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The recent rights issuances of several Singapore real estate investment trusts (S-REITs) have caused alarm to REIT investors, according to the Business Times’ Hock Lock Siew column on Thursday (13 Dec).
In September, OUE Commercial REIT said it would undertake an 83-for-100 rights issue to raise $587.5 million to partly fund the acquisition of OUE Downtown’s strata office space for $908 million.
Aside from diluting the distribution per unit (DPU), experts pointed out that another bad thing about the deal is the asset’s short remaining leasehold tenure of 48 years. It will also be difficult for the trust to acquire a new property in future that will be yield-accretive without resorting to another rights issue.
Moreover, Keppel-KBS US REIT announced in October that it would carry out a 295-for-1,000 rights issue to raise US$93.1 million to partly fund the US$169.4 million acquisition of a business campus in Seattle’s metropolitan area.
Although the transaction is yield-accretive on a pro forma basis, some analysts were surprised by the cash call as they believe it came too soon following the trust’s initial public offering (IPO) in November 2017. The issued units were also priced lower compared to original projections, while a proposed preferential offering of new units to raise US$101.3 million did not proceed.
Similarly, Cromwell European REIT is in the process of undertaking a S$349 million 38-for-100 rights issue that will finance yield-accretive acquisitions, including three office blocks in Poland.
Some experts believe the re-injection of Polish assets is a backward step by the trust manager. Previously, the REIT’s planned listing in 2017 was temporarily deferred, but was eventually downsized to exclude seven retail properties in Poland, which investors were not keen on.
Furthermore, the report noted that most S-REITs had embarked on an overseas acquisition spree in 2017. But investors have recently adopted a cautious stance, with some investors in the US and Europe beginning to worry about a potential bubble in commercial properties.
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg
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