Dealtalk: Rare portfolio sale seen spurring M&A for Singapore REITs

Alpha Integrated Real Estate Investment Trust

18/11/2015 04:00

(For more Reuters DEALTALKS, double click on  DEALTALK/ ) 
    * Saizen sale seen pressuring other REITs to boost value via 
deals 
    * Three quarters of Singapore REITs trade below book value 
    * Cambridge Industrial manager has seen expression of 
interest 
 
    By Aradhana Aravindan and Saeed Azhar 
    SINGAPORE, Nov 18 (Reuters) - An unorthodox sale of assets 
by a Singapore REIT is set to inspire more M&A among the 
city-state's property trusts, three quarters of which are 
languishing below book value, bankers and fund managers say. 
    Saizen Real Estate Investment Trust  SZNR.SI  agreed last 
month to sell its Japan portfolio to an affiliate of U.S. 
private equity firm Lone Star Funds for $370 million. In doing 
so, it gained a slight premium to adjusted net asset value per 
unit despite the property trust having traded at a discount to 
net asset value over the last two years. 
    While the cash deal, due to close early next year, comprises 
the bulk of its assets and will likely lead to a delisting of 
the trust itself, its management team has won plaudits from fund 
managers for listening to unitholders and maximising value. 
    Singapore's real estate sector is expected to soon face an 
oversupply in office and industrial properties as well as  
headwinds from likely interest rate hikes and a weak economy, 
making conditions ripe for REIT consolidation. 
    Bankers say unitholders are likely to become more vocal 
about boosting value through deals now that a precedent will 
soon be set. In particular, they add it makes sense for bigger 
REITs to swallow smaller REITs and achieve larger economies of 
scale. 
    "These REITs are run like piggy banks on a very thin margin, 
effectively. So if you can squeeze on financing costs because of 
scale, if you can squeeze management a little bit further, it 
goes a long way," said a banker familiar with situation. 
    Of 35 Singapore-listed REITs tracked by Thomson Reuters 
data, 27 are trading below book value. The FTSE ST REITs Index 
 .FTFSTAS8670  has fallen 12 percent this year in line with the 
wider market. 
    But the banker, who declined to be identified as he was not 
authorised to talk to the media, said cash deals like Saizen's 
could be far and few between as only big industrial players 
would have those amounts of money to splurge. 
    Share-swap deals would make sense for many property trusts, 
he added. 
    In a further sign of potential M&A, Cambridge Industrial 
Trust  CMIT.SI  said last month that its manager's main owners 
Oxley Global and National Australia Bank  NAB.AX  had received  
expressions of interest for their combined 80 percent holding. 
The trust has a market capitalisation of some $550 million and 
trades at 12 percent discount to its book value. 
    Kin Chan, chief investment officer at Hong Kong-based 
Argyle Street Management, which owns about 9 percent of Saizen's 
units noted that small Singapore REITs tend to trade at a 
discount to their net asset value. 
    "There are a number of sub-scale REITs in Singapore that 
could be interesting consolidation candidates," he said. 
    The smallest Singapore-listed REITs include Viva Industrial 
Trust  VIVA.SI , which has a market value of $365 million after 
its unit price fell 7 percent this year, and Sabana Shariah 
Compliant Industrial REIT  SABA.SI , whose units have lost 23 
percent this year to give it a market value of $373 million.  
    Viva and Sabana declined to comment for this article. 
 
 (Reporting by Aradhana Aravindan and Saeed Azhar in Singapore; 
Additional reporting by Patturaja Murugaboopathy in Bengaluru; 
Editing by Edwina Gibbs) 
 ((aradhana.aravindan@thomsonreuters.com; +65 6403 5659; Reuters 
Messaging: aradhana.aravindan.thomsonreuters.com@reuters.net)) 
 
Keywords: SINGAPORE REITS/M&A