Month: June 2008
MapleTree – UOBKH
Equity fund raising required but not imminent
Mapletree Logistics Trust (MLT) is an Asia-focused logistics REIT investing in a diversified portfolio of income-producing logistics real estate. It has a portfolio of 72 assets in Singapore, Hong Kong, Japan, Malaysia, China and South Korea valued at S$2.4b at Mar 08. Sponsor Mapletree Investments, a wholly owned subsidiary of Temasek Holdings, has a 30.2% stake in MLT. MLT was assigned Baa2 corporate rating with negative outlook by Moody’s Investors Service.
Continuing to expand via acquisition. MLT has announced acquisitions of eight properties in Singapore (30 Boon Lay, 22A Benoi Road, 3A Jalan Terusan and 76 Pioneer Road), China (ISH WaiGaoQiao and Northwest Logistics Park), Malaysia (G-Force) and Japan (Kashiwa Centre) valued at S$291.4m pending completion at Mar 08. These acquisitions will expand its portfolio by 12% to S$2.7b. They will be financed by debt and will increase gearing from 56.3% to 60% when completed. This places MLT dangerously close to regulatory limit of 60% for gearing.
Collaborating with Mapletree Investments on regional expansion. Sponsor Mapletree Investments has invested S$846m in 10 development projects in the region, including logistics parks, build-to-suit and ready-built logistics facilities in China (six properties), Vietnam (3) and Malaysia (1). These assets will be offered to MLT under the right of first refusal, which is valid until 2010. MLT has identified Singapore, Hong Kong and Japan as priority markets. It plans to have 70% to 75% of portfolio value in developed markets and the balance 25% to 30% in emerging markets. MLT plans to grow its asset base to S$5b by 2010.
Equity fund raising required but not imminent. MLT has total borrowings of S$1,360.4m and gearing is 56.3% at Mar 08. We believe the preferred mode for equity fund raising is via a rights issue given goal to have gearing reduced to optimal level of 40-45%. However, MLT has flexibility in terms of timing for the fund raising exercise as suitable acquisitions can be warehoused or parked with Mapletree Investments till a more opportune time for the stock market.
MLT has short-term borrowings of S$600m. It has converted S$155m of shortterm borrowings into three-year term loans. Another S$300m of short-term borrowings is in process of being converted to terms pending completion of documentation. This will complete the refinancing of short-term borrowings.
Benefitting from positive rental reversion. MLT maintained almost full occupancy of 99.6% at Mar 08. It renewed leases for 539,712sf of space on average 28.7% higher than preceding rates, with strong rental reversion for Singapore. Management expect average rental reversion of 12% in FY08 with contributions from Singapore, Hong Kong and China. MLT declared DPU of 1.9 cents for 1Q08, representing annualised distribution yield of 8.4%.
Suntec – OCBC
Bond rate volatility continues
Dilution, yes, but reflected in our estimates. Suntec REIT (Suntec) issued the first of six installments of deferred units last week. These deferred units formed part of the payment for Suntec’s original portfolio at its IPO, allowing Suntec to offer a higher yield at listing. The 34.5m units are not entitled to distributable income from the current quarter but will then be aggregated with Suntec’s existing units. The other five installments will be issued at half-yearly intervals over FY09-10. All in, the 207m shares imply about 14% dilution to unitholders. We emphasize that both our fair value and DPU estimates have always taken this dilution into account.
Bond rate volatility will continue. Last week, the 10-year Singapore government bond (SGB) yield hit 3.94%, a 152 bps spike since our last report on Suntec dated 2 May. Now at 3.6%, such high rates have not been seen since 2006. We expect interest rate volatility to persist as inflation concerns shape central bank policy and the prospects for a US rate hike increase. We also expect spreads to be impacted as credit market woes persist.
Suntec trading below its historical average spread. This month, Suntec has been trading as low as 200 basis points over the 10-year SGB yield. Historically, its average spread over the benchmark has been 269 bps. This has been a tumultuous few months for Suntec – in March this year, it was trading at a 441 bps spread, a record high. It last traded below its historic average in 2007, where at one point Suntec was trading at only 123 bps over the 10-year SGB yield (see Chart 1). Those were far more benevolent circumstances however.
Still worth a look. Suntec had hit S$1.68 since our last report but rising bond rates and a negative trending consensus has driven its price back to S$1.51, or 13% below our S$1.71 fair value. It is currently trading at 249 bps over the 10-year SGB yield. We believe Suntec still merits a look and feel its near-term growth will be driven by rent reversions – about 44% of the office portfolio ex-ORQ is up for renewal in FY09 and significant upside remains for its properties earning less than S$5-S$6 psf pm. We maintain our BUY rating but will continue to monitor the volatility in bond rates and how it plays out.
PLife – DBS
Best hedge against inflation
Story: With surging inflation on the back of rising energy, fuel and food prices, ParkwayLife REIT (PREIT) looks to be the best hedge against inflation.
Point: In the latest review in May, MTI and MAS has raised the CPI forecast for 2008 to 5.0 – 6.0%, from 4.5% – 5.5% previously. DBS Economics Research expects inflation pressure to remain high in the near term. CPI is expected to peak at 8.1% yoy in Jun 08, with full year inflation at 6.4%, up slightly from previous forecast of 6.0%. We re-looked into our gross revenue assumptions for PREIT and raised CPI assumption for 2008 to 6.4% and 2009 to 2.8% (from our previous assumptions of 4% and 1.5%, respectively) pegging it in line with our economists’ forecasts. This means that PREIT’s gross revenue for its Singapore Hospitals should grow by at least 7.4% (=1% + 6.4%) in FY09. Consequently, our FY09F DPU forecast is
raised marginally to 7.17 Scts, from 6.99 Scts. Based on a last traded price of S$1.19, this translates into a net dividend yield of 5.7% and 6.0% for FY08F and FY09F respectively.
Relevance: PREIT still remains a Buy as it offers investors potential upside from higher hospital revenue. In this inflationary environment, investors can rest assured that growth is supported by 1%+CPI rate. Furthermore, PREIT has low net gearing and there is no major debt refinancing risk in the near future. Catalysts should come from further yield accretive acquisitions, in addition to the last three investments in Japan.
Maintain Buy, TP adjusted slightly to S$1.47 (from S$1.51 previously) to account for a higher risk-free rate of 3.9%, from 3.0% previously.
MP REIT – BT
MP Reit raises rent by 19.75% at Ngee Ann City
Rent hike for 226,000 sq ft prompts DBS Vickers to raise DPU estimates
MACQUARIE Prime Real Estate Investment Trust (MP Reit) said yesterday that it has raised rent by 19.75 per cent for about 226,000 square feet of retail space in Ngee Ann City.
The Orchard Road space, of which Toshin Development is master lessee, is occupied by luxury retailers such as Louis Vuitton and Chanel, as well as brand name retailers.
MP Reit – formerly known as Macquarie MEAG Prime Reit (MMP Reit) – said that this is expected to push annualised DPU (distribution per unit) up by 7.2 per cent, based on an annualised DPU of 7.08 cents for the first quarter of 2008.
The rental increase for a period of three years starting on June 8 came after a review with Toshin, which is wholly owned by departmental store operator Takashimaya.
‘The announcement is above our estimates of 15 per cent and is largely positive for the Reit given its positive impact on earnings,’ DBS Vickers said in a research note.
The broking house raised its DPU estimates to 7.54 cents for the financial year 2008, translating to a DPU yield of about 6.7 per cent based on yesterday’s closing price of $1.13.
DBS Vickers also upped its DPU estimates for financial year 2009 to 7.81 cents.
The lease under Toshin contributed to a quarter of the Reit’s portfolio gross rent, as at end-March this year.
But the broking house lowered its target price to $1.61 from $1.63 to account for ‘a higher risk-free rate of 3.9 per cent against (its) previous estimate of 3 per cent’.
MP Reit holds a 27.23 per cent strata title interest in Ngee Ann City, comprising 256,000 sq ft in retail net lettable area and 141,000 sq ft in office net lettable space.
The 30,000 square feet of retail area that is not covered by the Toshin master lease is directly rented out and managed by the Reit.
MP Reit’s portfolio consists of 10 properties that are worth more than $2 billion.
MI-REIT – BT
Moody’s rates MI-Reit as ‘developing’
CREDIT rating agency, Moody’s Investors Service, yesterday changed Macarthurcook Industrial Reit’s (MI-Reit) Baa3 rating outlook to developing from stable.
The change came after the announcement that AMP Capital Investors made a proposal to acquire the entire capital of MacarthurCook for A$1.35 per share.
MacarthurCook owns 92.5 per cent of the manager of MI-Reit, MacarthurCook Investment Managers (Asia), and has direct and indirect interest of about 13 per cent in MI-Reit.
The conditions of the proposal have not been revealed.
AMP became a substantial shareholder in MacarthurCook through the entry into a pre-bid acceptance agreement with Ascalon Capital Managers in respect to their 18.4 per cent shareholding in Macarthurcook. AMP is one of the principal operating subsidiaries of AMP Group Holdings of Australia.
Moody’s said it expects a resolution of the developing outlook would occur once it becomes clear if the takeover is going to proceed and whether this will result in changes in respect of the strategic direction and medium-term operating and financial outlook for MI-Reit.
MI-Reit reported total assets of $569 million and revenues of $32 million for the fiscal year ending March 31, 2008.