K-REIT – BT
K-Reit sees 2011 DPU rising by up to 10.2%
Its Q3 net property income rises 42% to $17.5 million
K-REIT Asia is expecting a series of property transactions to boost its distribution per unit (DPU) for FY2011 by as much as 10.2 per cent.
The commercial real estate investment trust released the projections yesterday together with results for the third quarter ended Sept 30.
K-Reit forecasts that with the acquisition of an office block at 77 King Street in Australia, the proposed purchase of a one-third stake in Phase One of the Marina Bay Financial Centre (MBFC), and the proposed sale of Keppel Towers and GE Tower, its DPU for FY2011 would be 6.68 cents.
This would be higher than the 6.06 cents which could be generated by its existing portfolio, comprising Keppel Towers, GE Tower, Bugis Junction Towers, an interest in Prudential Tower, an interest in One Raffles Quay, and a stake in 275 George Street in Australia.
Based on the forecasts, the three deals would actually cause net property income and total return after tax to be lower in FY2011. But after net tax adjustments, income available for distribution would rise, leading to the higher projected DPU.
The projections shed some light on the impact of a proposed asset swap between K-Reit and its parent. K-Reit said last week that it is buying the MBFC stake from Keppel Land for $1.427 billion, and selling Keppel Towers and GE Tower to it for $573 million.
K-Reit will be holding an extraordinary general meeting in December to seek unitholders’ approval for these two deals.
Recent acquisitions have helped to raise K-Reit’s earnings. In Q3, its net property income was $17.5 million, 42 per cent higher than a year ago due mainly to contributions from an additional six strata floors it bought at Prudential Tower in November last year, and a 50 per cent stake it acquired in 275 George Street in March.
Distributable income to unitholders rose 26 per cent to $22.7 million.
DPU in Q3 was 1.69 cents, 25 per cent more than the 1.35 cents a year ago, which has been adjusted for the effect of a rights issue completed in November last year. Without the adjustment, DPU last year was actually higher at 2.69 cents.
K-Reit closed unchanged at $1.37 yesterday.
PLife – BT
Parkway reit sets sights on local market
Group to explore opportunities for nursing homes collaboration
PARKWAY Life Reit is eyeing the local nursing home market after its forays into properties that provide long-term elderly care services in Japan.
‘We are looking to explore opportunities to collaborate with credible nursing care operators locally and regionally, as well as to expand the availability of quality nursing homes in Singapore to cater to people with different needs,’ said Yong Yean Chau, CEO of Parkway Trust Management, which manages the reit.
Plans are preliminary, but the trust’s manager is looking to discuss possible working models with interested parties. On a recent site visit to the reit’s nursing homes in Japan, Mr Yong expressed interest in helping them export their expertise to Singapore.
Like Japan, Singapore has a rapidly ageing population that will drive demand for nursing home places in the longer term, he said. ‘In Singapore, about 9 per cent of the population is currently aged 65 and above – the highest in South-east Asia.
‘The growing prevalence of nuclear families in modern societies also means fewer people will be available to take care of the needs of the elderly in future.
‘Nursing homes are increasingly becoming good alternatives for people to enjoy care, shelter and companionship outside of the family in their old age.’
Singapore has about 60-70 nursing homes, about half of which are run by the private sector and the rest by voluntary welfare organisations.
This is not sufficient to support the ageing population, with the number of people aged 65 and over expected to increase three times from 300,000 now to 900,000 by 2030, according to a Ministry of Health paper in 2006.
In a speech last year, Health Minister Khaw Boon Wan said the number of nursing home beds here will be boosted to 14,000 by 2020, from 9,200. The Health Ministry is already working with three existing nursing homes on rebuilding programmes that will increase bed numbers.
Besides the need to boost capacity, Parkway Trust Management’s Mr Yong says there is room for greater market segmentation and sophistication in the local nursing home sector.
‘With more product offerings, coupled with public education, we believe the perception and acceptance of nursing homes in Singapore will improve over time,’ he said.
‘Parkway Life Reit is keen to share its experiences and is at the preliminary stages of exploring the feasibility of collaborating with various stakeholders.’
Through a series of acquisitions in the past two-and-a-half years, the reit owns 29 properties in Japan, 28 of which are nursing home and care facilities.
These properties are leased mostly to nursing home operators that pay a guaranteed monthly rent, which may be pegged to inflation rate.
In Singapore, the reit’s assets include Mount Elizabeth, Gleneagles and Parkway East hospitals. For the quarter ended June, its assets in Japan accounted for 28 per cent of its net property income of $17.3 million.
K-REIT – BT
Win-win for Keppel Land and K-Reit?
FOR economics students weaned on the principle of profit maximisation, the term ‘win-win’ which buyers and sellers use so often to describe deals might sound like an incongruity.
Looking at how the market reacted to the proposed asset swap between Keppel Land and K-Reit Asia, there must be many such sceptics around. Although both parties said that the deal would enhance value for their shareholders and unitholders, investors chose to buy into the property developer and sell their stakes in the Reit.
Keppel Land rose to an intraday high of $4.23 yesterday before closing at $4.16, five cents higher than on Monday. At least four research houses – CIMB, Standard Chartered, DBS Vickers and DMG & Partners – raised the target price for the stock.
In contrast, K-Reit lost two cents to end trading at $1.35. CIMB downgraded the counter to ‘underperform’ from ‘neutral’.
The market clearly thought there was just one winner in the deal. Is the judgement fair? The way to answer this is to see if Keppel Land got too good a price for its one-third stake in Phase One of Marina Bay Financial Centre (MBFC), or underpaid K-Reit for Keppel Towers and GE Tower.
In one leg of the swap, Keppel Land will sell its MBFC stake to K-Reit for $1.4268 billion or $2,450 per sq ft of net lettable area. This is just a slight 0.4 per cent more than the open market valuation of $1.4205 billion. So far, so good.
What’s worth noting is that the sale price is higher than many analysts’ projections. Standard Chartered said that the consensus estimate was $2,300 psf; DMG & Partners valued MBFC Phase One at $2,100 psf in its model. To the research community at least, the stake sale leans in Keppel Land’s favour.
Also, compared with other office spaces sold recently downtown, the MBFC stake secured a higher price. For instance, four floors at Samsung Hub changed hands for $2,125 psf in August. It is true that MBFC is newer, has many established tenants and is in a glitzier district, but the amount of premium these factors command is debatable.
Most importantly, some market watchers do not see K-Reit benefiting much from buying the MBFC stake, at least in the short term. It will have to take on a huge debt of $821 million, which raises its aggregate leverage to 39.1 per cent. It is also not clear at this point if the transaction would be yield accretive. One research house, CIMB, expects a 6-7 per cent drop in K-Reit’s distribution per unit for FY2011-12.
In short, while Keppel Land is selling its MBFC stake to K-Reit in line with market valuation, there are some who expected a lower price, or think that K-Reit would be burdened.
In the second part of the swap, K-Reit will sell Keppel Towers and GE Tower to Keppel Land for $573 million. This is just 0.5 per cent less than the valuation of $576 million, assuming the buildings are put to residential use. Again, nothing to raise eyebrows here.
The bigger question which many observers have is whether K-Reit could have gotten a higher price if it put the two towers up for bidding. With liquidity still surging in Asia, there could be other property developers or funds willing to pay above valuation.
Some would recall that when CapitaCommercial Trust sold StarHub Centre through an expression of interest exercise and a private tender in July, it managed to secure a price that was 42.5 per cent higher than the asset’s latest valuation.
Near Keppel Towers and GE Tower, Singapore Technologies Building is up for sale with a price tag of at least $1,500 psf of net lettable area. Hypothetically, if Keppel Towers and GE Tower were sold at just $1,350 psf, they would already fetch $581 million.
In this case, while Keppel Land is paying K-Reit according to market valuation, some wonder if K-Reit could have gotten more if there was competition for the assets.
At a briefing on Monday, management from Keppel Land and K-Reit reiterated several times that the prices were in line with market valuations, and that both companies stand to gain from the bundled deal. They should illustrate more clearly what the benefits are – particularly for K-Reit unitholders – in order to get investors to buy into the ‘win-win’ theory.
MIT – BT
MIT expected to raise up to $1.19b from IPO
Offer opens today and closes on Oct18; unit trading may start on Oct21
MAPLETREE Industrial Trust (MIT) is expected to raise up to $1.19 billion in gross proceeds from its initial public offering (IPO), having priced its offer price at the top end of the indicative range.
It is on the lookout for acquisition opportunities and asset-enhancement initiatives for existing properties.
While the bulk of IPO proceeds goes towards paying off debt, MIT chief executive Tham Kuo Wei said the trust has sufficient working capital and debt headroom of $256 million to seek further growth.
‘We have sufficient funds set aside for operational activities,’ he told reporters at a briefing yesterday. ‘If you are talking about growth acquisitions, we will be able to draw on the debt headroom if needed.’
But as a trust with a local mandate, MIT will focus on Singapore for the time being and will seek feedback from unitholders before expanding overseas.
For its IPO, MIT is offering 594.91 million units at $0.93 per unit, subject to an overallotment option of another 91.75 million units.
Separately, six cornerstone investors have agreed to subscribe for 322.58 million units at the offer price. They are AIA, Prudential Asset Management (Singapore), Henderson Global Investors, Columbia Wanger Asset Management, US investment firm DE Shaw and Dutch pension fund APG.
The sponsor’s two wholly owned subsidiaries, Mapletree Dextra Pte Ltd and Sienna Pte Ltd, will also subscribe for 359.45 million units at the offer price, taking Mapletree’s stake post-listing to about 31 per cent, assuming that the greenshoe option is fully exercised.
The offer price represents an annualised distribution yield of 7.6 per cent for fiscal 2010, which is estimated to rise to 8 per cent for fiscal 2011.
MIT chief financial officer Loke Huey Teng said the trust plans to pay out 100 per cent of its distribution income to unitholders from listing until March 31, 2012.
The public offer opens today and closes on Oct 18. The units are expected to commence trading on Oct 21.
MIT is the third real estate investment trust (Reit) to be launched by Temasek’s wholly owned Mapletree Investments. It is Singapore’s largest private landlord for multi-user flatted factory space with an 11.2 per cent market share.
Valued at $2.1 billion as at Aug 31, MIT’s IPO portfolio of 70 properties has a total net lettable area (NLA) of about 1.1 million square metres and a gross floor area of 1.5 million sq m.
Mr Tham said there was potential for organic rental revenue growth in the next few years as MIT’s average rents catch up with market rents.
Singapore’s strong manufacturing sector is expected to continue to drive demand for logistics and industrial space, he added.
MIT will be mainly using the IPO proceeds and a new debt facility of $837 million from three banks – DBS Bank, Standard Chartered Bank and Citibank – to pay down the existing debt.
Post-listing, MIT will have an average debt maturity of 3.4 years with no more than 30 per cent of debt falling due in any one year, which is ‘appropriate for a trust of this size’, Ms Loke said.
MIT has obtained an expected credit rating of BBB+ from Fitch Ratings, which allows it to borrow up to a maximum of 60 per cent of the value of the deposited property.
Post-listing, its aggregate leverage will be 38.5 per cent, up from 38.1 per cent as at March 31.
Sabana REIT – BT
Freight Links delivers IPO with a difference
Logistics firm breaking new ground with $600m Islamic Reit due to list by year's end
(SINGAPORE) Freight Links Express Holdings expects to list Singapore's first Shari'ah-compliant real estate investment trust (Reit) worth about $600 million by the end of the year, sources close to the deal told BT yesterday.
The trust – which would hold about $850 million of Singapore industrial properties – is expected to be the world's largest certified Shari'ah-compliant Reit.
The three Shari'ah-compliant Reits now available in the region are all listed in Malaysia. They include Axis Reit, an office property trust that is currently the biggest listed Islamic Reit with a market cap of 812 million ringgit ($341.2 million).
The other two are Al-Hadharah Boustead Reit, which invests in plantation assets, and Al-'Aqar KPJ Reit, which focuses on healthcare assets.
Logistics company Freight Links, which owns 51 per cent of the Reit's manager, Sabana Investment Properties, said in a regulatory filing on Monday that it would subscribe up to 5 per cent of the IPO and invest as much as $30 million.
The other owners of Sabana Investment Properties are Blackwood Investment, which is run by private investors and owns 45 per cent of the trust, and Tarian Capital Partners, which owns 4 per cent.
BT understands that Singapore-incorporated Tarian Capital was formerly called Emirates Tarian, due to its links to Emirates Investments Group (EIG), a Dubai-based company known for glitzy property projects. EIG sold its stake in Emirates Tarian, which was renamed.
EIG, through the former Emirates Tarian, had its fingers in Singapore high-end property projects in recent years, including working with Ritz-Carlton to develop the Ritz-Carlton Residences.
Sabana Investment Properties, which was incorporated late last year, has been looking for warehouses to put into its portfolio since then, a source said.
Freight Links has already sold five properties worth $193 million to the Reit manager. The remaining properties for the trust – known as Sabana Reit – were acquired from various listed and unlisted parties.
These included Sim Lian Group, which said in May that it would sell properties worth $46.3 million to Sabana Reit. Soilbuild Group also sold the trust a warehouse in August for $60 million.
BT understands the listing is aimed at attracting funds from Middle Eastern investors, as few Shari'ah-compliant products are available.
One distinguishing factor of a Shari'ah-compliant Reit versus a conventional one is in having at least 95 per cent of the gross floor area of the properties adhere to Shari'ah laws, which prohibit any links with alcohol, tobacco and pork consumption, for instance.
This means that earnings generated from the 5 per cent of gross floor area of the warehouses not certified to be Shari'ah-compliant cannot be deemed for profit or distributed as dividends, and have to be given to charity.
Varying benchmarks are used by Reits to gauge the level of compliance, given differing schools of thought in Islamic teaching. Malaysia grants compliance if 80 per cent of the gross floor area follows Shari'ah law, sources said.
BT understands Sabana Reit is designed to meet stricter requirements expected in the Gulf region – to draw investors from that area.
The warehouses in the Reit are undergoing the final step in the certification process and are expected to meet compliance standards, BT understands.
The Reit also has to use Shari'ah-compliant banking and insurance products, given the different structure under Islamic finance. Under Shari'ah law, businesses cannot make money from interest fees, for example.
BT understands the upcoming listings of Global Logistic Properties and Mapletree Industrial Trust have helped boost confidence in the Sabana IPO, which has garnered strong interest from Middle Eastern investors. The Reit's roadshow is expected to start in November.
Shares of Freight Links surged 6.7 per cent or half a cent to end at eight cents yesterday in response to Freight Link's announcement made after the end of trading on Monday.
HSBC, Daiwa Capital Markets and UOB are joint book-runners for the Sabana IPO.