Image: Reuters Berita 24 English - Bankers and analysts predict that deals to take private Singapore's real estate investment trusts (RE...
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| Image: Reuters |
Berita 24 English - Bankers and analysts predict that deals to take private Singapore's real estate investment trusts (REITs) will pick up steam as the corporations grapple with rising interest rates and tough competition to buy assets.
The trend in the $7 billion industry was highlighted this week by Frasers Property Ltd (FPL), a subsidiary of Thai tycoon Charoen Sirivadhanabhakdi's TCC Group. FPL intends to sell its Frasers Hospitality Trust arm for $1.35 billion ($973 million) in a deal valued at $1.35 billion.
Hospitality Large corporations are the primary stockholders in REITs. In other sectors, there has been a wave of REIT consolidation in recent years as companies sought size and grew internationally.
The industry's harm from the COVID-19 pandemic, as well as the disruption to travel and tourism, raises the prospect of a boom in take-private mergers.
"For the time being, sub-scale hospitality and retail REITs that trade at a significant discount to their now-lower net asset value (NAV) may be targets," according to Quiddity Advisors analyst Travis Lundy, who publishes on the Smartkarma research platform.
Retail investors are the majority in Singapore's REIT market, drawn by the firms' large payouts. In Singapore, REITs are required to pay out 90% of their rental revenue, whereas property trusts, a similar type of investment, are not.
"Takeovers are scale-merit opportunities in hospitality REITs and commercial REITs," said Lundy, "but take-privates like Frasers are really more about corporate strategy and opportunism than about industrial logic."
According to statistics published in May by the Singapore Exchange, Singapore had 44 REITs and property trusts with a combined market value of S$117 billion.
Among the five listed hospitality trusts on the Singapore exchange, Frasers Hospitality Trust (FHT) has the second-least valuable collection of assets. Ascott Residence Trust, CDL Hospitality Trusts, and Far East Hospitality Trust are among the others.
The other is OUE Commercial REIT, a diversified REIT with investments in both the commercial and hospitality sectors.
FHT's net asset value has fallen since its IPO in 2014, owing to sluggish development in the sector and the strengthening of the Singapore dollar against its operating currencies, according to the company and FPL.
"The proposed privatisation of Frasers Hospitality Trust by its sponsor should result in a positive kneejerk reaction on hospitality S-REITs (Singapore REITs) that are still trading at discounts to their NAVs as valuation plays catch-up in the face of the ongoing hospitality recovery," Citi analyst Brandon Lee said.
In a report, he predicted that the deal would lead to "deeper evaluation by sponsors managing REITs currently trading at deep discounts to NAVs, as assets under management growth becomes increasingly challenging in the face of rising capital costs, especially for the smaller ones, as assets under management growth becomes increasingly challenging in the face of rising capital costs, especially for the smaller ones."
FHT's offer price of S$0.70 per share was a 44 percent premium to its volume-weighted average price in the 12 months leading up to April 7, the day before the strategic review was announced.
According to analysts, the offer valued FHT at 1.07 times its NAV, while its peers trade at lower prices. FHT said that due to its modest size, it has been unable to reap the benefits of its listing.
"Even private equity players face fierce competition when it comes to purchasing assets. With loan rates on the rise, acquiring assets to expand scale becomes even more difficult "According to one banker who is involved with REIT transactions,
(1 Singapore dollar = 1.3896 Singapore dollars)
