acquiring other Reits as the traditional method of growing – through the acquisition of physical assets – has become more difficult. This is because the slump in S-Reit prices on the stock market has raised their distribution yields, making it harder for them to make yield-accretive acquisitions of properties.
Goldman Sachs said other factors that have brought forward M&A as a theme for the S-Reit space include the prices of certain Reits trading below net asset value, increasing openness of management teams discussing the possibility of M&A, and trade sales.
In mid-February, Macquarie MEAG Prime Reit’s (MMP Reit’s) manager announced a strategic review to enhance value for unitholders following the receipt of unsolicited bids made to Macquarie Real Estate, which holds a 26 per cent interest in MMP Reit.
‘We think this strategic review can lead among others to an outright sale of the Reit or sale of underlying assets on a piecemeal basis. There are precedents among the Australian Reits of acquisitions of entire Reits and piecemeal divestments of their properties. We see either of these actions as among the many ways in which Reits trading below book value can help realise book value,’ Goldman said.
‘We believe that MMP Reit’s efforts could cause shareholders of other Reits trading below NAV to seriously consider how best to unlock value. We note that Reits in mature markets like Australia divest assets on a piecemeal basis to optimise their portfolio, and we do not rule out S-Reits divesting individual assets to reconfigure their portfolios or even pay special dividends,’ it added.
‘Besides Reits’ takeovers, another possibility is the takeover of Reit managers. We note ARA Asset Management has stated it is keen to acquire other Reit managers,’ the report said.
The M&A theme will be positive for S-Reits. For large-cap Reits which trade at relatively low yields, M&A will create another avenue for growth. For smaller Reits trading at relatively high yields, investors should be able to cash in on premiums paid to buy out their respective Reits. ‘We expect the focusing of M&A as a theme by investors to result in narrowing of discounts to RNAV,’ Goldman said.
It also recommends investors to be ‘overweight’ on S-Reits given the defensive nature of these instruments and their relatively high distribution yields.
‘Based on our stress tests, we are comfortable that downside risk to our revised 12-month target prices is capped at about 14 per cent on bear case scenarios which we do not expect to materialise. In a flight to quality environment, we favour well-managed big-cap names, with debt capacity to fund acquisition growth, and which trade at discount to RNAV and show strong near-term organic growth.’
Goldman has upgraded office landlord CapitaCommercial Trust from ‘neutral’ to ‘buy’ and added it to its Conviction List of top ‘buy’ calls. It has also upgraded Ascendas Reit from ‘sell’ to ‘neutral’. The bank also has ‘buy’ recommendations for CDL Hospitality Trusts, K-Reit Asia and Suntec Reit. It has downgraded CapitaMall Trust from ‘buy’ to ‘neutral’, and MMP Reit from ‘neutral’ to ‘sell’.
SREITs – ML
S’pore REITs: High quality dividends and a strong currency
Singapore REITs have high single digit dividend yields that are relatively secure due to long lease tenure, conservative balance sheets and exposure to the property sector’s strong fundamentals.
We also expect the Singapore dollar to appreciate by as much as 5% this year.
In sum, this is a safe place to be.
CapitaCommercial Trust (CMIAF; S$2.12; B-1-7) Top pick for office sector, significantly undervalued. High organic growth from rental reversions.
We have a Buy rating on CCT and 12-month price objective to S$2.70/share. Our price objective is based on our DCF valuation derived from 10 years of forecasts. Key assumptions include a risk free rate of 3.0%, an equity risk premium of 5.7% and a beta of 1.0. Risks are a downturn in the economy, higher interest rates, lower than forecast rental and occupancy rates and the possibility that future acquisitions may provide lower-than-expected returns.
Macquaire Meag Prime REIT (MQPRF; S$1.25; B-1-7) Top pick for retail sector. M&A target with near term potential to trade to NAV.
We are setting our price objective with reference to current NAV of S$1.61/share.The NAV is derived from 4% cap rates for Singapore office exposure and 5% cap rates for Singapore retail exposure. Risks are a downturn in the economy, higher interest rates, lower-than-forecast rental and occupancy rates and the possibility that future acquisitions may provide lower than expected returns.
CDL REIT (CEHSF; S$2.33; B-1-7) Top pick for hotel sector. Singapore hotel room rates continue to rise, strong balance sheet.
We have a Buy rating on CDL Hospitality Trusts (CDLT) and a 12 month price objective of S$2.88/share. Our price objective is based on our DCF valuation derived from 10 years of forecasts. Key assumptions include a risk free rate of 3.4%, an equity risk premium of 5.7% and a beta of 1.2. Risks are a downturn in the economy, higher interest rates, lower than forecast rental and occupancy rates and the possibility that future acquisitions may provide lower-than-expected returns.
Cambridge Industrial (XCMBF; S$0.70; B-1-7) Top pick for industrial sector. Most defensive asset class. Long lease expiries support income security.
We have a Buy rating on CREIT and a 12-month price objective of S$0.88/share. Our price objective is based on our DCF valuation derived from 10 years of forecasts. Key assumptions include a risk free rate of 3.0%, an equity risk premium of 5.7% and a beta of 1.0. Risks are a downturn in the Singapore economy, higher interest rates, lower-than-forecast rental and occupancy rates and the possibility that future acquisitions may provide lower-than-expected returns.
First REIT (FESNF; S$0.74; B-1-7) Investors reluctant to take Indonesian risk, yet the Indonesian stock market itself is one of the best
We have a Buy rating on First REIT and a 12 month price objective of S$0.84/share. Our price objective is based on our DCF valuation derived from 10 years of forecasts. Key assumptions include a risk-free rate of 5.5%, an equity risk premium of 7.1%, and a leveraged beta of 0.90. Risks to our price objective are an increase in short-term interest rates which may result in higher interest costs on existing borrowings; increases in long-term interest rates which could impact our DCF valuation due to the assumption of risk-free rates; and a deterioration in economic activity that may impact occupancy and rental growth of assets held within the investment portfolio.
MMP – BT
Macquarie may exit MMP Reit under strategic review
MACQUARIE MEAG Prime (MMP) Reit will undergo a strategic review that may see the Macquarie Group sell its stake in the fund.
In a statement, the Reit’s manager – Macquarie Pacific Star Prime Reit Management – said that the exercise aims to enhance the value for all unitholders. It may consider options like merger & acquisitions, full-privatisation or sale of assets, chief executive officer Franklin Heng told BT.
The announcement confirms an earlier BT report that the Macquarie Group, which owns 26 per cent of the Reit, is prepared to exit from the fund under a proposed strategic review.
Indeed, Macquarie Pacific Star said that the move came after the ‘receipt of a number of unsolicited approaches’ made to Macquarie Real Estate, part of the Macquarie Group.
Macquarie Real Estate also has an associated entity that owns a 50 per cent stake in the Reit’s manager.
The key shareholder said it will cooperate with the directors of Macquarie Pacific Star in order to maximise value for all unitholders. The strategic review will be undertaken in the context of strong underlying property fundamentals in the Singapore market.
‘The quality of MMP Reit’s portfolio of real estate assets is supported by MMP Reit’s recent announcement of an increase in its net asset value to $1.61 per unit as at December 31, 2007.’
MMP Reit last traded at $1.08 – a 32.9 per cent discount to its NTA (net tangible asset) and the strategic review will explore options to ‘close this value gap’.
Macquarie Pacific Star intends to appoint Macquarie Securities (Asia) Pte Limited of Singapore to advise it on the strategic review. The entire exercise is expected to be completed by June this year.
Yesterday, the Reit’s manager also cautioned that there is no assurance that the strategic review will result in any specific transaction.
MMP Reit reported a 15.7 per cent year-on-year rise in distributable income to $16.2 million for the fourth quarter ended Dec 31, 2007. The Q4 distribution brought 2007 full year’s distributable income to $59 million, up 7.5 per cent.
MMP
Macquarie Supports Strategic Review of Macquarie MEAG Prime REIT
Macquarie Real Estate Singapore (MRES) advised today it supported the decision of the Board of Macquarie Pacific Star Prime REIT Management Limited (the Manager of Macquarie MEAG Prime REIT (MMP) (SGX: MMPR.SI)) to conduct a review of strategic options with the specific objective of enhancing value for all MMP Reit unitholders.
MRES is a substantial unitholder of the REIT with a 26 per cent holding. Another Macquarie Group entity has an indirect 50 per cent interest in the REIT’s Manager.
MRES supports the Board’s decision to undertake the strategic review because it has received a number of offers for its 26 per cent interest in MMP REIT units, and in the interests of all MMP unitholders, would like for all unitholders to be able to participate in any proposal on the same basis as Macquarie.
While MRES has made no final decision in relation to its stake in MMP as this is dependent on the outcome of the strategic review, it is committed to seeking to find ways to provide all MMP unitholders with access to value-maximising proposals.
MMP – BT
Macquarie may sell Reit stake after review
MACQUARIE MEAG Prime Reit is expected to undergo a strategic review soon that may result in the Macquarie group selling its 26 per cent stake in the Singapore-listed Reit, industry sources said.
The move is believed to be prompted by the trust trading at a steep discount to its net asset value (NAV). MMP last traded at $1.06, compared with its NAV of $1.61 as at Dec 31, 2007. Among MMP’s current assets are Wisma Atria and Ngee Ann City.
Macquarie, it seems, has floated the ‘strategic review’ proposal to the other two shareholders of the Reit’s manager Macquarie Pacific Star Prime Reit Management – MEAG Munich ERGO Asset Management GmbH and Investmore Enterprises Ltd – both of which are likely to have reservations about the move.
MEAG is part of the Munich Re group, one of the largest reinsurance groups in Germany, while Investmore belongs to the fast-growing Pacific Star group founded by Singaporean entrepreneur Jeff Tay.
Industry observers said that since Macquarie bought into the Reit during the IPO, it has been calling the shots at the Reit and its strategy for growing the Reit’s footprint in Asia does not always agree with those of the other two shareholders.
In the event of a sale, unitholders may raise the question of a potential conflict of interest as Macquarie is the single largest unit holder of the Reit, as well as manager of the Reit and its properties.
Also, some feel that if Macquarie wishes to divest, it should get its own investment bank to carry out a private tender rather than have the Reit manager do so in a public manner that may create uncertainty for tenants, employees and business associates during the review period, expected to take a few months.