Research from SooChow CSSD Capital Markets (Asia), SCCM Asia Research

SCCM Asia Research

Research from SooChow CSSD Capital Markets (Asia)

Headquartered in Singapore, SooChow CSSD Capital Markets (Asia) is an investment bank focusing on emerging growth companies across Asia, providing a full suite of investment banking services, including corporate finance, mergers and acquisitions advisory, equity capital markets, institutional equities sales and trading and equities research.

SooChow CSSD Capital Markets (Asia)

Equity Bottom-Up

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<p>We raised our TP to S$1.63/unit to account for the recent Woolworths HQ acquisition, higher rental growth (driven by Logistics sector) and robust occupancies from existing portfolio, as well as a potential S$100m EFR in FY23E. We estimate DPU growth to stay flattish in FY22E and increase by +5.6% in FY23E (post-dilution effect). AAREIT currently trades at an attractive FY22E P/B of 1.07x (vs Industrial peers of 1.39x) and offers a total return of 20% (13.4% upside potential and 6.6% FY23E yield). Reiterate BUY.</p>
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We raised our TP to S$1.63/unit to account for the recent Woolworths HQ acquisition, higher rental growth (driven by Logistics sector) and robust occupancies from existing portfolio, as well as a potential S$100m EFR in FY23E. We estimate DPU growth to stay flattish in FY22E and increase by +5.6% in FY23E (post-dilution effect). AAREIT currently trades at an attractive FY22E P/B of 1.07x (vs Industrial peers of 1.39x) and offers a total return of 20% (13.4% upside potential and 6.6% FY23E yield). Reiterate BUY.





AIMS APAC REIT: Mixture of Inorganic and Organic Growth Warrant an Upgrade

SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

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    <div class='content-caption'>SREIT that have kicked off the reporting season</div>
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<p>Five S-REITs have kicked off this quarter’s reporting season with the release of financial results for the quarter or business updates, before the market opened last Friday. The five are SPH REIT, AIMS APAC REIT, Ascendas REIT, Sabana REIT, Suntec REIT.<br><br>
These five S-Reits have reported increased distributions per unit (DPU) and improved operating metrics amid a cautiously optimistic outlook for the year end.</p>

<p>SPH Reit kicks off with improved full-year results led by gradual market recovery in both of its markets in Singapore and Australia. It noted that tenant sales in its Australia portfolio have recovered to pre-Covid levels despite a seven-day lockdown in July.<br><br>
It announced fiscal 2021 DPU at 5.4 cents, increasing 98 per cent year on year and 3.6 per cent away from its previous fiscal year 2019 DPU (pre-Covid).</p>

<p>AIMS Apac Reit announced 4.75 cents in DPU to be distributed for first half FY2022, an 18.8 per cent increase from a year ago, buoyed by higher net property income which rose 19.4 per cent to S$47.7 million year on year.</p>

<p>The Reit recently announced its proposed acquisition of Woolworths Headquarters in New South Wales, Australia, which will be its largest asset across its entire portfolio.<br><br>
Ascendas Reit in its business update observed improved portfolio occupancy rates of 91.7 per cent and positive rental reversions, with the completion of Grab's headquarters at one-north, Singapore.</p>

<p>It noted improved occupancy levels across its Singapore and Australia properties while lower to flat levels in its United States and United Kingdom/Europe properties.</p>

<p>Last Friday, Ascendas Reit announced the proposed acquisition of 11 last mile logistics properties in Kansas City, US for S$207.8 million, marking its first entry into the US logistics market and complementing the Reit's existing portfolio.</p>

<p>The Kansas portfolio is 92.6 per cent occupied by 27 customers from industries including third-party logistics, wholesale distribution, manufacturing and healthcare.</p>

<p>The 11 properties were reported to have strong retention rates, with current tenants in place for an average of 12.5 years.</p>

<p>Sabana Reit's business updates reported improved portfolio occupancy rates of 85.3 per cent, its highest level since early 2018 when the Reit's refreshed strategy was first announced.</p>

<p>The Reit also updated that it has renewed leases with positive rental reversion of 7.8 per cent, which is the sixth time it has achieved positive reversion over the past seven quarters.</p>

<p>The removal of its syariah compliance was completed on Oct 21.</p>

<p>Suntec Reit inked 22 per cent higher distributable income from operations and announced 2.232 cents in third quarter 2021 DPU to unitholders which is 20.8 per cent higher year on year.</p>

<p>The Reit expects the return of Singapore's workforce to increase over time and positive rent reversion for its office portfolio for full year 2021.</p>

<p>In its local retail portfolio, it observed improved footfall during the first two weeks of Covid 'Stabilisation Phase' in October compared to earlier periods and expects mall occupancy to be on track to remain around 95 per cent by end 2021.<br><br><strong><em>REIT Watch is a weekly column on The Business Times,<a href="https://www.businesstimes.com.sg/companies-markets/improved-operating-metrics-and-dpus-as-s-reits-kick-off-reporting"> read </a>the original version.</em></strong></p>
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    SREIT that have kicked off the reporting season


Five S-REITs have kicked off this quarter’s reporting season with the release of financial results for the quarter or business updates, before the market opened last Friday. The five are SPH REIT, AIMS APAC REIT, Ascendas REIT, Sabana REIT, Suntec REIT.  
These five S-Reits have reported increased distributions per unit (DPU) and improved operating metrics amid a cautiously optimistic outlook for the year end.

SPH Reit kicks off with improved full-year results led by gradual market recovery in both of its markets in Singapore and Australia. It noted that tenant sales in its Australia portfolio have recovered to pre-Covid levels despite a seven-day lockdown in July.  
It announced fiscal 2021 DPU at 5.4 cents, increasing 98 per cent year on year and 3.6 per cent away from its previous fiscal year 2019 DPU (pre-Covid).

AIMS Apac Reit announced 4.75 cents in DPU to be distributed for first half FY2022, an 18.8 per cent increase from a year ago, buoyed by higher net property income which rose 19.4 per cent to S$47.7 million year on year.

The Reit recently announced its proposed acquisition of Woolworths Headquarters in New South Wales, Australia, which will be its largest asset across its entire portfolio.  
Ascendas Reit in its business update observed improved portfolio occupancy rates of 91.7 per cent and positive rental reversions, with the completion of Grab's headquarters at one-north, Singapore.

It noted improved occupancy levels across its Singapore and Australia properties while lower to flat levels in its United States and United Kingdom/Europe properties.

Last Friday, Ascendas Reit announced the proposed acquisition of 11 last mile logistics properties in Kansas City, US for S$207.8 million, marking its first entry into the US logistics market and complementing the Reit's existing portfolio.

The Kansas portfolio is 92.6 per cent occupied by 27 customers from industries including third-party logistics, wholesale distribution, manufacturing and healthcare.

The 11 properties were reported to have strong retention rates, with current tenants in place for an average of 12.5 years.

Sabana Reit's business updates reported improved portfolio occupancy rates of 85.3 per cent, its highest level since early 2018 when the Reit's refreshed strategy was first announced.

The Reit also updated that it has renewed leases with positive rental reversion of 7.8 per cent, which is the sixth time it has achieved positive reversion over the past seven quarters.

The removal of its syariah compliance was completed on Oct 21.

Suntec Reit inked 22 per cent higher distributable income from operations and announced 2.232 cents in third quarter 2021 DPU to unitholders which is 20.8 per cent higher year on year.

The Reit expects the return of Singapore's workforce to increase over time and positive rent reversion for its office portfolio for full year 2021.

In its local retail portfolio, it observed improved footfall during the first two weeks of Covid 'Stabilisation Phase' in October compared to earlier periods and expects mall occupancy to be on track to remain around 95 per cent by end 2021.  REIT Watch is a weekly column on The Business Times, read the original version.



REIT Watch - Improved operating metrics and DPUs as S-Reits kick off reporting

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<p><a href="https://www.smartkarma.com/entities/esr-reit" target="_blank" data-smartkarma-citation="entities:10934:1" rel="noopener">ESR-REIT (EREIT SP)</a> announced the proposed merger with <a href="https://www.smartkarma.com/entities/ara-logos-logistics-trust" target="_blank" data-smartkarma-citation="entities:937:1" rel="noopener">ARA LOGOS (ALLT SP)</a> by way of a trust scheme of arrangement. Under the scheme consideration, each ALLT unitholder will receive S$0.095 in cash and 1.6765 new EREIT units at an issue price of S$0.510. The total consideration implies a gross exchange ratio of 1.863x and a total scheme consideration of S$0.950 per ALLT unit, which is a 1.6% premium to the ALLT last close price of S$0.935 per unit (on 14 October). </p><p>The merger was widely anticipated to avoid conflicts of interest arising from the proposed acquisition of ARA Asset Management by <a href="https://www.smartkarma.com/entities/esr-cayman-ltd" target="_blank" data-smartkarma-citation="entities:27983:1" rel="noopener">ESR Cayman (1821 HK)</a> for a total consideration of US$5.2 billion, which was announced on 5 August 2021. ESR Cayman which owns 67% of EREIT’s manager would also own 100% of ALLT’s manager on completion of the acquisition resulting in overlapping investment mandates.</p><p>A key issue is on pricing particularly the EREIT issue price of S$0.510 which is based on EREIT’s 52-week high. Notably, at the last close EREIT price of S$0.465, implies a scheme consideration of S$0.875 per ALLT unit, which is a -6.5% discount to the ALLT last close price of S$0.935 per unit (on 14 October). </p><div class="content-highlight"><p>As the cash consideration represents just 10% of the total scheme consideration, ALLT unitholders have greater exposure to any post-merger share price gains driven by the enlarged REIT’s higher free float, lower cost of capital, cost savings and higher growth potential. While short-term pricing concerns will linger, we note that the scheme consideration even at the last close EREIT price seems reasonable. Consequently, we believe that the merger will get the nod from both sets of unitholders.</p></div>

ESR-REIT (EREIT SP) announced the proposed merger with ARA LOGOS (ALLT SP) by way of a trust scheme of arrangement. Under the scheme consideration, each ALLT unitholder will receive S$0.095 in cash and 1.6765 new EREIT units at an issue price of S$0.510. The total consideration implies a gross exchange ratio of 1.863x and a total scheme consideration of S$0.950 per ALLT unit, which is a 1.6% premium to the ALLT last close price of S$0.935 per unit (on 14 October). The merger was widely anticipated to avoid conflicts of interest arising from the proposed acquisition of ARA Asset Management by ESR Cayman (1821 HK) for a total consideration of US$5.2 billion, which was announced on 5 August 2021. ESR Cayman which owns 67% of EREIT’s manager would also own 100% of ALLT’s manager on completion of the acquisition resulting in overlapping investment mandates.A key issue is on pricing particularly the EREIT issue price of S$0.510 which is based on EREIT’s 52-week high. Notably, at the last close EREIT price of S$0.465, implies a scheme consideration of S$0.875 per ALLT unit, which is a -6.5% discount to the ALLT last close price of S$0.935 per unit (on 14 October). As the cash consideration represents just 10% of the total scheme consideration, ALLT unitholders have greater exposure to any post-merger share price gains driven by the enlarged REIT’s higher free float, lower cost of capital, cost savings and higher growth potential. While short-term pricing concerns will linger, we note that the scheme consideration even at the last close EREIT price seems reasonable. Consequently, we believe that the merger will get the nod from both sets of unitholders.

ESR-REIT’s Proposed Merger with ARA LOGOS

Thematic (Sector/Industry)

<h2>Singapore</h2>
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<a href="https://www.smartkarma.com/entities/esr-reit" target="_blank" data-smartkarma-citation="entities:10934" rel="noopener">ESR-REIT (EREIT SP)</a> and <a href="https://www.smartkarma.com/entities/ara-logos-logistics-trust" target="_blank" data-smartkarma-citation="entities:937" rel="noopener">ARA LOGOS (ALLT SP)</a> proposed merger to form ESR-LOGOS REIT; DPU accretive for both unitholders</h3>
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<li>The proposed merger will be effected by way of a Trust Scheme with EREIT acquiring all units of ALLT in exchange for a combination of cash and new units in EREIT. The merger is conditional upon, inter alia, the completion of ESR Cayman (“ESR” or the “Sponsor”) and ARA Asset Management’s merger. ALLT unitholders will receive a scheme consideration of S$0.95 for each ALLT unit comprising 1) the payment of S$0.095 in cash per ALLT unit and the allotment and issue of 1.6765 new EREIT units for each ALLT unit, issued at S$0.51. The total consideration for the proposed merger is ~S$1.4bn based on the Scheme Consideration of S$0.95 for each ALLT unit. Upon completion, the enlarged REIT will be renamed ESR-LOGOS REIT (E-LOG)</li>
<li>Post-merger, E-LOG will continue to be managed by EREIT manager. The shareholding structure of E-LOG will be: Summit Group (12.7%), ESR (10.9%), and public (76.4%). The merger also removes any potential overlapping mandate between EREIT and ALLT</li>
<li>From EREIT’s perspective, the merger is expected to be +5.8% DPU accretive on FY20 proforma basis and -6.4% NAV dilutive. From ALLT perspective, the merger is +8.2% DPU accretive on FY20 proforma basis and +2.2% NAV accretive as well</li>
<li>The effects of the merger: 1) Total assets will rise to 87 properties (S$5.4bn) with 2.2m sqft NLA and 437 tenants; 2) ~66% of portfolio exposure is in the new economy (logistics and hi-tech); 3) Rising occupancy to 94.5% (from 91.7%); 4) Increased WALE to 3.2yrs (from 2.8yrs); 5) Extend land lease expiry to 37.9yrs (from 31yrs); 6) lower cost of debt to 2.84% (from 3.24%) with longer WADE; and 7) +1.6x larger debt headroom</li>
<li>Unitholders’ approval for EREIT is required for both merger and issuance of units (&gt;50% of total number votes), while approval for ALLT are required for the scheme (&gt;50% in numbers, &gt;75% in value) and amendment of deed (&gt;=75%). Ivanhoe Cambridge Asia (holder of 8.74% of ALLT) has given an irrevocable undertaking to vote in favour of all resolutions</li>
<li>EREIT is trading at 1.17x P/B and 6.7% FY21E yield, while ALLT is trading at 1.39x P/B and 5.5% FY21E yield</li>
<li>The financing scheme and timeline is detailed on table below (illustrative purpose).</li>
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Singapore

ESR-REIT (EREIT SP) and ARA LOGOS (ALLT SP) proposed merger to form ESR-LOGOS REIT; DPU accretive for both unitholders

The proposed merger will be effected by way of a Trust Scheme with EREIT acquiring all units of ALLT in exchange for a combination of cash and new units in EREIT. The merger is conditional upon, inter alia, the completion of ESR Cayman (“ESR” or the “Sponsor”) and ARA Asset Management’s merger. ALLT unitholders will receive a scheme consideration of S$0.95 for each ALLT unit comprising 1) the payment of S$0.095 in cash per ALLT unit and the allotment and issue of 1.6765 new EREIT units for each ALLT unit, issued at S$0.51. The total consideration for the proposed merger is ~S$1.4bn based on the Scheme Consideration of S$0.95 for each ALLT unit. Upon completion, the enlarged REIT will be renamed ESR-LOGOS REIT (E-LOG)
Post-merger, E-LOG will continue to be managed by EREIT manager. The shareholding structure of E-LOG will be: Summit Group (12.7%), ESR (10.9%), and public (76.4%). The merger also removes any potential overlapping mandate between EREIT and ALLT
From EREIT’s perspective, the merger is expected to be +5.8% DPU accretive on FY20 proforma basis and -6.4% NAV dilutive. From ALLT perspective, the merger is +8.2% DPU accretive on FY20 proforma basis and +2.2% NAV accretive as well
The effects of the merger: 1) Total assets will rise to 87 properties (S$5.4bn) with 2.2m sqft NLA and 437 tenants; 2) ~66% of portfolio exposure is in the new economy (logistics and hi-tech); 3) Rising occupancy to 94.5% (from 91.7%); 4) Increased WALE to 3.2yrs (from 2.8yrs); 5) Extend land lease expiry to 37.9yrs (from 31yrs); 6) lower cost of debt to 2.84% (from 3.24%) with longer WADE; and 7) +1.6x larger debt headroom
Unitholders’ approval for EREIT is required for both merger and issuance of units (&gt;50% of total number votes), while approval for ALLT are required for the scheme (&gt;50% in numbers, &gt;75% in value) and amendment of deed (&gt;=75%). Ivanhoe Cambridge Asia (holder of 8.74% of ALLT) has given an irrevocable undertaking to vote in favour of all resolutions
EREIT is trading at 1.17x P/B and 6.7% FY21E yield, while ALLT is trading at 1.39x P/B and 5.5% FY21E yield
The financing scheme and timeline is detailed on table below (illustrative purpose).


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<p>AAREIT reported a solid 2Q22 set of results. On a QoQ basis, Revenue, NPI and DPU were up by 5.1%, 6.7%, and 11.1%, respectively, with the half-yearly figures making up 48-49% of our FY forecast. Portfolio occupancy rose by 1.6ppt QoQ to 97.3%, while rent reversion was +2.1% (reversing -0.4% in 1Q22). ~50% of lease expiring for the remainder of FY22E is in the resilient Logistics and Warehouse sector. We upgrade to BUY and note additional upside to our TP from Woolworths HQ and Alexandra Rd acquisition.</p>
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AAREIT reported a solid 2Q22 set of results. On a QoQ basis, Revenue, NPI and DPU were up by 5.1%, 6.7%, and 11.1%, respectively, with the half-yearly figures making up 48-49% of our FY forecast. Portfolio occupancy rose by 1.6ppt QoQ to 97.3%, while rent reversion was +2.1% (reversing -0.4% in 1Q22). ~50% of lease expiring for the remainder of FY22E is in the resilient Logistics and Warehouse sector. We upgrade to BUY and note additional upside to our TP from Woolworths HQ and Alexandra Rd acquisition.





AIMS APAC REIT: Strong Quarter; Upgrade to BUY

Singapore

AIMS APAC REIT is a real estate investment trust. The Trust's principal investment objective is owning and investing in a diversified portfolio of income-producing industrial real estate assets throughout Asia Pacific, including warehousing and logistics, manufacturing, business parks and hi-tech spaces.

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AIMS APAC REIT (AAREIT SP)

AIMS APAC REIT: Mixture of Inorganic and Organic Growth Warrant an Upgrade

We raised our TP to S$1.63/unit to account for the recent Woolworths HQ acquisition, higher rental growth (driven by Logistics sector) and robust...

SCCM Asia Research

REIT Watch - Improved operating metrics and DPUs as S-Reits kick off reporting

Five S-REITs have kicked off this quarter’s reporting season with the release of financial results for the quarter or business...

Singapore Exchange Ltd (SGX)

ESR-REIT’s Proposed Merger with ARA LOGOS

A key issue is on pricing particularly the EREIT issue price of S$0.510, based on EREIT’s 52-week high. While short-term pricing concerns will...

Arun George

ASEAN Builder's Scoop (15Oct21)

EREIT/ALLT merger, DPU accretive for both unitholders; AAREIT strong quarter, Upgrade to BUY; Porcelain Hotel on sale for S$90m; WCTHG mixed-use...

SCCM Asia Research

AIMS APAC REIT: Strong Quarter; Upgrade to BUY

AAREIT reported a solid 2Q22 set of results. On a QoQ basis, Revenue, NPI and DPU were up by 5.1%, 6.7%, and 11.1%, respectively, with the half...

SCCM Asia Research

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