The Expanded First Reit Post Rights Issue and Acquisitions

First Reit has announced its proposed acquisitions of 2 Jakarta hospitals, and 5 for 4 rights issue on 9 Nov 2010, followed by more details on 11 Nov 2010. I have come across a couple of blog articles with the analysis of the rights issue and acquisitions in details, and have provided the links under the "Related Links" section below. I shall not be going through the numbers in details here, but will be taking a broader view of the whole exercise and also some additional points. Before that, for those who are new to First Reit, following are some background information.

Background
First Reit is a healthcare reit which has a portfolio of mainly hospitals and a hotel in Indonesia. It also owns some nursing homes and a hospital in Singapore. Its sponsor is the Lippo Group, which also co-sponsored the LippoMaple Indonesia Trust, an Indonesian retail reit, with Mapletree Pte Ltd, a fully owned subsidiary of Temasek Holdings. Following is a brief description of the Lippo Group:

"The Lippo Group is a major Indonesian conglomerate founded by its Chairman, Dr. Mochtar Riady in the 1950s. It consists of private and public companies in China mainland, Hong Kong and Macau; Indonesia, Philippines, Singapore and South Korea with US$11 billion in assets. Lippo Group has over 15 public-listed companies in different parts of Asia including Hong Kong, Indonesia and Singapore."

Developments Since 2009
First Reit has been rather quiet for the past 2 years. Other than some asset enhancement works, it has not undertaken any major moves such as acquisition of new properties that would have made significant impact on its DPU. Thus its DPU has been rather stable from quarter to quarter around 1.9 cents since 2009. Its stock price has also not been moving up as quickly as most of the other s-reits, and because of that its dividend yield has consistently been one of the top among the s-reits. Recently its share price has seen a very impressive surge, closing at a all time high of 0.980 cents on 8 Nov 2010, just a day before the release of the acquisitions and rights issue announcement. On 9 Nov 2010, the reit announced the proposed acquisitions of 2 Jakarta hospitals as well as a 5 for 4 rights issue. The details can be found under the "Related Posts" below.

What is the effect of the acquisition and rights exercise?
At first glance the whole exercise does not seem to be very favourable for the reit. The 5 for 4 rights issue is going to more than double the share base, and at a relatively cheap price of S$0.50. The gearing as at 30 Sep 2010 was 16.5%, which is at a very low level. Doesn't it make more sense to finance the acquisitions primarily by debt, with a smaller scale rights issue or private placement that is going to have less impact on the share base?

If we take a closer look at the total asset value of the reit as at 30 Sep 2010, we will find that there is very little room for the reit to borrow much without hitting the gearing limit. The total asset is only S$346.1m. To my knowledge, at the time of this writing First Reit does not having a rating by Fitch, Moody's or S&P, which means that it can only gear up to 35%. So financing primarily by debt will leave the reit with less choices as acquisition targets, as it can only look for acquisitions of smaller scale. Furthermore, even a smaller scale acquisition can easily drive up its gearing close to the gearing limit because of its low asset base.

The management may have wanted to make use of the recent positive reaction to equity raising exercises like rights issue, private placement and IPOs to undertake a larger scale equity raising, so that it will pave the way for future expansion plans. According to the press release on 11 Nov 2010. post acquisition and rights issue, the projected gearing is still at a low level of 17.25%. Though the gearing has not changed much from 16.5% before the exercise, the asset base is going to be almost doubled to S$603.4m, which is going to make a difference to the absolute amount of debt the reit can incur before hitting the gearing limit. This will allow the reit to have more choices to make further acquisitions, thus helping it to achieve its target of having a portfolio size of S$1 billion in the next two to three years.

DPU Post Exercise
The projected annual DPU post exercise is 6.40 Singapore cents. Based on the DPU of 1.94 Singapore cents for the quarter ending 30 Sep 2010, the annualized DPU before the exercise is 7.76 Singapore cents. Whichever way you may want to calculate and compare the yield before and after the exercise, whether it is by TERP or by using the last closing price before announcement of the rights issue, the absolute amount of distribution you are going to received per unit is going to be reduced. So for existing unit holders you must keep a close tab on the schedule for rights issue, and not forget to either sell the rights, exercise the rights, or partially sell and partially exercise the rights before the deadline in order not to lose out on anything.

Related Links

• http://singaporeanstocksinvestor.blogspot.com/2010/11/first-reit-rights-issue.html
• http://www.investmentmoats.com/money-management/reit/first-reit-announces-acquisition-and-rights-issue/

Related Posts

• First Reit - Follow up details of the proposed acquisition and rights issue - 10 NOV 2010
• First Reit - proposed acquisitions and rights issue - 9 NOV 2010
• All about REIT - Rights Issue Part 2: What happens during a Rights Issue 
• All about REIT - Rights Issue Part 1: Terms and Definition

IPO of Mapletree Industrial Trust

MIT started trading on 21 OCT 2010 2:00 PM. I was taken by surprise by its huge surge soon after trading begins to as high as S$1.20 intraday. Considering the IPO price of S$0.93, this is a rise of about 29%!

I have finally found some time to briefly go through the IPO prospectus of MIT a couple of days back, and would just like to present some figures which I think are important to the evaluation of the Reit.

The Sponsor
The sponsor of the reit is Mapletree Investments Pte Ltd, a fully-owned subsidiary of Temasek Holdings. This is definitely a positive factor to the value of the reit.

Yield
With reference to page 14 of the prospectus, under the section "Stable distributions", the projected yield based on the IPO offer price of S$0.93 is as follows:

	Distribution Yield (based on the Offering Price)
From the Listing Date to 31 March 2011	7.6% (annualised)
Projection Year 2011/2012	8.0%

So for 2010/2011, the annualised DPU is expected to be about 7.068 cents. For 2011/2012, it is expected to be 7.440 cents.

Based on the closing price of S$1.160 on the first day of trading, the expected yield is 6.09% for 2010/2011 and 6.41% for 2011/2012.

Distribution Policy
With reference to page 14 of the prospectus, under the section "Stable distributions":
"MIT’s distribution policy is to distribute 100.0% of its Adjusted Taxable Income (as defined herein) for the period from the Listing Date to 31 March 2012 and thereafter to distribute at least 90.0% of its Adjusted Taxable Income."

Distribution Frequency
With reference to page 64 of the prospectus, under the section on "Distributions", MIT’s first distribution after the Listing Date will be for the period from the Listing Date to 31 December 2010 and will be paid by the Manager on or before 1 March 2011. Subsequent distributions will take place on a quarterly basis.

We should be expecting the first distribution announcement sometime in Jan 2011 when the reit reports its quarterly results for the first time. The distribution will be for earnings for the period from 21 OCT 2010 to 31 DEC 2010, which is actually not a complete quarter.

Debt
With reference to page 66 of the prospectus, under the section on "Capitalization", the reit will fully draw upon a New Debt Facility on the Listing Date in an amount of S$837.0 million. There is an existing debt of S$977.8 million which was used to part refinance the acquisition of the MIT Private Trust Portfolio. This existing debt will be repaid on the Listing Date using proceeds from the IPO.


Asset Value & NAV
With reference to page 71 of the prospectus, under the section on "UNAUDITED PRO FORMA BALANCE SHEETS AS AT 31 MARCH 2010 AND THE LISTING DATE", the value of the Total assets on listing is about S$2164 million. The NAV per unit is S$0.86.

The IPO price of S$0.93 is 1.08 times above NAV per unit.
The first day closing price of S$1.160 is 1.35 times above NAV per unit. 

Gearing
We take the debt upon listing to be S$837 million. With the initial total assets of S$2164 million, the gearing will be about 38.6%. 

Some Thoughts
One obvious positive factor for this reit is having Mapletree as its sponsor. In one of my previous posts about Sponsors, I have mentioned that the sponsor has the unofficial role of supporting the reit in times of trouble. Mapletree is definitely capable of doing that. I would say at the IPO price of S$0.93, the yield above 7% is quite attractive. At S$1.160, the yield is still above 6% and is still on par with other reits with big name sponsors like Ascendas Reit, Capital Mall Trust, etc. But in terms of price over NAV per unit, at S$1.160, the ratio 1.35 times is definitely too high compared to most of the other S-Reits. One of the main negative factor about this reit, in my opinion, will be the gearing of 38.6%, which is towards the high side compared to other S-Reits. The reit was given a rating of BBB+ by Fitch on its listing day, meaning it can potentially gear up to 60%. Though there is still some debt headroom at 38.6% before it reaches 60%, in recent times it is not uncommon to see reits raising funds by equity (private placement or rights issue or both together) when the gearing is near or above 40%. When that happens, we will have to look out for potential dilution of the yield.

Related Posts
MIT assigned a final rating of BBB+ by Fitch - 21 OCT 2010
Mapletree Industrial Trust Final Ballotting Announcement - 20 OCT 2010
All about REIT - The Basics Part 5: Sponsors

The first distribution by Cache Logistics Trust since listing

The First Distribution Since Listing
Cache Logistics Trust commenced trading in SGX on 12 APR 2010. In its first and latest quarterly earnings report for Q2 2010, it has announced a DPU of 1.71 cents for the period 12 April 2010 (Listing Date) to 30 June 2010. This DPU will be distributed along with the DPU to be announced for Q3 2010. As mentioned in the Prospectus dated 1 April 2010, the first distribution will be for the period from the Listing Date to 30 September 2010, and will be paid on or before 29 November 2010.

Following is a rough calculation of the expected amount for the first distribution:

• Announced DPU from 12 Apr 2010 to 30 Jun 2010 = 1.71 cents
• Annualized DPU based on the above = 7.81 cents (this figure can be found in the Q2 2010 earnings report)
• DPU per quarter based on above annualized DPU = 7.81/4 = 1.9525 cents
• Estimated first distribution for the period from 12 Apr 2010 to 30 Sep 2010 = 1.71 + 1.9525 = 3.6625 cents

Stock Price Movement
The reit has been trading around 0.90 to 1.00 for the past few months, which is slightly above its IPO price of 0.88 and NAV per unit of 0.87. In Sep 2010, it has momentarily went above 1.00, but in recent weeks it has gradually went down to around 0.970 - 0.975. The weakening of its share price is contrary to the recent strengthening of the STI, which has went solidly above 3000, and is approaching 3200 at the time of this writing. A wild guess for the reason behind the weakening share price is that funds are selling out of this reit to go for the IPOs of Global Logistics Properties and Mapletree Industrial Trust, which are expected to take place in mid october. Like I say this is a wild guess and it is difficult to prove, but I would say it is a logical guess as both are similar in nature to Cache Logistics, but have much stronger parents. Global Logistics Properties is not a reit but it is also in the logistics sector, and its parent is GIC. Mapletree Industrial Trust is not really in the logistics sector (unlike its closely related cousin Mapletree Logistics Trust), but it is also an industrial reit. Its parent is Mapletree Investments Pte Ltd, which is a wholly-owned subsidiary of Temasek Holdings.

Opportunity OR Further Downside?
Let's look at some factors that should make the recent weakening of the share price a good buying opportunity:

• As mentioned above, the estimated DPU of 3.6625 cents is expected to be paid on or before 29 November 2010. The XD (Ex Dividend) should be around Oct to Nov period. At the latest price of around 0.975, this is an absolute return of around 3.756% within one to two months.
• Most of the S-Reits have went up in prices quite significantly recently, such that their dividend yield has gone down to levels around 4-6%. For Cache, based on the annualized DPU of 7.81 cents shown above, and the latest price of around 0.975, its dividend yield is around 8%, which is top among the S-Reits. 
• Its gearing of 25.5% is lower than most of the other S-Reits. It still have a comfortable debt headroom for acquisition, which can potentially boost its dividend yield further.

Of course while we can make logical analysis based on figures in the earnings report, sometimes the market just choose to behave unexpectedly. Cache may have a stagnant share price or even further downside if it is slow to attract buyers, especially institutional investors. This is possible with the competition coming from new counters like Global Logistics Properties and Mapletree Industrial Trust, and also older counters like Cambridge, etc. However, the imminent distribution of 3.6625 cents should be a good buffer against further downside. 

About a Reit - Fortune Reit ِis almost a Hong Kong Reit

Overview
Fortune Reit is unique among the S-REITs. Its uniqueness is not because all its properties are in a single foreign country, i.e. Hong Kong. In fact, there are a number of S-REITs with such a profile. For examples, we have Lippo Maple Investment Trust with all its shopping malls located in Indonesia. We have Saizen Reit with all its residential properties in Japan. We have CapitaRetail China Trust with all its retail properties in China. We also have Ascendas India Trust, not officially a S-REIT but a property business trust, with all its industrial properties in India.

So what are its main differences from the rest of the 'foreign' Reits and also the S-Reits sector as a whole?

Main Differences
Following are some of its main differences from the rest at the time of this writing:

1. It is the first and only S-Reit to be dual-listed. It is currently listed in both SGX and the Stock Exchange of Hong Kong (SEHK).
2. It is the only S-Reit to be traded in a foreign currency (HKD) in SGX.
3. It is the only S-Reit to distribute its dividend in a foreign currency (HKD).

Dual Listing
Fortune Reit was officially dual listed in SEHK on 20 Apr 2010. The plan to dual list was announced on 24 Feb 2010. Prior to the announcement, Fortune Reit was trading around 3.00 HKD. Following the announcement, the price has went up sharply to above 3.70 HKD, breaking the 52 weeks high a number of times. It peaked around 3.83 HKD on the day it was dual listed. Trading volume was also much high during that period of time.

However, the boost to the share price was only apparent from the day of announcement of the planned dual listing, until the day it was dual listed. After the dual listing, there has not been much significant upwards movement to the share price, which has more or less stabilized at the range of 3.60 to 3.70 HKD at the time of this writing.

Trading in HKD
Trading in a foreign currency can be a double edged sword. If HKD strengthens against SGD, your capital gain can be magnified. But if the contrary happens, your loss can also be magnified. Following is my personal experience:

In July 2010, i bought in some units of Fortune Reit at 3.520 HKD, wanting to take advantage of the imminent semi-annual distribution some time in August. The exchange rate then for SGD vs HKD was 0.17885. So effectively I was paying SGD 0.630 per unit. I sold away the units upon XD in August 2010 at 3.600 HKD. I am not a currency expert and I do not really follow the trends of the exchange rate. So I have happily thought that other than receiving the DPU of 0.1227 HKD, I have further achieved a capital gain of 0.080 HKD per unit, or 80 HKD per lot of 1000 units. Unfortunately, during the one month period the SGD has strengthened a lot vs the HKD, and the exchange rate when I sold the units was 0.17325, which converts to about SGD 0.624. So i was actually losing money in SGD terms, although the in HKD terms I was making money. Of course overall I have still gained when the DPU was factored in, but the capital loss has eaten into my dividend profits.

DPU in HKD
Similar to the case of trading in foreign currency, the distribution in foreign currency can either boost or erase the DPU in SGD terms.  As mentioned above, I have received the semi-annual distribution of 0.1227 HKD per unit in August 2010. But with the weakening of the HKD against SGD, my expected DPU in SGD terms has also been reduced.

Impact of Exchange Rate
I have briefly traded units of Fortune Reit during its rights issue period around Sep to Oct 2009. The exchange rate then was around 0.1850. Compare to the exchange rate of 0.17325 in Aug 2010, it is a rather significant drop of about 6.5%. Of course the price of Fortune Reit happened to increase much more than 6.5% during this period of time, so overall it is still a gain if you have bought around Sep to Oct 2009. But 6.5% is still quite a significant erosion of the profits. Imagine if the price has gone south, the loss would have been much more. Even if the price has remained stagnant, you will still be losing money in SGD terms.

About a Reit - IPO of Cache Logistics Trust

Overview
The Cache Logistics Trust is a Singapore-based REIT which will principally invest in income-producing real estate used for logistics purposes in Asia-Pacific, as well as real estate-related assets. For its IPO, CLT will be offering 474,108,000 Units at the price of S$0.88 per Unit. This will raise about S$417 million for the Trust. The IPO proceeds will be used to fund new properties and as working income. The units are expected to be traded on the SGX on 12 April 2010.

The Sponsor
The sponsor for CLT is CWT, also a listed company in SGX. CLT is granted a right of first refusal by CWT and its substantial shareholder, C&P to acquire logistics properties in the Asia Pacific region owned by or offered to CWT and C&P.

Following is the overview of CWT from its website:
"Being the largest listed logistics company in Southeast Asia, CWT offers integrated logistics solutions to some of the world's leading brands in the chemicals, commodities, automotive, marine, oil & gas, defence and industrial sectors. Through its global network, the CWT Group is able to connect customers to 120 ports and 1,200 destinations seamlessly around the world."

The Manager
CLT is managed by ARA-CWT Trust Management (Cache) Limited, a joint-venture REIT management company 60% owned by ARA and 40% owned by CWT. ARA Asset Management is also listed in SGX. Currently it also manages SUNTEC Reit and Fortune Reit. 

Initial Portfolio
The initial portfolio consists of 6 properties injected by CWT, namely:

• CWT Commodity Hub
• CWT Cold Hub
• Schenker Megahub
• Hi-Speed Logistics Centre
• C&P Changi Districentre
• Changi Districentre 2

The latest valuation of the 6 properties are about S$729.9 million. This is the average of the two valuations conducted by CB Richard Ellis (Pte) Ltd and Knight Frank Pte Ltd.

Comparison with other industrial REITs
Following are the Asset Values of the other industrial REITs listed in SGX:

REIT	Asset Value
A-REIT	S$4765M
MapletreeLog	S$3035M
Cambridge	S$916M
AIMSAMPIReit	S$658M

 
In terms of asset value, CLT is comparable to Cambridge and AIMSAMPIReit.

Gearing
The initial gearing for CLT is 25.9%.

Comparison with other industrial REITs
The following shows the gearing of the other industrial REITs: 

REIT	Gearing
A-REIT	31.20%
MapletreeLog	38.10%
Cambridge	42.60%
AIMSAMPIReit	28.90%

CLT will have the lowest gearing among the industrial REITs. Did not find any mention of corporate rating in the prospectus. If that is so, the gearing limit for CLT will be 35%. It needs a corporate rating to gear up to 60%. All the other industrial REITs have a gearing limit of 60%.

Dividend Yield
As indicated in the prospectus, CLT’s distribution policy is to distribute 100% of its income until 31 December 2011, and at least 90% of its income thereafter. The projected yield based on the IPO price of S$0.88 is 8.70% for 2010 and 8.82% for 2011. 

Comparison with other industrial REITs
Following are the range of the dividend yield of the other industrial REITs in recent weeks:

REIT	Yield
A-REIT	6 – 7%
MapletreeLog	6 – 7%
Cambridge	11 – 12%
AIMSAMPIReit	8 – 9%

From the above, the initial yield for CLT compares favourably with the other industrial REITs. This is especially so if we take gearing into account. The relatively low gearing of CLT means that it has greater flexibility and headroom into funding by debt to increase its DPU and hence the yield. Cambridge Industrial Trust has the highest yield but its gearing is way higher above 40%.

Net Asset Value (NAV)
Based on the Pro Forma balance sheet in pg C-4 of the prospectus, the NAV per unit is S$0.87. The offer price of S$0.88 is almost equal to the NAV per unit.

Comparison with other industrial REITs
Following are the NAV per unit and closing price on 1 Apr 2010 of the other industrial REITs:

REIT	Closing Price on 1/4/10	NAV per unit
A-REIT	1.940	1.580
MapletreeLog	0.850	0.850
Cambridge	0.465	0.600
AIMSAMPIReit	0.215	0.310

Larger REITs like A-REIT and MapletreeLog are trading above or equal to the NAV per unit, while smaller REITs like Cambrige and AIMSAMPIReit are still trading at discount to the NAV per unit. It is hard to tell at this point whether market will pay a premium over the NAV for CLT or otherwise. Based on asset value CLT should belong to the camp of smaller REITs. But it has the advantage of being the lowest in gearing.

Conclusion
Based on the key financial figures and ratio such as yield and gearing, CLT compares well with the other industrial REITs. But we must take note that these comparisons have not looked into the underlying reasons for market to pay a premium or discount to the existing industrial REITs. For example, AIMSAMPIReit has just come out of a big capital restructuring exercise which includes rights issue and change of sponsor and substantial shareholders.

One interesting thing to look out for is the market reaction to the new REIT to be listed after about 2 years. If it is very positive, it may encourage more REITs to be listed. I remember sometime last year it was mentioned in the news that Mapletree may list a commercial REIT which may include Vivocity if the distribution yield of the REITs largely drop to around 5%.

About a Reit - CCT and the Office Sector

Recent Price Movement
After hitting a high above 1.2 in December 2009 (52 week high of 1.23 on 08 Dec 2009), the share price of CCT has went down along with the broader market in January and February 2010. After it has XD on 27 Jan 2010, the share price has started falling from 1.12 to below 1.10. There was much volatility, with the share price hitting and rebounding twice from the 1.01 region. The rebound last week was quite specular, with the share price touching a high of 1.12. However, at the end of the week it has gone down again, closing at 1.08.

Latest from the Earnings Report
There are some significant changes or plans revealed during its latest earnings report:

• The NAV per unit has dropped rather significantly from 1.49 to 1.37. This is due to another 5.4% decrease in the fair value of the Trust’s investment properties compared to its last valuation on 22 May 2009.
• The sale of Robinson Point for S$203.25 million. This is 11.4% above the property’s valuation as at 31 December 2009 and 69.7% higher than its appraised value of S$119.8 million in 2004 when it was acquired by the Trust. Robinson Point was one of the initial properties injected by its Sponsor Capitaland when it was listed.
• Plan to redevelop Starhub Centre from a Commercial to a mix Commercial and Residential property. There has not been much details about this as it is still seeking approval from the authorities. According to an analyst report, CCT may co-develop with another property developer, and may keep the commercial part of the redeveloped property while selling the residential part, or it may sell the whole property. But it was only announced this week that the development charge for residential properties will be increased, while that of commercial properties will be decreased. This may have an impact on this plan.

Latest news about the Office Sector
Some extracts about the Office Sector from The Business Times (23 Feb 2010):

• PRIME office rents continued to soften going into 2010 and could slip another 2-3 per cent this quarter, says Cushman & Wakefield.
• The vacancy rate across prime office space improved slightly to 6.9 per cent from 7.4 per cent in Q4.
• Cushman & Wakefield research director Ang Choon Beng expects new commercial developments to have a better year ahead, compared with existing ones. On the other hand, rents of existing office developments may continue slipping until the end of the year.
• According to reports from various consultancies, Grade A office rents in Singapore dropped most significantly in Asia-Pacific in 2009 by more than 40 per cent year-on-year. This has raised the country’s cost competitiveness compared with other cities such as Hong Kong and Tokyo.

Latest news about REITs in General
Announced during Budget 2010, concessions on income tax, stamp duty and GST for REITs will be extended till March 31, 2015. This is significant for the REITs as these concessions were initially to be expired by Feb 17, 2010. This announcement has helped to lift the uncertainties, and is also a continuing show of support for REITs by the government.

Undervalue or still risky?
Among the REITs sectors, the office REITs are still laggard compared to sectors like retail, hospitality and healthcare. Hospitality REITs like CDL H-Trust have staged a significant run up, and this has started way before the recent report in significant turn around and increase in tourists arrival. In fact, when CDL H-Trust started to run up from around 0.70 to above 1.00 last year, there was still no significant upward jump in tourists arrival figures yet though the decline in arrivals has slowed. At that time, H1N1 was still a significant threat to the sector. The office REITs seems to be in a similar situation now. To date the rents are still decreasing, but at a slower pace. The oversupply of office space is the significant threat now. Some analysts are still recommending to avoid the office REITs, and the recent volatility has shown there is still much uncertainties in the sector. However, it is not possible to catch the exact bottom, and at some point in time we will need to access whether we want to take some risks in order to maximize the returns. One news of particular importance above is that the rents have dropped to levels which made us more competitive than Hong Kong and Tokyo, and we will have to see how significant this will contribute to the reversal of our office sector.

About a Reit - Parkway Life Reit, a defensive healthcare Reit

Introduction
Parkway Life Reit is a healthcare Reit listed in SGX. Following is an extract about the Reit from its website http://www.plifereit.com:

"Parkway Life REIT is Asia's largest healthcare REIT. Listed on the Singapore Exchange in August 2007, Parkway Life REIT invests in income producing real estate or real estate related assets in the Asia Pacific region (including Singapore) that are used primarily for healthcare and/or healthcare-related purposes.

Parkway Life REIT aims to deliver regular and stable distributions and achieve long term growth for Unitholders."

The Sponsor
The sponsor of Parkway Life Reit is Parkway Holdings, also listed in SGX. Following is an extract about the Parkway Holdings from its website http://www.parkwayhealth.com:

"Parkway Holdings Limited, listed on the Singapore Stock Exchange since 1975, is one of the region's leading providers of healthcare services, with a network of 16 hospitals with more than 3,400 beds throughout Asia, including Singapore, Malaysia, Brunei, India and China. In Singapore, the Group owns Parkway Group Healthcare Pte Ltd and Parkway Hospitals Singapore Pte Ltd, which operates three of Singapore's premier healthcare providers: East Shore, Gleneagles and Mount Elizabeth Hospitals. The Group also owns Parkway Shenton Pte Ltd, a major provider of primary healthcare services; Medi-Rad Associates Ltd, a leading radiology services provider; and Parkway Laboratory Services Ltd, a major provider of laboratory services. In addition, Parkway Trust Management Limited provides management services to Parkway Life REIT, while Parkway Education Pte Ltd offers healthcare education through Parkway College of Nursing and Allied Health. The Group also operates 39 ParkwayHealth Patient Assistance Centres (PPAC) across the globe."

The Reit has a rights of first refusal agreement with its Sponsor over the sales of healthcare or healthcare-related assets in the Asia-Pacific region.

The Master Lessee
Parkway Life Reit is rather unique among the S-Reits in having its sponsor as its master lessee of the main bulk of its properties (all the 3 Singapore Hospital Properties). This may be viewed as a disadvantage or even a risk in terms of lack of tenant diversification from the point of view of the Reit. On the other hand, it is precisely this locked-in long term master leases which has helped to ensure 100% committed occupancy for the properties with a guaranteed constant revenue stream. Anyway this should not be a concern as long as Parkway Holdings has no issue with its operations, and currently there is no reason to think so. One of the major shareholders of Parkway Holdings is Khazanah Nasional (about 23% stake, the second largest after TPG Capital), the sovereign wealth fund of the Government of Malaysia.

The Asset Portfolio
The Reit started off with 3 hospital properties in Singapore, namely Mount Elizabeth Hospital, Gleneagles Hospital, and East Shore Hospital when it was listed in 2007. In 2008, it started to have overseas presence by acquiring 1 pharmaceutical facility and 9 nursing homes in Japan. Recently in Dec 2009, it has acquired another 8 nursing homes in Japan. So currently its total portfolio consists of 3 hospitals in Singapore, 17 nursing homes and 1 pharmaceutical facility in Japan. As at 31 Dec 09, approximately 71% of the Reit's gross revenue is derived from the Singapore Hospital Properties. So the main bulk of the rental income of the Reit is still from Singapore.

To date the Reit has not raised any funds by way of equity, whether by rights issue or private placement. The acquisitions of all the Japanese properties have been funded by debt, and this has progressively raised its gearing to 27.4%, with a total asset value of about S$1.1 billion. With a corporate rating of BBB+ by Fitch, the Reit can potentially gear up to 60%.

Inflation Hedge
The Singapore Hospital Properties of the Reit have a unique lease structure
that ensures a minimum guaranteed rental revenue growth pegged to CPI + 1%. CPI denotes the % increase in the Consumer Price Index announced by the Department of Statistic of Singapore for the relevant year compared to the immediately preceding year, computed on a 12-month average basis from July to June of the following year. Following is the related section about this taken from the Reit's IPO prospectus:

"Under each Master Lease Agreement, Parkway Life REIT will be entitled to receive from the Master Lessee, for the duration of the term of the Master Lease Agreement, rental payment, comprising a base rent and a variable rent. The aggregate rent for the Properties shall be the higher of the following:
(a)  an annual base rent of S$30.0 million and a variable rent of 3.8% of the   
      Master Lessee’s Adjusted Hospital Revenue for the current financial year; or
(b)  {1 + (CPI + 1.0%)} x the total rent payable for the immediate preceding year,
provided that the rental for the Financial Year ending 31 December 2007 shall be at least S$45.0 million (on an annualised basis) comprising a base rental of S$30.0 million plus a variable rental of S$15.0 million. Where the CPI is negative for any given year, the CPI shall be deemed to be zero for that particular year."

Simply put, there is an inflation hedge for the rental revenue of the Singapore Hospital Properties. There is also a minimum 1% upward rental revision in a deflationary situation when the CPI is negative. However, we must take note that the inflation hedge is on the rental revenue, which strictly speaking is more applicable to the landlord. As a unit holder, we still need to look at the stock dividend yield which depends on our entry price for the stock. Example you could have entered at a relatively high price that gives you a dividend yield of say only 5%. This will not help much in terms of inflation hedge if the CPI is at 6%. Having said that,this hedging feature is still a great advantage as it should ultimately bring about stability and consistent increment of the distributable income and the DPU.

Historical Share Price Movement 

The Reit came in relatively late into the picture compared to the other S-Reits. In fact, it was listed in August 2007, which was nearing the peak of the stock market and when the subprime issue was surfacing. It did not enjoy the euphoric rise in stock prices like a number of other S-Reits which were listed much earlier. In fact, its debut performance upon IPO was rather disappointing. The IPO price was 1.28, while the closing price of the first day of trading was 1.19, down by 7%.

It could be precisely because it has not experienced an euphoric rise in stock price, that its share price was rather stable around 1.2 to 1.3 for much of 2008 before the collapse of Lehman Brothers, while most of the S-Reits have their stock prices down by up to 50% from their peak. Its relatively low gearing of under 10% at that time could have also played a part.

Eventually it was still unable to escape the sell down after the collapse of Lehman Brothers. Its stock price fell to a all time low of 0.645 (intra-day), closing at 0.655 on 28/10/2008. It recovered somewhat in the following weeks, but experienced another bottom at 0.680 on 10/03/2009. But overall its performance was still better than a number of other S-Reits, which fell by up to another 50%, bottoming around 25% of their peak prices.

Since March 2009, the Reit's stock price has been experiencing a slow but steady uptrend. Currently it is trading around 1.2 to 1.3, close to its NAV per unit of 1.37. In fact, it has achieved an all time high of 1.4 on 26/01/2010.

A Defensive Reit
This Reit can be considered one of the more defensive S-Reits. Following are some of the reasons:

• It is in the healthcare sector, which should be the most stable and least risky compared to the other sectors such as office and hospitality.
• The CPI + 1% inflation hedge feature, which helps to bring about stability and consistent increment in its rental income.
• Based on the historical share price movement. This could be rather subjective and is purely based on observation. Its share price does seems to be more stable and steady. It may not move up as fast as a number of other Reits during an up trend, but it does not move down much also during a down trend.

Latest StatisticsDPU for 4Q 2009 is 2.05 cents per unit. Based on the closing price on 18/02/2010 of 1.3, this represents an annualized yield of about 6.3%. Following the latest acquisitions of 8 nursing homes in Japan, its gearing has increased to 27.4% while NAV per unit is at 1.37.

About a Reit - Ascendas India Trust is not a Reit Part 2

Historical Performance
This is actually part 2 of the previous posting About a Reit - Ascendas India Trust is not a Reit. You are strongly encouraged to read part 1 first, as it covers more about the background of a-iTrust. Part 2 is more about its historical perfomance. As mentioned in Part 1, Ascendas India Trust is a property business trust that owns IT parks in India. Although it is not registered as a Reit, it has voluntarily adopted some of the Reit guidelines such as 35% (60% with corporate rating) gearing and minimum 90% dividend payout ratio. So how has this property trust fared since its IPO in August 2007? In this posting, I shall cover some periods of major stock movements of a-iTrust. Of course we know that past performance is not indicative of the future performance, but historical performance may sometimes offer us a good point of reference to access a stock.

IPO and Honeymoon Period
The trust was listed in SGX in 1 August 2007 at an offer price of S$1.18. The property trust actually encompassed 2 of the hottest investment themes at that time, namely, Reit and India. Anything to do with Reit and India had been enjoying a good run up. Ascendas India Trust also had the advantage of being another Trust under the Ascendas brand name, the other being the highly successful Ascendas Reit at that time. On top of that, it was listed when the market was extremely euphoric, and on retrospect, just 2 or 3 months before the all time peak of the market. So it was not surprising that it was able to achieved a closing price of S$1.55 on the first day of trading. The stock eventually peaked at S$1.7 about 3 months later. In the prospectus the project annual DPU was about 68.5 cents. At S$1.7, the yield was only about 4%. Market was indeed willing to pay a premium for this stock at that time. 

Fast to go up, Fast to do down
Way back in early 2008, I have done quite a bit of read up about a-iTrust. My conclusion then was that it was fundamentally strong, with gearing at only 4%, and like Ascendas Reit, it has a strong sponsor Ascendas Pte Ltd. It also owned sizable land parcels that can be developed in the future to increase its leasable space.

The peak of its stock price was about 1.70 around Nov 2007.  At about 1.10 around Apr to May 2008, it seems to be an attractive price.

Rather to my surprise, its stock price started to move down from above the 1.10 level in May 2008 to around the 0.70 level within a relatively short time, even before the collapse of Lehman. The stock price bottomed around 0.38 in Oct 2008. It was probably link to the depreciation of rupees and conditions of the Indian economy at that time. 

Boosted by the Improvement of the Political Climate
The stock price started to move up in a significant way around May 2009 after the Indian General Election 2009, when Manmohan Singh, who is pro-economic reforms, was re-elected as the Prime Minister. The stock price was up from around 0.5 level to the 0.7 level. Following this, the stock was able to maintain a general uptrend along with the broader market. 

Selling by Great Eastern
Another significant movement of the stock price was in the Aug 2009 period, when it moved down from 0.85 to around 0.745. This was due to signicant selling by the substantial shareholder Great Eastern, which reduced its stake from 5.99% to 4.95%. But the stock price rebounded quite quickly to above the 0.8 level soon after. Those who dared to take position at 0.745 would have made a handsome profit. There was also the extra bonus in the form of the semi annual dividend distribution soon after. Of course as retail investors we can only speculate at the reasons for the sell down and make intelligent guesses of the bottom.

Recent Uptrend
In the most recent CD (cum dividend) period in Oct 2009, the stock has enjoyed a run up above 0.9. Following the XD in Nov 2009, the stock has dipped to a low of 0.85. But after that the stock has steadily moved up along with the broader market, and temporarily became a S$1 stock again last week.

Based on the latest closing price of 0.990 and the latest half yearly dividend of 3.91 cents per share, the yield of a-iTrust is currently about 7.9%, higher than most of the Reits. The latest NAV per unit is 0.84. Latest gearing is at 13%, lower than most of the Reits.

Conclusion
Although the fundamentals of this property trust is quite strong, one has to take note of its low trading volume (relative to other Reits) and sudden big movements at times. If you are serious about this stock, it may pay to catch up with news about the Indian economy and to a certain extent the polical climate, and also the strength of the rupee vs the singapore dollar.

In recent times, I have read some articles that are very bullish about the Indian Economy. It remains to be seen whether there is going to be another run up of India related investments again.

About a Reit - Ascendas India Trust is not a Reit

If you have checked the SGX website, under the Prices, Indices, Statistics - REITs, you would have noticed that Ascendas India Trust is listed alongside the other REITs. Similarly, also in the SGX website under Products - REITs - Listed Reits, Ascendas India Trust is also listed there. But in actual fact, Ascendas India Trust (a-iTrust) is not a Reit, but it is a Business Trust. As mentioned in the previous posting All about REITs - REIT, Business Trust, and Shipping Trust, there are some differences between a Reit and a Business Trust. A Business Trust is not under the guidelines stated in the MAS Code on Collective Investment Schemes. However, a-iTrust has self-imposed some of these guidelines totally or partially:

• Although there is no gearing limit for a Business Trust, a-iTrust has imposed upon itself the same gearing limits as Reit. So it has a gearing limit of 35%, and up to 60% if it has a credit rating. But different from a Reit, it can also have a gearing limit of 60% without a credit rating if there is approval from the unitholders.
• As a Business Trust, it does not have a minimum payout ratio. However, a-iTrust will follow the Reit in distributing at least 90% of its distributable income.
• As a Business Trust, it does not have a limit on property development activities. For Reit, the limit is 10%, and the major part of its business should be in the form of property rental. Like a Reit, a-iTrust has imposed a limit on property development activities upon itself, but instead of 10% it has set it to 20%.

As for the roles of trustee and manager, a-iTrust is like the other Business Trust in having a single trustee-manager.

About a-iTrust
From the a-iTrust website:
"a-iTrust is a Singapore-based business trust ("BT") registered by the MAS established with the principal objective of owning income-producing real estate used primarily as business space in India, and real estate-related assets in relation to the foregoing. a-iTrust may acquire, own and develop land or uncompleted developments to be used primarily for business space with the objective of holding the properties upon completion."

The sponsor of a-iTrust is Ascendas Pte Ltd, a unit of Singapore government-owned industrial landlord JTC Corp. Ascendas Pte Ltd is also the sponsor of Ascendas Reit.


Property Portfolio and Growth

Currently a-iTrust has a portfolio of 4 IT Parks in Bangalore, Chennai and Hyderabad, with main tenants from the IT and ITES (IT-enabled services) sectors:

• International Tech Park Bangalore (ITPB)
• International Tech Park Chennai (ITPC)
• CyberPearl
• The V

There are 3 more buildings being developed and to be completed over the next 2 years:

• Zenith - Third building in ITPC. Expected completion 2nd half 2010.
  
• Park Square Retail Mall - In ITPB. Expected completion mid 2010.
• Multi-tenanted - 3rd office building in ITPB. Expected completion mid 2011.

These development projects will bring in additional 1.7 million square feet of incoming producing space, a 35% increase over the existing portfolio. On top  of these, there is some more land within ITPB, which after development, can potentially bring in an additional 2.5 million square feet of incoming producing space.

In terms of acquisition growth, a-iTrust has a rights of first refusal agreement with Ascendas India Development Trust and Ascendas Land International Pte Ltd, both of which are units under its Sponsor Ascendas Pte Ltd. It can also acquire properties from the open market if there are opportunities.

Risks
Attractive as it may be, a-iTrust is not without its own set of risks. Following are some of the risks to take note of:

• Country Risk. Since all its assets are in India, its fortune will be closely tied to the economic, and to a certain extent the political situation in India.
• Sector Risk. Its IT Parks tenant portfolio is concentrated in the IT and ITES sectors. Any downturn in these sectors will strongly impact the occupancy rates.
  
• Currency Risk. The rental income is in the Indian rupees. Any depreciation will reduced the dividend distribution in Singapore dollars. To manage currency visibility on the distribution to Unitholders, it has a currency hedging strategy of at least one year in advance. The rate hedged for May 2010 distribution is Rs 33.47 to S$ 1.
  

About a Reit - SUNTEC Reit and its deferred units

For those of you who have not been following SUNTEC Reit since its IPO days may not be aware that there are a certain number of deferred units that are to be issued to its Sponsors in instalments at later dates. Following is a related extract from its IPO prospects page ii:

"The Sponsor will be issued with additional Units (the “Deferred Units”) in part satisfaction of the purchase consideration for the Properties. The number of Deferred Units to be issued to the Sponsor will be based on the Offering Price. The Deferred Units will be issued in six equal instalments, with the first instalment to be issued on the date falling 42 months after the date of completion of the sale and purchase of the Properties and the rest semi-annually thereafter. Any change in rental rates, occupancy rates, and distributable income of Suntec REIT can affect the impact of any dilution in the yields of Suntec REIT arising from the issuance of the Deferred Units in the future."

These deferred units have been issued semi-annually since June 2008 at equal instalments of about 34,500,000 units. So far 3 instalments have been issued, and the 4th instalment should be issued in Dec 2009. To put things into perspective, the number of outstanding units upon IPO was about 1,287,000,000 units. From the latest quarterly earnings report in Sep 2009, the latest no. of units in issue is 1,628,774,865. Other than the deferred units, the latest units in issue includes management fee payable in units issued over the past quarters. Related information about the deferred units can also be found in the quarterly report under the section "Details of any changes in the units since the end of the previous period reported on" on page 13. If the final 3 instalments of deferred units are included, the total issued and issuable units should be 1,737,800,826.

Following are some possible impact of the deferred units that we should take note:

• Possible dilution of DPU. Come Dec 2009, the 4th instalment of 34,500,000 units implies an increase of about 2% over the existing outstanding units of 1,628,774,865. In this sense, the impact on DPU is rather small, especially if the REIT is able to continue to grow its distributable income.
• There is no lock-up arrangement in respect of Deferred Units receivable by the Sponsor (IPO prospectus page 38). This means that the sponsors can choose to sell the deferred units immediately after issue. There is no obligation to hold the units for a certain period of time. Checking the price trend and trading volume shortly after the deferred units were previously issued may give some idea whether this was happening. Any reports of cutting in stake by substantial shareholders shortly after the deferred units were issued may also shed some light, though this will depend on whether the sponsors were still holding more than 5% of outstanding shares. Another factor to consider is that with the IPO price at $1 per unit, they would have paid $1 per unit for the deferred units if they were issued during IPO.
  
• These deferred units may introduce some level of complexity if there is going to be any rights issue now. Should the sponsors get the rights for deferred units that have not been issued to them? If no, then the sponsors may lose out. If yes, then these rights units will come into the market before their parent units are issued. The REIT has no refinancing issue until 2011, while the last instalment of the deferred units will be issued in Dec 2010. Now this is purely speculation on my part: there may not be rights issue until 2011 because of these deferred units, unless the management can think of a good way to resolve the above issues.