AMP wants to regain trust of MI-Reit holders
Medium-term focus will be acquisition of industrial property in S'pore, Japan
THE new co-sponsor of MacarthurCook Industrial Reit (MI-Reit) yesterday said that it will focus on regaining unitholders' trust before embarking on new acquisitions, likely industrial properties in Singapore and Japan.
Simon Vinson, head of new business initiatives and Asian property at AMP Capital Investors, said that unitholders' concerns raised at a tumultuous general meeting recently 'will become front and centre in the way we will operate'.
Such concerns include not consulting unitholders early enough on a controversial recapitalisation plan and the real estate investment trust's (Reit) own governance and investment processes, Mr Vinson told BT in an interview yesterday.
The rescue plan - approved by narrow margins at the meeting on Nov 23 - was presented to unitholders less than two months before the deadline for the Reit to meet $315 million in obligations.
Angry unitholders said that the deal diluted their holdings significantly and was too favourable to the new investors. Led by Cambridge Industrial Reit (CIT), which owned a close to 10 per cent stake, the unitholders mounted a week-long campaign to oust MI-Reit's manager but this faltered when CIT said that its plan to take over as manager was blocked by the Monetary Authority of Singapore.
Yesterday, Mr Vinson said that AMP would focus in the short term on regaining investors' trust by better managing the Reit, before thinking of fresh acquisitions.
While the Reit is now among the lowest geared among those listed in Singapore, the travails of the past year, particularly uncertainty over whether it could raise funds to keep it afloat, have depressed unit prices and raised distribution yields.
This would make yield-accretive acquisitions difficult, Mr Vinson admitted. 'But the management team and sponsors are capable of showing investment performance that, over time, will bring the unit price up to net asset value,' he said.
In the medium term, AMP will explore opportunities in industrial property in both Singapore and Japan, he said.
Thursday, December 3, 2009
Wednesday, December 2, 2009
REITs - CIMB
Big caps grow expensive
• We downgrade the SREIT sector to Neutral from Overweight on a more negative view of sector heavyweights, CMT (fund flows away to CMA), CCT (negative rental reversions), A-REIT (falling industrial occupancy) and MLT (limited organic growth). Nonetheless, we believe that share prices have more room for appreciation as the sector P/BV of 0.83x remains below its mean level of 0.92x since inception (2002) till now, even after the sharp recovery from trough levels in March.
• Acquisitions and development projects will take centre stage in 2010. We believe that easy credit conditions coupled with recapitalised balance sheets and compressing dividend yields will revive acquisitions and project development in 2010. However, these will likely be less accretive than those in pre-Lehman times due to: 1) cash calls made in 2009 by a number of sponsor-backed REITs; 2) a more conservative outlook on asset leverage by REIT managers, which would result in a smaller quantum of acquisitions, or further equity-raising for acquisitions; and 3) insignificant spreads of asset yields over dividend yields, resulting in marginally DPU-accretive deals
• Asset inflation could lead to sector re-rating. An easing credit environment is drawing more institutional buyers of properties into the market. If the competition for investment assets intensifies, asset inflation is a possibility in the medium term.
• Negative reversions could set in. Most REITs will take time to catch up with market rents and occupancy due to standard leases set in place. We expect office, industrial business park and prime retail rents and occupancy to deteriorate further later in 2010.
• Suntec REIT our top pick for 2010. Our top pick for the sector is Suntec REIT for catalysts coming from the opening of two new MRT stations at Suntec City, and the Marina Bay integrated resort. Suntec REIT’s valuation of 0.65x P/BV is below the sector average of 0.83x, and also below its closest peer CCT’s 0.75x. However, 2010 dividend yields are higher than the sector’s 7.4% and CCT’s 5.8%.
• AREIT our top short. AREIT remains the most expensive REIT in the sector at 1.2x P/BV. We believe all the positives have been priced in. Downside risk is high as the attraction of low quasi-office rents in the Business Park and Hi-Tech segments gradually diminishes with a sharp fall in office rents.
• We downgrade the SREIT sector to Neutral from Overweight on a more negative view of sector heavyweights, CMT (fund flows away to CMA), CCT (negative rental reversions), A-REIT (falling industrial occupancy) and MLT (limited organic growth). Nonetheless, we believe that share prices have more room for appreciation as the sector P/BV of 0.83x remains below its mean level of 0.92x since inception (2002) till now, even after the sharp recovery from trough levels in March.
• Acquisitions and development projects will take centre stage in 2010. We believe that easy credit conditions coupled with recapitalised balance sheets and compressing dividend yields will revive acquisitions and project development in 2010. However, these will likely be less accretive than those in pre-Lehman times due to: 1) cash calls made in 2009 by a number of sponsor-backed REITs; 2) a more conservative outlook on asset leverage by REIT managers, which would result in a smaller quantum of acquisitions, or further equity-raising for acquisitions; and 3) insignificant spreads of asset yields over dividend yields, resulting in marginally DPU-accretive deals
• Asset inflation could lead to sector re-rating. An easing credit environment is drawing more institutional buyers of properties into the market. If the competition for investment assets intensifies, asset inflation is a possibility in the medium term.
• Negative reversions could set in. Most REITs will take time to catch up with market rents and occupancy due to standard leases set in place. We expect office, industrial business park and prime retail rents and occupancy to deteriorate further later in 2010.
• Suntec REIT our top pick for 2010. Our top pick for the sector is Suntec REIT for catalysts coming from the opening of two new MRT stations at Suntec City, and the Marina Bay integrated resort. Suntec REIT’s valuation of 0.65x P/BV is below the sector average of 0.83x, and also below its closest peer CCT’s 0.75x. However, 2010 dividend yields are higher than the sector’s 7.4% and CCT’s 5.8%.
• AREIT our top short. AREIT remains the most expensive REIT in the sector at 1.2x P/BV. We believe all the positives have been priced in. Downside risk is high as the attraction of low quasi-office rents in the Business Park and Hi-Tech segments gradually diminishes with a sharp fall in office rents.
REITs - BT
S-Reits' proposal for distribution reinvestment plans positive: Fitch
FITCH Ratings says a recent proposal by some Singapore-listed real estate investment trusts (S-Reits) to introduce distribution reinvestment plans (DRPs) for unitholders is positive from a ratings standpoint.
But the ratings agency pointed out that S-Reits' effectiveness in retaining cash remains limited.
In a new report, Fitch says that while DRPs improve credit profiles, they are not expected to lead to a positive rating migration in the S-Reit sector.
Analyst Peeyush Pallav says that participation in a DRP by a large proportion of an S-Reit's unitholders can improve the Reit's liquidity profile.
'The retained cash can be utilised for debt repayments, or for meeting capital expenditure requirements, and serve as a source of additional liquidity for the S-Reit,' he writes in the report. 'This can be especially beneficial for S-Reits operating in property sectors with more volatile cash flows, such as hotels.'
DRPs can also be an efficient means of raising new capital for S-Reits in general, Mr Pallav reckons.
Several S-Reits included DRP provisions in their listing prospectus that allow them the flexibility to implement a DRP if need be. Such plans propose distributing quarterly dividends for an S-Reit either in the form of units, cash or in a combination of both, with the choice being up to individual unitholders.
At least two S-Reit managers have considered implementing a DRP this year - Saizen Reit and Cambridge Industrial Trust.
Saizen Reit this year proposed paying dividends for its fiscal second quarter in units instead of cash, but abandoned the plan after talks with the Singapore Exchange. But analysts believe that new Reit regulations could allow DRPs in future.
For example, a proposal for a DRP was approved at Cambridge Industrial Trust's extraordinary general meeting on Oct 30.
However, Mr Pallav says that there are still many considerations. For one thing, DRP proposals may attract lesser participation from institutional investors that consider S-Reits to be dividend-driven investments.
Fitch also believes that the presence or absence of a DRP is not expected to be a primary rating driver, as putting the option in the hands of the investors means that they may choose not to participate in the DRP, especially when the prevailing market sentiment is negative and equity markets are unfavourable.
Separately, Moody's Investors Service is looking to see if commercial mortgage-backed securities (CMBS) sponsored by S-Reits have enough liquidity arrangements in place to cover potential cashflow disruption in the event that an S-Reit is subjected to bankruptcy proceedings.
Depending on the type of bankruptcy proceedings to which an S-Reit is subjected to, there may be cashflow disruption, the ratings agency believes.
'To ensure timely payment on the CMBS notes, CMBS transactions should have certain liquidity arrangements to cover the potential cash flow disruption, such that the rating of the CMBS notes' linkage to that of the S-Reit can be minimised,' Moody's analyst Jerome Cheng said in a recent note.
Moody's assessment is that at least 12 months of liquidity is needed to minimise the rating linkage. Ratings of those CMBS transactions with insufficient liquidity protection will be linked to that of the S-Reit.
Currently, Moody's has outstanding ratings of Aaa to Aa3 on seven CMBS transactions sponsored by seven S-Reits, all with investment-grade ratings.
Right now, three of the seven outstanding Moody's-rated transactions have no general purpose liquidity in place, while the remaining four transactions have liquidity facilities covering six to nine months of stressed debt service payments, Moody's said.
FITCH Ratings says a recent proposal by some Singapore-listed real estate investment trusts (S-Reits) to introduce distribution reinvestment plans (DRPs) for unitholders is positive from a ratings standpoint.
But the ratings agency pointed out that S-Reits' effectiveness in retaining cash remains limited.
In a new report, Fitch says that while DRPs improve credit profiles, they are not expected to lead to a positive rating migration in the S-Reit sector.
Analyst Peeyush Pallav says that participation in a DRP by a large proportion of an S-Reit's unitholders can improve the Reit's liquidity profile.
'The retained cash can be utilised for debt repayments, or for meeting capital expenditure requirements, and serve as a source of additional liquidity for the S-Reit,' he writes in the report. 'This can be especially beneficial for S-Reits operating in property sectors with more volatile cash flows, such as hotels.'
DRPs can also be an efficient means of raising new capital for S-Reits in general, Mr Pallav reckons.
Several S-Reits included DRP provisions in their listing prospectus that allow them the flexibility to implement a DRP if need be. Such plans propose distributing quarterly dividends for an S-Reit either in the form of units, cash or in a combination of both, with the choice being up to individual unitholders.
At least two S-Reit managers have considered implementing a DRP this year - Saizen Reit and Cambridge Industrial Trust.
Saizen Reit this year proposed paying dividends for its fiscal second quarter in units instead of cash, but abandoned the plan after talks with the Singapore Exchange. But analysts believe that new Reit regulations could allow DRPs in future.
For example, a proposal for a DRP was approved at Cambridge Industrial Trust's extraordinary general meeting on Oct 30.
However, Mr Pallav says that there are still many considerations. For one thing, DRP proposals may attract lesser participation from institutional investors that consider S-Reits to be dividend-driven investments.
Fitch also believes that the presence or absence of a DRP is not expected to be a primary rating driver, as putting the option in the hands of the investors means that they may choose not to participate in the DRP, especially when the prevailing market sentiment is negative and equity markets are unfavourable.
Separately, Moody's Investors Service is looking to see if commercial mortgage-backed securities (CMBS) sponsored by S-Reits have enough liquidity arrangements in place to cover potential cashflow disruption in the event that an S-Reit is subjected to bankruptcy proceedings.
Depending on the type of bankruptcy proceedings to which an S-Reit is subjected to, there may be cashflow disruption, the ratings agency believes.
'To ensure timely payment on the CMBS notes, CMBS transactions should have certain liquidity arrangements to cover the potential cash flow disruption, such that the rating of the CMBS notes' linkage to that of the S-Reit can be minimised,' Moody's analyst Jerome Cheng said in a recent note.
Moody's assessment is that at least 12 months of liquidity is needed to minimise the rating linkage. Ratings of those CMBS transactions with insufficient liquidity protection will be linked to that of the S-Reit.
Currently, Moody's has outstanding ratings of Aaa to Aa3 on seven CMBS transactions sponsored by seven S-Reits, all with investment-grade ratings.
Right now, three of the seven outstanding Moody's-rated transactions have no general purpose liquidity in place, while the remaining four transactions have liquidity facilities covering six to nine months of stressed debt service payments, Moody's said.
Tuesday, December 1, 2009
Rickmers - BT
Rickmers incurs additional US$26,000 interest cost
This is due to a lending bank raising interest rate on a US$46.31m loan
RICKMERS Maritime said a lending bank has invoked the market disruption clause once again on a US$46.31 million loan, resulting in higher interest cost.
The bank's move meant that an alternative interest rate higher than US$ Libor (London Inter-Bank Offered Rate) will be levied on the loan, causing an increase of about US$26,000 in interest cost for the current fixing period ending Feb 26, 2010, said the trust.
The invocation arose as US$ Libor does not accurately reflect the lender's cost of funds, the trust's manager explained, adding that it is 'not a reflection of the trust's credit worthiness'.
The last time that the clause was invoked by the same lending bank was in August.
The trustee-manager said yesterday that Rickmers has also taken a marked-to-market loss of US$3.24 million as at Sept 30 due to the ineffectiveness of cashflow hedge under International Accounting Standard 39 (IAS 39) for this loan.
Based on the current Libor rate, there will be minimal impact to the trust's net profits for the fourth quarter of FY09 and no cash impact on the trust's financial performance.
The trust-manager also reiterated that the lender's move will not have an impact on the trust's position in its ongoing discussions with banks on the waiver of value-to-loan covenants, the refinancing of a US$130 million loan facility and the funding of its existing orderbook.
As the discussions with the banks are ongoing, Rickmers did not take delivery of the vessel Hanjin Milano in September as previously intended and this has resulted in a swap arrangement - which was entered into for the pre-arranged loan - being rendered ineffective under IAS39 as the loan was not drawn down.
The floating-to-fixed interest rate swap which extends from Nov 30, 2009, to Nov 30, 2012, was earlier entered into to fix the interest cost of the loan that was to have been drawn down for the acquisition of Hanjin Milano.
As the swap arrangement now exists without a related loan, it has been rendered ineffective as a cashflow hedge and marked-to-market losses on this swap arrangement, currently estimated at US$2.63 million, will have to be taken into the trust's profit and loss in Q409.
The final impact on Q409's net profits will depend on the movement of US$ Libor.
This is due to a lending bank raising interest rate on a US$46.31m loan
RICKMERS Maritime said a lending bank has invoked the market disruption clause once again on a US$46.31 million loan, resulting in higher interest cost.
The bank's move meant that an alternative interest rate higher than US$ Libor (London Inter-Bank Offered Rate) will be levied on the loan, causing an increase of about US$26,000 in interest cost for the current fixing period ending Feb 26, 2010, said the trust.
The invocation arose as US$ Libor does not accurately reflect the lender's cost of funds, the trust's manager explained, adding that it is 'not a reflection of the trust's credit worthiness'.
The last time that the clause was invoked by the same lending bank was in August.
The trustee-manager said yesterday that Rickmers has also taken a marked-to-market loss of US$3.24 million as at Sept 30 due to the ineffectiveness of cashflow hedge under International Accounting Standard 39 (IAS 39) for this loan.
Based on the current Libor rate, there will be minimal impact to the trust's net profits for the fourth quarter of FY09 and no cash impact on the trust's financial performance.
The trust-manager also reiterated that the lender's move will not have an impact on the trust's position in its ongoing discussions with banks on the waiver of value-to-loan covenants, the refinancing of a US$130 million loan facility and the funding of its existing orderbook.
As the discussions with the banks are ongoing, Rickmers did not take delivery of the vessel Hanjin Milano in September as previously intended and this has resulted in a swap arrangement - which was entered into for the pre-arranged loan - being rendered ineffective under IAS39 as the loan was not drawn down.
The floating-to-fixed interest rate swap which extends from Nov 30, 2009, to Nov 30, 2012, was earlier entered into to fix the interest cost of the loan that was to have been drawn down for the acquisition of Hanjin Milano.
As the swap arrangement now exists without a related loan, it has been rendered ineffective as a cashflow hedge and marked-to-market losses on this swap arrangement, currently estimated at US$2.63 million, will have to be taken into the trust's profit and loss in Q409.
The final impact on Q409's net profits will depend on the movement of US$ Libor.
PST - BT
CEO of PST Management resigns
PST Management (PSTM), the trustee-manager of Pacific Shipping Trust (PST), said that its chief executive officer and executive director Alvin Cheng has resigned with immediate effect yesterday.
Mr Cheng, whose surprise resignation took effect yesterday, left by mutual agreement with PSTM's board and to pursue his personal aspirations, the trust-manager said.
The PSTM board, meanwhile, has initiated a search for a new CEO. To provide continuity, PSTM non-executive director Teo Choo Wee will act as CEO from today.
The resignation was a surprise as Mr Cheng had been in the job for barely over one-and-a-half years.
PSTM's previous CEO Subhangshu Dutt held the position for about two years.
An industry source who had spoken to Mr Cheng about his resignation cited him as saying it was 'complicated'.
Mr Teo, who has over seven years' experience in the shipping industry, will be seconded from PST sponsor Pacific International Lines where he is currently the deputy general manager responsible for fleet management and the sale and purchase of ships.
On Mr Cheng's resignation, PSTM chairman Benedict Kwek said: 'Despite the difficult and challenging state of the shipping industry, as well as increasing pressures from charterers to reduce charter rates, PST continued to perform well under his leadership. The board appreciates the contributions Alvin has made to the success of the trust and we wish him all the best in his future endeavours.'
Mr Cheng on his part said that he 'wished to thank the board of PSTM for their support and guidance during my tenor at PSTM', adding that 'it has been a valuable experience during this journey'.
PST Management (PSTM), the trustee-manager of Pacific Shipping Trust (PST), said that its chief executive officer and executive director Alvin Cheng has resigned with immediate effect yesterday.
Mr Cheng, whose surprise resignation took effect yesterday, left by mutual agreement with PSTM's board and to pursue his personal aspirations, the trust-manager said.
The PSTM board, meanwhile, has initiated a search for a new CEO. To provide continuity, PSTM non-executive director Teo Choo Wee will act as CEO from today.
The resignation was a surprise as Mr Cheng had been in the job for barely over one-and-a-half years.
PSTM's previous CEO Subhangshu Dutt held the position for about two years.
An industry source who had spoken to Mr Cheng about his resignation cited him as saying it was 'complicated'.
Mr Teo, who has over seven years' experience in the shipping industry, will be seconded from PST sponsor Pacific International Lines where he is currently the deputy general manager responsible for fleet management and the sale and purchase of ships.
On Mr Cheng's resignation, PSTM chairman Benedict Kwek said: 'Despite the difficult and challenging state of the shipping industry, as well as increasing pressures from charterers to reduce charter rates, PST continued to perform well under his leadership. The board appreciates the contributions Alvin has made to the success of the trust and we wish him all the best in his future endeavours.'
Mr Cheng on his part said that he 'wished to thank the board of PSTM for their support and guidance during my tenor at PSTM', adding that 'it has been a valuable experience during this journey'.
MI-REIT, Cambridge - BT
CIT shaves its MI-Reit stake after EGM tussle defeat
CAMBRIDGE Industrial Reit (CIT) sold half of the shares it owned in MacarthurCook Industrial Reit (MI-Reit) last Tuesday, the day after MI-Reit unitholders narrowly approved a controversial rescue plan.
CIT bought 26 million MI-Reit shares at an average of about 40 cents each early last month following news that MI-Reit was issuing new shares at a steep discount to market price and net asset value.
MI-Reit's move to issue new shares was intended to raise funds to meet $315 million in obligations due by the end of the year.
Yesterday, MI-Reit announced that CIT was left with 13.3 million units or 2.73 per cent of total holdings, from 9.76 per cent previously.
The changes were due to sales of about 12.7 million units at an undisclosed price as well as the dilutive effect of the placement exercise carried out last week.
The new units, placed to cornerstone investors, AMP Capital Holdings and present sponsor AIMS Financial Group, severely diluted existing unitholders, including CIT and angered many minority unitholders.
CIT used its units to mount a week-long campaign to get unitholders to reject the refinancing proposal. It wanted unitholders to vote for CIT to manage MI-Reit instead, arguing that it had plans to save costs and secure financing to save the Reit.
But just days before a crucial meeting to vote on the proposal, CIT said the Monetary Authority of Singapore had blocked its plan to manage both Reits due to a possible conflict of interest.
Without a credible alternative, unitholders eventually voted for the recapitalisation proposal in a stormy general meeting last Monday. The meeting also approved a two-for-one rights issue and the purchase of four industrial buildings from new sponsor AMP.
MI-Reit yesterday lodged an offer information statement for the proposed rights issue and said it had completed the purchase of the four buildings from AMP.
This was funded by a bridge loan of $39.6 million from Standard Chartered Bank plus $49.3 million of the gross proceeds of the $62 million raised in the recent share placement exercise.
CAMBRIDGE Industrial Reit (CIT) sold half of the shares it owned in MacarthurCook Industrial Reit (MI-Reit) last Tuesday, the day after MI-Reit unitholders narrowly approved a controversial rescue plan.
CIT bought 26 million MI-Reit shares at an average of about 40 cents each early last month following news that MI-Reit was issuing new shares at a steep discount to market price and net asset value.
MI-Reit's move to issue new shares was intended to raise funds to meet $315 million in obligations due by the end of the year.
Yesterday, MI-Reit announced that CIT was left with 13.3 million units or 2.73 per cent of total holdings, from 9.76 per cent previously.
The changes were due to sales of about 12.7 million units at an undisclosed price as well as the dilutive effect of the placement exercise carried out last week.
The new units, placed to cornerstone investors, AMP Capital Holdings and present sponsor AIMS Financial Group, severely diluted existing unitholders, including CIT and angered many minority unitholders.
CIT used its units to mount a week-long campaign to get unitholders to reject the refinancing proposal. It wanted unitholders to vote for CIT to manage MI-Reit instead, arguing that it had plans to save costs and secure financing to save the Reit.
But just days before a crucial meeting to vote on the proposal, CIT said the Monetary Authority of Singapore had blocked its plan to manage both Reits due to a possible conflict of interest.
Without a credible alternative, unitholders eventually voted for the recapitalisation proposal in a stormy general meeting last Monday. The meeting also approved a two-for-one rights issue and the purchase of four industrial buildings from new sponsor AMP.
MI-Reit yesterday lodged an offer information statement for the proposed rights issue and said it had completed the purchase of the four buildings from AMP.
This was funded by a bridge loan of $39.6 million from Standard Chartered Bank plus $49.3 million of the gross proceeds of the $62 million raised in the recent share placement exercise.
Monday, November 30, 2009
REITs - BT
Reit investors get a reality check
They discover the ability of most Reits to deliver decent yields - something which many had neglected when they chased capital gains before the recession
After a heart-stopping year, investors in real estate investment trusts (Reits) seem to have swallowed a dose of reality on what the sector can - and cannot - deliver.
It was a lesson learnt the hard way. Once favoured for offering high capital gains, the Reit sector lost that shine early in the year as unit prices tanked - the FTSE ST Reits Index fell as much as 50 per cent from September 2008 to March 2009. The sector was hit by market concerns over earnings, as property rents and occupancy rates dropped, and debt levels, as credit lines froze.
Saizen Reit, for one, was forced to suspend distribution payouts since its fiscal second quarter because of credit problems. More recently, the public wrangle between MacarthurCook Industrial Reit and Cambridge Industrial Reit highlighted the financing issues that the sector has to grapple with.
What stood out amid the tumult was the ability of most Reits to deliver decent yields - something which many investors had neglected when they chased capital gains before the recession. Looking at annualised distributions per unit (DPU) in the third quarter of the calendar year and closing unit prices as at last Thursday, all 13 Reits BT looked at had distribution yields of more than 5 per cent.
This has changed how investors view the sector. 'People are becoming more receptive to Reits as yield instruments rather than as growth instruments,' noted CIMB Reit analyst Janice Ding.
The financial crisis has tested the strength of the Reit model and revealed risk factors which investors may have previously overlooked, market watchers say. OCBC Investment Research analyst Meenal Kumar said: 'We believe this is for the better, as investors now have a more balanced perspective on the strengths and weaknesses of this investment vehicle.'
Overall distribution yields in the sector could have been higher if not for weaker DPUs. Of the 13 Reits, as many as nine saw their DPU slide from a year earlier.
For five of these nine, lower DPUs were caused by reduced earnings. This was the case for those in the hospitality sector - Ascott Residence Trust and CDL Hospitality Trust both had less distributable income as the downturn hit tourism.
But there were four other Reits with lower DPUs even though their distributable income increased. Equity raising was the culprit - all four conducted rights issues or private placements in the one-year period under review. This means that distributable income had to be spread over larger unit bases, lowering DPUs.
Equity raisings have been rife among Reits, as they tried to pay off maturing debts amid the credit crisis. Their efforts have been successful - so far - in reducing the pressure on the balance sheet. According to the Monetary Authority of Singapore's Financial Stability Review, the local Reit sector had 18.5 per cent of total borrowings maturing in 2009 and 2010 as at end-October this year, down from 57 per cent at end-2008.
While immediate refinancing pressures have eased, Reits still have huge chunks of debt due in 2011 and 2012. This leads some analysts to believe that equity raisings will continue next year. CIMB's Ms Ding expects acquisitions - on top of debt repayment - as another driving factor. With so much fund raising, more discerning investors may also not respond well to cash calls used merely to reduce debt, she added.
Some Reits are already showing renewed appetite for assets. 'We expect more acquisitions in 2010 as that is an important growth strategy underpinning the Reit model,' said OCBC's Ms Kumar.
The pace of acquisitions may be constrained in the medium term because Reit managers are targeting lower gearing after the crisis, she added. 'But risk appetite is not static and it could increase as and when the property market recovers.'
For now, Reit investors are likely to remain cautious. As the MAS highlighted in its report, several other risks remain - credit conditions could worsen again with sudden and large declines in financial markets, and rental yields for commercial and industrial space could fall further.
In particular, office Reits are gaining little favour among analysts. CIMB's Ms Ding believes that negative rental reversions will set in next year and affect DPUs. The dilutive effect of rights issues and private placements will also extend into 2010 for some Reits, she said.
OCBC's Ms Kumar believes that hospitality Reits should see year-on-year gains in income as the travel industry recovers, helping occupancy and room rates improve.
They discover the ability of most Reits to deliver decent yields - something which many had neglected when they chased capital gains before the recession
After a heart-stopping year, investors in real estate investment trusts (Reits) seem to have swallowed a dose of reality on what the sector can - and cannot - deliver.
It was a lesson learnt the hard way. Once favoured for offering high capital gains, the Reit sector lost that shine early in the year as unit prices tanked - the FTSE ST Reits Index fell as much as 50 per cent from September 2008 to March 2009. The sector was hit by market concerns over earnings, as property rents and occupancy rates dropped, and debt levels, as credit lines froze.
Saizen Reit, for one, was forced to suspend distribution payouts since its fiscal second quarter because of credit problems. More recently, the public wrangle between MacarthurCook Industrial Reit and Cambridge Industrial Reit highlighted the financing issues that the sector has to grapple with.
What stood out amid the tumult was the ability of most Reits to deliver decent yields - something which many investors had neglected when they chased capital gains before the recession. Looking at annualised distributions per unit (DPU) in the third quarter of the calendar year and closing unit prices as at last Thursday, all 13 Reits BT looked at had distribution yields of more than 5 per cent.
This has changed how investors view the sector. 'People are becoming more receptive to Reits as yield instruments rather than as growth instruments,' noted CIMB Reit analyst Janice Ding.
The financial crisis has tested the strength of the Reit model and revealed risk factors which investors may have previously overlooked, market watchers say. OCBC Investment Research analyst Meenal Kumar said: 'We believe this is for the better, as investors now have a more balanced perspective on the strengths and weaknesses of this investment vehicle.'
Overall distribution yields in the sector could have been higher if not for weaker DPUs. Of the 13 Reits, as many as nine saw their DPU slide from a year earlier.
For five of these nine, lower DPUs were caused by reduced earnings. This was the case for those in the hospitality sector - Ascott Residence Trust and CDL Hospitality Trust both had less distributable income as the downturn hit tourism.
But there were four other Reits with lower DPUs even though their distributable income increased. Equity raising was the culprit - all four conducted rights issues or private placements in the one-year period under review. This means that distributable income had to be spread over larger unit bases, lowering DPUs.
Equity raisings have been rife among Reits, as they tried to pay off maturing debts amid the credit crisis. Their efforts have been successful - so far - in reducing the pressure on the balance sheet. According to the Monetary Authority of Singapore's Financial Stability Review, the local Reit sector had 18.5 per cent of total borrowings maturing in 2009 and 2010 as at end-October this year, down from 57 per cent at end-2008.
While immediate refinancing pressures have eased, Reits still have huge chunks of debt due in 2011 and 2012. This leads some analysts to believe that equity raisings will continue next year. CIMB's Ms Ding expects acquisitions - on top of debt repayment - as another driving factor. With so much fund raising, more discerning investors may also not respond well to cash calls used merely to reduce debt, she added.
Some Reits are already showing renewed appetite for assets. 'We expect more acquisitions in 2010 as that is an important growth strategy underpinning the Reit model,' said OCBC's Ms Kumar.
The pace of acquisitions may be constrained in the medium term because Reit managers are targeting lower gearing after the crisis, she added. 'But risk appetite is not static and it could increase as and when the property market recovers.'
For now, Reit investors are likely to remain cautious. As the MAS highlighted in its report, several other risks remain - credit conditions could worsen again with sudden and large declines in financial markets, and rental yields for commercial and industrial space could fall further.
In particular, office Reits are gaining little favour among analysts. CIMB's Ms Ding believes that negative rental reversions will set in next year and affect DPUs. The dilutive effect of rights issues and private placements will also extend into 2010 for some Reits, she said.
OCBC's Ms Kumar believes that hospitality Reits should see year-on-year gains in income as the travel industry recovers, helping occupancy and room rates improve.
CIT - BT
CIT cuts stake in MI-Reit
Cambridge Industrial Trust has cut its stake in MacarthurCook Industrial REIT (MI-Reit) a week after it failed to block a recapitalisation plan which it said destroyed unitholders value.
According to SGX filings by RBC Dexia Trust Services Singapore Ltd in its capacity as trustee of CIT, CIT's stake is now at 2.73 per cent, compared to 9.76 per cent previously. This follows a series of 'sales in open market & issue of new units'.
On November 24, 2009, MI-Reit issued 78.57 million units and 142.86 million units to AMP Capital Investors (Luxembourg) No. 4 S.a.r.l. and the Cornerstone investors, respectively.
Following the issue of the placement units, the total number of units in issue is 487.81 million.
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