Singapore REIT Industry
The lacklustre performance of S-REITs
sparked off management changes
and sector consolidation during the
year, with the sale of a stake in Allco
Commercial REIT and the entire stake
in its manager to Frasers Centrepoint.
Malaysian conglomerate, YTL
Corporation, also acquired interests in
Macquarie Prime REIT and its manager
and has renamed it as Starhill Global
REIT in October. In August, National
Australia Bank and Oxley Group
formed a joint venture to take a majority
stake in the manager of Cambridge
Industrial Trust.
The dislocation of the global credit
markets has driven up the cost of
capital, with credit spreads widening
significantly in 2008. Given the tight
credit conditions, some REIT managers
have postponed their acquisition and
asset enhancement plans as capital
preservation and financial flexibility take
precedence. The REITs’ current high
trading yields also present a hurdle to
making yield-accretive acquisitions.
With no distinct signs of improvement
in the credit environment, some SREITs
had to seek other routes such as
rights issues and private placements
to re-capitalise and address their
refinancing issues. In January 2009, in
a bid to conserve cash, Saizen REIT
proposed a distribution reinvestment
plan where dividends are paid out in
the form of units instead of cash. It
was the first S-REIT to propose such a
scheme. In the same month, Ascendas
REIT announced an equity fund-raising
exercise to raise approximately $400
million to fund development projects
and reduce its aggregate leverage.
CapitaMall Trust has also announced a
rights issue in February 2009 and plans
to use the proceeds to mainly repay
almost $1 billion of debt maturing in
2009.
Proactive Government Initiatives
In a move that could encourage
S-REITs to seek equity capital, the
Singapore Exchange, in January 2009,
announced measures to increase the
efficiency and flexibility in conducting
rights issues. The key changes will
reduce the process by one week and
allow sub-underwriting arrangements
by major shareholders.
In February 2009, the Singapore
Exchange announced additional
measures to make it easier for listed
firms to raise cash. The moves include
allowing firms to issue and sell shares
via private placements at a discount
of up to 20.0% off the market price,
compared with the previous limit
of 10.0%.
To allay market concerns over asset
write-downs, the Monetary Authority
of Singapore (MAS) announced that
S-REITs will not be considered to
have breached leverage limits should
their aggregate leverage increase
due to declines in property values.
In addition, MAS also clarified that
refinancing of existing debt by a REIT
is not to be construed as incurring
additional borrowings. This would
ease the pressure on highly-geared
REITs to recapitalise.
Some S-REIT managers have also
urged the government to reduce the
minimum pay-out ratio to unitholders
from the current 90.0% while still
allowing the REITs to enjoy tax
concessions. The MAS has, however,
turned down these requests after
seeking feedback from a gamut of
parties - including REIT managers,
bankers, lawyers and unitholders.
Furthermore, the MAS plans to solicit
feedback on a proposed requirement
for S-REITs to hold Annual General
Meetings to promote good corporate
governance.
A Critical Year Ahead
Refinancing risks may continue to
hamper S-REITs in 2009 when a
significant $4 billion worth of debt in
the sector is expected to mature. The
availability and rising costs of debt
and equity also continue to present
challenges for the sector.
As such, some S-REITs may seek to
de-leverage their balance sheets via
equity issuances, reduction of dividend
pay-outs, introduction of distribution
reinvestment plans or asset sales.
Looking forward, investors will focus
on REITs with good quality underlying
assets, resilient cash flows and capable
management teams. Those with
relatively little near-term refinancing
worries and strong sponsors will also
be attractive to investors.
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