Month: March 2011
PCRT – BT
Perennial China play should take Reit route
Malls slated for acquisition can be injected into a private fund for time being
PERENNIAL Real Estate’s recent decision to defer the initial public offering of its Perennial China Retail Trust (PCRT) following international roadshows last week is reminiscent of the time in November 2001 when CapitaLand had to scrap the IPO for its SingMall Property Trust (SPT) because of poor demand.
Coincidentally, the CEO of the manager of SPT and the CEO of PCRT’s trustee-manager Perennial China Retail Trust Management are the same person – Pua Seck Guan.
Mr Pua said recently that Perennial plans to tweak the PCRT deal to current market conditions and bring it to market ‘soonest possible’.
First, let’s recap the offer that has been shelved. The business trust was to have offered 1.09 billion units comprising an international placement of 610.2 million units, a public tranche of 50 million units and cornerstone units of 432 million units. Priced at $1 per unit, the offer would have raised about $1.1 billion in gross proceeds to be used mostly for the acquisition of four properties in China costing about $1.1 billion.
Only one of the four assets – a mall in Shenyang – is completed and leased out while the rest are in pre-leasing stage or under development and due for completion between 2012 and 2014. The trust’s distribution yield was to be 3.02 per cent for financial year 2011, rising to 3.08 per cent for FY2012. Post-listing, gearing was to be around 1.8 per cent.
PCRT had pledged to pay at least 90 per cent of distributable income to unitholders for the first two years and pegged its leverage limit at 60 per cent of the value of its properties.
Perennial is now expected to raise less equity, reduce the offer price of its units to below $1 apiece and assume some gearing.
Discount sought
Talk in the market is that investors indicated during the roadshows that they would like a discount of 5-10 per cent on the purchase price of the assets. The equity to be raised is also expected to fall to $700-800 million, assuming the cornerstone investors stay on.
Cutting the assets’ purchase price, floating a smaller equity portion and raising more debt should boost yields to investors. However, it makes sense for the trust to increase borrowings only if the cost of debt is lower than the property yield. The problem is, borrowing costs in China are high, at 6-7 per cent or more; even if PCRT were to borrow in Singapore, costs could be 4-6 per cent. So raising debt may reduce the yield to investors .
Mr Pua is in a hurry to finetune his offer and relaunch PCRT’s IPO ‘soonest possible’, understood to mean in 4-6 weeks’ time. That’s not surprising as the sellers of the assets would not want to be locked into an arrangement with PCRT for too long. They would want to be free to sell their respective assets to other potential buyers. After all, the vendors are not the sponsors of PCRT, unlike the arrangement between many real estate investment trusts (Reits) and their sponsors who are committed to providing an acquisition pipeline. Also, some cornerstone investors may lose interest in PCRT if a relaunch of the IPO takes too long.
But even if PCRT tweaks some financials of its offer, nagging concerns which are said to have been highlighted during the roadshows may remain. One is the strength of the trustee-manager’s management team; other than Mr Pua, who built a name for himself in the local mall management business.
There is also the question of whether Mr Pua has too much on his plate. In addition to PCRT, he is involved with Katong Mall, Chinatown Point and the landmark Capitol redevelopment site in Singapore, each with different sets of investors.
Some observers also wonder what PCRT’s niche as an investment product is. It’s not a Reit, which must hold at least 90 per cent of the value of its properties in completed, income-generating assets. So, in some ways, PCRT can be seen as more of a property developer.
But there are already so many China property developers for investors to choose from. There may be more interest for another Reit, given the steady income they distribute to unitholders.
Perhaps Perennial could take a leaf from the SPT episode when in late 2001, after SPT’s listing was shelved, CapitaLand kept it on its balance sheet while it enhanced the assets.
Then, in July 2002, the trust was rebranded CapitaMall Trust (CMT) and launched successfully, with a more attractive price and yield, improved asset performance, leaner management fee structure and with sponsor CapitaLand retaining a bigger stake. CMT arguably remains Singapore’s most successful Reit.
Maybe Perennial could consider a similar approach and inject the malls slated for acquisition by PCRT into a private fund. It could persuade the cornerstone investors secured for PCRT as well as other parties to invest in this fund, which will hold the assets until their development is completed and they are leased and their earnings stabilised and any asset enhancement done. At that point, Perennial could consider floating a China mall Reit.
Local touch
Some think that Mr Pua’s track record is more applicable to Singapore, where he built up CMT, rather than China. Investors may be more enthused if he were to float, for instance, a vehicle containing the three Singapore properties that he’s involved in. Then there’s also the IPO of Mapletree Commercial Trust, holding Vivocity mall, Merrill Lynch Harbourfront, and PSA Building – valued at $2.7-2.8 billion in total – expected to be launched soon. Slightly over $1 billion equity may be raised, analysts estimate. Some investors may be more keen on parking their monies in that vehicle, for now.
REITs (Japan Assets) – BT
S’pore Reit buildings in Japan get away lightly
The damage unleashed by the earthquake and tsunami on the north-eastern coast of Japan has left most of the properties owned by Mapletree Logistics Trust, Parkway Life Real Estate Investment Trust (Reit) and Global Logistic Properties (GLP) relatively unscathed.
Mapletree Logistics Trust said yesterday that 13 out of its 14 properties in Japan ‘escaped with either no damage or minimal damage’. Its remaining property in Sendai – where devastation has been greatest – Sendai Centre, has been affected by the tsunami, the trust said.
The latest valuation has put the cost of reinstating the building at about 600 million yen, or about S$9 million. The trust’s manager, however, does not expect the cost of repairs to amount to that much.
‘Preliminary report suggests that the building is intact. However, the affected area has been cordoned off by the local authorities due to safety measures. The full extent of damage can only be ascertained when access into the property is allowed,’ the trust said in a filing on the Singapore Exchange yesterday.
Sendai Centre is the second smallest of the trust’s properties in Japan by revenue contribution, accounting for 0.7 per cent of its portfolio’s total gross revenue.
On Friday night, GLP said that damage to its property had been estimated at about 3.9 billion yen or US$47.5 million, with the likely loss of rental income coming up to 0.89 billion yen or US$10.8 million. In total, this accounts for less than one per cent of GLP’s US$6.3 billion portfolio of properties in Japan. The majority of the repairs to its properties will take place in the next 30 days.
‘The low level of losses are testimony to the quality of our portfolio and property management as well as the rapid response of our dedicated team in Japan,’ said Jeffrey Schwartz, deputy chairman of GLP, who had been visiting the operations in Japan when the earthquake took place.
Parkway Life Reit, which has 29 properties in Japan, said that none of them have been structurally affected. ‘In addition, none of our properties are located within the evacuation zones of the nuclear plants in Fukushima Prefecture, with our nearest property to the nuclear plant site at least 200 kilometres away,’ it said yesterday.
Saizen Reit, a firm with 22 properties in Sendai alone, said on Friday night that its manager, Japan Residential Assets Manager Limited, and asset manager, KK Tenyu Asset Management, were contacting local property managers to assess the extent of the impact, but that it was being hampered by ‘breakdown of telecommunications networks and power blackouts’.
The collective value of its properties in the three affected areas – Sendai, Koriyama and Morioka – stand at 5.88 billion yen, accounting for 15.5 per cent of its total portfolio value.
Mapletree Logistics Trust, Parkway Life Reit and GLP have said that all their staff in Japan are safe and accounted for.
CMT – BT
CMT’s $250m bond issue fully taken up
To meet overwhelming response, lead manager may choose to exercise upsize option to raise size of issue to $350m
CAPITAMALL Trust’s (CMT) $250 million offering of three-year unsecured convertible bonds has been fully snapped up by institutional and accredited investors.
The base offering size of the bonds, due April 2014, was raised from an initial $200 million – as announced at the launch – to $250 million because of the strong demand, said CMT.
‘We are encouraged by the strong response to the issue of our convertible bonds,’ said Simon Ho, chief executive officer of CapitaMall Trust Management Limited (CMTML), manager of CMT. He added the issue was to ‘optimise’ overall debt structure and ‘diversify’ funding sources.
To meet overwhelming response, the lead manager may choose to exercise the upsize option within 30 days from March 10, 2011 to further raise the size of the issue by up to $100 million, to $350 million. The sole bookrunner and sole lead manager for the issue is Credit Suisse (Singapore) Limited.
The conversion price for the bonds stands at $2.2692 per unit and will offer an interest of 2.125 per cent per annum, payable on a half-yearly basis.
The funds raised from the bond issue will be used primarily for debt refinancing, which includes the refinancing of an existing convertible bond of $550 million that has a put option on July 2, 2011 at 105.43 per cent of the principal amount. The put option is currently out-of-the-money.
Moody’s sees ‘no impact’ on CMT’s rating as a result of its latest bond issue.
They added though the new bond issue could raise CMT’s debt-to-assets ratio beyond that incorporated in the trust’s current rating, the redemption of the entire existing convertible bond of $550 million with fresh proceeds and available cash is expected to take leverage back to levels in line with current ratings.
Moody’s Investors Service currently has an A2 corporate family rating or A3 senior unsecured debt rating for CMT.
The only other major debt maturing in the next 12 months, other than the put option pertaining to the existing convertible bond, would be CMT’s 40 per cent share in term loans drawn under a term loan facility granted to RCS Trust by a special-purpose company, Silver Oak Ltd.
However, analysts generally feel this is not a source for worry and is likely to be manageable by the trust going forward.
CMT shares eased two cents to end at $1.81 yesterday amid a broad market retreat.
HPH Trust – BT
HPH Trust prices its S’pore IPO at US$1.01 per unit: sources
HONG Kong billionaire Li Ka-Shing’s Hutchison Port Holdings Trust priced its Singapore IPO at US$1.01 per unit, in the middle of a US$0.99-US$1.03 indicated range which itself was tightened from a wider range on Thursday, three sources with direct knowledge of the deal told Reuters.
The offering will raise US$5.4 billion in total, in what will still be South-east Asia’s largest stock offer.
The IPO was earlier expected to raise US$5.8 billion on an indicated price range of US$0.91 to US$1.08 a unit.
The sources declined to be identified because the final price has not been made public, while the company and banks involved in the deal were not available to comment.
The IPO, which takes the form of a business trust, had attracted cornerstone investors including Singapore investment company Temasek Holdings, US hedge fund manager Paulson & Co and fund manager Capital Research and Management, which had committed to pour in US$1.6 billion in the deal.
Despite the strong interest, the IPO did not meet the initial pricing expectation, reflecting investors’ anxiety about financial markets due to political turmoil in the Middle East and rising inflationary pressures.
That raises concern about upcoming multi-billion dollar IPOs in Asia, led by commodity trading firm Glencore’s listing in Hong Kong and Mapletree Commercial Trust’s S$1 billion deal in Singapore. ‘There is a pipeline of deals, but investors remain somewhat mixed at the moment,’ said John Woods, Asian strategist at Citigroup Private bank in Hong Kong.
Hutchison Port Holdings, a unit of Mr Li’s Hutchison Whampoa, owns and operates ports in Shenzhen and Hong Kong and is aiming to cash in on a recovery in global trade and provide investors with access to China’s booming infrastructure business.
Mr Li, Hong Kong’s richest tycoon, chose Singapore because of more favourable tax treatment for trust-like structures. A business trust is any grouping of assets that usually offers a steady stream of dividends and appeal largely to more conservative investors who want to diversify from bonds.
‘This will be a significant boost to Singapore’s efforts to compete with the likes of Hong Kong and Shanghai as a leading financial centre in Asia,’ said Jake Robson, a partner at law firm Norton Rose in Singapore who specialises in equity capital markets.
The Hutchison ports listing is the first large-scale launch of a business trust by a non-Singaporean business and the amount of money that will come in will exceed the total US$2.9 billion raised through IPOs in Singapore for the whole of last year, according to Thomson Reuters data.
‘The price probably reflects the greater volatility and uncertainty in the markets. It’s a very large IPO so to get it at the high end of the price range would have been tough,’ said Kevin Scully, managing director at NRA Capital.
‘Even at US$1.01, the yield is quite attractive for medium-term investors as long as China and Asian economies remain buoyant,’ he added.
A source involved in the deal told Reuters the yield is about 5.8 per cent, based on the US$1.01 price. This compares with a yield of around 7 per cent offered by many Singapore-listed business and property trusts.
The size of the Hutchison ports offering exceeds Petronas Chemicals’ US$4.1 billion fund-raising last year, which was the biggest IPO in South-east Asia at that time.
Hutchison Whampoa’s ports subsidiary and Singapore’s PSA could jointly own as much as 38 per cent of the company after the IPO.
The listing is positive for SGX, which is currently in a bid to acquire Australian stock exchange operator ASX in a US$7.7 billion deal, as it could potentially attract more business trusts and ports-related entities to list in the city-state, Credit Suisse head of Singapore research Sean Quek said.
The continued strong interest in the Hutchison ports IPO contrasts with the diminishing appetite for new issues, which has delayed a planned S$1.1 billion Singapore IPO by Perennial China Retail Trust, a trust managed by former CapitaLand shopping mall chief Pua Seck Guan.
DBS, Deutsche Bank and Goldman Sachs are joint bookrunners and issue managers for the offering.
JPMorgan, UBS, Barclays, Morgan Stanley are among co-lead managers. — Reuters
CMT – Lim and Tan
Taking advantage of demand for fixed income securities, CMT is issuing up to $350 mln convertible bonds due 2014. (110,170,985 new units will beissued upon full conversion if $100 mln upsize option not exercised, and 154,239,379 if exercised.)
• This is “cheap” money for CMT, with coupon rate of 2.125%, and conversion price of $2.2692 a unit, 24% above current market price, and 48% above latest NAV of $1.53.
• Earlier indications were for issuance of up to $300 mln worth of CB; 1.625-2.125% coupon and 20-25% conversion premium, ie CMT settled for higher end of premium but higher coupon.
• We maintain BUY, especially with the imminent IPO of Mapletree Commercial Trust (MCT).
• Indications are that MCT will want to raise S$1 bln and offering a yield of between 5.2% and 5.8%.
• Being almost a single-asset trust (Vivo City, and 2 nearby office blocks), we do not find MCT attractive, especially compared to CMT, which has literally swiped most of the desirable retail malls in this country.
• This in turn implies that to grow, MCT would have to look outside Singapore, a recipe for stock market under-performance.
• CMT’s yield is currently 5.1%.
(MCT is expected to embark on a one-week roadshow of presentations to potential investors beginning Mar 22nd, with listing likely on April 8th.)