Month: July 2007
ALLCO – Nomura
– Amid strong office reversions, Allco is successfully using the current demand cycle to enhance cashflow quality by both lengthening leases and negotiating annual step-up rental reviews. With cashflows underpinned, we think Allco is set to pursue further opportunistic acquisitions. We reiterate our STRONG BUY call.
– Allco NAV adjusted to reflect rights issue. We have adjusted our fair value for Allco to S$1.54/share, to account for the issue of 198.7mn new rights units at a 19.9% discount to the reference price of S$1.30/unit (our pre-rights NAV was S$1.73/unit). Exhibits 1-3 reconcile our NAV adjustments. While most REITs have pursued placements at modest discounts, Allco has adopted the more novel funding approach to reward long-term unit-holders. Following the issue of the rights, we forecast FY07 gearing will fall to 0.31x (from 0.35x), which we think will give scope for further leveraged, yield-accretive acquisitions. On our estimates, Allco could invest a further S$275mn (100% debt funded) and still keep gearing below 0.45x. An acquisition delivering a 100-150bps positive carry could potentially lift DPU by 5.9-8.8% in FY08. Management appears to be closely looking at acquisitive possibilities in the Japanese market.
– NAEF: management upbeat on prospects . In its recent presentation at the Nomura Asia Equity Forum (NAEF), management was upbeat on the REIT’s prospects, noting:
* Office renewals in China Square (Central) had broached S$10.00/psf pm, versus current passing rents of S$4.50/psf pm. Management concurred with our view that the REIT should start benefiting from the profit-share provisions in the master lease by mid-FY08;
* 55 Market Street has been fully let, achieving rents of S$7.75/psf pm on average, well above the initial feasibility expectation of S$5.20/psf pm; and
* Central Park Perth continues to benefit from a supply/demand imbalance, underpinning strong reversions. According to CBRE Richard Ellis, Premium Grade A (face) rents are currently A$500/psm pa, while Grade A rents are A$420/psm.
* CBRE expects rents to rise by 16-25% in 2007 as a consequence of low vacancy (below 1% over the next two years) and the lack of supply no significant supply is scheduled for completion until 2009F.
– Asset acquisition recap: Centrelink property in Canberra. . Allco will acquire a 50.0% indirect interest in the Centrelink Property for A$108.75mn (S$136.5mn). The property has a projected cash yield of 6%. (Note: the reported initial yield of 7.7% and assumed income of A$5.2mn for FY07, and 7.4% yield and assumed income of A$10.1mn for FY08, are accounting yields, due to the long lease revenue being recorded on a straight-line basis). The property is to be leased by an Australian Federal government entity, Centrelink, for an initial term of 18 years from 4 July, 2007, protecting Allco’s cashflow from near-term market fluctuations. The lease incorporates a 3% annual rental escalation for the initial 18-year term. The office building has been purpose designed for Centrelink, and has an NLA of approximately 40,000sm and 1,093 car parking bays. According to the Property Council of Australia, as at end 2006, Canberra had an office vacancy of only 1.8%, the lowest in 16 years. While vacancy is low, supply is on the rise, with an expected 260,000sm due for completion in 2007 and 40,000sm over 2008-09. While the supply/demand balance is expected to shift, the Centrelink lease structure will underpin surety of cashflow. – More capital raising / more acquisitions. The manager, as part of its rights issue, received approval for a general mandate for the issuance of additional new units in 2007, provided that the number of new units does not exceed 50.0% of the number of units in issue as at 31 December, 2006. The general mandate would allow Allco REIT to potentially issue an additional 247.7mn new units, indicating the potential to raise in excess of S$250mn. Given the nature of the mandate sought, it suggests Allco is looking to make further acquisitions in the next six months, with Japan, in our view, a possible target.
MLT – SGX
MAPLETREELOG ACQUIRES HONG KONG PROPERTY FOR HK$66 MILLION
The vendor of Shatin 5 is Ever Gain Company Limited (“Ever Gain”), who will lease back the property for 5 years. The acquisition will be accretive to MapletreeLog’s distribution per unit (“DPU”). The pro forma financial effect of the acquisition on the DPU for the financial year ended 31 December 2006 is an additional 0.01 Singapore cents per unit.
Rationale for the acquisition
Hong Kong’s economy has been experiencing three years of high growth, supported largely by domestic and external demand. Hong Kong’s close ties with mainland China has benefited the economy in several ways, most importantly through the re-export of PRC goods. Confirming this trend, Jones Lang LaSalle’s Q1 2007 market research showed increased demand for warehouses in Hong Kong. The rising demand for warehouse space from businesses supporting the China hinterland, coupled with the limited supply of new logistics space in Hong Kong, is expected to sustain positive rental reversions. The recently completed Hong Kong-Shenzhen Western Corridor as well as the Route 8 linking Hong Kong International Airport to Shatin, which is expected to complete in mid-2009, will further enhance the connectivity of the Shatin area. This will generate further demand for logistics real-estate in the area.
Mr. Chua Tiow Chye, Chief Executive Officer of MLTM, said, “We are very pleased with this acquisition in Fo Tan, Shatin, an established logistics and industrial area in Hong Kong. This area is ideally located, being mid-way between the Chinese border and the Kwai Chung container terminal. This will be our fifth property in the Shatin area, bringing our total warehouse space in this area to approximately 163,000 sqm. With a suite of properties in this vicinity, we have the capacity and flexibility to meet tenants’ various needs. This consolidates our position as a leading logistics real-estate solution-provider in this area,” Mr. Chua said.
“This acquisition marks the strong relationship which we have with the Ever Gain group, Mr Chua said. “We are happy to partner Ever Gain by providing solutions to its real-estate needs as it expands in Hong Kong and China.”
Funding
The acquisition is expected to be completed by 3Q 2007. From MapletreeLog’s perspective, the Manager intends to fund the acquisition entirely by debt. However, this does not preclude the Manager from exploring alternative means of funding should the need arise.
General Description of the property
Shatin 5 property comprises 71,030 sq ft of space located between the fifth floor and the ninth floor of a 19-storey (including Ground Floor) warehouse cum industrial building. It is in Fo Tan, Shatin, an established industrial and commercial area in Hong Kong. The property has easy access to major transportation infrastructure which links the Shatin area to both the Chinese border and the Kwai Chung Container Port. The property has been valued at HK$70.4 million (S$13.7 million1) by DTZ Debenham Tie Leung Limited, dated 21st June 2007.
REITs – UOBKH
We compare Singapore REITs (S-REITs) with other Asian REITs to source for its comparative attractiveness.
Falling yield premiums. We observe that yield premiums across Asia has generally fallen. However, as we note that investors are not just looking for yields but also higher capital gains, mentioned in our last ‘Office REITs – Season For Picking’ report, Singapore still looks attractive in terms of risk-returns. Yield premiums of Malaysia REITs (M-REITs) have negated, while that of Japan REITs (J-REITs) looks relatively attractive at 0.96% considering that it is a matured market. S-REITs are currently trading at a yield premium of 0.35%. It is also interesting to note that HK-REITs have a very high average ROE of 10.1% while PB is only 0.95.
S-REITs still look attractive in terms of PB vs ROE. Compared to its Asian REITs market peers S-REITs still looks attractive in terms of its price-to-book vs its ROE, especially so as S-REITs consists of high quality REITs. Amongst the S-REITs, we like CCT (Target price: S$3.72), K-REIT (Target price: S$3.39), and A-REIT (Target price: S$3.13).
Click on the Figure Above for a bigger view
MLT – SGX
MAPLETREELOG ACQUIRES PROPERTY IN CHINA FOR RMB155 MILLION
Singapore, 5 July 2007 – Mapletree Logistics Trust Management Ltd. (“MLTM”), manager of Mapletree Logistics Trust (“MapletreeLog”), is pleased to announce that MapletreeLog has signed a Reservation Agreement to acquire three warehouses in Putuo District, Shanghai, China for RMB155 million (S$31 million1) from Shanghai Shunjie Logistics Co., Ltd (“Shanghai Shunjie”) and Longtong Warehouse Management (Shanghai) Co Ltd. The properties (“Northwest Property”) will be purchased by MapletreeLog’s wholly foreign-owned enterprise to be incorporated in China.
Northwest Property will be purchased with assignment of existing leases. The tenants are a Spanish discount supermarket operator, a leading car maker in Japan and an American-based information technology wholesale distributor providing sales, marketing and logistics services for the IT industry. All three tenants are well-established multi-national companies. Shanghai Shunjie will take up the remaining space in the property for its logistics operations. Shanghai Shunjie is a local third party logistics company with nearly 20 years of experience in logistics operations. They provide a full range of logistics services such as airfreight, road transportation, railway, express delivery and storage, including inbound as well as outbound services.
Northwest Property is located in Northwest Logistics Park, Jinda Road, Putuo District, Shanghai. The acquisition will be accretive to MapletreeLog’s distribution per unit (“DPU”) and the pro forma financial effect of the acquisition on the DPU for the financial year ended 31 December 2006 would be an additional 0.04 Singapore cents per unit2.
Benefits and rationale of the acquisition
Mr. Chua Tiow Chye, Chief Executive Officer of MLTM, said, “We are very pleased with this acquisition which strengthens our presence in Shanghai. This follows our purchases of Ouluo Distribution Centre in Shanghai, Xi’an Seastar Distribution Centre and our announced acquisition of the American Industrial Park in Guangzhou. This acquisition, our fourth in China, consolidates MapletreeLog’s position in Shanghai, which is the first choice for many international companies to set up distribution centres in eastern China. The Northwest Logistics Park area is a wellestablished logistics hub and the acquisition of a good asset in this choice location will entrench our presence in Shanghai. We are also very happy to welcome the four quality names into our family of tenants.”
“The continued economic growth and emerging affluent middle class have resulted in the rapid urbanization and consumption trends in China. Distribution centres play an important role in the supply chain of moving goods across China. The acquisition of Northwest Property will allow us to capitalise on these growing and increasing important retail and wholesale sectors,” Mr. Chua said.
According to Jones Lang LaSalle, growth in China’s property market for warehousing and distribution centres is likely to take off in 2007 as global retailers expand aggressively in the country3.
In the International Monetary Fund’s April 2007 World Economic and Financial Surveys, China has seen an increase in its production capacity and capability. In many sectors – notably aircraft, home electrical appliances, industrial machinery, precision apparatus and automobiles – export of final products have continued to grow strongly. Retail sales grew by over 13 percent in 2006, with car sales rising by nearly 25 percent.
Funding
The acquisition is expected to be completed by early 2008. From MapletreeLog’s perspective, the Manager intends to fund the acquisition entirely by debt. However, this does not preclude the Manager from exploring alternative means of funding should the need arise.
General description of the property
Northwest Property comprises three single-storey warehouses with an ancillary office building and a four-storey building used as dormitory.
Northwest Property is located in Jinda Road, Putuo District, Shanghai. It is about 1 km to Huning highway and Huning railway. Situated 5 km from Hongqiao Airport, it has easy access to downtown Jiangsu and Zhejiang Province.
1 Based on exchange rate of S$1.00 to RMB5.03
2 Assuming that MapletreeLog had purchased, held and operated the subject property for the whole of the financial year ended 31 December 2006 (based on 41 properties) and that the acquisition is fully funded by debt.
3 Reuters, “Big retailers fuel China’s logistics growth”, 8 March 2007
Source : SGX
MLT – SGX
COMPLETION OF ACQUISITION OF PUBLIC LORRY PARK SPACES OF GRANDTECH CENTRE AT NO. 8, ON PING STREET, SHATIN, NEW TERRITORIES, HONG KONG FOR HK$31.0 MILLION
1. Further to our announcement on 5 June 2007 on the completion of the acquisition of Grandtech Centre (excluding public lorry park spaces which will be completed upon the issuance of modification letter by the HKSAR Government) at No. 8 On Ping Street, Shatin New Territories, Hong Kong, Mapletree Logistics Trust Management Ltd., as manager of Mapletree Logistics Trust, is pleased to announce the completion of the acquisition of the public lorry park spaces of Grandtech Centre (the “Property”) today for a purchase price of HK$31.0 million, following the issuance of the modification letter by the HKSAR Government.
2. The purchase price and other acquisition costs of the Property are fully funded by debt.
Source : SGX