AS 2023 draws to a close, some Singapore-listed real estate investment trusts (S-Reits) have been taking steps that will help boost their balance sheets ahead of the financial year end. Over the past week, five Reits have announced various actions, including raising equity, paring down debt, as well as asset divestments.

Active capital management has been a priority for Reit managers this year, amid heightened investor attention on gearing levels, with higher interest rates putting pressure on valuations.

While regulatory requirements allow S-Reits to have a gearing limit of 45 to 50 per cent – depending on their interest coverage ratio – managers often seek to keep gearing levels within the psychological barrier of 40 per cent that some investors have.

Preferential offering

Elite Commercial Reit on the evening of Dec 18, announced a £28 million (S$47.2 million) fully underwritten preferential offering that was backed by its sponsor and substantial unitholders. The issue price of £0.27 per unit was a 10 per cent discount to the Reit’s volume-weighted average price on Dec 18, the last full trading day before the offering was announced.

Elite Commercial Reit noted that the offering would reduce its gearing to 43.5 per cent, from the current 49.6 per cent.

It would also give the Reit a higher debt headroom of £58 million and a bigger market capitalisation.

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Earlier this month, Elite announced that its gearing had risen to 49.6 per cent, from 45.4 per cent, following its latest portfolio valuation. The manager noted, however, that the Reit was compliant with all its financial covenants, and its gearing levels also remained within regulatory limits as its interest coverage ratio was 3.3 times.

Bond buyback

Cromwell European Real Estate Investment Trust on Dec 18 announced that it has bought back 50 million euros (S$72.6 million) in bonds, funded from recent divestment proceeds.

The buyback comprised 10 per cent of its 500 million euro 2.125 per cent bonds due Nov 19, 2025. Following the repurchase, the aggregate principal amount of the bonds outstanding will be 450 million euros.

The manager said the buyback was done to reduce refinancing risk of the November 2025 bonds ahead of time, and to minimise the impact of rising interest rates on distribution per unit.

The manager added that the Reit is expected to end FY2023 with an aggregate leverage of around 40 per cent, after taking into account a “minor move” expected from investment property valuations in December.

It added that further asset sales planned next year would assist in liquidity management and are aimed at keeping gearing within the 35 to 40 per cent range.

Divestments

CapitaLand Ascendas Reit (Clar) on Dec 20 announced that it would divest three properties in Queensland, Australia, at a premium to valuation.

The sale consideration of S$64.2 million represents a premium of 6.2 per cent over the total market valuation of the properties – 77 Logistics Place, 62 Sandstone Place and 92 Sandstone Place – which stood at S$60.4 million as at Aug 31.

The three properties were purchased in 2015 between October and November, and the divestment is expected to be completed in the first quarter of 2024.

The manager said the divestment aligns with its asset management strategy to improve the quality of Clar’s portfolio, and optimise returns for unitholders.

Assuming the net proceeds were used to repay Clar’s borrowings as at Dec 31, 2022, aggregate leverage would fall from 36.3 per cent to 36.1 per cent.

CapitaLand Ascott Trust (Clas) on Dec 17 said it would divest three hotels in Japan to an unrelated party for 10.7 billion yen (S$99.8 million), as part of its ongoing portfolio reconstitution strategy.

The properties are Hotel WBF Honmachi, Hotel WBF Kitasemba East and Hotel WBF Kitasemba West.

The divestment price is 15 per cent above book value. The transaction is expected to be completed in Q1 2024, and should raise net proceeds of 3.9 billion yen. The trust will recognise a net gain of 1.1 billion yen.

Clas said the divestments allow it to unlock the value of the properties and redeploy capital to assets and/or asset enhancement initiatives that can generate stronger yields, uplifting the overall value of its portfolio.

Its gearing stood at 35.2 per cent as at end-September 2023, with S$2.3 billion of debt headroom.

On Dec 22, IReit Global announced that it was divesting a property in Spain – Il∙lumina – to an unrelated third party for 24.5 million euros, which was a 5.2 per cent premium over an independent valuation in June.

The net proceeds of nine million euros will be used to reduce debt and to assess opportunities for capital expenditures, acquisitions and asset enhancements.

On a pro forma basis, the aggregate leverage of IReit as at Dec 31, 2022, would have fallen to 31 per cent, from 32 per cent before the divestment.

The manager said the divestment, which is in line with its asset management strategy, is expected to be completed by end-January 2024.