Month: January 2010
News – BT
ARA and CWT confirm talks to set up Reit
SHARES of ARA Asset Management and CWT rose yesterday, when both companies confirmed plans to launch a regional logistics real estate investment trust (Reit) together.
ARA, a real estate fund manager tied to Hong Kong tycoon Li Ka-shing’s Cheung Kong group, saw its shares hit a year high. They gained seven cents or 7.8 per cent to close at 97 cents.
Shares of logistics firm CWT put on two cents or 2.4 per cent to close at 84.5 cents. The counter has hovered above the 80-cent mark since late December.
Investors were probably cheered by news of the Reit venture between ARA and CWT. In a joint release, the firms said that they are ‘in advanced confidential discussions’ and have made a ‘confidential submission’ to the Singapore Exchange (SGX) to set up and list a logistics Reit here. They have also made submissions to other relevant regulatory authorities.
‘It should be noted that no definitive agreements whatsoever have been executed,’ they highlighted. They added that they have not obtained approvals from regulators, including SGX and the Monetary Authority of Singapore.
ARA and CWT were responding to a Reuters article, which said that the two plan to launch a Reit holding properties worth some $1 billion, and DBS would manage the listing. The information came from ‘a source involved in the transactions’.
While both companies confirmed that they were working together on a Reit, they did not verify the other details mentioned in the Reuters report.
In mid-December, CWT gave the market some clues on its plans. It received a query from SGX on an increase in its share price, and revealed that it was in talks to sell and lease back its logistics facilities for the potential creation of a logistics Reit.
FCT – CIMB
Growth strategy intact
• Maintain Outperform and target price of S$1.73. Elaboration of management’s plans following FCT’s acquisition announcement of Northpoint II and Yew Tee Point last week has added to our confidence that the outlook remains positive for FCT, with both organic and inorganic growth catalysts in place. We also like management’s steady execution and conservative capital management. We maintain our estimates and DDM-target price of S$1.73 (discount rate 7.9%).
• Significant diversification with new acquisitions. Asset-concentration risks should be substantially reduced with income contributions from Causeway Point dropping from 64% to 51%. Contributions from the top 10 tenants would be reduced from 32.7% to 25.7%.
• More in the acquisition pipeline. FCT is likely to venture into eastern Singapore with its sponsor’s assets, Bedok Mall, and the Changi Business Park mixed development completing over 2010-11.
• Causeway Point’s asset enhancement. Plans to enhance its largest asset, Causeway Point, continue, and would likely be announced this year. Asset enhancement will be carried out in phases so as to minimise disruptions to businesses and income contributions.
FCT – DBS
Stepping Up
• Acquiring Northpoint 2 & YewTee Mall for S$290.2m
• A combination of debt and equity to fund purchases
• Merits aplenty, Maintain BUY
Acquiring 2 malls at one go. In a much-anticipated move, FCT announced the acquisition of Northpoint 2 and Yew Tee Point – two good quality suburban retail properties for a total consideration of S$290.2m. When completed, FCT’s total portfolio value will increase by 25% to cS$1.5bn. An EGM to approve the transaction is scheduled on 25 Jan 2010.
Finding optimal funding structure. The deal is accretive as the initial yield of the properties average 5.8% and compare favorably to the current implied portfolio yield of 5.5%. However, the quantum of DPU
enhancement will depend on the finalization of the funding structure. In addition to taking on new debt, FCT is proposing to issue up to 152m new units. Based on an estimated debt/equity funding ratio of 45/55,
which will result in gearing increasing slightly to 33.4% by FY10, and pricing of the new units ranging between $1.10-1.50/unit, FY10 DPU maybe enhanced by 0.3-5.7%.
Bigger, better, stronger – post acquisition. When completed, we see FCT emerging as a stronger entity, benefiting not only from higher efficiencies from a larger asset base as well as increased diversification of its property and tenant mix. The fund raising exercise is expected to propel it into the billion-dollar market cap club and increase trading liquidity due to higher free float, thus providing another catalyst for a further stock re-rating. FCT’s sponsor has undertaken to only subscribe for the units in the event of poor participation of the private placement, an event we view as unlikely.
Maintain BUY, TP S$1.63. We have tweaked our current DPU estimates, which have already included the new acquisitions, to incorporate the latest transaction details. We continue to favour FCT as the purest suburban retail Sreit and its visible acquisition pipeline. Maintain BUY with a revised TP of $1.63.