SGD New Issue Review : CAMBRIDGE-MTN PTE LTD (Amended)

NEW ISSUE: CAMBRIDGE-MTN PTE. LTD SGD 4YR SENIOR

ISSUER:   Cambridge-MTN Pte.Ltd.
GUARANTOR:  RBC Investor Services Trust Singapore Limited (in its  capacity as trustee of Cambridge Industrial Trust)
STATUS: Direct, unconditional, unsubordinated & unsecured Notes
ISSUE RATING:  Unrated
CORPORATE CREDIT RATING: BBB- / Stable (S&P)
FORMAT/DOCS :  Bearer / Issuer’s SGD 500 million Multicurrency    Medium Term Note Programme dated 2 February 2012, supplemented by the Supplemental IM dated 1 March 2012 (collectively the “Programme”)
TENOR: 4-Years
ISSUE SIZE:  TBD
INITIAL PRICE GUIDANCE:  3.75% area
USE OF PROCEEDS:  In accordance with the Programme
INTEREST PAYMENT: Semi-annual, actual/365 (fixed)
DETAILS: SGD250K/ Singapore Law/ CDP
LISTING: SGX-ST
SELLING RESTRICTIONS:  As per Programme, S274 and/or 275 of the Singapore SFA

– New SGD 4Y transaction announced at initial guidance of 3.75% area
– Transaction is strongly anchored by institutional investors post roadshow

COMPS:
AIMS AMP REIT 4.9%  08/2016  current indicative yield 2.86%
AIMS AMP REIT 3.8% 05/2019 current indicative yield 3.80%
Ascendas REIT 2.5%  05/2019  current indicative yield 2.63%
Cambridge Industrial Trust 4.1% 04/2020 current indicative yield 3.90%

Cambridge Reit has been favourite with the fund managers since its IPO back in 2006 and is not a punter’s stock.

Scrolling through the top holders list, we see some familiar names and the top holder happens to own a chunk of Viva Industrial Trust as well. http://www.scmp.com/business/companies/article/1555916/chinese-tycoon-tong-jinquan-buy-60pc-ireit-globals-ipo

However I struggle to find anything to gain for the ordinary shareholder or bond holder of this Reit, over the rest except for maybe Sabana, which really does not have anything strategic in their portfolio, Viva and the rest.

Times have changed and we are heading into a slow growth and low return environment. I have changed my approach to evaluating Reits and the likes, especially when I note a lot of un-strategic acquisitions happening in some of them.

Every time one of these Reit acquires a property, the chances are that somebody is making a lot of money and it probably will not be the shareholder although major shareholders may potentially have a say in those decisions.

I am not challenging the way these people do business or that Reits are being used as parking lots to profit on properties and the legitimacy of the transactions. And Cambridge has a stable of fine properties which look likely to tide through the commercial and residential slowdown, well.  http://www.cambridgeindustrialtrust.com/asset_overview.html

Going through the list of Reit/Business Trust bonds, we realise that Cambridge has hit a sweet spot with a decent enough pricing at 3.75% to fit in nicely into the 2018 maturities

(Mapletree Industrial and Mapletree Logistics look good on the dividend front)

It is interesting to note that Oxley has a substantial stake in the Reit manager.

The Reit Manager is Oxley Capital, a private equity venture.

The STI Reit Index is holding up for the year as global yields drop and 4 year interest rate in Singapore is at 1.385% today which gives us a credit premium of 2.365% for this BBB- bond.

The recent MAS proposal to tighten S-Reit regulation is credit positive as noted by Moody’s and Fitch, with Fitch qualifying that it may raise risks for some.

Fitch Report
“Fitch Ratings says that the Monetary Authority of Singapore’s (MAS) proposed amendments to regulations governing real estate investment trusts listed in Singapore (SREITs) will be positive for the industry overall. However, there are some changes that could increase risks for the trusts if they are implemented in their current form.
The proposed amendments include measures to strengthen corporate governance, align incentives of SREIT managers with unit-holder’s interests, tighten the structure of income support contracts and the rules on SREITs that are operating as stapled groups, and enhance the transparency and disclosure requirements of the industry. These proposals are positive for the industry as a whole.
However, the proposal to allow SREITs to increase their exposure to development risk to 25% of total asset value, from 10% at present, will increase the earnings volatility of SREITs that choose to do so. The additional 15% of total asset value is to be used solely for refurbishment of existing properties and not for investing in new developments. The current 10% limit on development risks covers both refurbishment and investments in new projects. This proposed change will give SREITs more flexibility to renew their assets rather than sell the property to their sponsors to redevelop and subsequently buy back the redeveloped property. It will also potentially increase the amount of funds the SREITs can allocate to new developments, which could add to unitholder value.
This proposed change is particularly useful for SREITs with aging property  portfolios. It will also help those who are able to tie up with their sponsors early on in a project’s development, with the potential to buy the remainder of the completed assets at market value. The early participation of a REIT usually offers a degree of discount on the market value of the completed property. For most SREITs, tying up with a sponsor is the only way to participate in new developments because 10% of their asset value is usually insufficient for them to take on projects on their own, given the smaller scale of most SREITs compared to global peers.
The proposal to introduce a single-tier leverage cap of 45% without the need for a credit rating could increase risks to the sector as a whole (MAS defines leverage as debt/total asset value).
This effectively encourages SREITs to increase leverage as it reduces the costs of doing so. At present, SREITs can leverage only up to 35% without obtaining a credit rating. SREITs that are not rated account for about a third of the industry.
The single-tier leverage limit is of particular concern currently because Fitch expects tighter monetary policy in the US and the UK in the short term, which could result in higher domestic interest rates in Singapore (refer to “Global Economic Outlook – Multi Speed Recovery, Multiple Risks”, dated 30 September 2014, and available on http://www.fitchratings.com).
The proposal for a single-tier leverage limit will also mean, however, that rated SREITs will no longer be able to raise leverage to 60%. Nevertheless, Fitch expects that this may only have a limited impact on the sector, because although about two-thirds of SREITs are rated, most have maintained leverage within 35%.
MAS expects to implement the proposed changes in 2016 after incorporating any feedback from stakeholders and the general public.‘

It looks good because now the Reit can save money on development costs because the sponsor (eg Oxley) represents an additional layer of profit (or loss for the Reit holders).

As for me, I prefer to stick to investments that make strategic sense, bonds included.

Buy if you can think of nothing other.