Month: September 2010
CMT – OCBC
Fully valued; maintain HOLD
Retail sales turning the corner. The July Retail Sales Index, excluding motor vehicles, registered an increase of 6% YoY and 1.3% MoM. Sales of shopping necessities as well as consumer discretionary, such as watches & jewellery, toiletries and wearing apparel & footwear recorded double-digits YoY growth. We reckon that retail sales for the rest of the year should sustain, bolstered by the upcoming F1 Grand Prix and the Dec festive shopping season. We believe burgeoning tourist arrivals and increasing consumer confidence, on the back of strong domestic GDP growth, will favour CMT’s retail tenants. This view is warranted to the extent that there are no further global economic fallouts taking place in 2H10.
Mixed tone on outlook. CMT has previously retained some S$9.5m or 0.3 S cents per unit of distributable income from 1H10 as a buffer against less than promising 2H10 rental reversions (16.8% of gross rental income are expected to expire in 2H10). As for asset enhancements, construction works for JCube and The Atrium remain in focus, but is expected to contribute to the group’s bottomline only in 2012. On the acquisition front, ION Orchard is still in the midst of stabilization and is unlikely to be released by its sponsor this year. We also take the view that increasing demand for retail assets may already have pushed prices to levels where CMT may find it challenging to acquire further.
Management is also keen to explore greenfield projects. The higher yield-on-cost for development projects must, however, be balanced by the longer gestation period (5-6 years) before yields stabilise. As of now, there are no indications from CMT that it will capitalise on this growth-inducing alternative.
Fully valued; maintain HOLD. CMT malls are strategically located in catchment areas (with an established or growing population), well connected to public transportation systems. While we continue to recognize CMT’s impeccable property selection proficiency and operational management, we believe that the trust is fully valued at current level without further accretive acquisitions or cost-effective development projects. CMT trades at forward yields of 4.9% FY10 and 5.2% FY11, compared to the Retail-REIT industry average of 6.4% and 6.6% respectively. While the broader S-REIT sector is trading at a 3.2% discount-to-book on average, CMT’s market value is markedly 37% above its book value. We are maintaining our HOLD rating with RNAV-derived fair value of S$2.01. Key risks to our view include (1) macro-economic headwinds, (2) rent renewals proving more challenging than expected, (3) lower than-expected tourist arrivals and (4) rising funding costs (interest rate risk and refinancing risk).
PLife – Lim and Tan
• We would be hardly surprised if the party that sold 56.25 mln PLife units this morning at S$1.56 a unit turns out to be TPG.
• Note that TPG, which sold out its stake in Parkway Holdings to Fortis Healthcare, has exactly 56,250,148 units or 9.31% of total issued. It was to us a matter of time for TPG to exit PLife.
• PLife was traded to a record high of $1.68 two days ago.
• We would use any further weakness to add.
MLT – OCBC
Equity issue overhang removed; upgrade to BUY
Announces more acquisitions. Mapletree Logistics Trust (MLT) said it intends to acquire AW Centre, a warehouse asset in Singapore, for S$18.3m through a sale and leaseback transaction. MLT also noted that it was in advanced negotiations on four potential acquisitions, one in Japan and three in Singapore, for approximately S$105m in total. The manager said it expected to complete the five transactions in 4Q10. In Aug, MLT had also announced the acquisition of Multi- Q Centre, its second South Korean asset for approximately S$32m.
Launches EFR exercise. Concurrently, MLT has launched an equity-fund raising (EFR) exercise through a non renounceable preferential offering to existing unitholders as well as a private placement. The preferential offering of ~164.3m new units will be made on the basis of two new units for every 25 existing units, at an issue price of S$0.815 (~7.4% discount to pre-announcement price of S$0.88). Meanwhile, the private placement of 207.3m new units was issued at a price of S$0.825 (6.3% discount). Completed yesterday morning, the placement was over 2x subscribed. We had previously noted that an EFR could be triggered by MLT’s aggressive acquisition spree, which had already brought it close to its 45% medium-term leverage target. Both the quantum and timing of the EFR was in line with our expectations.
Proceeds to fund acquisitions. Excluding the S$145m of assets acquired on the back of the Nov 09 private placement, MLT has announced approximately S$447m worth of acquisitions this year (including the four potential acquisitions). Collectively, the EFR exercise will raise gross proceeds of approximately S$305m, which will be used to partially finance these acquisitions. The EFR will take MLT’s leverage down from about 46% (assuming all acquisitions were debt-funded) to approximately 38%. This is lower than MLT’s 45% medium-term leverage strategy and will allow it to continue to acquire third-party and sponsor-owned assets.
Upgrading on valuations / EFR news. MLT fell 3.4% yesterday to S$0.85 on the EFR announcement; we believe the negative reaction is unjustified as the EFR should have come as no surprise to the market and its terms are fairly competitive. We continue to advocate a buy-on-EFR-news strategy for REITs which have proven track record in executing a virtuous cycle of accretive acquisitions and competitive fundraising; MLT certainly falls in this category. After adjusting for the acquisitions and EFR, our fair value estimate edges up from S$0.89 to S$0.90. Upgrade to BUY (13.2% estimated total return).
ART – Kim Eng
Clearing the financing hurdle
Event
• Ascott Residence Trust (ART) has successfully placed 419.7m new units to CapitaLand and other institutional investors at $1.08/unit. The new units will start trading tomorrow at 2pm. Existing unitholders can subscribe for the preferential offering of new units at $1.07/unit from Friday, on the basis of one new unit for every 10 existing units held. We estimate a yield of 6.6% for FY11F. Reiterate BUY with a reduced target price of $1.38.
Our View
• The private placement was three times subscribed by a good mix of investors from Asia, Australia and Europe. Of the 419.7m private placement new units, 203.2m units were placed to CapitaLand Group in order for it to maintain its 47.7% unitholding in ART.
• As part of this equity fund raising (EFR), another 67.9m preferential new units – at $1.07/unit – will be offered to Singapore‐registered unitholders on a non‐renounceable basis of one new unit for every 10 existing units held. Application for the preferential offering opens on Friday at 9am and closes on 30 September at 5pm via acceptance form and at 9.30pm via ATM.
• The proceeds from the entire EFR will amount to about $526m to be used for defraying the cost of acquiring the 28 properties announced on 20 August. While the yield accretion for FY10F‐11F is marginal, we believe the enlarged portfolio ($2.9b) will enhance ART’s income stability and increase its exposure to more established markets in Europe.
Action & Recommendation
We continue to favour ART for two reasons: 1) its ability to unlock value for its unitholders, which is borne out by its track record of property divestments in Jakarta and Beijing this year, and 2) its strong execution capability as evidenced by its successful EFR and acquisitions. We reiterate our BUY recommendation but lower our target price to $1.38, from $1.45, after revising our earnings estimates.
First Reit
Bowsprit Capital Corporation Limited, as manager of First Real Estate Investment Trust (“First REIT”, and as manager of First REIT, the “Manager”), wishes to refer to the 2010 Second Quarter Unaudited Financial Statements & Distribution Announcement of First REIT dated 26 July 2010 stating, among other things, that First REIT has been actively considering acquisition opportunities that are available through its sponsor, PT. Lippo Karawaci Tbk (the “Sponsor”), which has a robust pipeline of healthcare assets in Indonesia.
The Manager wishes to announce that it is currently in discussions with the Sponsor in relation to the acquisition of two healthcare properties located in Indonesia, being Mochtar Riady Comprehensive Cancer Centre and Siloam Hospitals Lippo Cikarang. It is intended that these properties be leased by First REIT to the Sponsor under long term master lease agreements. The terms of the above transactions are currently being negotiated and the transactions would be subject to, among other things, the valuations of the properties, the approval of the relevant regulators, the Audit Committee of the Manager and unitholders of First REIT (“Unitholders”). The Manager is in the midst of evaluating various sources of funding to finance the acquisitions, but would like to state that no firm decision has been taken to proceed with any specific means of funding. The Manager will, in compliance with its obligations under Listing Manual (the Listing Manual”) of Singapore Exchange Securities Trading Limited (the “SGX-ST”), make the relevant announcements on SGXNET once a firm decision has been made on matters which require disclosure pursuant to the Listing Manual.
In the meantime, Unitholders are advised to refrain from taking any action in respect of their units in First REIT (“Units”) which may be prejudicial to their interests, and to exercise caution when dealing with Units.