Month: June 2011
CMT / CCT – BT
CapitaMall Trust and CCT issue US$645m secured notes
CapitaRetail China Trust raises gross proceeds of $70m from placement
CAPITACOMMERCIAL Trust (CCT) and CapitaMall Trust (CMT) yesterday announced the issue, through Silver Oak, of US$645 million five-year secured floating rate notes (FRNs).
Separately, CapitaRetail China Trust (CRCT) – another trust in the CapitaLand stable – announced a successful private placement.
The FRNs issued by Silver Oak are secured by Raffles City Singapore, a mixed-use property jointly owned by CCT (60 per cent) and CMT (40 per cent), through special-purpose trust vehicle RCS Trust.
Silver Oak is a special-purpose company incorporated to provide credit facilities to RCS Trust.
Half of the notes have been placed with Asian institutional investors and the other half with European investors. The issue was 1.7 times subscribed.
Proceeds from the notes – which have been assigned an AAAsf rating by Fitch Inc and a Moody’s Investors Service rating of Aaa(sf) – have been swapped into S$800 million.
In addition, Silver Oak has drawn down S$164 million from a S$200 million five-year term-loan facility granted by DBS Bank, HSBC and Standard Chartered Bank.
‘The S$800 million proceeds from the FRN, together with the amount of S$164 million term loan, are on-lent to RCS Trust to refinance RCS Trust’s existing aggregate debt of S$964 million, ahead of the latter’s expected maturity date on 13 September 2011,’ said the managers of CCT and CMT.
‘The balance S$36.0 million of the term loan is expected to be fully drawn down in September 2011 to finance purposes such as asset enhancement initiatives and working capital.’
The interest rates payable by RCS Trust for the S$800 million proceeds and the S$200 million term loan will be fixed at 3.09 per cent per annum and 3.025 per cent per annum respectively, from Sept 13.
CapitaCommercial Trust Management Limited chief executive officer Lynette Leong noted that this ‘marks the completion of the early refinancing of CCT’s only outstanding debt for 2011 and extension of its portfolio debt maturity’.
The three banks have further granted a five-year committed revolving credit facility of S$300 million, available to finance future capital expenditure, asset enhancement initiatives, and general corporate and working capital purposes.
Meanwhile, CRCT announced yesterday that its initial private placement size of S$55 million was 2.5 times subscribed. As a result, the full upsize option was exercised, raising gross proceeds of about S$70 million through the placement of 59.8 million new units.
Said Victor Liew, chairman of CapitaRetail China Trust Management Limited (CRCTML): ‘The strong demand by investors for the private placement is testament to the attractiveness of CRCT as an investment for unitholders to tap into China’s consumption growth.’
Each new unit was issued at $1.17, representing a discount of approximately 3.2 per cent to CRCT’s adjusted volume weighted average price.
The total demand book comprised over 40 existing and new investors from Asia, the United States and Europe.
CapitaMalls Asia’s (CMA’s) subsidiaries subscribed for about 12.9 million new units.
Gross proceeds from the private placement will be used to finance the acquisition of New Minzhong Leyuan Mall, with the remaining balance funded by a drawdown from CRCT’s existing debt facilities.
CRCTML also intends to declare an advance distribution for existing unitholders, for the period from Jan 1 to June 29, at an estimate of between 4.26 cents and 4.30 cents per unit.
The books’ closure date for the advance distribution is June 29 at 5pm. The advance distribution will be paid around Sept 23 this year.
In the stock market yesterday, CCT shares closed two cents lower at $1.43, CMT shares closed one cent lower at $1.90, and CRCT shares closed three cents lower at $1.22.
MLT – OCBC
Completes KPPC Pyeongtaek Centre buy
KPPC Pyeongtaek Centre. Mapletree Logistics Trust (MLT) announced on 17 Jun that it has completed the acquisition of KPPC Pyeongtaek Centre in South Korea. Recall that MLT has previously reported on 25 May that it has signed a conditional sale and purchase agreement with Korea Port Processing Co. Ltd (KPPC) for this property at a purchase price of approximately S$85.9m (KRW 75.6b). The property comprises two blocks of dry goods warehouses with a total GFA of about 100,900 sqm. There is also potential for organic growth as it has yet to maximise its permissible plot ratio, which will yield an additional GFA of close to 20,000 sqm. The vendor, KPPC, will lease the entire property for a period of 5 years with an annual rental escalation of 3.0%.
Important milestone in South Korea. MLT has stated that this acquisition marks an important milestone to entrench the trust into the South Korea market. Given the sizeable acquisition, the contribution of South Korea to the total portfolio’s gross revenue is expected to increase from 2.7% to 5.6%. Consequently, KPPC will be the first Korean customer in MLT’s list of top ten tenants; thus further diversifying its tenant base. Assuming that the purchase price and other acquisition costs of the property are fully funded by debt, we estimate that MLT’s gearing should increase to about 41.3% in FY11 from 37.7% in FY10 (after taking into account all acquisitions and divestments announced to date).
Yield-accretive acquisition. According to MLT, the new property provides an initial NPI yield-on-cost of 8.6%. We have factored in contributions from KPPC Pyeongtaek Centre starting on 18 Jun with a modest starting rent of S$7.02 psm/month or KRW 6178 psm/month (GFA basis). Based on our estimates, this compares favourably with the NPI yield of 5.58% in FY10.
More acquisitions to come. Apart from Korea, MLT has also said that it is actively looking at acquiring a warehouse (60,000 sqm and 98% leased) in Malaysia from its sponsor. MLT should be able to complete this acquisition by this year. Going forward, its main acquisition focus continues to be in Singapore, Malaysia and South Korea. MLT has a proven track record of executing a virtuous cycle of accretive acquisitions and competitive fund-raising. It is also a favourable move to recycle proceeds into better-yielding assets. Reiterate BUY with an unchanged RNAV-derived fair value of S$1.01.
REITs – BT
Reit players see growth via acquisitions in region
This will be driven by market liquidity and reduced capital cost
ASIAN real estate investment trusts (Reits) are poised to grow through acquisitions, industry players said at a forum yesterday.
The industry players, who were speaking at a panel discussion at the annual Real Estate Investment World Asia conference, said the expected growth will be driven by the lower cost of capital and ample liquidity in the market.
‘The cost of capital is getting back to an area where it makes it more attractive for Reits to acquire assets,’ said Jason Kern, head of real estate advisory at Hongkong and Shanghai Banking Corporation (HSBC).
Mr Kern noted that the Reit market in Asia has picked up in the past year, with six new Reit listings over 12 months. According to data from HSBC, there are currently 98 Reits with a total market capitalisation of US$97 billion listed in Asia.
Nicholas McGrath, chief executive of the manager of Singapore-listed AIMS AMP Capital Industrial Reit, agreed that the cost of capital had fallen and added that there is a lot of liquidity in the market.
The panellists also said that they expect more Reits to launch their initial public offerings (IPOs) in the coming months.
Kevin Xayaraj, chief executive of Singapore’s first Syariah-compliant Reit, Sabana Reit, expects more similar Reits to be floated this year. Sabana Reit was listed on the Singapore Exchange in November 2010.
‘With the success of the IPO, I think there will be a lot of Syariah-compliant Reits coming to Singapore and the rest of Asia,’ he said.
But Peter Churchouse, managing director of Portwood Capital, noted that there are still some major obstacles that prevent the Reit industry in Asia from expanding as quickly as it would otherwise have.
There is still a sense among investors that some landlords use Reits as vehicles to ‘dump’ unwanted and unattractive assets, Mr Churchouse said.
In addition, Reits are also not high-growth instruments, so investors who look for capital gains are not as keen on them. Mr Churchouse noted that the Reit sector now accounts for only 12-15 per cent of total invested real estate in the Asia-Pacific. He said he would like to see the proportion climb to 30-40 per cent in the future.
For Singapore, ratings agency Moody’s Investors Service this week reiterated its ‘stable’ outlook on Singapore-listed Reits (S-Reits) for the next 12-18 months.
‘We expect S-Reits to use their well-capitalised balance sheets to continue acquisitive strategies and assume they will fund potential acquisitions with a mix of debt and equity while maintaining leverage within targeted limits of 40-45 per cent,’ the firm’s analysts wrote in a note.
FCT – DMG
Drop in share price presents buying opportunity
Reiterate our top pick for S-REITs. Against the uncertain outlook revolving around weak US and China data, European debt crisis, and China’s property cooling measures, we reiterate our OVERWEIGHT stance on S-REITs which offer a current dividend yield of 6.9%. Our top pick within the space remains Frasers Centrepoint Trust (FCT) which owns prime suburban malls that are experiencing strong positive rental reversion. Despite the Asset Enhancement Initiatives (AEI) at Causeway Point (CWP) which saw occupancy fell to 69% during 1Q11, FCT’s DPU were not affected much due to contribution from its Northpoint 2 and Yew Tee Point which were acquired in Feb 2010. Backed by 1) strong pre-commitment for CWP’s space being redeveloped under AEI, 2) strong rental reversion, and 3) potential acquisition of Bedok Point in 2H11, we believe FCT is primed for growth at cheap valuation. Maintain BUY with TP of S$1.77 based on DDM (COE: 8.8%; TGR: 2.0%).
CWP AEI expected to be completed by Dec 2012. In addition to positive rental reversion from new leases expected at +11-12%, the progressive completion of CWP AEI will add to FCT’s DPU growth. Construction of CWP is currently 33% completed. Despite full completion requires another 1.5 years, the space undergoing refurbishment has been 99% pre-committed, indicating the strong demand for the mall space. Upon completion, the average rent is projected to rise 20% from S$10.2 to S$12.2, giving rise to ROI of 13.0%.
Undemanding valuation given clear growth profile. At S$1.49, FCT is trading at a yield of 3.8% to Singapore’s 10-year bond yield of 2.3%, which is significantly higher than its pre-crisis mean spread of 1.8%. Coupled with its clear growth profile going forward (positive rental reversion, completion of CWP AEI, and acquisition of Bedok Point), we favour FCT as our top S-REIT pick for 2011.
Industrial REITs – DBSV
Another prized portfolio
• Rare opportunity for industrial S-REITs to acquire a sizeable portfolio of industrial assets in Singapore
• Qualities aplenty; earnings accretion is significantly higher for MINT vs A-REIT
• BUY MINT (TP S$1.21), Maintain HOLD for A-REIT (TP S$2.14) on valuations
Rare opportunity to acquire a sizeable Singapore-based portfolio of industrial properties. Recent media reports highlighted that Mapletree Industrial Trust (“MINT”) and Ascendas REIT (“A-REIT”) have been short-listed in the final bidding for JTC’s tender exercise of 21 flatted factories and amenity centers. This is a rare opportunity for both REITs to acquire such a sizeable portfolio of 3.5m sq ft NLA of well located assets in Singapore. In terms of NLA, the target assets will account for c13% and c 21% of AREIT’s and MINT’s current portfolios respectively.
Location is a strong selling point. Within the industrial hubs in Eastern Singapore, the properties are located close to established housing estates and typically enjoy strong demand for space from tenants. We understand that current average occupancy is high at c96%. We expect the portfolio’s operational performance to remain robust with growth from expected positive rental reversions in current industrial up-cycles on top of improving occupancies. In addition, there are also opportunities for re-development that will be earnings accretive, subject to regulatory approval.
Earnings accretion expected. At current gearing of c33% and 36% respectively, we believe both MINT and A-REIT have the financial capacity to acquire. In our scenario analysis, we assume A-REIT and MINT each be awarded a tranche of properties at S$300m @ 7% NPI yield. We estimate DPU accretion of c4% for A-REIT and c15% for MINT, assuming debt cost of 3.0%. In addition, an assumed equity fund raising exercise for MINT would unveil estimated DPU accretion from +6% to +14% (TP +1% to +10%) assuming between 20-70% of funding through new equity raising.
BUY MINT, TP S$1.21 offers total return of 11%, HOLD AREIT on valuations. We are positive on A-REIT and/or MINT as possible winners in this tender exercise, which will provide re-rating catalysts for stock prices. While the portfolio offers income diversification to A-REIT, it has greater strategic fit with MINT, which already manages a portfolio of similar-type flatted factories. In addition, a “win” would have a greater impact on MINT’s earnings an