Month: May 2011
CitySpring – DBSV
Lack of positive catalysts
At a Glance
• 4Q11 DPU maintained at 1.05Scts; no surprises
• Cash earnings down 9% q-o-q in 4Q11 as margins in CityGas were affected by higher fuel costs
• Negative risk sharing payments at Basslink continue to impact cash flows
• Guidance for FY12 stays flat at 4.20Scts; maintain HOLD with unchanged DDM-based TP of S$0.58
Comment on Results
Cash earnings down again. Cash earnings for 4Q11 came in at S$16.7m, down 9% q-o-q and almost 30% y-o-y, largely owing to higher fuel costs at CityGas and negative CRSM (risk sharing mechanism) payments at Basslink. Revenues were up slightly (3% q-o-q) to S$110m on the back of higher tariffs at CityGas, but it was not enough to counter the higher fuel prices during the quarter. Basslink again saw negative CRSM outflow in 4Q11 and FY11. Basslink recorded total negative CRSM payments of A$16.7m, impacting cash flows. Overall, total cash earnings of S$77m in FY11 were 30% higher than S$59m earned in FY10.
Payout maintained, guidance flat. The Group paid out 1.05Scts for 4Q11, in line with guidance, and a payout ratio of 54% for FY11. Total gross cash increased to S$159m at end-FY11, up from S$133m at end-FY10. This included restricted cash of about S$26m placed in escrow account earlier to meet S&P criteria and avoid a downgrade on Basslink’s credit rating.
Outlook and Recommendation
Refinancing secured. The Trustee-Manager also announced that DBS Bank has agreed to roll over the S$128m term loan at CityGas (Feb’12 to Feb’14) and S$142m corporate loan at CitySpring (from Aug’11 to Aug’14). The Trustee-Manager will complete its review of the Group’s capital structure by Sep 2011 to ensure sustainability of dividends. While balance sheet risks have subsided somewhat, given the lack of DPU growth or any other positive catalysts, we maintain our HOLD call at an unchanged TP of S$0.58.
PCRT – BT
Perennial China said to raise $784m in IPO
PERENNIAL China Retail Trust has raised $784 million in an initial public offering (IPO) that was postponed in March because of stockmarket volatility, a person with knowledge of the matter said yesterday.
The Singapore-based business trust is selling 1.1 billion units at $0.70 apiece, the bottom end of a range marketed to investors, the person said, requesting anonymity because the pricing hasn’t been publicly announced. Perennial, which owns Chinese malls, had marketed the units at $0.70 to $0.76.
The MSCI Asia Pacific Index fell to a two-month low on Wednesday as Greece’s debt crisis intensified, Japan’s economy contracted, and disappointing US economic data fuelled concern about the global recovery. In Singapore, Hutchison Port Holdings Trust – which completed Southeast Asia’s biggest IPO in March – has fallen almost 10 per cent below its offer price.
Perennial China is managed by Pua Seck Guan, former CEO of the manager of CapitaMall Trust, Singapore’s first property trust. CapitaMall shares posted a record decline in September 2008 after Mr Pua’s resignation.
The IPO includes five properties in Shenyang, Foshan and Chengdu, the company said in a prospectus filed last week. Perennial plans to use the funds raised to develop malls in China, and said investors in the offering will benefit from retail sales growth in the country.
The units are scheduled to start trading on June 8. – Bloomberg
MIT – BT
Three parties in final race for JTC assets
Ascendas unit, MIT and Soilbuild said to have been shortlisted
THREE parties – a unit of Ascendas group, Mapletree Industrial Trust (MIT) and Soilbuild Group – are said to have been shortlisted to take part in the second and final round of bidding for two tranches of JTC Corporation’s flatted factories and amenity centres which were earlier tipped to be worth a total $600-650 million.
Market watchers suggest the Ascendas entity could be the listed Ascendas Real Estate Investment Trust (A-Reit), which along with MIT and Soilbuild, is said to have been shortlisted to bid for one tranche of assets, while the Ascendas entity and MIT will bid for the second tranche of properties.
Final submissions for both tranches of properties are expected to close next week, BT understands.
DTZ, which is managing the sale, could not be reached for comment.
Five or more parties are believed to have submitted bids in the first phase of the two-stage tender process which closed in early March. The contenders were allowed to bid for either or both tranches of assets and had to state their indicative bid prices for the respective tranche of assets in addition to listing their track record, financial strength and proposed business plans for the properties, among other things.
The three parties were then said to have been shortlisted, and invited to perform due diligence on the assets in the tranche or tranches they were eyeing.
For the second stage of the tender process, analysts reckon that the bid price is likely to be the main factor JTC Corp will use in deciding whom to award the two tranches of properties to, since it would have factored in the qualitative factors in shortlisting the bidders under stage one.
Sources suggest that the bidders taking part in Round 2 cannot bid lower than a stipulated percentage of their indicative bids under Round 1.
‘So basically they have some leeway to adjust their prices downwards if necessary since their initial indicative bid prices were formulated without the benefit of doing due diligence on the assets,’ said an analyst.
JTC is selling 21 blocks of flatted factories and amenity centres adding up to over 300,000 sq metres and located mainly in places like Kolam Ayer, Kallang Basin, Tai Seng, Bedok and Kampong Ubi, according to earlier reports.
This marks the second phase of JTC’s asset divestment exercise. The first phase culminated in the $1.71 billion sale to Temasek unit Mapletree Investments of 39 blocks of flatted factories, 12 amenity centres, six stack-up buildings, one ramp-up building, three multi-tenanted business park buildings and one warehouse building.
Mapletree later roped in Arcapita Bank and the portfolio was floated last year under MIT.
JTC has previously said the second phase sale of its portfolio will allow it to focus on seeding new ideas and developing innovative projects that can create a differentiating advantage for Singapore.
Market watchers reckon JTC would be gunning to wrap up the sale before the year runs out.
MCT – Lim and Tan
• Citigroup, the stabilization manager bought 2,270,000 shares between 85.5 cents and 86 cents each yesterday (23 May ’11).
• Since 27 Apr ’11 till date, they have bought back a total of 16.78mln shares from low of 85.5 cents to high of 88 cents, representing 16.53% of their total allowable quota of 101.509mln shares.
• Unfortunately, their stabilization efforts will have to cease on 27 May ’11, one month after the public trading of the stock.
S-REITs – DMG
Safer bet in uncertain times
Rising in flation, low interest rate, and economic uncertainties are boon to S-REITs. Rising food, transport, and housing costs are likely to keep inflation high for a while in Singapore which saw CPI rose 5.2% YoY in 1Q11. With high inflation, S-REITs stand to gain from 1) rising spot rents, and 2) higher valuation of underlying properties. On the other hand, low interest rate environment (3m SIBOR: 0.4%) in Singapore, coupled with global economic uncertainties amidst unresolved issues caused by the global financial crisis, have resulted in reduced risk appetite. Given that S-REITs offer attractive dividend yield of 6.9% and inflation-protection features, we are OVERWEIGHT on the sector.
Rising spot rents to cushion negative rental reversion of office space, and raise positive rental reversion for others. Spot rents of industrial, office, and prime suburban retail space, have been rising sequentially for four consecutive quarters since 2Q10. We believe spot rents of non-residential properties, with the exception of urban retail space, will continue to rise further, underpinned by strong Singapore economy estimated to grow 5-7% YoY in 2011. Riding on the improving spot rents, S-REITs are set to enjoy better rental reversions, except for office REITs which are experiencing negative rental reversion in 2011.
Increasing tourist arrivals and high hotel occupancy to boost Average Daily Room Rate (ARR). Singapore’s tourism industry is set for multi-year boom with tourist arrivals projected to grow at 7.9%/year during 2010-2015 to hit 17m. This has resulted in high hospitality occupancy rate of 86% in 2010 (+9.8ppt YoY). We believe Singapore’s hospitality sector will continue to benefit from the strong tourism growth as a result of high occupancy rate and rising ARR.
Top picks are retail and hospitality REITs. We favour retail REIT with prime suburban exposure due to strong positive rental reversion as well as its defensive nature. Our top pick is Frasers Centrepoint Trust (FCT SP; BUY; new TP: S$1.77). On the hospitality front, we favour CDL Hospitality Trusts (CDREIT SP; BUY; TP: S$2.46) to benefit most from Singapore’s tourism boom.