SINGAPORE (Dec 2): For the month of Nov, the best performing sector for real estate investment trusts was office, followed by “others” which comprises just Cromwell European REIT. Office REITs did well because the unit prices of Manulife US REIT and Prime US REIT rose 4.9% and 4.8% respectively.
Overall, the best performing REIT for the month was Sasseur REIT, which owns four outlet malls in China. It rose 8.1%, which is more than its current yield of 7.54%. The worst performing REIT in Nov was Mapletree North Asia Commercial Trust which owns Festival Walk in Hong Kong. It fell more than 9%. Festival walk contributes around 62% to MNACT’s net property income and accounts for 62% of the REIT’s valuation.
The worst performing sector for the month was healthcare where there are just two REITs, First REIT and ParkwayLife REIT. During the month, ParkwayLife REIT fell by 2% and First REIT by 1%.
Still, ParkwayLife REIT remains one of the most expensive REITs, trading at a price to book of 1.73 times and a yield of 4.07%. The most expensive REIT is Keppel DC REIT which is trading at a price to book ratio of 1.83 times and a yield that is below 4%. The advantage of trading at low yields and at hefty premiums to book value is that these valuations enable the REITs to make accretive acquisitions.
Interestingly, ParkwayLife REIT decided not to have a general mandate to issue units to acquire properties early on. Its manager believes that when the time comes for a meaningful acquisition, it will have to hold an EGM to ask unitholders for a general mandate. ParkwayLife REIT is also interesting because the first 15 years of its 15+15 year lease for its three Singapore hospitals matures in 2022. The healthcare REIT was listed in 2007, at an IPO price of $1.28. It closed on Nov 28 at $3.24.
Eagle Hospitality Trust remains as one of the cheapest REITs, trading at just 0.6 times price to NAV. On Nov 27, EHT announced that its base fee for 3QFY2019 comprising 2.17 million units was credited to its lender for “repayment for a term loan facility obtained for financing the general corporate purpose of the REIT Manager”. In a company filing on Nov 28, Howard Wu, co-founder of EHT’s sponsor Urban Commons announced he acquired 531,000 units in EHT on Nov 27 at 53.8 cents apiece, taking his stake to 6.1% from 6.04%. EHT’s unit prices have stabilised after a tumultuous two months.
More fund raising
The danger with low interest rates is that corporates in general and REITs in particular are tempted to take on debt to acquire assets. No surprise then that REITs have raised some $6.4 billion in equity and near equity (perpetual securities), excluding initial public offers this year.
On Nov 21, SPH REIT became the latest REIT to place out units, raising $164.5 million. Together with the 4.1% $300 million perpetual capital securities raised on Aug 30, SPH REIT has raised $464.5 million, to partly pay for a 50% stake in Westfield Marion Shopping Centre in Adelaide. The total cost, including expenses amounts to A$691.3 million ($656.7 million). This is SPH REIT’s second acquisition in Australia, the first one being Fig Tree Shopping Centre about an hour and a half away from Sydney by road.
According to an announcement by SPH REIT, Westfield Marion is the largest and the only super regional shopping centre in South Australia, with gross lettable area of approximately 1.5 million sq ft. SPH REIT says the shopping centre is able to attract a footfall of 13.5 million annual visitors, has an occupancy rate of 99.3% and weighted average lease expiry of 6.7 years by GLA and 4.2 years by income. The acquisition reduces SPH REIT’s concentration on The Paragon from 76% to 65%. The Australian malls account for 17% of the REIT by value.
Based on pro form figures, the acquisition adds 1.6% to its FY2019 DPU of 5.6 cents taking it to 5.69 cents on a pro forma basis while NAV rises marginally to 95.3 cents from 95 cents.
Ascendas REIT receives overwhelming support
In an EGM on Nov 27, Ascendas REIT’s independent unitholders voted overwhelmingly – by 93.2% - in favour of 30 business park acquisitions announced on Nov 1. During the EGM, the manager was questioned on why Ascendas REIT opted for a rights issue over a placement and preferential equity fund raising. However, retail investors were also content that the REIT decided to give everyone an opportunity to acquire more Ascendas REIT units at lower prices.
During one of Ascendas REIT’s recent roadshows ahead of its EGM, William Tay, CEO of Ascendas REIT’s manager said,” We have a policy of having a high level of natural hedge to protect our NAV. On the ground we put in place a ground team to manage the properties, engage with the tenants and to fill up vacant space.” He was fielding questions on the REIT’s proposal to acquire 28 US business parks. He added that while Ascendas REIT has raised equity at the REIT level, it has taken on US$700 million on onshore debt in the US, which is interest expense deductible and ensures more income flows through to unitholders.
Tay also said that the REIT’s team on the ground is engaging with tenants to extend leases and also to understand their tenants’ plans.Although Ascendas REIT’s unit price has recovered from its low, it is still below its theoretical ex-rights price of $3.0955 per unit, and the pre-rights announcement price of $3.10. Unit prices are down about 4% since the start of Nov.
