A-REIT – OCBC
Buying Neuros & Immunos & Private Placement
Proposed Acquisition. Ascendas REIT (A-REIT) announced yesterday its proposed acquisition of Neuros & Immunos, located at Biopolis, from its sponsor for S$125.6m. Neuros & Immunos is a 7-storey business/science park building sited on a land area of 8,051 sqm with a 30+30 years land lease tenure effective from Feb 2005. It has a GFA and NLA of 36,931 sqm and 28,345 sqm respectively. These properties are currently 100% occupied, largely by biomedical companies with three-year rolling leases. The proposed acquisition will further diversify A-REIT’s portfolio of properties as well as the tenant-mix.
Private Placement. In addition, A-REIT closed a private placement of 209,186,000 new units yesterday evening at an issue price of S$1.94 to raise proceeds of approximately S$406m. The proceeds will be utilised in the following manner: (1) ~S$125.6m for acquisition of Neuros & Immunos; (2) ~S$117.6m to fund A-REIT’s forward purchase of a business space property in Shanghai; (3) ~S$35.9m to fund A-REIT’s eleventh development project for the construction of a BTS logistics facility next to the Airport Logistics Park; (4) ~S$97m to fund A-REITs ongoing asset enhancement initiatives at Techview and 10 Toh Guan Road and redevelopment of FoodAxis @ Senoko; (5) ~S$6.7m to pay the estimated fees and expenses incurred by A-REIT, and the balance (~S$23.2m) will be used for general corporate and working capital purposes. A-REIT will also declare an estimated cumulative distribution of 3.69 S-cents for the period from 1 Jan 2011 to the day immediately prior to the date on which the new units are issued (expected on 11 Apr 2011). The book closure is on 8 Apr and payment is around 9 May.
Dilutive Effects. A-REIT is presently also in discussion on a potential S$200m acquisition. Pending final negotiations, the transaction might be completed within the next 3-6 months. In addition, the Manager believes that there are other opportunities for BTS developments and asset enhancement initiatives ahead. Nonetheless, the private placement represents an increase of 11.2% of the total number of units in issue as at 30 Mar 2011. The dilution factor thus works out to about 10.1%. A-REIT is trading at a current PBR of 1.27x vis-à-vis its historic PBR of 1.39x since IPO. We also noted that the offer price denotes a 9.35% discount from its share price high of S$2.14 on 26 Jan (after previous ex-date). We are wary of the dilutive effects on existing shareholders (especially retail investors), given the fairly sizeable discount granted to new private placees, in our opinion. Maintain HOLD with a reduced fair value of S$2.12.
A-REIT – BT
A-Reit buys $125.6m asset, unveils placement
The property consists of two 7-storey buildings at Biomedical Grove
ASCENDAS Real Estate Investment Trust (A-Reit) is buying a property at Biopolis for $125.6 million, and is raising some $400 million through a private placement to fund the deal and other projects.
The industrial Reit is also in talks to purchase a portfolio of properties worth around $200 million, and the transaction might be completed in the next three to six months.
A-Reit gave these updates yesterday morning.
The latest property it bagged consists of two seven-storey multi-tenanted buildings – Neuros & Immunos – at Biomedical Grove. A-Reit is acquiring them from a unit of its sponsor, Ascendas.
The buildings have research laboratories and offices spread across a net lettable area of 28,345 square metres and they are fully occupied. Their sites have a lease tenure of 30+30 years from February 2005.
A-Reit said the deal is yield-accretive and would have added 0.03 cents to the distribution per unit for the financial year ended March 31, 2010, on an annualised pro forma basis.
There are some assumptions behind this; for instance that A-Reit had owned the property for the entire financial year and funded the deal using 40 per cent debt and 60 per cent equity.
The purchase price is the lower of two valuations conducted by consultants. Jones Lang LaSalle valued the property at $126 million, while CB Richard Ellis thought it was worth $125.6 million.
Transactional costs come up to around $1.9 million, which include an acquisition fee of $1.256 million payable to A-Reit’s manager.
A-Reit, in which share trading was halted yesterday, also unveiled a private placement. It will issue 206.186 million new units at $1.94 apiece to raise around $400 million in gross proceeds. Net proceeds after fees and expenses would be $393.3 million.
The private placement was ‘2.55 times oversubscribed’, A-Reit said. Its closing unit price on Wednesday was $2.04. This means the issue price carries a discount of 4.9 per cent.
The bulk of the gross proceeds will go towards buying Neuros and Immunos. Another $117.6 million is for the forward purchase of a property in Shanghai – a deal A-Reit announced earlier.
The Reit will channel another $97 million to asset enhancement works at other properties, and use $35.9 million to fund a development project.
A-Reit believes the private placement will help it ‘act more expeditiously and be more responsive when pursuing potential growth opportunities’. It revealed that it is in talks to acquire some $200 million of assets.
The private placement will also help cut A-Reit’s gearing. Its aggregate leverage as at Dec 31 was 34.7 per cent, which would fall to 32.6 per cent after revaluation gains of $307.6 million are taken into account.
Pending the deployment of the net proceeds from the private placement, the aggregate leverage goes down to 25.1 per cent.
Moody’s Investors Service does not expect the purchase of Neuros and Immunos and the private placement to have immediate impact on A-Reit’s A3 corporate family rating and Baa1 senior unsecured rating.
HPH Trust – BT
Are Reits a better alternative to Hutchison Port trust?
HUTCHISON Port Holdings (HPH) Trust’s initial public offering has clearly been a letdown for punters who are in for a quick ride. The container port business trust sank in its stock market debut almost two weeks ago and has not recovered past its offer price of US$1.01 per unit since.
But for long-term investors seeking yields, the verdict remains open. The lower unit price means a chance of securing higher yields by buying in now, assuming that the projected distributions to unitholders (DPUs) materialise. Is HPH Trust worth a shot for this purpose?
The answer may be ‘no’, because better options exist in the form of real estate investment trusts (Reits).
To be fair, HPH Trust is dangling attractive yields. Its forecast seasonally annualised DPU for 2011 is 45.88 Hong Kong cents and at yesterday’s closing unit price of 98.5 US cents, after currency conversions, the yield comes up to almost 6 per cent. This is high in today’s low interest rate environment. For 2012, based on the same closing unit price, the yield could be 6.7 per cent.
What is uncertain is whether HPH Trust will eventually pay out the same DPUs as projected, and also maintain reasonable distributions in future.
In the first place, business trusts are not required to make minimum levels of payout. This is something that a number of investors may not have noticed, because they assume that business trusts and Reits are the same. They are not.
HPH Trust said in its prospectus that its policy is to give out all of its distributable income. But in any case, it has flexibility to change this, especially if hard times come along.
Recall what shipping trust Rickmers Maritime did in 2009 when it had to conserve cash during the financial crisis. Even though income available for distribution in Q2 rose 42 per cent year-on-year, Rickmers still cut DPU and unitholders received 73 per cent less from the previous year.
By contrast, Reits have to pay out at least 90 per cent of their distributable income to unitholders to enjoy tax transparency on the amount they pay out. This alone puts Reits ahead of business trusts for investors keen on steady yields.
Unitholders can be pretty sure that this rule will not change. Even in the face of 2009’s credit crunch, the authorities rejected requests from some Reit managers to lower the minimum payout ratio, emphasising that Reits’ characteristics as a stable, high-payout, pass-through vehicle must be preserved.
Reits look even safer when we consider the currency exposures HPH Trust investors face. Most of HPH Trust’s revenue is recognised in Hong Kong and US dollars; its units are priced in US dollars; and its DPUs are in Hong Kong dollars. The risks are worth repeating given how the Singapore dollar looks poised to continue strengthening.
The Sing dollar was trading at around S$1.26 to the US dollar yesterday and one of the more bullish research houses believes this could reach S$1.19 by year-end. If the forecast materialises, HPH Trust investors will have to pray that unit prices go up by more than 5 per cent just to make up for foreign exchange losses.
The Singapore Exchange (SGX) is looking at ways to facilitate the quotation and trading of HPH Trust in Singapore dollars as well as US dollars. But until details emerge, it is not clear if the arrangement will remove currency exposure on that front.
Also, assuming that the Sing dollar appreciates against the Hong Kong dollar at the same pace (since the latter is pegged to the greenback), HPH Trust’s distributions would lose value after currency conversion.
Investors can easily minimise foreign exchange risks by investing in Reits. All but one of them listed on SGX trade in Sing dollars, and most pay out distributions in Sing dollars. It is even possible to find Reits which hold only assets in Singapore, meaning that income streams are insulated from currency movements.
A quick scan on Bloomberg turns out a few Reits that generate yields of over 6 per cent and pay out distributions in Sing dollars. Some examples are Ascendas Reit and Frasers Commercial Trust.
Some may argue that HPH Trust has greater growth potential because its Shenzhen ports still have a lot of room for expansion. Also, unlike Reits, business trusts are not hampered by limits on borrowings or development asset size.
These are good reasons for the growth-seeking investor to consider HPH Trust. But investors hungry for yields and stability may sleep better with their money parked in Reits.
Hospitality – DBSV
Winds of change
• Travel patterns in aftermath of Japan’s disaster could change in Singapore’s favor in coming months
• 2011 begins well; we believe that STB’s target of 12-13m visitors is attainable
• Hoteliers to continue recording robust results; BUY CDL HT, ART, GENS, UOL Group
Travel patterns could change in Singapore’s favor in coming months. In the aftermath of the devastating earthquake and tsunami that hit Japan and fears of a radiation leak, we see 2 trends emerging. (1) We believe that affected Japanese/corporates could delay travel overseas and (2) potential inbound travelers into Japan could look for alternative holiday destinations in the coming months. While the anticipated weakness from Japan will affect Singapore’s visitor growth somewhat, we believe that Singapore could benefit from this change in travel pattern in the near term, which might more than offset any potential weakness from Japan.
We see similarities between Singapore and Japan inbound tourists profiles. We believe that visitors from China, Korea – two of Japan’s top inbound visitor source markets (averaging 3m visitors / annum) are “low hanging fruits” for Singapore to tap as they are already top generating markets locally – collectively contributing c13% of annual visitor arrivals. In addition, in common visitor source markets between Singapore & Japan (Pg 4 of report), we find that Singapore is placed positively as one of the top 5 outbound destinations in these markets, supporting our view of a possibility of Singapore benefiting from such a diversion in travel plans.
1.06m tourists in Jan’11; year end target of 12-13m visitors could be attainable. Robust tourist numbers in Jan’11 is a strong foot forward towards attaining STB’s goal of 12-13m visitors. In addition, we continue to see strong growth in its top markets like China (+33%yoy), Indonesia (+20%yoy), Malaysia (+16%yoy) and to break new ground from likes of HK (+51% yoy), Thailand (+35% yoy).
Hospitality related stocks to continue delivering strong earnings. With RevPAR continuing inching up 19% yoy, 7%mom in first 2 months of 2011 on the back of continued robust occupancies of 82%, we believe hoteliers continue to have pricing power and expect them to continue to look to optimize rates through dynamic pricing strategies, translating to strong operating results in the coming quarters. Our top picks remain: CDL HT (BUY, TP S$2.30), Ascott REIT (BUY, TP S$1.38), UOL (BUY, TP S$5.31), Genting Singapore (BUY TP S$2.70).
StarHill Global – Lim and Tan
• The key point in The Edge’s story on Starhill Global is its high dependence on master leases, which essentially means there is little direct benefit from asset enhancement initiatives to be undertaken.
• Starhill’s 4 key assets are: 27% of Ngee Ann City (NAC; and accounting for 31% of group Net Property Income), Starhill Gallery, Lot 10 (two retail malls in Malaysia acquired from YTL in 2010 / 21% of NPI) and 74% of Wisma Atria (27%).
• Only the last does not have a master lease, and the one that is undergoing refurbishment presently at a cost of $30 mln.
• Take NAC: while Toshin of Japan’s current lease may run out in 2013, it has the option to renew for another 12 years. And why should it it not renew, given the popularity of the Takashiyama store.
• Starhill also has assets in China (9% of NPI), Australia (8%) and Japan (4%)
• In the retail reit sector, we maintain our preference for CapitaMall Trust ($1.88 on Friday, unch) and Fraser Centrepoint Trust ($1.48, up 2), even though Starhill offers higher yield of 6.3%, and the lower price-to-book of 0.7x. Corresponding numbers for CMT and FCT are 4.9% / 1.23x and 5.3% and 1.23x respectively.