Month: April 2010
SREITs – OCBC
1Q10 results preview
In 1Q10, YoY DPU improvements for most... The majority of the S-REIT universe will report 1Q CY10 results over the next two weeks, with CapitaCommercial Trust (CCT) kicking off the season on 16 Apr. Within our coverage universe, we expect Ascott Residence Trust (ART) to show a YoY improvement in DPU on the back of stronger occupancy rates and RevPAU1 . Based on our estimates, Mapletree Logistics Trust and Frasers Centrepoint Trust (FCT) could also see a YoY pick-up in DPU for the quarter due to a boost from recent acquisitions. FCT’s earnings in the preceding year were also impacted by asset works. CapitaMall Trust may also post a YoY increase in DPU as the REIT retained part of its distributable income in 1Q09. We expect Ascendas REIT to report stable operating performance, with this quarter’s DPU up 2.8% YoY.
…but not all. On the other hand, we expect Suntec REIT to report a YoY decline in DPU due primarily to a larger unit base (roughly 1.8b units now versus 1.6b units a year ago). We also estimate that CCT may record a YoY fall in DPU due to dilution from its 2009 rights issue. Meanwhile the Indonesian Rupiah continues to re-rate strongly (6596 IDR/SGD on average in 1Q10 versus 7701 IDR/SGD in 1Q09). The IDR’s ascent over the hedged rate employed by LMIR Trust could impact YoY DPU performance despite a stronger portfolio that has seen steady improvements in occupancy.
Leaping or waiting? Our primary focus this season is on the tone of manager guidance. REIT managers have been fairly aggressive and opportunistic in 2010 so far, with a sizeable S$1,218m worth of acquisitions announced year-to-date. The equity market was also active with FCT’s S$182.2m placement and the listing of Cache Logistics Trust [NOT RATED], whose S$417.3m IPO was 7.8x subscribed. The question is what happens next – market worries about how the second half of this year pans out have been well-documented and the consensus view is for a rather benign economic recovery. How this corresponds to/deviates from REIT managers’ guidance of individual earnings performance will be important to watch. Additionally, the delicate balance between 2H10 uncertainties and market appetite may prompt REIT managers to launch acquisition/fund raising plans sooner rather than later. How managers lay out acquisition and debt re-financing plans will also be worth tracking, in our view. We maintain our OVERWEIGHT stance on the sector. Top picks are ART and Suntec.
CLT – DMG
Ramped up and ready to go
We think Cache Logistics Trust (CLT) is priced right versus it peers at 8.7% yield and is 7.8x over subscribed. Apart from the large market share of 97% of rampup warehouses, there is a high barrier to entry. CLT has quality assets with high (above average) occupancy rates of 94.1%. Without a credit rating, CLT has a debt headroom of another S$100m before reaching its statutory limit of 35%. Assuming a 7-8% target yield (a discount to A-REIT), CLT should be valued at between S$0.96-S$1.09, or 9-24% above its IPO price of S$0.88.
97.3% share of ramp-up warehouses with high barrier to entry. CLT owns 97.3% (by GFA) of ramp-up warehouses in Singapore. As ramp-up warehouses require large sites (>1ha) relative to conventional warehouses, the shortage of such suitable sites in land scarce Singapore, particularly in well-established locations, is a natural barrier to competing new supply.
Quality properties with high occupancy rate. The assets are well located in established logistics clusters, near air and sea transportation ports such as Changi Airport, Jurong Port and PSA Terminal. The assets currently enjoy a higher than average occupancy rate of 94.1% (industrial’s average at 90%).
Ample room to gear up for acquisitions. CLT’s current gearing is 25.9%, lower than most of its peers at 30-40%. As CLT does not have a credit rating, it is only allowed to gear up to a maximum of 35% (versus 60% with rating). Assuming 100% debt financing for new asset acquisitions, this leaves CLT with a debt headroom of ~S$100m.
Priced right against peers. At S$0.88, CLT is priced at 8.7% yield, in between its peers trading yield of 7-11%. A-REIT trades at 7.1% FY10 yield (heydays at 6%) while Cambridge Industrial Trust trades at 11.2% yield (heydays at 7%). Assuming a 7-8% target yield (a 100bps discount to the larger A-REIT trading range of 6-7%), CLT should be valued at between S$0.96-S$1.09, or 9-24% above its IPO price of S$0.88.
CLT – BT
Cache IPO 7.8 times subscribed
CACHE Logistics Trust’s initial public offering (IPO) of 474.1 million units was about 7.8 times subscribed, drawing support from major institutional investors from Asia, Europe, the Middle East and Australia.
Other institutional investors who were allocated units under the placement tranche include DBS Asset Management Ltd and Fullerton Fund Management Company Ltd.
Trading in the counter on the Singapore Exchange is expected to begin at 2pm today.
At the offer price of 88 cents per unit, gross proceeds of $417.2 million have been raised.
The trust will be managed by ARA-CWT Trust Management (Cache) Limited, a 60:40 JV between ARA Asset Management and CWT Limited. CWT is also the Reit’s sponsor.
The offering comprised an international placement of about 433.1 million units, as well as 41 million units to the public in Singapore of which 14 million units were reserved for subscription by the directors, management, employees and business associates of CWT, ARA and their subsidiaries.
The real estate investment trust (Reit) will hold an initial portfolio of six properties in Singapore with a total gross floor area (GFA) of 3.9 million square feet.
The Reit will focus on expanding locally in the near term before looking at acquisitions in foreign markets such as Greater China and Malaysia.
Some of the principal unitholders of Cache include CWT (12.2 per cent), ARA, C&P Holdings, and cornerstone investors JF Asset Management Ltd and Morgan Stanley Investment Management Company.
Cache’s manager has forecast for the current year ending Dec 31, 2010 a distribution per unit of about 7.65 cents, which reflects a distribution yield of 8.7 per cent.
CLT – CIMB
Ramping up logistics yields
• Initiate with Outperform and target price of S$1.23. Cache Logistics Trust is a REIT sponsored by CWT investing in income-producing logistics assets in Asia-Pacific. We value Cache using DDM valuation (discount rate 8.4%) and arrive a target price of S$1.23 which factors in S$220m of potential acquisitions. We believe it is reasonable to assume acquisitions given limited scope for organic growth via asset enhancement as the buildings are relatively new. Our target price offers a total prospective return of 45.1% from potential price upside of 39.2% and forward 2010 yield of 5.9% from its IPO price of S$0.88.
• Master leases ensure defensible income streams. Cache’s initial portfolio is leased back to its sponsor CWT with a triple net master lease structure. There is limited property expenses and capital expenditure for the REIT on such a structure. Cache’s weighted average lease expiry of 6.4 years is significantly longer than the industrial REIT average of 4.8 years.
• Pure Singapore logistics play for now. Cache is likely to acquire assets from its sponsor CWT, and from C&P in the short term. Staying Singapore-centric will give it significant edge over its closest peer MapleLog which is subject to higher country risk with a geographically diversified portfolio. The IPO price of S$0.88 prices Cache at book value. At this level, Cache’s annualised yield of 8.8% looks highly attractive against the SREIT sector (0.9 P/BV, 6.8% yield); and its industrial peers AREIT (1.2x P/BV, 6.7% yield ), and MapleLog (at book value, 6.7% yield).
CLT – SGX
Extracts from SGX,
Based on the 474,108,000 Units under the Offering, the valid applications received under the Public Offer as at the close of the Public Offer, the aggregate indications of interest received under the Placement as at the close of the book building exercise and the close of the Reserved Tranche, the Offering is approximately 7.8 times subscribed.
Source : SGX