Month: March 2011
Retail REITs – CIMB
Towards greater heights
• Yoy, January retail sales ex-auto rose to their highest in 11 months. While seasonality may have distorted the data as Chinese New Year celebrations fell earlier this year than in 2010, January’s 15.6% growth was nonetheless the 15th consecutive month of positive yoy growth. The increase was also broad-based with department-store sales up 21.5% yoy, sales of apparel & footwear up 16.7% yoy and sales of watches & jewellery up 14% yoy. These segments were the leading contributors.
• New weightings and new base year for index. Every five years, government statisticians would re-weight components in Singapore’s retail sales index to “reflect changes in the structure of retail trade and food and beverage services industries.” The new base year is now 2010 instead of 2005 and the most significant change is a cut in the weighting for auto sales, from 34.5% to 24.7%. Auto sales in Singapore are affected more by the government’s private-transport policy than consumer sentiment. On the other hand, the weights for other key segments have been raised: department-store sales (+2.03% pts), apparel and footwear (+1.72%), watches and jewellery (1.63%) and tech goods (1.9%). Despite auto’s lower weighting, headline retail sales are still distorted by auto sales and this is the reason for our preference for retails sales excluding auto as a better proxy for underlying consumer sentiment.
• Discretionary spending to remain robust despite external shocks. Strong job and wage growth is likely to support further retail-sales (ex-auto) growth of about 7% this year (7.2% in 2010) and growth in real private consumption of 3-3.5% (4.2% in 2010, 0.2% in 2009). We do not expect the Japanese disasters or the unfolding events in North Africa/Middle East to have a long-lasting impact on private consumption unless global business confidence is dented in a major way in the coming weeks or months. While international airlines have been reporting light passenger loads going into Japan, outbound flights are full. And while the Japanese disasters might reduce Japanese arrivals in the near term, we maintain our overall tourist-arrival growth forecast of 8-10% for this year, to 12.8m (11.6m in 2010, government forecast of 12m-13m).
• Stock implications: FCT and CMT well-placed. With stronger retail sales expected to benefit retail tenants and drive up occupancy rates and rental reversions, we expect retail REITs like FCT and CMT to be beneficiaries. Between the two, we prefer FCT for its organic growth from asset enhancement at Causeway Point, acquisition growth potential and more resilient rental profile.
KREIT – DBSV
Buys more of Prudential Tower
• Raises stake in Prudential Tower to 92.8%
• Strengthens strategic hold but muted near term earnings impact
• Maintain Hold, TP raised to $1.32
Buys a further 48,158sf of Prudential Tower. K-reit is acquiring 4 floors of office space (L26-29) at Prudential Tower, totaling 48,158sf, from 4 separate sellers. The consideration of S$125.1m, which includes S$8.1m income support, works out to be S$2,430psf (without support). The price, when compared to the S$2,300psf paid for the nearby Capital Square, is fair. Strategically, this deal makes sense as it will increase the group’s ownership of the property to 92.8% from 73.4% previously and make it easier for any potential future asset enhancements.
Marginal near term to earnings. The income support is valid for 4 years (till Mar 2015) after completion of the transaction. Based on the proforma income contribution of S$1.3m for FY10, the estimated NPI yield works out to be sub 5%. Given that the purchase will be funded by bank borrowings, the bottomline accretion is a modest 1-2%. See-through gearing will increase to 39% post-acquisition.
Maintain Hold. The deal will benefit K-reit in the long run when the office cycle continues to tick up. We have tweaked our earnings up marginally by 0.4% and 1.5% in FY11F and FY12F respectively, to factor in the additional contributions from the purchase.
Correspondingly, we have raised our DCF-backed TP to S$1.32. K-reit’s share price had pulled back in tandem with the market in the past week and currently offers an 8.1% total return.
MCT – BT
Mapletree postpones commercial Reit IPO
It had expected to raise $1b but jittery market stays its hand
Mapletree Investments has postponed its planned commercial property trust, which was expected to raise about $1 billion, BT understands.
The property group had planned to lodge the prospectus for its Mapletree Commercial Trust (MCT) this week. But the initial public offering, or IPO, has now been delayed due to volatile markets caused by the earthquake and tsunami in Japan 10 days ago, the sources said.
The group said yesterday that it is not at a stage of making any announcement about its planned commercial property trust. ‘Mapletree Investments has previously disclosed plans for a commercial Reit. At this point we are not at a stage where an announcement is required on our part. We will make the necessary announcements in due course,’ said a Mapletree spokesperson.
BT understands that there are doubts about the filing after the Japanese earthquake. The much anticipated Hutchison Port Holdings (HPH) Trust, the world’s largest IPO so far this year, went underwater last Friday on its market debut in Singapore. Market watchers had predicted a lacklustre first-day showing from the US$5.45 billion listing as investors remained jittery about Japan’s nuclear crisis.
MCT is expected to hold the VivoCity mall in its portfolio. Other assets could include Merrill Lynch HarbourFront, PSA Building and Mapletree Business City, an integrated business hub on Alexandra Road. The real estate investment trust (Reit) is aiming to raise about $1 billion, reports have said.
MCT is the fourth Reit by Mapletree Investments, which is fully owned by state investment company Temasek Holdings.
The property group listed Mapletree Logistics Trust in 2005 and jointly launched Lippo-Mapletree Indonesia Retail Trust with Lippo Group in 2007. Its third Reit, Mapletree Industrial Trust, raised close to $1 billion when it was listed in October 2010.
One analyst said that MCT will still hold appeal for investors – once the market settles – as it is a ‘brand-name’ IPO.
K-REIT – BT
K-Reit ups Prudential Tower stake
It buys four office floors comprising 48,158 sq ft for a total of $125.1m
OFFICE landlord K-Reit Asia will buy four strata office floors in Prudential Tower for $125.1 million, boosting its stake in the building to 92.8 per cent, it said yesterday.
The four floors total 48,158 sq ft and represent 19.4 per cent of the strata value of the building. K-Reit Asia, a unit of Keppel Land, currently owns 73.4 per cent of the strata value of the building.
The trust will buy level 26 from Innisvale Investments; level 27 from Maraha; level 28 from Lima Bintang Holdings; and level 29 from Mirabeau Gardens.
Post-acquisition, it will own a total of 223,830 sq ft of Grade A net lettable area office space at Prudential Tower, which is located at the junction of Church Street and Cecil Street. The committed leases in the property have a weighted average lease expiry of 3.6 years, the trust said.
Under the sale and purchase agreement, the vendors have agreed to provide rental support, subject to a maximum sum of $8.09 million for the period commencing from the date of completion of the acquisition until March 31, 2015.
The acquisition is expected to be immediately accretive to K-Reit Asia’s distribution per unit. Post-acquisition, more than 90 per cent of the trust’s Singapore portfolio will be located in the prime areas of Raffles Place and Marina Bay, said Ng Hsueh Ling, chief executive of the trust’s manager.
‘It (the acquisition) reinforces K-Reit Asia’s strategy to be a leading landlord in Singapore’s key business and financial districts,’ Ms Ng said.
The acquisition will be funded entirely by debt and when completed, will increase K-Reit’s aggregate leverage ratio marginally from 37 per cent to about 39 per cent.
K-Reit Asia units gained 4 cents or 3.2 per cent to close at $1.29 yesterday.
HPH Trust – DJ
Newly-listed port operator Hutchison Port Holdings Trust (NS8U.SG) said Friday that it expects "minimal" impact from Japan''s destructive earthquake and tsunami.
"It''s minimal," Chairman Canning Fok said when how Hutchison Port''s operations might be affected by last week''s magnitude-9 earthquake and ensuing tsunami, which has forced the closure of many production lines and ports in Japan.
"Our trade is more intercontinental, 70% of our trade is intercontinental. I think we are well protected by the nature of our business," he added.
The unit of Hong Kong conglomerate Hutchison Whampoa Ltd. (0013.HK) made its debut on the Singapore Exchange Friday at US$0.975 a unit, 3.5% below its initial public offer price of US$1.01, in the largest ever listing on the Singapore bourse.
Fok said he was happy with the opening price given the current market conditions.
The debut comes at a difficult time for new listings in Asia, with equity markets being sold off heavily after the destructive earthquake and tsunami in Japan and worsening geopolitical tensions in the Middle East.