REIT News – BT
Reits a safe choice in roily market: Goldman
SINGAPORE’S real estate investment trust (S-Reit) market could be just the place to park your funds while weathering the storm in the equity markets, says Goldman Sachs executive director (Asia-Pacific Investment Research) Leslie Yee.
In a report on S-Reits, Mr Yee said: ‘We reiterate our positive view on S-Reits and recommend investors to buy in the prevailing choppy equity markets.’
S-Reits were sold down recently but Mr Yee believes the market is ‘under-appreciating the defensive qualities and overstating risks’.
Goldman Sachs highlighted four attributes that make Reits ‘defensive’. These are: low gearing, typically about 40 per cent; income payout which is often 100 per cent; secured leases, usually for three years; and limited development risk.
The report said that the current market volatility will affect the near-term ability of Reits to access capital market funding, but Goldman Sachs believes Reits have the necessary debt capacity and expect that equity markets will be willing to fund good acquisitions.
Goldman Sachs S-Reit Index has fallen by 11.8 per cent since July, which is slightly less than the decline in the Singapore property stock index of 15.3 per cent.
It has also lowered its target price for the nine S-Reits it covers by 0.5-10 per cent. Based on revised target prices, these S-Reits offer an upside of 7-37 per cent.
In particular, Goldman Sachs has added CapitaMall Trust to its ‘Conviction Buy’ list. It has upgraded Suntec Reit to ‘Buy’ from ‘Neutral’, and reiterates ‘Buy’ on K-Reit.
Goldman Sachs also likes sponsored Reits. And it does not matter if a Reit does not pay top dollar for a sponsor’s asset. ‘Our analysis on the sale of a completed asset shows the net benefit to a developer is roughly the same from selling to a Reit or from selling to a third party at a price that is nearly 20 per cent more,’ explained Mr Yee.
He said: ‘We see the current market providing a good entry point into Reits’, noting the sector leader’s – CapitaMall Trust – pull-back of 20 per cent from its share price two months ago.
In the near term, it does see cost of funding for acquisitions like the one-third stakes in One Raffles Quay by K-Reit and Suntec-Reit as a major risk.
But in the long term, it sees potential for growth through acquisition and argues that ‘win-wins’ can be created when a developer sponsor sells assets to Reits.
Goldman Sachs launched its Reit coverage in January when it also forecast the nine S-Reits would make $15 billion in acquisitions within a three-year period, boosting portfolio sizes by 75 per cent.
Based on announced acquisitions to date, the nine Reits have made $3.9 billion worth of acquisitions, which is 27 per cent of the target.
SREIT – CNA
By Yvonne Cheong, Channel NewsAsia | Posted: 24 August 2007 2212 hrs SINGAPORE: Like most other property-related counters, Singapore-listed real estate investment trusts or REITs have been sold down in recent weeks amid the market volatility.
As one analyst puts it, the last time he looked, the buildings were still standing, the offices still occupied and owners still collecting rents in a robust economic environment.
But it appears that investors are not seeing REITS in the same positive light.
According to a Goldman Sachs index, Singapore REITs have fallen by 11.8 percent over the past two months.
That is a better showing than the 15.3 percent drop in its property stock index.
Analysts said a fearful climate has caused the market to under-appreciate the defensive qualities of REITs and overstate their risks.
Tony Darwell, Head of Asian Equity Research at Nomura Singapore, said: “When you look at say the Singapore office market, what we’ve seen is very, very strong growth in terms of capital value, but that strong growth in capital value has been driven by rents. We’ve not actually seen yields in the office market compressed.”
A case in point is K-REIT.
Its unit price fell by 20 percent over the last one month, while Keppel Land’s share price dropped by just 6 percent.
Analysts said they remain positive about Singapore REITs.
“There’s definitely risk in terms of outlook in the US, but given the supply demand dynamic over the next 12 to 18 months, given an expectation that rental and rental growth is likely to be relatively robust, some of the REITs in the offering – Guoco Commercial REIT, Macquarie Prime REIT, Capital Commercial Trust – look quite interesting at current valuation,” said Mr Darwell.
Analysts said REITs offer a much higher income payout than property stocks – often 100 percent, compared to 20 to 40 percent.
They also believe that Singapore-listed REITs are trading significantly below their current asset valuation.
MMP – BT
MMP Reit takes full control of mall in Chengdu
100% stake represents yield accretion of 3.4% on annualised basis
INSTEAD of acquiring a 50 per cent stake, Macquarie MEAG Prime Real Estate Investment Trust (MMP Reit) is now taking full control of Renhe Spring Department Store in Chengdu, China, for 350 million yuan (S$70.3 million). MMP Reit had in April this year announced that it would acquire a half stake in the 101,000 sq ft department store owned by Renhe Spring Group for 150 million yuan. The property, valued at 340 million yuan as at Dec 31, 2006, was re-valued at 350 million yuan as at July 31 this year.
On the increased stake, Franklin Heng, chief executive officer of the Reit’s manager, Macquarie Pacific Star, said: ‘This is a win-win arrangement…Not only will the yield accretion of this transaction for MMP Reit now be higher, Renhe Spring Group will also have more financial resources for its expansion and development projects in China, over which MMP Reit will continue to enjoy a first right of refusal.’
Renhe Spring Group’s pipeline of opportunities in China includes two other prime retail properties in Chengdu with combined gross floor area of more than one million sq ft.
The 100 per cent stake in the department store represents a yield accretion of 3.4 per cent on an annualised basis to MMP Reit’s distribution per unit, assuming full debt financing.
Between 2005 and 2006, Renhe Spring Department Store registered about 23 per cent of year-on-year retail sales growth and, for 2006, its sales were 263 million yuan.
The 350 million yuan price tag comprises 310 million yuan in cash and the assumption of an interest-free debt of 40 million yuan owed to Renhe Spring Group and repayable over seven years. Renhe Spring Group will also continue to operate the department store for a fee of 0.8 per cent of the gross turnover.
Renhe Spring Group guarantees annual net distributable profits of 26.4 million yuan, which is secured for two years by the sum of 20 million yuan to be deducted from the consideration and held in escrow.
With the completion of MMP Reit’s acquisitions in Japan in May and assuming the acquisition in China is fully funded by debt, MMP Reit’s gearing will be 31.8 per cent.
MMP Reit comprises eight properties including a 74.23 per cent stake in Wisma Atria, a 27.23 per cent stake in Ngee Ann City, and six properties in Tokyo.