Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

First Real Estate Investment Trust / Event-Driven

First Real Estate Investment Trust (FIRT SP)

Last week, after gaining approval at its EGM, Singaporean healthcare REIT, <a href="https://www.smartkarma.com/entities/first-real-estate-investment-trust" target="_blank" data-smartkarma-citation="entities:15848:1" rel="noopener">First REIT (FIRT SP)</a>, launched a renouncable <a href="https://firstreit.listedcompany.com/newsroom/20210119_173452_AW9U_O5KKB80T35AKNDMP.1.pdf" target="_blank" rel="noopener">Rights Issue</a> to raise gross proceeds of approximately S$158.2 million.First REIT was facing a significant refinancing hurdle, with approximately 80.2% (or approximately S$395.7 million) of its debt coming due within the next 17 months. To meet their debt obligations, the company negotiated with lenders to refinance their existing S$400 million secured loan facilities with a new S$260 million loan facility. Although their lenders agreed to this, it was conditional on First REIT being able to raise the remaining S$140 million though a rights issue. The sponsor group of First REIT, <a href="https://www.smartkarma.com/entities/oue-ltd" target="_blank" data-smartkarma-citation="entities:9984:1" rel="noopener">OUE Ltd (OUE SP)</a>, has provided an irrevocable undertaking to backstop the entire Proposed Rights Issue.Separately, First REIT will also be restructuring their Master Lease Agreements ("MLA") with <a href="https://www.smartkarma.com/entities/lippo-karawaci-tbk-pt" target="_blank" data-smartkarma-citation="entities:3121:1" rel="noopener">Lippo Karawaci (LPKR IJ)</a> and PT Metropolis Propertindo Utama (MPU) to restructure the MLAs relating to the 11 hospitals and 3 hospitals, respectively, which they were leasing from <a href="https://www.smartkarma.com/entities/first-real-estate-investment-trust" target="_blank" data-smartkarma-citation="entities:15848:1" rel="noopener">First REIT (FIRT SP)</a>.Below is a look at the details of the rights issue and the impact of the MLA restructuring on <a href="https://www.smartkarma.com/entities/first-real-estate-investment-trust" target="_blank" data-smartkarma-citation="entities:15848:1" rel="noopener">First REIT (FIRT SP)</a>.

Last week, after gaining approval at its EGM, Singaporean healthcare REIT, First REIT (FIRT SP), launched a renouncable Rights Issue to raise gross proceeds of approximately S$158.2 million.First REIT was facing a significant refinancing hurdle, with approximately 80.2% (or approximately S$395.7 million) of its debt coming due within the next 17 months. To meet their debt obligations, the company negotiated with lenders to refinance their existing S$400 million secured loan facilities with a new S$260 million loan facility. Although their lenders agreed to this, it was conditional on First REIT being able to raise the remaining S$140 million though a rights issue. The sponsor group of First REIT, OUE Ltd (OUE SP), has provided an irrevocable undertaking to backstop the entire Proposed Rights Issue.Separately, First REIT will also be restructuring their Master Lease Agreements ("MLA") with Lippo Karawaci (LPKR IJ) and PT Metropolis Propertindo Utama (MPU) to restructure the MLAs relating to the 11 hospitals and 3 hospitals, respectively, which they were leasing from First REIT (FIRT SP).Below is a look at the details of the rights issue and the impact of the MLA restructuring on First REIT (FIRT SP). 

FIRST REIT Rights Set FIRST REIT Right. Right On.

Lakshmi Iyer, CFA

Debt Capital Markets

<a href="https://www.smartkarma.com/entities/oue-commercial-real-estate-investment-trust" target="_blank" data-smartkarma-citation="entities:912:1" rel="noopener">OUE Commercial REIT (OUECT SP)</a>  issued a S$100mn 5-year bond at a yield of 4% yesterday. This Insight is a short note presenting our thoughts on the deal - its context,  valuation, etc. Overall, we think they are fairly valued with respect to the <a href="https://www.smartkarma.com/entities/oue-ltd" target="_blank" data-smartkarma-citation="entities:9984:1" rel="noopener">OUE Ltd (OUE SP)</a> 3.55% bonds due 2023. <div class="content-highlight">Fundamental credit research focused on Asian high yield, including coverage of areas which are generally overlooked such as Indian finance companies and non-USD denominated credit (SGD).  Sector agnostic. Research process consists of rigorous bottom-up company analysis combined with spotting market dislocations to provide trade ideas.</div>

OUE Commercial REIT (OUECT SP)  issued a S$100mn 5-year bond at a yield of 4% yesterday. This Insight is a short note presenting our thoughts on the deal - its context,  valuation, etc. Overall, we think they are fairly valued with respect to the OUE Ltd (OUE SP) 3.55% bonds due 2023. Fundamental credit research focused on Asian high yield, including coverage of areas which are generally overlooked such as Indian finance companies and non-USD denominated credit (SGD).  Sector agnostic. Research process consists of rigorous bottom-up company analysis combined with spotting market dislocations to provide trade ideas.

Credit

We rate the <a href="https://www.smartkarma.com/entities/oue-ltd" target="_blank" data-smartkarma-citation="entities:9984:1" rel="noopener">OUE Ltd (OUE SP)</a> SGD bond due 2023 "Hold" at current levels, although they have not participated meaningfully in the recent rally in credit markets.  The upcoming debt repayments at the OUE level are manageable, in our view. However, given the large amounts of debt coming due at OUE-CREIT, we prefer to remain cautious. We would suggest investors in OUE bonds keep an eye on the progress of debt refinancing at the REIT level.<div class="content-highlight">Fundamental credit research focused on Asian high yield, including coverage of areas which are generally overlooked such as Indian finance companies and non-USD denominated credit (SGD).  Sector agnostic. Research process consists of rigorous bottom-up company analysis combined with spotting market dislocations to provide trade ideas.</div>

We rate the OUE Ltd (OUE SP) SGD bond due 2023 "Hold" at current levels, although they have not participated meaningfully in the recent rally in credit markets.  The upcoming debt repayments at the OUE level are manageable, in our view. However, given the large amounts of debt coming due at OUE-CREIT, we prefer to remain cautious. We would suggest investors in OUE bonds keep an eye on the progress of debt refinancing at the REIT level.Fundamental credit research focused on Asian high yield, including coverage of areas which are generally overlooked such as Indian finance companies and non-USD denominated credit (SGD).  Sector agnostic. Research process consists of rigorous bottom-up company analysis combined with spotting market dislocations to provide trade ideas.

Singapore and emerging market real estate

Royston Foo

Equity Bottom-Up

On Friday evening, <a href="https://www.smartkarma.com/entities/12891" target="_blank" data-smartkarma-citation="entities:12891:1">United Industrial Corp (UIC SP)</a> (“UIC”) announced that it has agreed to acquire the 24.27% interests in Marina Centre Holdings Pte Ltd (“MCH”) for an aggregate consideration of S$485,333,333.In connection with the MCH acquisition, MCH has also agreed to acquire 25.0% of the issued ordinary shares in Aquamarina Hotel Pte Ltd (“AHPL”) for an aggregate consideration of S$190.0 mil. AHPL owns the Marina Mandarin Singapore.The true transaction valuation of AHPL based on Price-to-RNAV will be 1.18x, lower than the accounting Price-to-NAV of 3.65x. The true transaction valuation of MCH based on Price-to-RNAV will be 0.77x, lower than the accounting Price-to-NAV of 1.18x.Marina Square falls within the Marina Centre area and meets the criteria for the SDI Scheme. In view of the challenges that the current Marina Square development faces as well as the opportunity to tap on the SDI Scheme to increase the plot ratio and extend the leasehold of the site, there are enough merits for UIC and UOL Group to consider redevelopment of Marina Square.The projected RNAV of UIC is approximately S$7,779 mil or S$5.43 per share. This translates to an undemanding Price-to-RNAV of 0.54x.Using Wheelock Properties’ privatization Price-to-RNAV as a reference, we assume a 0.75x to 0.80x Price-to-RNAV ratio for UIC. This will translate to a fair value of S$4.07 to S$4.34 per share.Investors should take note of the low free-float and trading volume in UIC shares.

On Friday evening, United Industrial Corp (UIC SP) (“UIC”) announced that it has agreed to acquire the 24.27% interests in Marina Centre Holdings Pte Ltd (“MCH”) for an aggregate consideration of S$485,333,333.In connection with the MCH acquisition, MCH has also agreed to acquire 25.0% of the issued ordinary shares in Aquamarina Hotel Pte Ltd (“AHPL”) for an aggregate consideration of S$190.0 mil. AHPL owns the Marina Mandarin Singapore.The true transaction valuation of AHPL based on Price-to-RNAV will be 1.18x, lower than the accounting Price-to-NAV of 3.65x. The true transaction valuation of MCH based on Price-to-RNAV will be 0.77x, lower than the accounting Price-to-NAV of 1.18x.Marina Square falls within the Marina Centre area and meets the criteria for the SDI Scheme. In view of the challenges that the current Marina Square development faces as well as the opportunity to tap on the SDI Scheme to increase the plot ratio and extend the leasehold of the site, there are enough merits for UIC and UOL Group to consider redevelopment of Marina Square.The projected RNAV of UIC is approximately S$7,779 mil or S$5.43 per share. This translates to an undemanding Price-to-RNAV of 0.54x.Using Wheelock Properties’ privatization Price-to-RNAV as a reference, we assume a 0.75x to 0.80x Price-to-RNAV ratio for UIC. This will translate to a fair value of S$4.07 to S$4.34 per share.Investors should take note of the low free-float and trading volume in UIC shares. 

UIC Ltd – Taking Full Control of Marina Square with UOL Group. Exciting Times Ahead.

Last evening, <a href="https://www.wsj.com/articles/singapore-listed-oue-commercial-reit-oue-hospitality-trust-reit-in-merger-talks-11554640314" target="_blank">Wall Street Journal</a> reported that <a href="https://www.smartkarma.com/entities/912" target="_blank" data-smartkarma-citation="entities:912:1">Oue Commercial Real Estate Investment Tr (OUECT SP)</a> and <a href="https://www.smartkarma.com/entities/5642" target="_blank" data-smartkarma-citation="entities:5642:1">Oue Hospitality Trust (OUEHT SP)</a> are in discussions to merge in a cash and stock deal. OUE Commercial will offer to buy OUE Hospitality to create a single entity that will remain listed on the SGX.The enlarged entity will have a combined portfolio value of S$6.7 bil, propelling the enlarged entity to become one of the biggest REITs in Singapore in terms of portfolio size. Based on last traded prices, the combined entity will have an enlarged market capitalization of S$2.83 bil, making it the 11th biggest S-REIT in terms of market capitalization.For OUE C-REIT, it enjoys fewer benefits from enlarged portfolio but a merger will alleviate concern on the CPPU timebomb.For OUE H-TRUST, unitholders benefit more from an improve asset/sector diversification and also a potential cash payout.For sponsor OUE LTD, it will find it easier to recycle assets in an enlarged REIT.OUE C-REIT and OUE H-TRUST have announced trading halts this morning pending release of announcements. A clarification announcement on the merger is likely to be issued.

Last evening, Wall Street Journal reported that Oue Commercial Real Estate Investment Tr (OUECT SP) and Oue Hospitality Trust (OUEHT SP) are in discussions to merge in a cash and stock deal. OUE Commercial will offer to buy OUE Hospitality to create a single entity that will remain listed on the SGX.The enlarged entity will have a combined portfolio value of S$6.7 bil, propelling the enlarged entity to become one of the biggest REITs in Singapore in terms of portfolio size. Based on last traded prices, the combined entity will have an enlarged market capitalization of S$2.83 bil, making it the 11th biggest S-REIT in terms of market capitalization.For OUE C-REIT, it enjoys fewer benefits from enlarged portfolio but a merger will alleviate concern on the CPPU timebomb.For OUE H-TRUST, unitholders benefit more from an improve asset/sector diversification and also a potential cash payout.For sponsor OUE LTD, it will find it easier to recycle assets in an enlarged REIT.OUE C-REIT and OUE H-TRUST have announced trading halts this morning pending release of announcements. A clarification announcement on the merger is likely to be issued.

OUE C-REIT, OUE H-TRUST – First Thoughts on Merger Scenario

Singapore

OUE is a leading real estate and healthcare group involved in the development, investment, and management of commercial, hospitality, retail, and residential properties. The company also operates a regional healthcare ecosystem including hospitals, medical centers, clinics, and senior care facilities. Headquartered in Singapore, OUE was incorporated in 1964.

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OUE (OUE SP)

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Travis Lundy

OUE Commercial REIT 4% Bonds - Neutral

OUE Commercial REIT (OUECT SP) issued a S$100mn 5-year bond at a yield of 4% yesterday. This Insight is a short note presenting our thoughts on...

Lakshmi Iyer, CFA

OUE Ltd. - Bonds Not Joining the Party

We rate the OUE Ltd (OUE SP) SGD bond due 2023 "Hold" at current levels, although they have not participated meaningfully in the recent rally in...

Lakshmi Iyer, CFA

UIC Ltd – Taking Full Control of Marina Square with UOL Group. Exciting Times Ahead.

On Friday evening, United Industrial Corp (UIC SP) (“UIC”) announced that it has agreed to acquire the 24.27% interests in Marina Centre Holdings...

Royston Foo

OUE C-REIT, OUE H-TRUST – First Thoughts on Merger Scenario

Last evening, Wall Street Journal reported that Oue Commercial Real Estate Investment Tr (OUECT SP) and Oue Hospitality Trust (OUEHT SP) are in...

Royston Foo

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