Wednesday, November 14, 2012

S-REITs' acquisition activity slowed further in 2012

Total acquisitions for the first 10 months already 40% short of 2011's gross.

According to Macquarie, the SREITs’ total acquisitions in 2010 totalled S$7.3bn (including S$1.8bn from overseas assets). In 2011, the pace slowed with a total of S$5.3bn in acquisitions, of which 22% was overseas assets.

For the first 10 months to 2012, the research firm notes that the pace of acquisitions slowed further to S$3.2bn, of which 42% were overseas.

Here's more from Macquarie.

The biggest transaction in 2012 was CCT’s acquisition of Twenty Anson. Apart from this, most of the announced acquisitions were smallish ones.

The SREITs also made some divestments, in order to raise cash to pay for new capital expenditure, to reconstitute their portfolios or to grow DPUs via accretive acquisitions. The CAPL / ART transaction was one of the largest, with ART disposing the Somerset Grand Cairnhill Singapore for S$359m to CAPL, whilst buying two completed Ascott properties, and the redeveloped Somerset asset for S$405m when completed in 2017.

Potential acquisitions in 2013

We believe 2013 will be another year of acquisition and portfolio reconstitution themes.

In the office sector, the main asset for consideration is Marina Bay Financial Centre (MBFC) Tower 3, owned by an equal JV comprising Keppel Land, Cheung Kong (1 HK, HK$115.80, Outperform, TP: HK$136.05) and Hongkong Land (HKL SP, US$6.60, Outperform, TP: US$6.60). If we look at the previous transactions involving One Raffles Quay and MBFC Towers 1 & 2, we believe KREIT and SUN will respectively buy the one-third stake in MBFC Tower 3 owned by their respective sponsors.

Whilst MBFC Tower 3 is completed in 2Q12, only 70% of the office space is occupied. Hence, we believe the two SREITs are likely to wait until the occupancy rates are in excess of 80/85% before considering an acquisition.

In the retail space, ION Orchard, 50% owned by CapitaMalls Asia remains an asset that its associate, CapitaMall Trust, has expressed interest to buy if the price is right. We believe CMA will only consider selling if its look-through gearing gets closer to 50% and/or its earnings from China grows to a more significant contributor to overall CMA earnings.

Mapletree Commercial Trust (MCT SP, Not Rated) has a right of first refusal (ROFR) over its parent, Mapletree Investments’ assets in Singapore. There are 10 assets under the ROFR which includes Mapletree Business City and Mapletree Anson.

In the industrial sector, we believe it is the typical bite-sized transactions. Some of the industrial REITs have ROFRs or have sponsors that are incubating assets and may consider divestment to these REITs when yields are stabilised.

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)

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