It has been a busy year for REIT managers. On one hand, they had to manage the impact of Covid-19 and on the other, a handful of the REITs had acquired more properties and raised money from unitholders.
Why are they looking to expand during this period?
Before we answer that, let me bring you to speed with the recent rights issues.
Prime US REIT (SGX:OXMU) raised US$120m to acquire Park Tower in the US
On 12 Feb 2020, Prime US REIT announced the private placement to raise US$100m to acquire Park Tower in the US.
The placement was priced at US$0.957 and it was successful in raising US$120m, above the minimum US$100m that they intended to raise.
Mapletree Industrial Trust (SGX:ME8U) raised S$410m to acquire remaining stake in 14 data centres in the US
Mapletree Industrial Trust (MIT) announced the private placement to raise funds to acquire the remaining stake in 14 data centres in the US on 23 June 2020. MIT had a 40% stake prior to the acquisition and would buy over the remaining 60% from the sponsor, Mapletree Investments Pte Ltd.
It was purely a private placement and no rights issue was offered. The deal as follows:
- Priced at S$2.80
- 1.6% discount
The placement was oversubscribed by 820%.
IREIT (SGX:UD1U) raised S$142.8m to acquire remaining stake in four office properties in Spain
IREIT holds 4 properties in Spain under a 40:60 joint venture with Tikehau Capital. IREIT has decided to exercise the option and acquire the 60% shares in the joint venture. To fund this acquisition, IREIT has announced a rights issue on 18 Sep 2020:
- Priced at S$0.490 per Rights Unit
- 32.9% discount to the closing price of S$0.730
- 454 Rights Units for every 1,000 existing Units
It was a renounceable rights issue which meant that unitholders could sell the rights units for cash if they didn’t want to subscribe.
The issue was 166.2% oversubscribed and the gearing was reduced from 39% to 35%.
Lippo Malls REIT (SGX:D5IU) raised S$280m to acquire Lippo Mall Puri
On 18 Sep 2020, Lippo Malls REIT announced to raise S$280m from unitholders to acquire Lippo Mall Puri in West Jakarta.
The dilution was massive considering that more units than the prevailing units in circulation were going to be created as part of this rights issue.
- Priced at S$0.060 per Rights Unit
- 47.8% discount
- 160 Rights Units for every 100 Units held
The rights issue is still ongoing.
Frasers Centrepoint Trust (SGX:J69U) raised S$1,327.3m to acquire the remaining stake in 6 suburban malls in Singapore
Frasers Centrepoint Trust (FCT) announced the rights issue on 28 Sep 2020 to fund the acquisition of the remaining stake in 6 suburban malls. I previously wrote about it here.
FCT raised S$1,327.3m and S$1,017.7m was used for the acquisition. S$277.5m was used to pare down debt.
The equity fund raising was completed in two parts:
- Private Placement
- Priced at S$2.35 per unit
- 6.6% discount
- S$575m was raised
- Preferential Offering
- Priced at S$2.34 per unit
- 7% discount
- 290 Preferential Offering Units for every 1,000 existing Units
- S$759.7m was raised
The private placement and preferential offering were both oversubscribed by 280% and 142% respectively.
Mapletree Logistics Trust (SGX:M44U) raised S$644m to acquire 24 properties in China, Malaysia and Vietnam
On 19 Oct 2020, Mapletree Logistics Trust (MLT) announced the acquisitions of 22 properties in China, 1 in Malaysia and 1 in Vietnam. Details of these 24 properties are found in MLT’s presentation.
The total acquisition cost amounted to S$650m and would be funded partly via a private placement and a preferential offering:
- Private Placement
- Priced at S$2.027 per unit
- 2.5% discount
- S$500m was raised
- Preferential Offering
- Priced at S$1.99 per unit
- 4.2% discount
- S$144.1m was raised
- 19 New Units for every 1,000 existing Units
The private placement and preferential offering were both oversubscribed by 550% and 178% respectively.
ARA LOGOS Logistics Trust (SGX:K2LU) raised S$100m to acquire 5 properties in Australia and 2 funds
ARA LOGOS Logistics on 2 Nov 2020 announced the private placement to raise S$50m for acquiring 5 properties in Australia and 2 funds. However, the preferential offering to raise the other S$50m has not been announced yet.
The private placement details was priced at S$0.5525 which is a 7.2% discount.
Ascendas REIT (SGX:A17U) raising S$1,200m to acquire 2 office properties in San Francisco, data centres in Europe and 1 office unit in Australia
Ascendas REIT announced the acquisition of 3 office properties and a portfolio of data centres on 10 Nov 2020. Details of the two US office properties can be found in Ascendas REIT’s presentation. There were no details for the data centres and an office unit in Australia at the time of writing but the breakdown of the acquisitions were:
- 2 San Francisco office buildings – S$390m
- A portfolio of data centres – S$614m
- An office unit in Australia – S$180m
Similarly, Ascendas REIT has decided to raise the funds in two parts – private placement and preferential offering.
- Private Placement
- Priced at S$3.026
- 5.7% discount
- To raise S$800m
- Preferential Offering
- Priced at S$2.96
- 7.8% discount
- 37 Preferential Offering Units for every 1,000 existing Units
- To raise S$400m
CapitaRChina Trust (SGX:AU8U) raising S$326.1m to acquire properties in China
CapitaRChina Trust (CRCT) announced the rights issue to acquire Ascendas Xinsu Portfolio, Ascendas Innovation Towers, Ascendas Innovation Hub, Singapore-Hangzhou Science and Technology Park Phase I and II and Rock Square.
The acquisition would be funded by
- Private Placement
- Priced at S$1.195 per unit
- 6.6% discount
- S$245.4m was raised
- Preferential Offering
- Priced at S$1.17 per unit
- 7.3% discount
- 56 New Units for every 1,000 Existing Units
- Raising S$80.7m
The private placement has closed at the time of writing and it was 300% oversubscribed.
Why is it a good time to raise funds from unitholders?
I think it is a confluence of 3 driving factors why REITs are raising funds from unitholders.
#1 Expanding is cheaper during the worst of times.
There are opportunities in every crisis. With Covid-19 creating havoc around the world, it might be opportune to pick up real estate on the cheap. It might not even be a matter of price in some occasion – some properties may only be on sale during dire times and one has to grab the opportunity to buy them or they will be off the market once things get back to normal.
#2 Create more debt room, we don’t know what’s going to happen.
The Monetary Authority of Singapore has temporarily raised the gearing ratio to 50% for S-REITs. This is to give some room for REITs to borrow if required since REITs were impacted by government measures such as having to extend rental support to tenants. It is an unprecedented event and no one knows how long it would last. The REIT managers wouldn’t want to rely on debt alone and some have opted to raise money from unitholders to acquire more properties, which at the same time would lower the gearing ratios.
#3 There’s insatiable demand.
Most of the REITs in the above examples had chose to raise money via private placement and preferential offerings. The former is usually offered to a group of accredited investors while the latter is offered to all unit holders. In fact, most of the money were raised through private placement and showed that the richer investors have great appetite for REITs even during this pandemic.
The slight discounts (with the exception of IREIT and Lippo Malls REIT) did not deter the investors as the offers were oversubscribed in almost every case.
It is tempting for a REIT manager to want to do a rights issue when you see another REIT achieved an oversubscription for its private placements and rights. One after another has achieved oversubscription thus far and it proved that the demand is high. The pandemic has not dampened investors mood or affected their financial abilities.
Expect more rights issues
So far, 7 have carried out their rights issue and I believe more REITs will call investors soon. The demand is still high and other REIT managers will want to ride on the momentum.
In fact, it would look foolish on them if they sit and do nothing. Prepare your wallets. Rights issue are coming en masse.