Month: September 2011
Sabana – BT
Sabana Reit to buy 21 Joo Koon Crescent for about $20.3m
Sabana Shari'ah Compliant Industrial Real Estate Investment Trust is proposing to buy 21 Joo Koon Crescent, a three-storey factory building with ancillary office, for $20.274 million from AVA Global.
Under the sale and leaseback deal, the seller will upon completion of the sale, take a master lease of the entire premises for a four-year term on a triple net basis. Sabana Reit's manager intends to fund the acquisition by debt.
This acquisition, along with the proposed acquisitions of 39 Ubi Road 1, 3A Joo Koon Circle and 2 Toh Tuck Link, announced earlier will see the Reit's aggregate leverage (gross borrowings divided by total deposited property value) rise to 35 per cent from 25.1 per cent at June 30, 2011.
21 Joo Koon Crescent is a JTC leasehold estate of 30+30 years tenure starting from Feb 16, 1994, with a remaining tenure of about 43 years. The proposed transaction is subject to approval from JTC, among other conditions.
CCT – CIMB
Distress valuations unwarranted
• Upgrade to Trading Buy from Underperform. YTD, CCT has been the worst performing S-REIT in our coverage, underperforming the STI and FSTREI by 15% and 20% respectively. Trading at 0.7x P/BV and offering DPU yields of 7%, we believe the market is valuing it at distress valuations, unjustified on account of its stronger balance sheet than the last crisis and the other S-REITs. Rental and occupancy downside (vs. the other office S-REITs) is also mitigated by NPI yield support from One George Street and its under-rented Capital Tower and HSBC Building. As such, while we lower our DDM target price to S$1.17 (discount rate 8.6%) from S$1.25 on 1-6% DPU reductions after cutting our rental and occupancy assumptions and while we retain our caution on the office sector, we upgrade CCT to Trading Buy, expecting re-rating catalysts from stronger-than-expected rentals and occupancy.
• Distress valuations unjustified. At current valuations, the market appears to be pricing its Grade A offices at capital values of S$1.4k psf and a cap rate of 7%, way below the S$1.7k psf for prime office assets during the last crisis.
• Unlikely to revisit previous trough. CCT hit a bottom of 0.2x P/BV during late 2008 to early 2009 on fears of dilutive cash calls after its asset leverage rose to finance the acquisition of One George Street in Jul 08 and on refinancing risks with debt maturing in 2009/10. With a much lower asset leverage of 27% now and more moderate sub-peak asset valuations and market rentals, we believe such trough valuations are unlikely to be revisited.
FCT – CIMB
Mall visits fuel further positivity
• Mall visits fuel further positivity. We visited FCT’s Causeway Point and its newly acquired Bedok Point recently. Shopper traffic was decent at Bedok Point though we see room for improvement in occupancy and tenant mix. Causeway Point was bustling despite major AEI work and ROI may beat management’s target of 13%. As FCT’s largest asset, we see the refurbishment of Causeway Point as a potential game-changer for FCT. With funding details concluded, we factor in the acquisition of Bedok Point and raise our FY12-13 DPU estimates by less than 1%. Our DDM based target price is, however, unchanged at S$1.63 (discount rate 8.4%). We continue to like FCT’s exposure to resilient suburban retail assets and strong balance sheet (34% after acquisition), anticipating catalysts from stronger-than expected rentals for Causeway Point after its refurbishment and improved stock liquidity.
• Bedok Point: decent mall with scope for improvement. Shopper traffic was relatively light during our visit on a late weekday afternoon though it is not hard to imagine a packed mall during lunch and dinner time given its high F&B content. We see room for improvement in occupancy and tenant mix.
• Causeway Point: the real game-changer. Causeway Point was bustling during our visit on a weekend afternoon despite ongoing AEI. We like its open-store concept, brighter and wider passageways, new-to-market brands and more higher-end retail offerings after AEI and see the potential for the mall to beat management’s ROI target for the refurbishment.
HPH Trust – DBSV
Look forward to better data
• Yantian numbers in August make for poor reading; subsequent months should be better
• Trade contraction is unlikely in 2012; hence current valuations look oversold
• Maintain BUY with lower TP of US$0.95, as we lowered our FY11/12 DPU estimates by 4.5%/6.5%
Yantian numbers disappoint. Yantian Port’s throughput volumes fell 6.9% y-o-y in August 2011. While the drop was expected, the quantum surprised us. YTD in 2011, Yantian Port’s throughput was up just 0.5% y-o-y, well below initial expectations. In view of the weaker peak season, and ongoing economic uncertainties, we thus cut our volume growth assumptions at Yantian to 2% and 4% for FY11 and FY12. We also lower our growth assumptions at HIT by 1ppt, and flatten our tariff growth assumptions, resulting in 4.5%/6.5% decline in FY11/12 DPU projections, to 5.7UScts (annualised) and 6.0UScts respectively.
But we continue to expect only sub-par growth and not negative growth in GDP/trade. Given Yantian Port’s exposure to export volumes to US and EU economies, growth are expected to remain anaemic in the near to medium term, but we are decidedly not looking at the kind of recession that HPH Trust’s current valuations seem to imply. Our economist believes that in terms of numbers, the US could grow at 2.3-2.4% (QoQ, saar) rate in 3Q11 and 4Q11, which is below average (3.0%) but a far cry from recession. Real consumption growth in the US is on track at 2.4% (QoQ, saar) in 3Q11 and retail inventory to sales ratios remain at alltime lows.
Maintain BUY, TP cut to US$0.95. Even with our lower DPU projections, the Trust is still trading at attractive 8.5-9.0% yields. We think this offers a very good entry point with limited downside even in the case of a deep recession and contraction in trade. We reckon current share price is pricing in a DPU (and by extension, EBITDA) decline of close to 22% in FY12. Compare this to 2009 – when global container trade contracted by an exceptional 9% – and EBITDA had declined by only 17%.
FCT – BT
FCT raises $64m from placement
The trust will use the money raised to part-finance Bedok Point’s acquisition
FRASERS Centrepoint Trust (FCT) has raised net proceeds of $64.3 million from a private placement of units, to partially fund the acquisition of Bedok Point.
The private placement saw strong demand from more than 30 new and existing institutional investors in Asia and Europe, with the subscription rate coming in at around 4.1 times. The new units were priced at $1.39 each, which is at the top of the $1.35-1.39 offer price range announced on Wednesday night.
The offer price carries a discount of about 2.5 per cent to FCT’s adjusted volume-weighted average unit price of $1.426, for trades done on Wednesday.
‘The strong investor demand for the placement in FCT’s units amidst a volatile market environment demonstrates investors’ confidence in FCT’s growth strategy and its potential to deliver attractive total returns to its unitholders,’ said Philip Eng, chairman of FCT’s manager.
Given the high subscription rate, FCT’s sponsor Frasers Centrepoint Limited will not be taking up its pro rata portion of units in the private placement. This will help increase FCT’s trading liquidity.
FCT will use the money raised to part-finance the acquisition of Bedok Point. It will be using both debt and equity to purchase the mall, at an acquisition cost of around $129.1 million.
FCT expects to issue new units from the private placement on or around Sept 23. For existing unitholders, it will be declaring an advance distribution of distributable income for the period of July 1 to the day immediately before the date on which the new units will be issued.
The new units will not be entitled to this advance distribution. The books closure date for the advance distribution is Sept 22 and it will be paid on or around Nov 8.
The next distribution will comprise the distributable income from the day the new units are issued to Dec 31. Quarterly distributions will resume thereafter.
FCT ended trading on the stock market yesterday at $1.44, shedding 1.5 cents.