MMP – BT
Macquarie MEAG to raise S$150m from bond sale
Trust is acquiring more property assets in Asia
MACQUARIE MEAG Prime Reit, which owns stakes in two Singapore downtown malls, plans to raise as much as S$150 million from a bond sale, according to an e-mail sent to investors.
The property trust, which also owns offices in the city-state, hired Citigroup Inc to arrange the sale. Macquarie MEAG is offering investors yield premiums of 30 basis points more than corporate benchmark borrowing rates in Singapore for bonds that mature in a year, and 70 basis points for three-year securities. A basis point is 0.01 percentage point.
Macquarie MEAG is raising more debt as it acquires more property assets in Asia. Its leverage increased to about 34 per cent as of Sept 30, from 25 per cent at the end of 2006, according to the trust.
The Singapore-listed trust owns office buildings and retail malls in Singapore, Tokyo and Chengdu, China.
Macquarie MEAG will likely buy assets similar to those it is holding, which may raise its leverage to between 40 to 45 per cent, according to Moody’s Investors Service on May 14.
The trust is rated Baa1, the third-lowest investment grade, by the credit assessor.
Macquarie MEAG owns 74 per cent of Wisma Atria, whose tenants include the Isetan department store, and 27 per cent of Ngee Ann City, anchored by retailer Takashimaya.
The trust is managed by Macquarie Pacific Star Prime Reit Management Ltd, which is 50 per cent-owned by Macquarie Group Ltd, Australia’s largest securities firm. — Bloomberg
MapleTree – OCBC
For higher-risk appetite investors
Cash call as expected. In our Dec 2007 report on Mapletree Logistics Trust (MLT), we articulated that MLT was likely to raise fresh equity within the next two quarters. This was based on the assumption that MLT’s gearing would breach the 60% allowable limit if all its recently announced acquisitions would be debt funded. Indeed, MLT has recently announced that it is seeking fresh equity of S$400m to S$500m via a rights issue. We estimate that if the proposed right goes through successfully, MLT’s gearing would fall to a more acceptable level of about 40%.
Some uncertainties. In the current climate of market volatility and sub prime woes, cash calls are unlikely to be well received. This is clearly reflected by a REIT’s recent cash call in the market which had to be priced much lower than expected. Furthermore, unlike other REITs which acquire assets conditional on successfully raising fresh equity, MLT’s financing model works on the basis of “buy now with debt and refinance later with equity”. This model has two weaknesses in that it exposes MLT to the volatility of the capital markets, and secondly as cash call is delayed until gearing limit is reached, it does not leave much room for maneuvering. In other words, MLT is totally exposed to the demands of the capital markets.
Parent underwriting the rights. The key issue is the pricing of the rights. Obviously the lower the price, more units will be issued and hence the dilutive impact would be greater. The good news is that in the case of MLT’s rights, its parent Mapletree Investment Pte Ltd (MIPL) has agreed to underwrite the issue by buying up all unsubscribed rights. This in turn should help support pricing of the rights and hopefully not lead to DPU dilution.
BUY, but for higher-risk appetite investors only. In the current uncertain capital market climate, it may be better to be less dependent on the capital markets. In that context, a more conservative growth strategy is perhaps more appropriate. As we had articulated in our 2008 sector report, the industrial sector is not our choice sector as we see many risk factors. However, corporate development could possibly be a catalyst to MLT’s unit performance. Nevertheless, we emphasize that MLT is meant only for investors with higher-risk appetite and longer investment horizon. We maintain BUY with a fair value of S$1.31.
JTC REIT – BT
All may gain if Goodman bags JTC Reit
AUSTRALIA’S Goodman group is reportedly expected to clinch the job of being the manager of a proposed real estate investment trust that will hold about S$1.6 billion of industrial properties to be divested by JTC Corp. No official announcements have been made so far.
Market watchers expect Goodman to exit an existing business in Singapore – its 40 per cent stake in Ascendas-MGM Funds Management, the manager of Ascendas Real Estate Investment Trust (A-Reit). JTC’s subsidiary Ascendas holds the remaining 60 per cent.
Some industry players suggest that giving up its stake in the A-Reit manager was probably a condition JTC laid down for Goodman if it wants to manage the new Reit.
That makes sense. For one, it removes conflict of interest. Goodman can’t be having an interest in two Singapore industrial Reit managers who may compete for the same assets and tenants.
For Goodman, instead of having to divide its energies between managing two Reits in Singapore, it may be better to focus on just one Reit.
Another compelling reason for it to choose to manage JTC’s impending Reit and give up its stake in A-Reit’s manager is that Goodman can have full control of the JTC Reit manager, unlike A-Reit, whose Reit management company it controls jointly with JTC subsidiary Ascendas.
JTC may still keep a stake in the impending Reit – perhaps to assuage concerns of some of its tenants that the statutory board’s properties divestment will be accompanied by an increase in their occupation costs. But Goodman will clearly be in the driver’s seat for this new Reit.
Market watchers also expect Goodman to be a sponsor for the new trust, holding a stake of at least 20-30 per cent, in addition to having full ownership of the Reit manager.
That gives Goodman leeway to expand the new Reit as it deems best. The new Reit can ride on the Goodman group’s substantial clout – the group owns, develops and manages industrial and business space globally and has total assets of A$37 billion (S$46.5 billion) with over 700 properties under management. In Asia too, Goodman has a substantial presence in China, Hong Kong and Japan.
Goodman’s new Singapore Reit will be able to mine Goodman’s huge customer base for tenants for its existing and future properties as they expand across Asia. Goodman could also open the door for the Reit to acquire assets in the region.
These are some of the reasons why it makes sense for Goodman to choose sole control of the new Reit manager over continuing joint control of the A-Reit manager.
Its partner in the A-Reit manager, Ascendas, too may feel freer to grow the trust after Goodman leaves.
Since its listing on the Singapore Exchange in November 2002, A-Reit has focused exclusively on Singapore. No doubt its asset size has grown impressively – from an initial portfolio of eight properties worth S$607 million at the time of listing to 78 properties totalling S$3.3 billion as at Sept 30, 2007. But eventually, relying exclusively on the home market limits A-Reit’s expansion prospects.
Industry insiders say that A-Reit has never expanded overseas because of an understanding between Ascendas and Macquarie-Goodman (Macquarie and Goodman parted ways about 18 months ago although a name change to just ‘Goodman’ was effected only last year) that A-Reit will not venture overseas, where both Goodman and, at the time, Macquarie, have considerable interests. In a nutshell, it was to avoid conflict among the three parties overseas. Ascendas may have agreed to such conditions because back then, it needed to ride on Macquarie-Goodman’s brand name in industrial property funds management. Don’t forget, back in late 2002 when A-Reit was floated, Reits were still relatively novel here.
But five years on, Ascendas has gained considerable property fund management expertise, not only managing A-Reit but setting up property funds holding Indian properties, including the Ascendas India Trust (a-i Trust) which was last year floated as Singapore’s first listed Indian property trust.
Overseas markets
Ascendas also has significant presence in China and South Korea and is fast expanding in Vietnam. Ascendas may well decide to float separate Reits holding assets in various respective overseas markets. Or it may decide to park assets in some overseas markets in A-Reit. This will be an internal strategy Ascendas will have to sort out. But at least A-Reit will no longer be fettered from overseas expansion.
So if Goodman and Ascendas decide to part ways in the A-Reit manager, that may be a good thing, for both parties, as well as for A-Reit itself.
In July last year, JTC said it had shortlisted seven candidates to manage the Reit that will hold assets to be divested by the stat board. JTC is understood to have narrowed down on the final few candidates based partly on their track records and of these, Goodman probably offered the highest value for the assets that JTC will sell to the Reit.
If JTC does eventually pick Goodman to manage the new Reit, it should help smoothen ongoing negotiations on the price Goodman will receive for selling its 40 per cent stake in A-Reit’s manager.
JTC REIT – BT
Goodman Group set to manage JTC Reit
JTC Corporation is set to appoint Australian-listed property and wealth management company Goodman Group to manage its upcoming real estate investment trust (Reit), sources say.
The news follows last month’s report in the Australian Financial Review that Goodman Group beat competitors – including Singapore’s CapitaLand and Mapletree Investments – to become the manager of Singapore government-owned JTC Corporation’s upcoming trust.
Other names in the running included Challenger Financial Services Group and CapitaLand subsidiary Australand, both of which are listed on the Australian stock exchange, the report said.
The report also said that UBS, Goldman Sachs and DBS are in line to underwrite the offer.
Industry players said the Reit’s initial property portfolio is expected to be worth more than $1 billion.
When contacted by BT, JTC said that the selection is still ongoing. JTC said in July 2007 that it would announce the winning manager and underwriter by the end of that year.
‘We are in the process of selecting the Reit manager and we will give updates at the appropriate time,’ said a JTC spokeswoman.
Goodman already has substantial assets in Asia, including a 40 per cent stake in the manager of Singapore-listed Ascendas Real Estate Investment Trust (A-Reit).
Goodman is looking to expand in the region, market watchers have said. In mid-2007, Macquarie and Goodman ended a partnership that began in 2001. Macquarie paid more than A$730 million (S$922.4 million) to divest its investment in Goodman.
JTC, Singapore’s biggest industrial landlord, said last July that it will divest some $1.4 billion-$1.6 billion worth of assets and focus its attention on strategic developments with a longer payback time.
The bulk of the assets to be sold will be pumped into a Reit, chief executive Ow Foong Pheng told reporters at the time.
JTC also said at the same time that it has short-listed seven Reit managers and would announce the winning manager by the end of 2007. The Reit was scheduled to be listed on the Singapore Exchange (SGX) in the second quarter of this year.
A-Reit, Singapore’s second Reit, was set up by JTC unit Ascendas five years ago. The trust has since expanded by acquiring industrial buildings.