But it calls for guard against risk of rising rates

MOODY’S Investors Service expects real estate investment trusts in Singapore (S-Reits) to continue purchasing assets this year as interest rates stay low and funding remains available.

But the credit rating agency also reminds Reits to guard against the risk of rising rates through hedging and other strategies.

‘S-Reits will use their well-capitalised balance sheets to continue acquisitive growth strategies this year amid an environment of low interest rates,’ said Moody’s associate analyst Alvin Tan in a report.

Some S-Reits, sponsored by developers, will also have access to a pipeline of assets, he added. Moody’s foresees interest rates staying low this year, and this makes it attractive for S-Reits to borrow more. Nevertheless, given the Reits’ experience with strained balance sheets during the global financial crisis, they are likely to remain conservative.

Also, any rise in interest rates will increase S-Reits’ acquisition and refinancing costs and hurt their credit profiles. ‘Trusts must manage the risk of any upward spike in rates by balancing their debt maturities, proper hedging and using an appropriate debt/equity mix to fund acquisitions,’ Mr Tan said.

He noted that most S-Reits had gearings of 30-40 per cent, which should rise with further acquisitions, but remain within their long-term targets of 40-45 per cent.

S-Reits went on a shopping spree last year as growth returned to the agenda with the sharp economic recovery. According to a DBS Vickers analysis in December, the sector bought around $7 billion worth of properties in Singapore and abroad in the year.

Several S-Reits have announced plans for further growth this year. For instance, Frasers Centrepoint Trust is looking to acquire Bedok Point while Parkway Life Reit recently announced the acquisition of a nursing home in Japan for around $8.9 million.

Moody’s is keeping its ‘stable’ rating on the S-Reit sector given ample liquidity in the market, high occupancies and rising rents this year.

Source: Business Times, 26 Jan 2011

FRESH from its recent rights issue, First Reit has acquired two new health-care properties in Indonesia, its manager Bowsprit Capital Corporation said in an announcement to the Singapore Exchange (SGX) yesterday.

The health-care real estate investment trust (Reit) completed the acquisition of Mochtar Riady Comprehensive Cancer Centre on Thursday and that of Siloam Hospitals Lippo Cikarang yesterday, Bowsprit said.

With these two purchases, First Reit has almost doubled its assets under management to $612.8 million as of yesterday.

It has also increased the total gross floor area of its portfolio assets by nearly 60 per cent, from 900,274 sq ft previously to 1.43 million sq ft now. The total number of hospital beds in First Reit’s Indonesia portfolio will also rise 44 per cent from 537 to 772, Bowsprit said.

‘The two acquisitions were made possible because of our unitholders’ overwhelming support for our recent rights issue,’ said Mr Albert Saychuan Cheok, chairman of Bowsprit.

First Reit raised $167.3 million in net proceeds from its rights issue, of which $121.7 million was used to partly finance the acquisition of the Mochtar Riady Comprehensive Cancer Centre, Bowsprit said on Thursday. The rest of the acquisition was financed through a loan.

The Reit aims to grow its portfolio to $1 billion in the next two to three years, said Dr Ronnie Tan, Bowsprit’s chief executive officer. ‘With the completion of the acquisitions and rights issue, we now have a stronger balance sheet,’ he added.

First Reit’s gearing level is projected to be about 17 per cent for this year, ‘significantly lower than the regulatory limit of 35 per cent’. This will give the Reit room for future acquisitions, Dr Tan said.

As a result of the larger portfolio, Bowsprit expects First Reit’s annual gross rental income to rise about 80 per cent, from the $30.3 million projected for last year to $54.5 million this year.

On the same basis, distributable income is also expected to increase by 89 per cent, from $21.3 million to $40.3 million.

Source: Straits Times, 1 Jan 2011

Analysts point to good distributable income growth, acquisitions

SINGAPORE-LISTED real estate investment trusts (Reits) are shaping up to be among the top choices for investors in the new year.

Thanks to the improved economy and low interest rates, Reits have refinanced their debt and made aggressive acquisitions this year. Their overall business has also strengthened on the back of rebounding rental rates.

The FTSE ST Reits index, which measures the value of 17 Singapore-listed Reits, has jumped 10 per cent since the start of the year, outperforming the real estate developers’ index’s 6 per cent gain.

Almost every sub-sector of the Reit market was represented among the five highest-yielding trusts of the year, which is topped by Lippo-Mapletree Indonesia Retail Trust and followed by health-care trust First Reit, office space supplier Ascendas India Trust, industrial Reit AIMS AMP Capital and Frasers Commercial Trust.

Looking to next year, Reits are viewed as being in a strong position to continue this success story, the only fly in the ointment being the fact that their prices have increased and yields have fallen.

DBS Vickers analyst Derek Tan thinks Reits will deliver distributable income growth of 10 per cent on average next year. Debt financing should not be a problem, he said, as economists expect interest rate hikes to occur only towards the end of next year.

OCBC Investment Research analyst Ong Kian Lin agreed, noting that many Reits are taking advantage of the existing low interest rates to refinance their debt and are seeking longer debt tenures of more than three years.

‘Overall, debt profiles remain healthy with an average gearing of 29.6 per cent and average borrowing costs of 3.8 per cent,’ he added.

According to Kim Eng analyst Anni Kum, exciting acquisition announcements are on the horizon.

The trend of looking overseas for purchase targets is set to grow – especially in the health-care sub-sector, where the number of properties available in Singapore is limited.

Chief executive of Parkway Trust Management, the manager of Parkway Life Reit, Mr Yong Yean Chau, is confident that next year will be a good year, with Asia’s ageing population and growing affluence boosting the need for a solid health-care infrastructure.

‘With the growing health-care pie, we are seeing good opportunities for growth, as health-care operators increasingly adopt asset-light strategies to channel their precious resources to their core activities,’ he told The Straits Times.

‘This represents an enlarged pool of properties available in the market and more opportunities for Parkway Life Reit to grow via acquisition.’

After being sidelined this year, many analysts single out hospitality Reits as the ones to watch because of the expected strengthening of Singapore visitor numbers.

DBS Vickers’ Mr Tan forecasts that the distributable income of hospitality and health-care Reits will rise 33 per cent next year. His top picks for hospitality Reits are CDL Hospitality Trusts (CDL HT) and Ascott Residence Trust.

Analysts from DMG & Partners Securities, JP Morgan and Credit Suisse also expect CDL HT to outperform the market, while Ascott is a favourite at Credit Suisse and OCBC Investment Research.

On office and industrial Reits, analysts are more divided.

Nomura’s South-east Asia head of equity research, Mr Lim Jit Soon, believes office Reits will be the leading performers among all sub-sectors as job growth drives up demand for office space.

But others, including DBS Vickers’ Mr Tan, are more sceptical.

He believes distributable income of office Reits will actually shrink by 3 per cent next year, with such trusts facing topline pressure from renewing rents that were signed during the peak of the previous office cycle in 2007 and 2008.

Source: Straits Times, 31 Dec 2010

(SINGAPORE) GuocoLand yesterday clarified that it currently has no plans to establish a real estate investment trust (Reit).

The property group was responding to a report in The Business Times on Wednesday which said that GuocoLand may look at floating two Reits – one office and the other retail – with assets worth about $6 billion to $8 billion in total.

The Reits, now under study, may be floated over the medium term, the report said.

GuocoLand, which is the Singapore-listed unit of Malaysian tycoon Quek Leng Chan, said that it currently has no plans to set up Reits.

But the group added that it will review this as a possible strategy to extract value from its property portfolio at the appropriate time.

GuocoLand has a pipeline supply of investment properties – at various stages of development – totalling about four million square feet gross floor area for offices and about 4.6 million sq ft retail space as well as some 5,000 car-park lots.

Most of this portfolio is not completed. Because of this, potential Reit flotations would be about three to five years away, judging by the completion timeline of the projects, analysts were quoted as saying.

GuocoLand shares closed four cents higher at $2.59 yesterday.

Source: Business Times, 30 Dec 2010

At least 6 issues said to be in the pipeline, with potential sizes of $500m to $1b

THE tide of real estate investment trust (Reit) listings could surge more strongly next year, with at least six initial public offerings coming up in Singapore if equity markets remain firm, according to a senior banker at HSBC.

These new Reits are likely to be of a ‘decent size’, potentially raising $500 million to $1 billion each, said Chang Tou Chen, managing director and head of global banking for South-east Asia, in an interview with BT.

The Reits could come from various property sectors, such as commercial, industrial, retail or hospitality. Some could be backed by foreign sponsors and hold assets overseas, he added.

At least one of the new Reits could be Syariah-compliant, Mr Chang said.

‘There is an overall desire by MAS (the Monetary Authority of Singapore) to develop Singapore as another centre for raising Islamic-type funds,’ he noted.

‘The Islamic product attracts both conventional and Islamic investors . . . So for issuers, it’s not a hard decision at all.’

Other industry watchers have expressed similar optimism about listing activity in the Reit sector next year. Last month, DBS said that at least five Reits could make their way to the Singapore Exchange in the next six months.

In a Dec 10 report, OCBC Investment Research analyst Ong Kian Lin named a few possibilities – Mapletree Commercial Trust might be coming up; ARA Asset Management could bring in a Syariah-compliant Reit with hospitality assets from the Middle East; and Park Hotel Group is looking to list a Reit in both Singapore and Hong Kong.

Even with the number of new Reits coming up, HSBC’s Mr Chang believes there is enough money to go around. Institutional investors, private banking clients and retail investors are still sitting on funds, and ‘we do not expect a shortage of liquidity for these fund-raising events’, he said.

More Reits have made their debut on the local bourse this year as market sentiments improved. Three new Reits – Cache Logistics Trust, Mapletree Industrial Trust, and Sabana Shari’ah Compliant Industrial Reit – raised over $2 billion collectively.

In sharp contrast, potential Reit sponsors stayed on the sidelines in 2009, hampered by the poor economic outlook, weak demand for commercial and industrial properties, and uncertainty in the stock markets.

Apart from IPOs, more fund-raising exercises by existing Reits could happen next year. According to Mr Chang, Reits are likely to purchase more assets should interest rates stay low and equity markets remain strong, which means they will have to issue new units or take on debt to fund the acquisitions.

Reits have grown hungrier for assets – both in Singapore and abroad – this year as expansion returned to their agenda. Several market watchers are expecting the venture overseas to continue next year.

Source: Business Times, 22 Dec 2010

DBS sees offerings raising $500 million or more, with some matching Mapletree IPO
ABOUT five real estate investment trusts (Reits), each worth around $500 million or more, are expected to list over the next six months, according to DBS Group Holdings.

The initial public offerings would range across sectors, from retail and commercial property to hospitality.

While no specific Reits were highlighted by DBS, some candidates have been mentioned in earlier media reports.

One of the more unusual offerings is expected to be Sabana Reit, which could raise as much as $600 million in an offering by the end of the year, making it the the world’s largest syariah-compliant Reit.

Interest is also high over the possibility that Temasek-linked Mapletree Investments could list Mapletree Commercial Trust in the first half of next year, to follow up on the successful debut of Mapletree Industrial Trust (MIT) last month.

Mapletree Commercial Trust is likely to hold VivoCity, one of Singapore’s largest shopping malls.

Mrs Eng-Kwok Seat Moey, head of asset-backed structured products at DBS’ capital markets group, said yesterday that upcoming offerings are likely to be ‘medium-sized’, or about $500 million.

There could also be larger ones matching MIT, which raised more than $1 billion in gross proceeds, she added.

Mrs Eng expects different sectors, like industrial, commercial, retail and hospitality, to provide ‘balanced’ contributions to the growth of Reits.

‘The hotel sector is doing very well; they are riding on the opening of the integrated resorts,’ she said.

The assets in the upcoming Reit IPOs could be located here and across the region, she added.

Mrs Eng predicts that distribution per unit will continue to grow for listed Reits here.

Commercial, office and hospitality Reits will continue seeing distributions grow through improving rentals, while Reits in logistics could lift payouts through yield-accretive acquisitions, she said.

Mrs Eng also expects Reits to retain their allure for investors even when bank deposit rates improve.

‘If you compare current average yields for the Reits, it will be about 6.5 per cent to 7 per cent,’ she said,

‘Even if rates pick up, at the peak of the interest rates, at the best you’ll get 2.5 or 3 per cent.’

Mrs Eng also said Reits, typically seen as dividend plays, could provide capital gains as well.

Once they acquire properties that add to profits, or enhance the properties, the units are likely to trade at higher prices and provide capital gains.

Mr Philip Lee, JPMorgan’s chief executive and head of investment banking in South-east Asia, separately told The Straits Times that Singapore is a choice destination for listing Reits.

‘There is a very conducive regulatory framework which allows them to be listed more efficiently here. Singapore also has a following from international investors.’

Singapore is Asia’s largest Reit market outside Japan, with firms worth over US$20 billion (S$26 billion) in market capitalisation value listed here.

Source: Straits Times, 2 Nov 2010

Cross-border Reits, dual listings, rights issues on the cards

AT LEAST five real estate investment trusts (Reits) could be making their debut on the Singapore stock exchange in the next six months, possibly raising an average of at least $500 million each.

More dual listings of Reits might also be on the cards, after China firms up guidelines for the sector.

Eng Seat Moey, managing director and head of DBS Bank’s asset-backed structured products, shared these views with the press yesterday.

Her unit is part of the bank’s capital markets team which helps Reits with listings and secondary fundraising exercises.

‘You can expect a lot more initial public offerings (IPOs),’ Ms Eng said. ‘There are a number of Singapore sponsors who wanted to launch a Reit but couldn’t do it because of the market . . . Conditions were just not right in the last two years.’

She added: ‘You will also see a number of cross-border Reits which we hope to bring to the market, first quarter or first half next year.’

These Reits could have assets in China, the Middle East or Australia, but will be listed here.

According to DBS, Singapore’s property trust market – comprising 24 business trusts and Reits – has a market capitalisation of some US$36 billion. This year’s new entrants include Cache Logistics Trust and Mapletree Industrial Trust – and DBS was involved in both deals.

Several other property companies have shown interest in launching Reits. For instance, Mapletree Investments said it might list Mapletree Commercial Trust early next year to raise at least $500 million.

Apart from IPOs, Ms Eng also expects Reits to carry out rights issues or unit placements to fund acquisitions. Besides raising cash, many Reits are looking to increase their free float, she said.

DBS was involved in secondary equity fundraising exercises carried out by Frasers Centrepoint Trust, CDL Hospitality Trusts and Ascott Residence Trust this year.

Ms Eng also raised the possibility of seeing more Reits dual-list – Fortune Reit obtained a dual listing in Hong Kong this year.

DBS is ‘working on a number of China deals’, Ms Eng said.

After these Reits list in Singapore and build up a track record, and when the Chinese authorities set up a Reit framework, ‘we can take them back to China’, she said.

Singapore Exchange’s potential takeover of the Australian Stock Exchange also creates an opportunity for Reits to dual list in Australia, she added, pointing out that several Reits here already own assets Down Under.

Source: Business Times, 2 Nov 2010

It will take one-third interest in Towers One and Two, and mall
SINGAPORE’S new financial and business district, the Marina Bay Financial Centre (MBFC), is set to get a new major shareholder after a $1.5 billion deal.

The manager of the listed Suntec Real Estate Investment Trust (Reit) – ARA Trust Management – announced yesterday that it has agreed to buy a significant part of the MBFC development.

Suntec Reit is buying a one-third interest in MBFC Towers One and Two, Marina Bay Link Mall and 695 carpark spaces from Choicewide Group.

Choicewide Group is indirectly held by Hong Kong-based giant Cheung Kong and Hutchison Whampoa.

The purchase price of $1.496 billion – or $2,568 per sq ft (psf) of net lettable

area – includes income support of $113.9 million inclusive of GST, payable over five years, to be provided by Choicewide Group.

The income support is to cover, for instance, rent-free periods when the premises are being fitted out.

Excluding the income support, the effective purchase price is $1.398 billion – or $2,400 psf of net lettable area – ARA Trust said in a statement yesterday.

The MBFC property – of about 582,377 sq ft of net lettable area – to be acquired has already received its temporary occupation permit this year, and has a committed occupancy of 96 per cent as of Sept 30. It was valued by CB Richard Ellis at $1.496 billion as of the same date.

The property will not include Marina Bay Residences and MBFC Phase Two, which comprises the Marina Bay Suites and MBFC Tower Three.

ARA Trust said the acquisition is a strategic addition to Suntec Reit’s existing portfolio within Singapore’s Central Business District, and would bring the Reit’s total assets under management to about $6.8 billion.

It will increase the Reit’s net lettable area of its office portfolio from about 1.9 million sq ft to 2.4 million sq ft, ‘providing Suntec Reit’s unit holders with an increased exposure to the strengthening Singapore office market’, ARA Trust said.

Its chief executive Yeo See Kiat said: ‘The high occupancy of the MBFC property would provide a stable and sustainable income stream, which would in turn further enhance the income diversification of Suntec Reit.’

ARA Trust added that it is currently reviewing various financing options to determine an optimal capital structure for the acquisition.

Earlier this month, Keppel Land also entered into an agreement to sell a similar one-third stake in the MBFC property to K-Reit Asia for $1.427 billion, or $2,450 psf of net lettable area, including rental support.

But without the $29 million in rental support, the stake is being sold at $2,400 psf of net lettable area, similar to that of the Suntec Reit acquisition.

Cushman & Wakefield managing director Donald Han said the acquisition price is within the market range.

It is an excellent acquisition and a milestone for Suntec Reit, he added.

‘The acquisition and higher price paid also show that Grade A office buildings are in demand,’ he said.

The acquisition will mean that Phase One of MBFC – excluding Marina Bay Residences – will now be equally held by Suntec Reit, K-Reit Asia and Hongkong Land International.

Cheung Kong/Hutchison Whampoa, together with Keppel Land and Hongkong Land, make up the consortium that developed the entire $4 billion MBFC – comprising three office towers, two residential towers and a subterranean retail mall.

Suntec Reit separately announced a distribution income of $46.23 million for the third quarter ended Sept 30 – 3.08 per cent lower than the $47.7 million in the same period last year.

Distribution per unit also slipped 14.3 per cent to 2.5 cents from 2.92 cents a year earlier. Its units were up two cents to $1.56.

Source: Straits Times, 27 Oct 2010

Analyst suggests retail rather than commercial Reits in view of large supply

MALAYSIAN Reit investors could be better off looking at retail rather than commercial trusts, as a large supply of upcoming office space in Kuala Lumpur threatens to dampen rents.

The recommendation comes after the government announced plans last week to ramp up commercial space in the capital, with some proposed projects to start next year.

Their mega scale has exacerbated concern about oversupply that is bound to curb the potential for rent increases.

‘We are less bullish on the office property segment now given the huge 26.7 million sq ft of new supply coming into the market between 2010 and 2014,’ said Maybank IR Research analyst Wong Wei Sum.

Citing estimates by CB Richard Ellis Malaysia, she said the new supply will add 35 per cent to the existing 77 million sq ft in the Klang Valley – a situation that will be further aggravated by the privatisation of state land for new commercial projects.

‘This will result in lower rental growth and higher occupancy risks,’ Ms Wong said, highlighting the proposed Kuala Lumpur International Financial District and a 100-storey skyscraper, the specifics of which have yet to be detailed.

Her concern is echoed by industry players, who have urged the country’s largest asset management company, Permodalan Nasional Bhd (PNB), to conduct feasibility studies before rushing to put up the mega skyscraper in Kuala Lumpur by 2015.

Amphil Corporation chief executive P K Poh said construction timing is crucial because the building of super structures often converges with a recessionary cycle. ‘There is a real danger of these projects crowding out other developers’ projects when the construction of this and other iconic projects starts,’ The Star newspaper quoted Mr Poh as saying.

He also pointed out that high demand for construction materials will push material prices up and inflate development costs for everyone.

A campaign is already underway on social networking site Facebook to protest against PNB’s 100-storey Warisan Merdeka building. Called the ’1M Malaysians reject 100-storey Mega Tower’, the site was set up by individuals with the aim of registering a million dissensions. It has, apparently, attracted more than 30,000 fans in only four days.

Near Kuala Lumpur, other large private mixed developments are also on the drawing board – noticeably one by the Naza Group in the Mont Kiara area.

The future deluge of commercial supply has prompted Ms Wong to recommend retail Reits, particularly those with ‘strong domestic retail growth prospects’, such as Sunway’s SunReit and CapitaLand’s CapitaMalls Malaysia Trust (CMMT).

The latter’s sister office Reit Quill Capita Trust (QCT) remains a ‘hold’ for Ms Wong.

While QCT’s recent third-quarter results were within expectations – rental income was flattish and net income only slightly improved on better cost management – its attractiveness has also been dimmed by slow asset acquisition.

Still, Hwang DBS-Vickers rates it a ‘buy’, mainly because of its FY 2011 yield of an ‘attractive 8 per cent’ versus 7.1 to 7.2 per cent for Sunway and CMMT.

Source: Business Times, 21 Oct 2010