Category: REIT
REITs – BT
All Reits must hold AGMs from next year
MAS mandate seen boosting corporate governance, options for fund raising
WITH effect from Jan 1 next year, all real estate investment trusts (Reits) are required to hold annual general meetings (AGMs).
This mandate from the Monetary Authority of Singapore is seen as boosting corporate governance and giving more flexibility to Reits in their fund-raisings.
Under the revised rules announced yesterday, Reits will be required to hold an AGM once every calendar year and not more than 15 months from the last preceding AGM. This means that by the end of next year, all Reits would have held an AGM.
In line with SGX’s rule on the timing of AGMs for other listed issuers, Reits will have to hold their AGMs within four months from their financial year end.
MAS said it has considered the merits of this requirement, which ‘will enhance corporate governance for Reits by providing an important channel for communication between Reit managers and unitholders, allowing Reit managers to be more accountable to unitholders’.
AGMs will also provide a regular opportunity for Reit managers to seek general mandates from unitholders for the issuance of new units, giving greater flexibility for equity raising.
The past year has seen Reit managers putting up urgent extraordinary general meetings (EGMs) notices to obtain shareholders’ approval for fund-raising exercises to refinance their debts.
With the exception of Ascendas Reit (A-Reit), which has been holding AGMs for the past three fiscal years, other Reits have not held an AGM though they may have other regular communication touch-points.
But some are now looking forward to holding their first AGM.
‘AGMs will promote the exchange of ideas between the company and unitholders, which will ultimately contribute towards the long term growth of the organisation,’ said Yong Yean Chau, chief executive of Parkway Trust Management, the manager of Parkway Life Reit.
‘We are looking forward to holding our first AGM next year.’
Simon Ho, deputy CEO of CapitaMall Trust Management, noted that the AGM requirement will further enhance the transparency of the Reits industry and offer another platform for CapitaMall Trust to engage its investors.
Added Yeo See Kiat, CEO of Suntec Reit’s manager ARA Trust Management (Suntec) Ltd: ‘The AGMs will allow the Reit managers to clarify questions from unitholders, facilitate better understanding of the Reit’s performance and enable the unitholders to know the Reit managers better.’
The cost of holding an AGM does not seem to bother some Reit players.
A spokeswoman from A-Reit noted that the cost is affordable and worthwhile.
A general mandate for the issue of new units passed at these AGMs has allowed A-Reit to make two cash calls this year swiftly and price the units at a smaller discount because of the shorter exposure period.
‘Our latest private placement in August was done above net asset value (NAV),’ she said.
‘I believe we are the only Reit that has issued units above NAV this year.’
Singapore Reits are regulated under the Collective Investment Scheme (CIS). MAS said it made revisions to CIS after taking in feedback from public consultation in May and discussions with Reit players.
Under the latest revisions, MAS also scrapped the requirement for Reit managers seeking authorisation for a new Reit to submit information in a prescribed form since Reit managers are now subject to the capital markets services licensing regime.
The Securities and Futures Act was amended on Aug 1, 2008, to regulate Reit managers through the licensing regime.
SREITs – BT
Reits likely to see more drops in asset values
Prices of retail and industrial Reits have yet to reflect risks, says Nomura
REAL estate investment trusts (Reits) are likely to experience more drops in asset values and negative rental reversions, according to Nomura Singapore.
Furthermore, the research house believes that prices of retail and industrial Reits have yet to reflect these risks.
‘With asset values likely to see further downward adjustments, the fact that retail and industrial Reits are now trading near to or at premiums to book value appears somewhat inconsistent with property market trends,’ wrote analysts Tony Darwell and Sai Min Chow in an Oct 16 report.
Investor interest has returned to Reits in the last few months as the sector largely managed to refinance its loans. The FTSE Real Estate Investment Trust Index has risen by more than 50 per cent since the start of the year.
But Nomura believes that downside risks remain. It estimates that capitalisation rates – a rough measure of properties’ rates of return – have softened by around 25-75 basis points and could drop by another 25-50 basis points.
The outlook for rents also remains weak, Nomura said. And while prices of office Reits reflect the various risks, the same cannot be said of retail and industrial Reits.
‘We see risks being priced into the office sector, though we retain our view that the market has been too complacent in its assessment of the retail and industrial Reit sectors,’ its analysts wrote.
The research house is particularly bearish on CapitaMall Trust (CMT) and Ascendas Reit (A-Reit). CMT gained four cents to close at $1.80 yesterday, while A-Reit lost eight cents to close at $1.86.
DMG & Partners Securities expressed different views in a separate Oct 16 report. It is more pessimistic about the office sector’s prospects, because of the large amount of space coming on-stream.
Landlords in the Raffles Place district ‘will almost certainly be scrambling to put forward highly competitive rates, a scenario that could further dampen the already fragile rental market,’ wrote analyst Jonathan Ng. ‘We believe CapitaCommercial Trust could feel the biggest impact.’
DMG was more sanguine about the hospitality sector’s performance – the integrated resorts could draw more visitors, driving hotel occupancies and pricing powers up.
The house has a ‘buy’ call on CDL Hospitality Trust (CDLHT), and believes that the counter is the ‘best proxy to a multi-year tourism resurgence that will take place next year’.
CDLHT ended trading at $1.56 yesterday, one cent up.
SREIT – OCBC
3Q09 results preview
Results preview. Four of the S-REITs under our coverage are releasing 3Q CY09 results this week, with the rest following suit in the next two weeks. Ascott Residence Trust (ART) is likely to give a poor YoY showing compared to an exceptional Olympics-driven 3Q08. For Frasers Centrepoint Trust (FCT), we expect QoQ improvements due to greater contributions from Northpoint as asset works wrap up. Our 3Q forecasts for Mapletree Logistics Trust (MLT) are fairly cautious as we expect lower occupancy levels to put a dampener on 2H09 earnings. Dilution from equity fundraising activity drives our estimate of YoY declines in DPU for CapitaCommercial Trust (CCT), CapitaMall Trust (CMT) and MLT.
Focus on occupancy & reversion data… Our primary focus will be on occupancy and rent metrics provided by the various REITs, especially in the industrial and office space. Industrial space occupancy has continued to fall, potentially leading to a moderation in portfolio occupancy at MLT (prev: 98.3%). We expect the rate of decline of achieved office rents at CCT and Suntec REIT to slow versus 1H09. Occupancy at Suntec City Office Towers fell from 96.3% as of March-end to 92.5% as of June-end as tenants redelivered part of previously-leased space. We will be looking for Suntec to at least maintain or improve that level. We will also be looking for evidence of occupancy stabilization at ART – the next challenge will be increasing rates, which requires sustained high occupancy levels.
…and on forward guidance. The tone of manager guidance versus 2Q CY09 is also worth watching. We believe managers are likely to be more optimistic in describing the outlook for the next six months (whether it is calling for stabilization or some sort of recovery depending on the property sub-sector). Guidance provided on capital market activity is also significant. We had previously highlighted FCT, Suntec and MLT as likely candidates for an acquisition/cash call two-for-one in the near-term. At last quarter’s briefing, MLT’s manager indicated interest in third-party acquisitions, provided these buys are coupled with an equity issue to at least maintain (or reduce) current gearing levels. But in October, it walked away from a fund raising proposal. Market skepticism towards cash calls has increased in the past three months in our view, which may affect managers’ position on this issue. We maintain our NEUTRAL stance on the sector, and see continuing opportunities for yield arbitrage. Top picks are ART and FCT.
SREITs – DMG
Euphoric aura could further compress yields
Raising target prices on lower cost-of-equity assumptions. We are raising our target prices for S-REITs to account for continued low interest rates. We lowered our 10-year risk free assumptions by 50bps to 2.5%, resulting in the concomitant reduction in cost-of-equity. CDLHT (BUY/TP: S$2.15) is our top pick for large-cap S-REIT and CREIT (BUY/TP: S$0.64) is our top pick smallcap S-REIT. Sector now trades at FY10 yield of 6.8%.
Supernormal visitor growth of 30% – a real possibility! We are sanguine that CDLHT remains the best proxy to a multi-year tourism resurgence that will take place next year. The success stories of countries with similar service offerings reinforce our view that Singapore’s visitor growth will easily punch through the 15-20% level in the initial year of opening (possibly even 30%), with sustained 5-10% growth thereafter. Our feedback from hotel operators indicates that pricing power will return when occupancies hover above 80%. We expect systemic occupancies to rise to 84% next year, with ARRs rising to S$250. Amara Holdings, (UNRATED, RNAV: S$0.68-0.75) is another hotel play that could enjoy colossal spin offs from Singapore’s monumental tourism boom.
Prime office rents likely to fall by a further 20% to S$6/sqft. With 3.9m sqft of new office space (5.4% of existing supply) coming on stream in 2010, the market has become so competitive that it is increasingly common for landlords to offer sweeteners such as fitting-out costs to attract new tenants. Despite the economy being technically out of a recession, it is clearly still a tenants’ market and the focus on tenant retention remains paramount for all landlords including CCT (SELL/TP: S$0.87). Our channel checks indicate that some landlords in prime areas are currently negotiating rents at between S$6-7/sqft, 20% lower
than 3Q09’s figures.
Euphoric aura could see further yield compression. We believe the stabilising global economy and the twin openings of the IRs will remain as euphoric events in 2010, providing sustained performance for the REIT sector. We, however, see minimal upside for CMT and A-REIT (NEUTRAL) as both counters are already trading close to their heyday yields of ~5% and 6%, respectively. We recommend BUY entries for CMT at S$1.55 and A-REIT at S$1.80. We continue to favour Suntec (BUY/ TP: S$1.45) as leasing activities
at Suntec Tower remains buoyant and expiring rents are marginally underrented. Suntec trades at attractive 8.6% yield for FY10.
Interesting small-cap REITs to watch. We believe acquisitions are in the works for FCT (BUY/TP: S$1.53). With a low cost-of-equity, we expect potential acquisitions to be DPU accretive. Cambridge REIT (BUY/TP: S$0.64) has a defensive business structure with an FY10 yield of 11.4%. We believe the stock
is a major laggard to A-REIT, trading at a spread of 4.4%, way above its historical average of 1.4%.
Link – Table
SREITs – BT
S-Reit outlook still negative: Fitch
This despite better share prices and refinanced debt
SINGAPORE-listed real estate investment trusts (S-Reits) have mostly refinanced their maturing debt obligations this year and have benefited from a recent share price recovery, noted Fitch Ratings in a new special report. But questions still remain regarding their financial flexibility and refinancing ability, the ratings agency said.
Fitch is also maintaining its overall negative outlook for the sector, owing to negative asset performance expectations. However, the credit performance of the sector is expected to be driven by the industry sub-sector, hence individual S-Reits may have different outlooks.
The report noted that 12 out of 20 S-Reits, for which information was publicly available, reported a decline in the value of total assets as at end June 2009, from a year ago, largely on the back of falling asset prices and write-downs. Office S-Reits, in particular, reported a 4.2 per cent drop in total assets in the year ended June 2009, compared with an increase of about 54 per cent in the previous year, while retail S-Reits added 1.5 per cent to their total assets in the same period.
S-Reits, like property-related companies globally, have been buffeted by the global financial crisis, Fitch noted.
‘A limited availability of debt financing and stock price corrections have forced S-Reits to restrict their previous aggressive asset acquisition programmes and concentrate on survival and tenant retention in a difficult market,’ noted the report.
But S-Reits responded to the changing market dynamics by sourcing bank loans in advance for their refinancing, and reducing their capex and acquisition plans as well as their development pipelines. Some S-Reits also successfully issued equity. But while these steps are positive from a ratings standpoint, they do not address other aspects of the debt structure and liquidity profile on which Fitch continues to have concerns.
‘In addition to dealing with a worsening asset performance, S-Reits are expected to tread cautiously in terms of their debt maturity profiles and liquidity provisions,’ said the report. ‘S-Reits will also need to improve their liquidity profiles as they come out of the crisis, to meet their debt refinancing requirements in the short to medium term.’
The requirement for S-Reits to distribute a major portion of their earnings affects their liquidity profiles, said Fitch. This, coupled with concentrated debt maturity profiles, can significantly increase the refinancing risk around S-Reits.
Looking ahead, S-Reits are now expected to continue their moderate leverage stance, but shift their focus to enhancing their capital markets reach. ‘They are likely to concentrate more on improving their debt maturity profiles, and expanding their relationships across banks to improve access to the bank loans’ market,’ said Fitch.