Month: April 2011
HPH Trust – BT
Hutchison Port trust struggles to top IPO price
Amid weak market, stock price dips after bankers stop stabilisation action
HUTCHISON Port Holdings (HPH) Trust has not touched anything above its IPO price of US$1.01 per unit since its listing nearly a month ago.
Units of the business trust closed yesterday at 95.5 US cents apiece, down 2.55 per cent, with some 100 million units traded. This followed the close of price stabilisation by its bankers this week. On Tuesday, stabilising manager Deutsche Bank said it has ceased to stabilise the unit price, after buying a total of 540 million units – all units offered under the greenshoe option.
Amid a poor market showing – as investors grappled with the nuclear fallout from Japan’s massive earthquake – the stock went underwater on listing day. It touched US$1.01 between last Thursday and Monday, but gave up its gains afterward.
Market watchers say that concerns over the weakening greenback against the Singapore dollar still weigh on the stock. Distribution from the trust will be paid out in HK dollars, which is pegged to the faltering US dollar – which means forex losses if the Singapore dollar continues to strengthen as expected.
Foreign funds have been the main buyers of the stock, said UOB-Kay Hian executive director Chan Tuck Sing. ‘This could partly be due to its parentage,’ said Mr Chan, referring to HPH’s honcho Li Ka Shing. ‘Response from the local boys has not been that strong.’
The Singapore Exchange’s move to facilitate the quotation and trading of HPH Trust in both Singapore dollars as well as US dollars, can mitigate some concerns, Mr Chan said. ‘But with an issue of this size, local interest will barely make a dent.’ He added that the stock’s poor showing could be due to funds adjusting over-allotment from the IPO, which raised some US$5.45 billion.
A BT analysis earlier also noted that while HPH Trust offers fairly attractive yields – with a forecast seasonally annualised DPU for 2011 at 45.88 HK cent – the trust is not obligated to make minimum levels of payout as the real estate investment trusts (Reits) do.
Reits must pay out at least 90 per cent of their distributable income to unitholders to qualify for tax transparency on the amount they pay out.
The hefty IPO was widely seen as a coup for Singapore, which had established perimeters for the listing of business trusts ahead of long-time competitor, Hong Kong, where HPH’s business is based.
This has mounted pressure on Hong Kong regulators to review its listing rules to accommodate business trusts, with Hong Kong’s telecoms giant PCCW – led by Li Ka Shing’s son Richard Li – lobbying for changes in this area to try listing its trust there.
StarHill Global – OCBC
Second asset enhancement this year
Facelift for Starhill Gallery. Starhill Global REIT recently announced the asset redevelopment of another of its properties, Starhill Gallery in Kuala Lumpur, on the back of its Singapore Wisma Atria’s frontage enhancement made known on 28 Feb. Expected to complete by 2Q11, the asset redevelopment will create an additional NLA of approximately 8,100 sq ft. The rejuvenated Starhill Gallery will offer increased visibility of store fronts and an enhanced range of luxury merchandise, in particular the watch and jewelry brands. The new façade will give Starhill Gallery an iconic presence on Bintang Walk, emerging as a fresh and distinctive luxury shopping destination for high-end shoppers. The Starhill Gallery asset redevelopment is expected to incur a CAPEX of S$10.4m and generate an additional NPI of approximately S$0.7m per annum, representing a ROI of 6.7%. The cost of the asset redevelopment works will be funded from the remaining proceeds of the rights issue by Starhill Global REIT completed in 2009 and/or working capital.
Lease terms. The additional NLA will be leased to Katagreen Development Sdn Bhd, the current master tenant of Starhill Gallery and an indirect wholly-owned subsidiary of Starhill’s sponsor, YTL Corporation Berhad, under a new master tenancy agreement. The new master tenancy agreement will be for a period that is coterminous with the existing master tenancy agreement. The initial term of the new master tenancy agreement will be for the period ending 27 June 2013 with an automatic renewal for a second three year term. Katagreen has an option to extend the tenancy for a third three-year term upon the expiry of the second term. There is also an increase of approximately 7% in the master lease rent at the end of each of the first two terms, providing stability and growth in rental income to Starhill Global REIT. As with the existing master tenancy agreement, Katagreen’s payment obligations under the new master tenancy agreement will be guaranteed by YTL.
Valuation still compelling. With compressing capitalization rates, we understand that it is increasingly more difficult to acquire prime malls at attractive prices. We thus view Starhill’s asset enhancements initiatives positively. According to our estimates, Starhill’s existing NPI yield in FY10 was approximately 4.9%. With a ROI of 6.7%, this makes the Starhill Gallery redevelopment work yield-accretive. Starhill is currently trading at a PBR of 0.67x, which is lower than its historical PBR of 0.73x since listing. We continue to like Starhill’s prime assets positioning, strong sponsor and sound financials. Reiterate BUY with an increased fair value of S$0.70 (Prev: S$0.69).
CDL-HTrust – DBSV
Go with the leader
• Studio M Hotel will anchor trust’s position as leading hotelier in Singapore
• Strong tourism industry performance in Jan-Feb’11 bodes well for Singapore hospitality sector
• BUY Call, TP S$2.30 maintained
Studio M hotel will anchor CDL HT’s leading position in Singapore. CDL Hospitality Trust’s (“CDL HT”) proposed acquisition of 360-room Studio M hotel, at S$154m ($428k/key) is attractive in our view. The initial yield of 6.1% has more upside as channel checks revealed that Studio M’s rate has moved up c15% to S$200/night in recent months (from S$174/night in 2010) and we see further upside in 2011 given its strong occupancy levels. With 82% of earnings derived from its Singapore hotels, we forecast CDL HT to deliver a strong 13% organic earnings growth for FY11-12, more than S-REIT peers. The manager has called for an EGM to be held on the 29th April’11 and as this acquisition is an interested party transaction, the sponsor and related parties, will not be able to vote.
Industry’s sustained strong performance in first 2 months of 2011 bodes well for the trust. Singapore continues to see a record breaking 2m visitors in Jan-Feb’11. Looking ahead, arrival figures from Japan may weaken in March 2011 due to the Earthquake Disaster. As per our report titled “Winds of Change” issued on 29 Mar’11, we believe that emerging travel patterns post March 2011 could be in Singapore’s favor as Singapore is a viable alternative travel destination (with its 2 IRs) from visitors expected to delay visiting Japan over the coming months. Given the trust’s leading position as one of Singapore’s largest hotel owners, we believe it will stand to benefit from such a growing trend.
Maintain BUY and DDM-based TP of S$2.30. The group’s strong DPU growth profile is attractive plus low gearing of c26% post acquisition, which remains below management’s optimal level of c40%. Hence, the additional debt-funded acquisition headroom may be utilized for opportunistic ventures.
MLT – OCBC
Capital Recycle Play kick-started
Strategic divestment of older assets… Mapletree Logistics Trust (MLT) recently announced that a local IT solutions company and CK Holdings have exercised their purchase options on 8 Apr for two MLT properties – 9 and 39 Tampines Street 92 at a purchase consideration of S$12.8m and S$14.7m, respectively. A total net disposal gain of S$2.1m is expected from the divestment. MLT cited that the two properties have building specifications that are now outdated and no longer ideal for modern logistics operations. Given its limited growth potential, it believes that divesting these assets would be the best option to maximise returns. MLT expects the disposal gain to result in a one-time increase in FY11 DPU by 0.07-0.09 S cents.
… to fund better-yielding Acquisitions. The net proceeds (after deducting the net disposal gain distributable to unitholders) will be deployed to fund MLT’s recent S$24.5m acquisition of Jian Huang Building (JHB), which is a five-storey warehouse-cum-office building located at 15A Tuas Avenue 18. Under the sale-and-leaseback arrangement, JHB will be leased to Jian Huang Engineering for a period of seven years with an annual built-in rental escalation of 2% and a sevenyear extension option. The two-year old property provides an initial NPI yield of 8.2% and has a remaining land lease of about 27 years. In addition, MLT also made its first acquisition for FY2011 on 25 Mar with the purchase of Hiroshima Centre, Japan for S$114.2m (debt-funded). The total GFA is about 43,600 sqm, making it a major logistics facility in the Hiroshima prefecture of Chugoku region. The acquisition provides only an initial yield of 7%, but MLT believes there is further scope for organic growth, since it has not yet reached its maximum permissible plot ratio of 45,000 sqm. Despite our concern of greater exposure in Japan, MLT reiterated that the acquisition is in line with its “Follow-the-Client” strategy and its aim to grow the portfolio through repeat customers. Hiroshima Centre is currently leased to Nippon Access Group which is an existing MLT customer, taking up approximately 87,700 sqm of space. With this acquisition, Nippon Access will take up approximately 131,300 sqm of space and contribute towards 4.3% of MLT’s gross revenue.
Still compelling but Japan woes remains. MLT has a proven track record of executing a virtuous cycle of accretive acquisitions and competitive fund-raising. We take delight that it is also starting to recycle proceeds into better-yielding assets. However, we remain wary of Japan’s woes and increased the country risk premium to 75 bp for its Japan assets in our valuation. Maintain BUY with a reduced RNAVderived fair value of S$1.01 (prev: S$1.03).
REITs – BT
SHOW ME THE MONEY
In Reits we trust?
A report card on the performance of various types of trusts listed in Singapore shows that Reits remain the best bets
By TEH HOOI LING
SENIOR CORRESPONDENT
A FEW weeks back, I was having dinner with some colleagues, one of whom is from The Straits Times when a colleague from Lianhe Zaobao walked past. We started chatting, and the topic naturally veered towards the stock market, given that we are all business writers.
The Straits Times colleague asked the Zaobao colleague what she thought of Hutchison Port Holdings (HPH), whose initial public offering was about to close then. Instead of directly answering the question, the Zaobao colleague said: ‘CitySpring is now trading at half its IPO price!’
The Straits Times colleague interpreted the comment as negative for HPH. ‘She’s saying don’t buy, that the new IPO may suffer a similar fate as that of CitySpring,’ he said. Then, our marketing colleague sheepishly admitted that he has CitySpring in his portfolio. I didn’t own up at the time, but I too had CitySpring languishing somewhere in my portfolio.
The conversation set me thinking. Has CitySpring done that badly if we take into consideration all the dividends paid out since its IPO?
How about the other investment trusts? We’ve had a number of property investment trusts, shipping trusts and business trusts listed on the Singapore Exchange. In general, how have they done since IPO, in absolute terms, and relative to the broad market movement?
So I decided to find out. Basically, I obtained from Bloomberg the total return for each of the trust relative to their IPO price. Bloomberg assumes that all dividends received are reinvested back into the security.
Also, the Bloomberg program can only calculate total return up to a certain number of days. So, for Reits that were listed before 2005, I had to switch to the weekly return numbers. Hence, the returns for Reits such as Ascendas, CapitaMall, CapitaCommercial, Suntec and Fortune are calculated based on the closing price on the first Friday after they started trading, and not the IPO price.
Here’s what I found. Of all the various types of trusts, the real estate investment trust (Reit) has been the most successful. The performance of shipping trusts and other forms of business trusts have generally been rather dismal.
And among the Reits, those with Singapore-based properties have on the whole performed better than those with overseas properties.
So which has been the most successful Reit to date? Excluding those with trading records of less than one year, CDL Hospitality Trust appears to be the star. Since July 18, 2006, it has returned 225 per cent to its unitholders. That’s an equivalent of 28.5 per cent a year, and it outperformed the FTSE Straits Times All Shares Index by a whopping 198 percentage points during that period.
First Reit, which owns hospitals and hotels in Indonesia and Singapore, is the second-best performer with a return of 20 per cent a year. Both were listed in 2006.
The first batch of Reits to hit the market also fared well. Ascendas Reit rewarded investors with return in excess of 17 per cent a year since 2002 – that’s a near 10-year record. CapitaMall Trust, meanwhile, returned 16 per cent a year, outpacing the general market by more than 170 percentage points.
Earning the dubious honour as the worst Reit to have listed on the Singapore Exchange is Saizen, which owns residential properties in Japan. It is now 78 per cent below its IPO price, and after taking into consideration its distribution, investors have seen their capital getting shaved by 33 per cent a year since November 2007. It underperformed the general market by 66 percentage points.
AIMS AMP Capital Industrial Reit, formerly known as MacarthurCook Industrial Reit, is the second-worst Reit. It has lost 72 per cent of its share price, or the equivalent of 17 per cent a year after dividend since 2007. It trailed the general market by 37 percentage points.
The median return of all the Reits listed on SGX since their IPOs up till end-March 2011 is 8.9 per cent a year. That’s a return not to be sniffed at. Reits which bombed tended to have high gearing, so that’s a good metric to start one’s screening process.
As at this week, the average yield for all the Reits listed in Singapore is 7 per cent. There’s a website – http://reitdata.com/ – which provides a comprehensive and updated listing of all the reits and business trusts in Singapore.
Meanwhile, the performance of the other two types of trusts – shipping and business or infrastructure trusts – leaves very much to be desired. On average, the three shipping trusts – Pacific Shipping Trust, FSL Trust and Rickmers – have seen their unit price slumped by 56 per cent since their IPO. Only the distributions from Pacific Shipping Trust has more than made up for the capital loss.
Investors who bought into Pacific Shipping Trust are still better off than leaving their money in the bank, or buying into the general Singapore market. The trust returned 7.43 per cent a year since May 2006. It outperformed the FTSE All Shares Index by 17.5 percentage points.
No such luck for holders of FSL and Rickmers. Investors in the two suffered a loss of 14 per cent and 20 per cent a year respectively since 2007 when they were listed.
As for the other business trusts, the performance in general has also been lacklustre. The average annual return is -18.9 per cent a year. The average is dragged down by Indiabulls Properties Investment Trust which has seen its unit price slump 70 per cent since its listing in July 2008. The best performer in this category is Ascendas India Trust – with an annual return of 2.3 per cent a year since 2007.
What about CitySpring? Well, what do you know – after taking in all its distributions, investors are actually up by 1.4 per cent a year. That’s an outperformance of 14.5 per cent over the FTSE All Shares Index between February 2007 and end-March 2011.
From the report card above, on the whole, it appears that of the various types of trusts, Reits remain the best bets. There seems to be a lot more uncertainties associated with the other forms of trusts.
The writer is a CFA charterholder