Singapore property intelligence 8 Apr

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OUE Commercial REIT (OUECT) and OUE Hospitality Trust (OUEHT) in proposed merger to create one of the largest diversified S-REITs with total assets of S$6.8b, according to company announcements.

OUECT will offer to buy OUEHT in a cash and stock deal , offering S$0.04075 in cash and 1.3583 new OUECT units or at a consideration of S$0.747066 (1.6% above OUEHT’s last traded price, or 0.4% discount to OUEHT’s NAV of S$0.75/unit), based on last closing price of S$0.52/0.735 for OUECT/OUEHT, to create a single entity that will remain listed on SGX.

The proposed merger is expected to be DPU accretive to both OUECT (+2.1%) and OUEHT (+1.4%) for pro-forma FY18, and will be NAV accretive to OUEHT (+18.7% to S$0.89/unit from S$0.75/unit) and NAV dilutive to OUECT (-12.9% to S$0.61/unit from S$0.70/unit)

Post-merger, OUECT’s pro-forma aggregate leverage will rise 1%pt to 40.3% from 39.3%, while the number of outstanding OUECT units will rise 87.4% to 5,362m units.

The enlarged REIT is expected to benefit from increased market cap of S$2.9b, larger free float of S$1.1b, which would lead to higher trading liquidity, potential index inclusion and a wider investor base.

The combined portfolio will comprise 7 properties across three asset classes of office and retail (74%) and hospitality (26%), including One Raffles Place (27%), Mandarin Orchard Singapore (18%), OUE Bayfront (18%), OUE Downtown (14%), Lippo Plaza, Shanghai (9%), Crowne Plaza Changi Airport (7%) and Mandarin Gallery (7%).

OUE is the sponsor of both REITs and would retain a significant 48.3% stake in the enlarged REIT (vs. current holdings of 37.9% of OUEHT and 56.3% of OUECT). OUE, OUEHT and OUECT are currently halted.

The scheme is subject to both OUECT and OUEHT unitholders’ approval. (Source: The Business Times, Reuters, company announcements, Bloomberg)

SPH REIT’s 2QFY19 DPU up 0.7% YoY to 1.41 Scts, with revenues/NPI up 8.5% due to contributions from acquisitions of The Rail Mall and Figtree Grove Shopping Centre.

SPH REIT maintained high occupancy at 99.2%, with rental reversions of 8.4% supported by positive reversions across all Singapore malls including Paragon (+8.6%), The Clementi Mall (+5.0%) and The Rail Mall (+6.2%).

1HFY19 visitor traffic was 3.4% higher YoY. Gearing remained low at 30.1%. SPHREIT is trading at a current/forward yield of 5.5%, based on Bloomberg consensus. (Source: The Business Times, SPH REIT, Bloomberg)

City Developments (CIT) has secured S$500m in two green loans to be used for new property developments in Singapore and abroad. (Source: The Business Times)

Wing Tai (WINGT) has been awarded the Middle Road GLS (Government Land Sales) site following its S$492m (S$1,458 psf) bid.

Spanning over 80,000 sqf, the site will be developed into two 20-storey residential towers and one block of low rise residences atop a row of commercial units. (Source: The Business Times)

BHP Group poised to cut over 700 white collar jobs , including some in Singapore, according to The Australian and The Business Times. BHP is planning cuts of up to 20% of its 900-strong finance team while its technology group could face workforce cuts of up to 30% of its Australian and Singaporean workforce. (Source: The Business Times)

Three separate studies on HDB flat resale prices point to a unanimous finding – that the decline of resale prices is certain as the length of lease decreases, especially as limits on financing kick in. (Source: The Business Times)

After a good run this year, S-Reits are likely to remain in vogue amid a more dovish Federal Reserve and room for further growth. Analysts pointed to hospitality and industrial Reits among their preferred sectors on the back of easing supply, although some highlighted that valuations have tightened and investors might do well to accumulate on pullbacks, with OCBC singling out Keppel DC Reit, Ascott Residence Trust, Frasers Centrepoint Trust (FCT) and Mapletree North Asia Commercial Trust. Meanwhile, DBS reckons that rotational interest will prevail for counters such as FCT, OUE Commercial Trust, CapitaLand Retail China Trust, Mapletree Industrial Trust, Frasers Logistics & Industrial Trust, Mapletree North Asia Commercial Trust and Keppel-KBS US Reit since the larger cap stocks are trading at “relatively premium valuations”.

Why CapitaLand’s purchase of Ascendas-Singbridge isn’t fair to minorities, and what can be done about it.

CapitaLand has made a convincing case for why its proposed acquisition of Ascendas-Singbridge from Temasek Holdings is in its long-term interest. But it hasn’t demonstrated that its minority investors are being treated fairly in the transaction. Temasek quite obviously benefits at their expense. The crux of the issue is that the vendor of Ascendas-Singbridge is also the dominant shareholder of CapitaLand. Is it fair to use an SOTP valuation model to value Ascendas-Singbridge but not CapitaLand? Would Temasek support such a dilutive transaction by CapitaLand if the vendor of the acquisition target were a separate party?

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