(Dec 13): Two real estate investment trusts with Chinese properties outperformed the sector since the start of Dec, Sasseur REIT and EC-World REIT.
Sasseur REIT owns four outlet malls, one each in Chongqing, Bishan, Hefei and Kunming. It rose 5.8% in a matter of days, probably in anticipation of Dec 23. On Dec 6, Sasseur REIT’s manager announced that the REIT would be included in the FTSE EPRA Nareit Global Emerging Index from Dec 23 onwards. Separately, Sasseur REIT’s manager has been on a spate of roadshows to meet investors.
EC-World REIT’s distribution per unit in 3QFY2019 fell 5.2% y-o-y and 3.7% q-o-q to 1.489 cents because the REIT took on additional debt to acquire Fuzhou E-Commerce (which had yet to contribute to NPI), and the RMB was soft. In 3QFY2019, net property income rose 3.2%, but finance cost surged by 35.4%. Hence distributable income fell 4.4% to $11.9 million during the third quarter. Net asset value fell to 84 cents as at Sept 30, from 87 cents as at Dec 31 2018.
However, EC-World REIT’s yield had been relatively high at 7.94% a week ago, compared to other industrial REITs. It has compressed to 7.74% as at Dec 11. If the US and China reach an amicable agreement by Dec 15, no additional US tariffs will be imposed on Chinese imports. EC-World REIT – which owns logistics assets in China – could turn operationally more stable and the RMB may also stabilise.
BHG Retail REIT announces RTO
On Dec 3, BHG Retail REIT’s manager announced a proposed acquisition of Badaling Outlets (The Great Wall at Badaling is a popular tourist spot) for the equivalent of $455 million. The vendor is Horizon Thrive International, wholly owned by Chang Dingjie, a director of Beijing Hualian Group Investment Holding Co (BHGIH). BHGIH is the single largest shareholder of Beijing Hualian Department Store Co (BHG Retail REIT’s sponsor), with a 25.39% stake.
Located at Chenzhuang Village at Nankou Town in Changping District in north-west Beijing, the property, which comprises 14 buildings, was completed in 2014 and its land leasehold will expire on Sept 24, 2037.
The announcement says the BHG Retail REIT will pay partly in cash, for $260 million, and partly in units. Subject to approvals, the REIT will issue 260 million new units to the vendor at the higher of 75 cents a unit and the prevailing 10-day volume weighted average price, to raise $195 million. The REIT manager has also announced a private placement of around 94.8 million units as part of the transaction.
All the proposals are subject to an EGM. The REIT’s market cap is only $355 million, and if successfully completed the acquisition will constitute a very substantial acquisition or a reverse takeover of BHG Retail REIT, the REIT manager says.
On Dec 12, ARA Asset Management announced a strategic partnership with LOGOS Property. On Dec 11, LOGOS acquired the manager of Cache Logistics Trust, and a 10% stake in the REIT in exchange for ARA taking a stake in LOGOS. LOGOS is developing logistics properties in China, Australia, Indonesia and India. Cache Logistics Trust closed at 72.5 cents on Dec 11.
Prior to the Dec 12 announcement, analysts were wondering whether Cache Logistics Trust could be part of a three or four way merger, between ESR-REIT, Sabana Shariah Compliant Industrial REIT and AIMS APAC Industrial REIT. This year, OUE Commercial REIT merged with OUE Hospitality Trust and is now a single entity, OUE Commercial REIT. By the end of this year, Ascott Residence Trust will merge with Ascendas Hospitality Trust to become Ascott Residence Trust.
Not all investors are happy
Frasers Logistics and Industrial Trust (FLT) and Frasers Commercial Trust (FCOT) have announced a proposal to merge through a scheme of arrangement, which is subject to and EGM and court approval. The merger is likely to be completed next year if all conditions are met.
FCOT was the worst performer since the start of the month. Some investors in FCOT are not happy with the merger announcement because they feel FCOT is being sold too cheap. One investor says Alexandra Technopark, which is a major property in FCOT, is undervalued. Asset enhancement initiatives at ATP are completed, and committed occupancy has risen to 96.8% as at Sept 30, compared to just 68.6% as at Dec 31, 2018. With Google as a major tenant, Alexandra Technopark’s NPI is likely to improve, and as a result, its capital value should increase.
Separately, China Square Central’s AEIs of the retail space are likely to complete from Nov 2019 onwards. Close to 80% of the retail net lettable area is pre-committed and the REIT manager is in active negotiations for another 10% of space. Hence, the future NPI and value of China Square Central is likely to rise. ATP and China Square Central account for 27% and 29% of FCOT’s assets.
“Would you exchange your China Square Central and Alexander Technopark for some industrial properties on the outskirts of Australian and German cities?” aninvestor asks. Moreover, in the US-EU trade war the US has threatened to impose tariffs on European cars. “Who is the biggest tenant at FLT,” the investor asks? By gross rental income, it is BMW, and automotives contribute to 11.7% to FLT’s GRI.