Indiabulls – BT
SINGAPORE – Indiabulls Properties Investment Trust opened flat at its IPO price of $1.00 but then fell as much as 7.5 per cent in its Singapore market debut on Wednesday.
The fall continues the poor record for listing of new real estate investment trusts, after the last two Reits to list in Singapore, Lippo-Mapletree Indonesia Retail Trust and Saizen Reit, tanked on their debuts last November and are still trading as much as 31 per cent below their IPO price.
Indiabulls Trust, a subsidiary of Indiabulls Real Estate, had raised $353.5 million (US$257 million) after pricing its initial public offer at the lower end of the indicative price band of $1 to $1.10.
In a sign that retail investors’ interest in new listings remains weak, Indiabulls Trust said 1.75 million out of the 13.1 million units alloted to its public offer were not taken up, despite the Reit extending the offer by an extra day last week.
The unsubscribed retail units were transferred to the placement tranche for institutional investors and have been fully taken up, making the offer about 1.3 times subscribed overall, Indiabulls Trust said. —
FrasersCT – CIMB
Holding fort North
• Well-located suburban assets. FCT is a retail real estate investment trust with three suburban retail properties concentrated in the north of Singapore. Its welllocated assets in the heart of suburban residential estates and major transportation nodes should be sustained by ready population catchments and limited competing supply.
• Strong sponsor to aid acquisitions. FCT is supported by Frasers Centrepoint Limited (FCL), which provides FCT with a ready pipeline of four assets for acquisition.
• Growth via acquisitions and double-digit rental-renewal rates. FCT is poised for growth via acquisitions and growth in retail rents from 2008 to 2010. We expect FCT to acquire S$480m of properties from 2008 to 2010. In addition, retail rents are expected to increase by up to 45% over preceding rates from 2008 to 2010 on the back of tight supply and ongoing asset enhancements.
• Initiate with Outperform and DDM-derived valuation of S$1.70. We have a target price of S$1.70, using DDM valuation (discount rate 8.5%, terminal growth rate 4%). This represents a total prospective return of 38.3% from a forward yield of 5.5% and potential price upside of 32.8%.
PLife – UOBKH
Protected against inflation
Strong defensive qualities. Parkway Life REIT provides strong defensive qualities as the minimum rent increase for Gleneagles Hospital, Mount Elizabeth Hospital and East Shore Hospital is set at CPI + 1%. Assuming that CPI is 5.5% in 2008 (mid-point of CPI inflation forecast by MAS), the minimum rent increase for the three hospitals in Singapore would be 6.5% in 2009. Where CPI is negative for any given year, then it is deemed to be zero. This ensures that rental income from hospitals in Singapore is always increasing.
Diversification from acquisitions in Japan. Parkway Life REIT has acquired a pharmaceutical production and distribution facility in Japan for a total cash consideration of ¥2.59b, or S$35m. The two-storey freehold building is located in Matsudo City, Chiba prefecture with a net lettable area of 34,875sf. Tenant Inverness Medical Japan utilises the facility to manufacture and distribute medical test kit devices. The acquisition provides an initial net yield of 5.3%. There is potential to redevelop the site as the ratio of the building’s floor area to the land area is about 40% compared with the allowable ratio of 200%.
Parkway Life REIT will be acquiring two nursing homes located in Yokohama City and Ibaraki City, Japan for S$34.9m. Nursing home operator ZECS Community Co Ltd will lease back the properties for 15 years with option to extend for an additional five years. The Yokohama facility has lettable area of 35,230sf and provides net operating income yield of 6.1%. The Ibaraki facility has lettable area of 39,890sf and provides net operating income yield of 6.7%. Rental income is index-linked to inflation with rent reviews every five years.
The acquisition in Japan will be funded by debt. We estimate that gearing will increase from 4% to 10.8% after the acquisitions are completed. The acquisitions allow Parkway Life REIT to gain exposure to Japan where population is aging rapidly. It is estimated that one in every three Japanese will be above 65 years of age by 2050.
Reiterate BUY. We like Parkway Life REIT for its healthcare focus. It provides strong defensive qualities as rental income from hospitals in Singapore and nursing homes in Japan is linked to inflation. The company also has a low level of gearing. Our target price is S$1.52 based on the discounted dividend model (required rate of return: 7.68%; terminal growth: 2.8%).
SREIT – UOBKH
Risk-reward balance tilted negative as yield curve steepens
Long-term interest rates pulling SIBOR higher. Benchmark 10-year Singapore government bond yield has further increased from 3.3% to 3.61% last week. 3-month SIBOR has remained relatively stable to 1.25% but 6-month, 9-month and 12-month SIBOR have trended marginally higher. 3-month SIBOR is likely to have bottomed and a move towards 1.5% by end-2008 is highly likely.
Crude oil prices continue to climb despite signs of demand attrition. Indonesia has cut fuel subsidies and raised petrol prices from Rp4,500/litre to Rp6,000/litre on 24 May. Malaysia has just raised petrol prices by 41% to RM2.70/litre and diesel prices by 63% to RM2.58/litre on 4 Jun. Similar adjustments are also implemented in Bangladesh, India, Sri Lanka and Taiwan. Current high level of energy prices is starting to curb consumption. Airlines have started to cut frequency of flights. Logically, consumers will also start to moderate consumption. However, crude oil prices continue to climb by 4.5% last Thursday and 8.4% last Friday to end the week at historic high US$138.54/barrel despite signs of demand attrition.
Fighting inflation with higher interest rates. Bank Indonesia has raised 1-month interest rate by 25 basis points to 8.5%. The Philippines central bank has similarly raised overnight rate by 25 basis points to 5.25%. The European Central Bank has also signalled possible hike in interest rate in Jul 08 due to mounting inflationary pressures. Interest rates are on the rise on a worldwide basis, except maybe the US, as central banks combat inflation.
Mounting challenges for Singapore REITs from higher interest rates. MAS has raised CPI inflation forecast to 5-6% in 2008, an upward revision from previous 4.5-5.5%. Although downside risk has heightened in recent months, MAS has maintained Singapore GDP growth forecast of 4-6%. The strong S$ is expected to provides some cushion again inflation.
The steepened yield curve pose challenges for Singapore REITs as it hamper efforts to secure longer-term funding. Investors will be concerned that REITs may face difficulties refinancing short-term borrowings and to grow via acquisitions. We have further adjusted our target prices for Singapore REITs to factor in a higher risk-free rate of 3% vs previous 2.50%. We are using required rate of return of 8.5% for our dividend discount models.
We have cut our target prices for Singapore REITs by another 4% to 6%. We have also downgraded our recommendation for CapitaMall to HOLD as the stock provides upside of only 2.1%.
Ascendas REIT (BUY/S$2.44/Target: S$3.00)
• A-REIT has benefitted from strong demand for suburban office space as Business & Science Park accounted for 25% of its portfolio by property value. Renewal rate for Business & Science Park was S$3.76psf pm in 4QFY08, 68.8% higher on a yoy basis.
• A-REIT had a portfolio of 84 properties and total assets of S$4.2b as at Mar 08. The weighted average lease to expiry is 5.9 years. A-REIT has a well-diversified tenant base of over 790 international and local companies.
Parkway Life REIT (BUY/S$1.21/Target: S$1.52)
• The minimum rent payable by each hospital is set at Consumer Price Index + 1% above rent payable in the preceding year. Assuming CPI is 5.5% in 2007, the minimum rental increase for Gleneagles, Mount Elizabeth and East Shore hospitals is 6.5%.
• Parkway Life REIT will be acquiring two nursing homes Yokohama City and Ibaraki City in Japan for S$34.9m. Nursing home operator ZECS Community Co Ltd will lease back the properties for 15 years with option to extend for an additional five years. The properties provide net operating income yield 6.1% and 6.7% respectively and rental income is indexlinked to inflation with rent reviews every five years.
Suntec – SGX
ISSUE OF 34,500,362 NEW UNITS IN SUNTEC REAL ESTATE INVESTMENT TRUST
The Board of Directors of ARA Trust Management (Suntec) Limited, as manager of Suntec REIT (the “Manager”), wishes to announce that the Manager has today (9 June 2008) issued 34,500,362 units in Suntec REIT (the “New Units”), the first of six instalments of deferred units in part satisfaction of the purchase consideration for Suntec REIT’s initial portfolio of properties.
With this issue of New Units, the total number of units in Suntec REIT (“Units”) in issue is 1,527,998,838. The New Units will commence trading on the Main Board of Singapore Exchange Securities Trading Limited (the “SGX-ST”) at 2.00 p.m. today.
The New Units will be traded under a separate temporary stock counter which will be maintained for the period commencing from today to the last day of “cum-distribution” trading for the current distribution period, which is expected to be in early August 2008. Thereafter, both the New Units and the existing Units will be aggregated and traded under the existing Suntec REIT stock counter on the Main Board of the SGX-ST on the next market day.
The separate temporary stock counter is necessary to differentiate the entitlement of existing Units to the distributable income of Suntec REIT for the period from 1 April 2008 to 30 June 2008 versus the entitlement of the New Units to distributable income of Suntec REIT for the period commencing from today to 30 June 2008, in line with current market practices.
Other than in respect of entitlement to the distributable income of Suntec REIT, the New Units will otherwise rank pari passu in all respects with the existing Units.
Source : SGX