Month: March 2011
SREITs – OCBC
Impact of Japan’s earthquake & tsunami
Residential REITs. Saizen REIT (Not Rated), with 146 properties all over Japan, will be the most affected S-REIT, in our opinion. The impacted region includes the cities of Sendai with 22 properties, Koriyama and Morioka with three properties each, making up 15.5% of its portfolio value (PV). Most notably, Sendai (nearest quake epicenter) constitutes 11.2% of Saizen’s total portfolio value and 10.6% of rental income. The full extent of the damage is still unknown as access to these areas has been cordoned off due to safety concerns.
Industrial REITs. MLT has 14 properties in Japan (26.4% of PV) of which 13 escaped with either no damage or minimal damage. Sendai Centre (2-storey chilled and frozen facility, contributing 0.75% of PV & 0.7% of MLT’s gross revenue), is located along the coastal area of Sendai, and appears to be most affected. However, the full extent of damage can only be ascertained when access into the property is allowed. The total cost of reinstating the building is ~S$9m (0.37 S-cents per unit), but MLT does not expect the cost of repairs will come to this amount. We place our BUY rating and fair value of S$1.03 under review pending more updates and clarity from management. AAREIT (Not Rated) also has a warehouse at Saitama (4% of PV) to be sold pending sale completion in Mar 2011. AAREIT has announced that there appears to be no structural damage to the property.
Office REITs. FCOT has three commercial properties in Tokyo and Osaka (6.9% of PV). We understand from the manager that all properties are away from the affected areas and thus did not suffer any damages. With FCOT’s limited exposure in Japan, we maintain our BUY rating and fair value of S$0.92.
Retail REITs. Starhill Global REIT has seven malls in Tokyo (6.6% of PV, 4.6% of total gross revenue). The manager has stated that there is no known damage to the malls. In addition, the properties were also partially covered by earthquake insurance (unlike properties in other REIT subsector), providing some form of assurance for unitholders. We expect retail sales in Japan to be impacted somewhat but maintain our BUY rating and target price of S$0.74.
Taking a cautious stance. Nevertheless, we remain cautious as events in Japan are still unfolding and at this stage, it is hard to predict the extent to which the quake and the nuclear fallout will hurt the economy. There is also the possibility of more quakes (likely 7.0 or higher magnitude), aftershocks and even tsunamis taking place in the coming days.
CLT – CIMB
Two properties for S$40m
Maintain Outperform. Cache Logistics has made its maiden acquisition of two thirdparty warehouses for S$39.8m, at 3-5% below valuation and a combined NPI yield of 8%, marginally above its portfolio yield of 7.9%. The deal should add to its DPU with full debt funding. We like the purchases for their shorter lease tenures of about three years that should better position Cache for a rising rental market. We also like the future development potential of the Penjuru property and the reduced dependence and tenant concentration risks for its sponsor, CWT. We keep our DPU estimates and DDM target price of S$1.32 (discount rate 8.4%) as we had factored in S$220m of acquisitions for 2011. We continue to like Cache for its quality portfolio and scalability, expecting more acquisition catalysts. Cache trades at 1.03x P/BV and offers a prospective dividend yield of 10%.
6 Changi North 1. Acquired from APG Distributors (part of Luxasia Group) for S$30.9m or S$175psf GFA (3% below valuation), this 2-storey ramp-up warehouse is located in an established logistics cluster in the Changi North International LogisPark. The property is 100% leased to three tenants which include the vendor APC, which will lease back one-third of the building and occupy an additional 27,00sf when this space becomes available. The other two tenants, a multinational electronics manufacturing service provider and a logistics service provider, will take up 50% and 16% of NLA for varying lease periods. Weighted average lease expiry is about 3.3 years, fairly short against Cache’s portfolio average of 6.4 years. We estimate passing rent of S$1.16psf/month, marginally below the S$1.20-1.40psf for Cache’s Changi Districentre.
4 Penjuru Lane. Acquired from Kim Heng Tubular Pte Ltd for S$8.9m or S$162psf on GFA (5% below valuation), this single-storey warehouse is approved for chemical and dangerous goods storage. It will be leased back to the vendor for three years, with an option for a further three years. An annual rent step-up of 2% has been structured in the lease. We estimate passing rent of S$1.08psf/month, fairly in line with Cache’s Commodity Hub in the same vicinity, at S$1.05psf.
Comments
We are positive on the acquisition for a number of reasons, including:
1) DPU accretion. The spread between NPI yields and cost of funding is slightly wider at 50bp above our projection. Accretion over last year’s annualised DPU is about 3%.
2) Development potential. We see development potential for the Penjuru asset which has an un-maximised plot ratio of 0.63. At the maximum plot ratio of 2.5, there could be an additional 163,000sf of NLA for extraction, quadrupling its current size. Nonetheless, we expect redevelopment work only in the medium term.
3) Shorter tenure to capture rising rental market. Unlike its IPO assets, the new acquisitions come with much shorter leases of about three years (portfolio average of 6.4 years). This would better position Cache for capturing a rising rental market, in our view.
4) Lower cost of debt. Management indicated a lower cost than the current 4.4% for its 3-year unsecured term loan. We anticipate interest cost of about 3%, below our forecast of 3.5%.
5) Third-party acquisitions, signalling the manager’s efforts to seek out deals independent from its sponsor. We note that the pricing of the two acquisitions on a unit-price basis is also lower than its IPO assets in the same vicinity.
6) Dilutes tenant concentration risks for CWT. Thus far, Cache is wholly dependent on its sponsor CWT for its rental income. With this acquisition, tenant concentration risks would be diluted, although overall contributions from these two third parties are still small at about 7% of NPI.
Valuation and recommendation
Asset leverage to rise to 27.6%. With full debt financing from a 3-year unsecured term loan, asset leverage should rise to about 28% from 23% after the acquisition. Cache’s asset leverage is capped at 35% without a credit rating. However, we believe it would not be difficult for Cache to obtain a credit when it needs to gear beyond this level. Portfolio size will increase 5% to S$784m after the transaction.
Maintain Outperform. Our positive view on this acquisition is tempered by the small quantum of the deal size. No changes to our DPU estimates and DDM target price of S$1.32 (discount rate 8.4%) as we had factored in S$220m of acquisitions for 2011. We anticipate further acquisition catalysts this year. Cache trades at 1.03x P/BV and a prospective forward yield of 10%.
HPH Trust – BT
HPH Trust to price IPO at US$1.01, rake in US$5.5b
The IPO ranks as the biggest worldwide so far this year: Dealogic
Hutchison Port Holdings Trust (HPH Trust) will be raising some US$5.5 billion from its initial public offering (IPO) in Singapore after pricing its units at US$1.01 apiece – a level in line with that cited by reports earlier.
According to data provider Dealogic, the IPO is the largest globally so far this year, and has boosted the IPO volume on Singapore Exchange (SGX) to more than 17 times that seen in the same period last year.
HPH Trust settled on the offer price yesterday, days after Reuters said that the trust had narrowed the price range amid growing investor caution. That range was reportedly shrunk to US$0.99- US$1.03, from US$0.91- US$1.08.
The offer price of US$1.01 lies right in the middle of the new range. Investors applying for units under the public offer will pay the Singapore-dollar equivalent of S$1.294 per unit. Trading of the units on SGX is expected to start on Friday.
There will be around 3.8 billion units under the global offering, and another 1.6 billion units for cornerstone investors.
The pricing of HPH Trust units has come under close scrutiny, with the market watching it for signs of how investment sentiment has been holding up.
Continuing political upheaval in the Middle East coupled with Japan’s deadly earthquake rattled Singapore’s stock market yesterday, causing the Straits Times Index to slide 12.63 points to 3,030.86.
The market will be a little ‘sceptical’, seeing that HPH Trust could not price its units at the higher end of the range, said Sias Research vice-president Roger Tan. They might ask if ‘the macro factors have affected the take-up rate’, he reckoned.
There is, nevertheless, some cause for cheer. Dealogic said yesterday that HPH Trust’s listing brought the IPO volume on SGX so far this year to US$5.55 billion. This is 17.8 times that of the US$311 million raised in the same period last year.
In fact, this year’s IPO volume is pushing close to that for the whole of 2010, which was US$5.63 billion.
Goldman Sachs, Deutsche Bank and DBS – joint bookrunners, lead managers and issue managers for the HPH Trust IPO – are now ranked first, second and fourth respectively in Dealogic’s Asia ex-Japan equity capital markets league table.
Net cash proceeds from HPH Trust’s listing will go towards cutting Hutchison Whampoa Ltd’s (HWL) net debt to net total capital ratio to around 20 per cent this year.
HPH Trust will hold port assets in Hong Kong and Shenzhen, China. It is sponsored by Hutchison Port Holdings, a subsidiary of HWL.
AIMSAMPReit – BT
AIMS AMP’s Japan warehouse sale completion delayed
No apparent structural damage, says Reit; buyer arranging checks
THE completion of AIMS AMP Capital Industrial Reit’s 1.49 billion yen sale of a warehouse in Tokyo’s Saitama city has been delayed following the massive earthquake that hit Japan.
The manager of the Singapore-listed real estate investment trust, which was due to complete the sale of the Asahi Ohmiya Warehouse yesterday, said in a statement that ‘there appears to be no structural damage’ to the property. But an investigation of the warehouse and logistics property ‘is currently being arranged’ by the purchaser, Tokyo-listed Industrial & Infrastructure Fund Investment Corporation (IIF), in conjunction with the trust’s asset manager in Japan.
IIF, in a news release, said that it has pushed back the acquisition of three properties, including the Asahi Ohmiya Warehouse, and ‘will acquire these properties after IIF gets the report from external research agency that there exists no problem’.
AIMS AMP’s manager said that it has received legal advice that the purchaser has no right to rescind the purchase. But any repairs, if required, must be carried out before the sale is completed.
If there is no damage to the building, the sale can be completed ‘as early as this week’, said Nicholas Paul McGrath, chief executive of AIMS AMP Capital Industrial Reit Management Ltd, the trust’s manager.
‘Completion of the sale of the property will be rescheduled to the first practicable date following completion of the investigation and any required repairs’, the Reit manager said.
The trust, formerly known as Macarthurcook Industrial Reit, said in late February that it was selling the Asahi Ohmiya Warehouse ‘to free up capital to provide the trust with greater financial flexibility for future investment opportunities’.
Net proceeds would be used to repay its debt under a revolving credit facility, reducing aggregate leverage to 32 per cent from 33.6 per cent, it said. The 1.49 billion yen sale price is slightly above the property’s book value (as at end December 2010) of 1.46 billion yen.
The units of AIMS AMP eased half a cent each yesterday to close trading at 20 cents.
Saizen – BT
Saizen Reit takes another hard knock
Trust has 22 of its 146 Japan properties in worst-hit Sendai
NOT all S-Reits with properties in Japan have been equally hit on the stock market. Of the Singapore-listed real estate investment trusts with such exposure, DMG Research pegged Saizen Reit as potentially the worst-off trust, since all of its 146 properties are in Japan, and 22 are in the worst-hit city of Sendai alone. Yesterday, the Saizen Reit counter took another hit, tanking 9.7 per cent to 14 cents.
In contrast, Parkway Life Reit, whose healthcare facilities are mainly in western Japan, dropped 1.2 per cent to $1.68. None of its properties were structurally affected.
Another Singapore-listed company, Uni-Asia Finance, which manages or has interests in hotel and residential properties in Japan, shed 3.8 per cent to 25 cents. Uni-Asia, an Asia-based structured finance arrangement and alternative assets direct investment firm, said none of its properties were structurally affected. All 13 of its hotels are operational.
In a late update yesterday, Saizen said: ‘In total, all 6 properties in Morioka and Koriyama, and 8 out of 22 properties in Sendai have been viewed by the property managers thus far, and preliminary reports have confirmed that these properties appear to have sustained only minor damage and are not in any imminent danger of collapse. However, the full extent of damage can only be ascertained after more detailed assessments.’
Of those 28 properties, 12 belong to YK Shintoku portfolio and do not contribute to distributions. Eleven are in Sendai and one in Morioka. Saizen’s 22 Sendai properties make up 11.2 per cent of its $581.8 million portfolio and contribute 10.6 per cent of the $56.3 million annual rental income. Koriyama’s three properties comprise 2.9 per cent of portfolio value and give 2.6 per cent rental income.
Morioka’s three properties constitue only 1.4 per cent of the Reit’s portfolio value and contribute 1.5 per cent of rental income.
For PLife Reit, it is ‘business as usual’ at its 29 nursing homes and one pharmaceutical manufacturing facility. The Reit’s closest property is in Akita, 200km away from the Sendai area.
The company does not foresee ‘any disruption to their long term business operations’. ‘Nursing homes residents usually stay for a longer term, at around three to five years on average. Hence, we do not expect any significant changes in occupancy rates. Our Japan nursing homes are on long term master leases and as such, income will not be affected by any dips in occupancy rates,’ said PLife Reit’s company spokesman.
CIMB analyst Janice Ding said in a note: ‘We are comforted that the manager is holding six to nine months of security deposits in the bank from all its Japanese master tenants.’ She added P-Life Matsudo, the Reit’s manufacturing facility, reported only minor water pipe leakage.
CIMB maintained its ‘outperform’ rating on the Reit, with a target price of $1.98.