A-REIT – CIMB
Equity issuance: Round Two
Private placement to raise S$301.6m
Seeking S$301.6m through private placement. The manager of AREIT is proposing the issuance of 185m units to institutional and other investors at S$1.63-1.70 apiece to raise gross proceeds of at least S$301.6m. The price range represents a discount of 3.8-7.8% to the volume weighted average price of S$1.7674 per unit for full-day trades on 7 Aug 09. The placement is being managed and underwritten by Cazenove and DBS. Assuming approval from the SGX, the new units are expected to trade from 20 Aug 09.
Proceeds to fund SingTel BTS and potential acquisitions/BTS. Proceeds from the private placement will be used to: 1) fund the development of a build-to-suit (BTS) facility for SingTel (about S$175.4m; 58% of gross proceeds) announced in May this year; and 2) fund potential acquisitions and/or build-to-suit opportunities (S$120.6m; 40% of gross proceeds); and 3) general corporate and working-capital purposes, and expenses incurred for the placement.
Comments
Asset leverage pared below 30%. Assuming the placement is fully taken up and net proceeds are fully utilised to cut debt, asset leverage will decline to 29.3% from 35.7%. This should give AREIT more financial flexibility to acquire or develop build-to-suit properties when opportunities arise.
Share base diluted by 11%; DPU diluted by 10%. Upon completion and assuming no other changes, AREIT’s share base of 1,685m units will expand by 11%, and DPU for FY10 will fall 10%. Dilution for FY11-12 is less severe at 3-4% as contributions from SingTel BTS and other development projects kick in.
Acquisitions look probable, once more. With an expanded share base, dividend yield at 7% makes acquisitions more probable, as physical property yields of industrial assets remain high at 7-8% and SIBOR remains low at under 1%.
SingTel BTS in a nutshell. AREIT is developing a 9-storey hi-tech industrial building at Kim Chuan Road for SingTel. The total estimated development cost is S$175.4m, which includes construction and land costs, and the installation of mechanical and electrical equipment. The completed building will be leased to SingTel for an initial 20 years with annual rental escalations and an option to renew for a further 10 years on expiry. Completion of the building is expected in Apr 2010. Management expects an average net yield of 11% from the facility in the 20-year lease period.
Valuation and recommendation
Increased contributions and less severe expense assumptions. We account for dilution and add in potential contributions from SingTel BTS from FY2011. We also assume that S$120.6m of the proceeds will be used to acquire properties. Separately, we increase our net property income margin assumptions to 75% from 73% in view of strong cost-control initiatives in the last few quarters; and decrease our cost-of-debt assumptions to 4.3% from 4.7% as we believe lower asset leverage after the placement and continued low interest rates will result in a less demanding cost of debt for AREIT. Following our changes, our DPU estimates fall 8% for FY10 but rise 3-5% for FY11-12. Our DDM-based target price rises to S$1.74 from S$1.70 (discount rate of 8.4%).
Maintain Neutral with higher target price of S$1.74 (from S$1.70). Although the equity issuance did not come totally as a surprise, we were disappointed that no firm acquisitions or development works were announced in tandem.
As one of the market leaders in the SREIT space, we expect AREIT’s speedy move to capture ready equity to be followed by a second round of equity fund-raising by REITs to further strengthen their balance sheets in preparation for a sharp devaluation of asset values at year-end and uncertainties in capital markets.
AREIT is trading above its book value at 1.1x and offers a 7% dividend yield. While yields still look relatively attractive, we believe there are cheaper alternatives among the REITs while the outlook for the industrial sector has yet to turn sunny. Maintain
Neutral.
AREIT – BT
A-Reit issuing new units to raise $302m
It says new funds could strengthen its capital structure
ASCENDAS Real Estate Investment Trust (A-Reit) is looking to raise at least $301.6 million through a private placement of new units – just months after a $408 million cash call in January.
The private placement will ‘strengthen A-Reit’s balance sheet to take advantage of potential investment opportunities’, said Reit manager Ascendas Funds Management’s CEO and executive director Tan Ser Ping.
A-Reit asked to halt trading in its units yesterday morning and said it is issuing 185 million new units to institutional investors at between $1.63 and $1.70 apiece. The new units are equivalent to 11 per cent of the 1.68 billion units in issue as of June 30.
The issue price range represents a discount of 3.8 to 7.8 per cent to the volume weighted average unit price last Friday.
The Reit manager, with joint lead-managers and underwriters Cazenove & Co (Singapore) and DBS Bank, will determine the issue price through a book-building process. The process started yesterday and should finish today.
After setting aside $5.6 million for fees and expenses, A-Reit will have net proceeds of around $296 million. Of this, $175.4 million will go towards developing a high-tech built-to-suit facility for Singapore Telecom.
SingTel will lease the property off Upper Paya Lebar Road for 20 years and has an option to extend the lease for another 10 years.
A-Reit will use another $120.6 million for potential acquisitions of income-producing properties and built-to-suit development opportunities.
‘A pipeline of potential investment opportunities at different stages of development has been established and some of these may gradually materialise as the economic condition stabilises,’ Mr Tan said.
A-Reit also said the new funds could strengthen its capital structure and allow it to borrow more at potentially better terms. Should it use all the net proceeds to repay debt, its aggregate leverage would fall from 35.7 per cent at Aug 9 to 29.3 per cent.
Analysts BT spoke to yesterday were not completely taken aback by A-Reit’s latest cash call – some noted that its gearing is relatively high in the sector and new funds may help bring that down.
A CIMB report last week showed that A Reit’s leverage is higher than that of at least eight other Reits, based on last reported figures.
The buoyant stock market may have facilitated fund-raising too, some analysts said.
To ‘ensure fairness’ to holders of existing units, A-Reit will give them an advanced distribution of distributable income for the period from July 1 to the day immediately before the date on which the new units will be issued.
MI-REIT – BT
MI-Reit Q1 DPU drops 36% to 1.51cents on higher loan costs
MACARTHURCOOK Industrial Reit (MI-Reit) has announced a distribution per unit (DPU) of 1.51 cents for its first quarter ended June 30, down 36 per cent from a year ago.
Higher borrowing cost was one factor for the fall. Borrowing costs were higher because of the increase in interest margins and facility fees when the repayment date of the Reit’s Singapore term loan facility was extended to Dec 31, 2009 during the quarter.
Net property income for Q1 was $9.3 million, 3.2 per cent higher year-on-year, as the portfolio’s high occupancy was maintained.
The Reit said organic rental growth was supported by built-in rental escalations staggered throughout the leases of 19 of the properties.
In FY2010, seven properties are scheduled to experience 5 per cent rental increases and three properties will see rental increases of 3.25 per cent, 3 per cent and 1.5 per cent.
With the higher cost of borrowing, the income available for distribution in FY2010 will be lower than in FY2009, the Reit said. ‘However, barring any further unforeseen events, the manager expects rental income to remain stable.’
PLife – DBS
Getting even more Life-ly
At a Glance
• 2Q09 net property income of S$15.0m in line with consensus and our estimates; DPU of 1.89cents
• New S$50m Islamic facility adds diversity to funding sources
• AEI at P-Life Matsudo for S$2.56m, increase gross rental from asset by 19.4% and DPU by 0.042cents
• Maintain Buy, TP revised to $1.17.
Comment on Results
2Q09 stable as it is. Net property income (NPI) grew 27.9% to S$15.0m, lifted by contributions from its Japanese assets acquired in 2H08 and a higher rental pegged to CPI rate (6.25%) for its Singapore hospitals. NPI margin was slightly lower at 93% vs 93.7% in 2Q08 due higher expenses from the Japanese assets.
DPU of 1.89cents for 2Q09. DPU remained similar to 1Q09 at 1.89cents but registered a growth of 13.7% yoy from 1.66cents in 2Q08. The DPU translates into an annualized yield of c.7% at current price. Ex-date for the dividend is 13 Aug.
S$50m Bank Murabaha facility; low gearing of 22.7%. It has been offered a S$50m 3-yr Revolving Murabaha Facility with Islamic Bank of Asia. This is on top of its S$500m MTN facility and S$126m untapped bilateral bank facility. Hence, P-Life has the flexibility to tap on diversified sources of funds. Gearing remains at a very healthy 22.7%, providing gearing headroom of S$308m and S$996m before the REIT reaches the targeted 40% and 60% maximum gearing levels.
AEI at P-Life Matsudo. The REIT completed a JPY160.1m (S$2.56m) AEI at its P-Life Matsudo asset, involving the conversion of existing utility space into a device manufacturing room. This will increase gross rental of the asset by 19.4% and DPU by c.0.042cents.
Recommendation
Maintain Buy, TP raised to $1.17. We like PREIT for its stable revenue stream, with protection against downward revision, and potential to deliver acquisitions given its debt headroom. We raised our DPU up slightly by c.5-6% for FY09F and FY10F as we revised up our rental assumptions for its Singapore hospitals and a higher NPI from its Japanese assets. Consequently, our DCF-derived TP is adjusted to S$1.17 (WACC 6.6%, terminal growth 1%).