Month: April 2007
MMP – DMG
Maiden Acquisition
MM Prime REIT has made its maiden acquisition of seven properties, predominantly for retail purposes, in Tokyo for about S$182.5m. The acquisitions will anchor MMP with a strategic foothold in Japan. Based on pro forma NPBT of S$0.7m from the properties these assets could add 0.108 cents to DPU, to be felt from FY08. We are maintaining our FY07 forecast of 5.8 cents, translating to a yield of 4.8%. Maintain BUY with a price target of S$1.28.
Acquired seven properties in Tokyo. MMP has entered an agreement with Yugen Kaisha Triton Property and Fund Creation Co. Ltd to acquire six completed retail properties under the Fund Creation portfolio located in prime areas of Tokyo, Japan for S$110.4m. Currently these properties are enjoying close to 100% occupancy.
The 7th property, the FLEG America-Bashi Building, is a seven-storey retail-cum-office development located in the Ebisu area, which is expected to be completed in September this year. This property will be acquired for S$72.1m from FLEG International a major Japanese retail leasing group and a growing real estate developer.
Full impact to be felt from FY08. The acquisitions will be yield accretive to MMP’s distribution per unit (DPU). The pro forma financial effect would be an additional NPBT of S$0.7m or 0.108 cents per unit, representing an initial yield accretion of 1.8%. As completion of transaction is expected at end May 07, the boost to income would be felt from FY08.
Capacity for expansion. The acquisition would be funded by debt, thus further enhancing to bottomline post acquisition. MMP would have a gearing ratio of 34.0%, up from 26.5% previously. This leaves the group with significant funding capacity for new purchases.
Maintain FY07 forecast. We are maintaining our FY07 forecast of 5.8 cents, translating to a yield of 4.8%. Maintain BUY with price target of S$1.28.
MMP – DBS
Not just one but seven
Finally, not one but seven. After listing in Sept 2005, MMP has finally delivered acquisitions to drive yield accretion. And for MMP’s debut deal, it is not just one, but a basket of seven properties for S$182.5m at property yield of 4-4.2%, located in various prime areas of Tokyo which is spread across Roppongi, Shibuya-ku, Minato-ku and Meguro-ku. Six of the assets (Fund Creation portfolio) are completed assets with income generation, most with 100% occupancy, while the remaining asset (FLEG America-Bashi Building) is a retail/office building in the Shibuya-ku area currently under construction and expected to complete in Sept 07. Completion of the acquisition of the Fund Creation portfolio is expected to complete by May and FLEG America-Bashi Building on a completion basis.
Yield accretion fully funded by debt. With current gearing of 25.6% preacquisition, MMP has considerable debt capacity to pursue yieldenhancing transactions. We expect MMP to fund its debut acquisitions fully by lower cost of borrowing in Japan, and estimate about 0.1 cents DPU accretion on full income contribution from these assets.
Time to bridge the gap. With a first acquisition from Japanese real estate developer FLEG International, this could mark the first of more acquisitions to be sourced from Japan as part of a possible indirect 3rd party pipeline. Moving forward, should MMP rack in more acquisitions and illustrate the Reit manager’s deal sourcing capability, we could see further yield compression for MMP and narrow the yield gap between MMP and other retail S-Reits which are trading at a comparative premium backed by developers.
Maintaining Buy, TP S$ 1.34. We have factored in the above acquisitions into our DCF calculations and arrive at fair value of S$ 1.34. At 5.1% distribution yield compared to other retail S-Reits currently trading at 3.5%, this suggest room for further upside with yield compression. Hence, we maintain our BUY call for MMP REIT, and target price of S$ 1.34 based on DCF valuation. Downside risk is limited due to resilient prime retail rents and office market upswing.
Cambridge – SGX
Cambridge Industrial Trust acquires 128 Joo Seng Road for S$10.0 million
9th April 2007, Singapore – Cambridge Industrial Trust (“CIT”) announced that it has signed a Put and Call Option Agreement to acquire 128 Joo Seng Road (the “Property”) for S$10.0 million. The acquisition which is funded entirely by the existing debt facility, will be accretive to CIT’s distributable income.
Mr Wilson Ang, Chief Executive Officer of the Manager, said, “The Joo Seng and MacPherson industrial area is considered one of the prime central locations in Singapore for industrial occupiers. With the acquisition of 128 Joo Seng Road, we will further increase our presence in the prime Joo Seng-MacPherson industrial district. Due to the current limited supply of office space, we expect some spill over effect as office occupiers migrate to industrial spaces as alternatives for their backroom operations. In addition to this, with the upcoming Circle Line and the new Kallang/Paya Lebar Expressway, we believe that building an increasing presence in this location will further enhance CIT’s portfolio.”
General Description of the Property
Completed circa 1994, the 7-storey light industrial building sits on a land area of 3,451.8 square metres and has a gross floor area of 8,519.64 square metres. The Property has a long land lease duration of 30 years with effect from 1 May 1992, with a confirmed option for a further term of 30 years. Located at the junction of Joo Seng Road and Kampong Ampat, it is approximately 10 km away from the city centre at Collyer Quay and is in close proximity to the upcoming Tai Seng (Circle Line) MRT station. The Property is also easily accessible via the Pan Island Expressway and the upcoming Kallang/Paya Lebar Expressway.
Upon completion of the Sale and Purchase, Seng Huat Packaging Pte Ltd (“Seng Huat”) will leaseback the Property for a 7-year term with an option to renew for a further term of 3 years. The rental escalation is 5% on the commencement of the third and fifth year. Seng Huat will bear the cost of maintenance of the Property.
MapleTree – DBS
Branching out with acquisitions
Increased presence in the Japan market. MLT has penetrated into the Japanese market further with its recent acquisition of five logistics facilities – four in Tokyo and one in Kyoto. The total consideration of the acquisition is S$350.8m. The five logistics facilities have a total land area of 108,968sqm (GFA: 103,864sqm) with lease terms ranging from seven to 18 years. The acquisition is expected to be completed by mid 2007 and given the relative lower cost of borrowing in Japanese yen, the purchase would be wholly funded by debt.
Acquisition of a distribution centre in China. MLT has also recently announced its first acquisition in inland China with the purchase of Xian Seastar distribution centre for S$17.8m. As the Chinese government continues to increase its efforts to develop the inland regions, this would allow MLT to ride on the growth. The acquisition is expected to be completed by mid 2007 and would be wholly funded by debt.
Strategy. MLT still has around S$440m of debt headroom to maintain its gearing limit of 60%. MLT expects to make its first acquisitions into South Korea and Vietnam this year and to increase its exposure in China with more acquisitions. MLT intends to move into India next year and in the medium term, its growth will come from the emerging markets of India and China. The initial acquisitions in India are likely to come from its sponsor, Mapletree Investments, which has tied up with Bangalorebased developer Embassy Group to build logistics developments in India. With the recent acquisitions of the five logistics facilities in Japan and a distribution centre in China, MLTs portfolio has an exposure of 48%, 5%, 24%, 5% and 19% in Singapore, Malaysia, Hong Kong, China and Japan respectively.
Maintain Buy with raised target price of S$1.46. With the recent increase in the stock price by 14% since our last report, we have increased the assumed issue price for further equity raising activities to fund its acquisitions pipeline. As such, we have a lower number of assumed units issued and hence, higher DPU and a raised target price of S$1.46 based on DCF valuation. This derives a total return, including yield, of 17%. In our valuation, we have assumed acquisitions of S$1bn p.a. from 2007 to 2009. Maintain Buy.