Month: May 2011
A-REIT – OCBC
A-REIT tops bid for site at Fusionopolis
Highest bid for Fusionpolis Link. A-REIT has submitted the highest bid of S$110m for a site at Fusionopolis to develop a business park. The public tender for the 6,253 sqm site at Fusionopolis Link by industrial landlord JTC Corp, which was launched on 28 Feb and closed on 20 May, attracted seven bids. The site, which lies within the 200-hectare one-north development housing research facilities and business parks, has a 60-year land lease and is on the confirmed list of the government’s industrial land sales programme for 1H11. It has a maximum plot ratio of four and can be developed up to 160 metres above sea level. The project completion period is slated for 24 months. A-REIT’s bid at S$110 million was 29% above the next-highest bid by Mapletree Trustee Pte Ltd and more than doubled the bids by Soilbuild Group and Cambridge Industrial Trust, respectively.
Development plan. If awarded the site, A-REIT will develop a suburban business facility of 25,000 sqm GFA comprising 60% business park space and 40% office space to cater to prospective tenants in the ICT and media industries as well as R&D activities in physical science and engineering. The strategic location of the site will also reinforce A-REIT’s presence and market share within the business & science parks segment while achieving economics of scale in operations.
Maintain HOLD. According to A-REIT, the total development cost of the property is not expected to exceed 3.3% of its deposited property (S$5.4b) as at 31 Mar. With land acquisition cost of S$110m, this works out to approximately S$68.8m of construction costs (or S$2,752 psm) in the worst case or total development cost of S$7,150 psm. On a GFA psm basis, AREIT’s recent acquisition of Neuros & Immunos (already developed), completed on 1 Apr, cost S$3,400 psm. This is at a 23% discount to A-REIT’s land parcel bid price of S$$4,398 psm for Fusionpolis Link. We also noted that another commercial site in the vicinity at North Buona Vista Drive, won by Ho Bee Developments on 5th Aug 2010, cost S$3,684 psm then. Based on these deals, A-REIT’s bid price may be on the high side. Nonetheless, A-REIT has additional debt headroom of S$434m before hitting the 40% gearing level as at 31 Mar. This gives it more than sufficient fund to develop this project. Pending the final award of the tender, we have not yet factored in contributions from the new site in our valuation. Maintain HOLD with an unchanged fair value S$2.04.
CLT – OCBC
Completion of Penjuru Lane asset
Completion of Penjuru Lane acquisition. Cache Logistics Trust (CACHE) announced on 12 May that it has completed the acquisition of 4 Penjuru Lane for S$8.9m. 4 Penjuru Lane is a 55,000 sq ft single-storey warehouse approved for chemical and dangerous goods storage with an extended 2-storey office annex. It is located within the established Jalan Buroh/Penjuru area, a key logistics hub that enjoys close proximity to the PSA Terminals, Jurong Port, Tuas checkpoint and at least half of the container yards in Singapore. The achieved plot ratio of 0.63, compared to the maximum allowable plot ratio of 2.5 under the zoning for the land, offers the potential to enhance and/or redevelop the premises to capture residual plot ratio in the future.
Lease Information. 4 Penjuru Lane will be leased back to Kim Heng for three years, with an option to extend for a further three years. The lease agreement provides for built-in rental escalation of 2% per annum. While this provides a 50bp stepup vis-à-vis the existing lease structures, we reiterate that it still pales in comparison with the Singapore’s 1Q11 CPI of 5.2% and MAS FY11 forecast of 3%-4%. The acquisition will be fully debt-funded. We have assumed a NPI yield on cost of 7.75% for this asset and it will propel CACHE’s gearing from 26.4% as at 31 Mar to approximately 28%.
Reiterate BUY. We applaud CACHE’s efforts to diversify away from its sponsor with yet another third-party acquisition. In our previous reports, we noted that previous CACHE’s properties are on long-term master-leases (at least 5-years) to its sponsor (CWT) and CWT’s parent (C&P), which manifests as a counterparty risk. The sale and leaseback arrangement with Kim Heng for 4 Penjuru Lane certainly helps to spread out the lessees. We also like the shorter lease expiry period (3 years), which will better position CACHE in a rising rental market. In addition, we noted that CACHE is actively seeking quality acquisitions in Asia Pacific. We look forward to more property additions ahead not only to diversify CACHE’s tenant base, but also to reduce its concentration risk on a single asset (CWT Hub which still account for 46.8% of FY11 gross revenue following the acquisition). Concentration and inflation risks remain our top concerns for the trust and we expect management to consciously address these as the REIT grows in asset size. Reiterate BUY with an increased fair value of S$1.05 (prev: S$1.04).
A-REIT – DMG
Tender for Business Park Site at Fusionopolis
S$110m bid for Fusionopolis under Government Land Sales programme. Ascendas REIT (A-REIT) has submitted bid for a 6,253sqm site at Fusionopolis within the one-north master plan region. Should A-REIT successfully win the bid, it will develop the site into a modern suburban business facility of 25ksqm GFA, comprising 60% business park space and 40% office space to cater to prospective tenants from IT and Media industries, as well as R&D activities in Physical Science and Engineering. We view A-REIT’s tender positively as this will strengthen A-REIT’s leadership position in the Business & Science Parks segment. We will only factor in contributions from this site when 1) more details are revealed, and 2) A-REIT successfully wins the tender. Maintain NEUTRAL with unchanged TP of S$2.00.
Close proximity with other A-REIT’s properties. The location of the site is ideal for tenants given its close proximity to 1) One North MRT station which will be operational in 4Q11, and 2) easy accessibility via the Ayer Rajah Expressway. In addition, its close proximity to A-REIT’s existing properties within the one-north region and Science Parks I & II will bring about economies of scale in operations. Based on proposed GFA, the current site at Fusionopolis is valued more dearly at ~S$4.4kpsf vs S$3.4kpsf for Neuros & Immunos acquisition announced in Mar 2011. Including this latest bid, A-REIT will be undertaking five development projects in the next two years.
More deals in the pipeline. We believe there are more deals in the pipeline for A-REIT which mentioned that it is currently in discussion on a potential acquisition worth S$200m. The outcome of the potential acquisition should be known in the next 3-6 months. In addition, based on its total asset as of end Mar 2011, we estimate A-REIT has a debt headroom of ~S$540m assuming maximum gearing of 45%. Armed with a healthy balance sheet, we believe AREIT will have the advantage of being able to respond quickly towards acquisition and development project opportunities.
A-REIT – BT
A-Reit tops bid for site at Fusionopolis
Total of seven bids, ranging from Cambridge trust’s $50.38m to A-Reit’s $110m
A-Reit’s bid of $110 million, or $4,397.89 per square metre per plot ratio (psm ppr), was 29 per cent above the next-highest bid of $85.24 million, by Marina Trust trustee Mapletree Trustee Pte Ltd, and more than double the lowest bid of $50.38 million, by Cambridge Industrial Trust.
If awarded the site, A-Reit will develop it into a modern business facility with 25,000 square metres of gross floor area – comprising 60 per cent business park space and 40 per cent office space, it said yesterday.
The facility will cater to tenants in the infocomm technology and media industries as well as research and development activities in physical science and engineering, A-Reit said.
The site, which lies within the 200-hectare one-north development housing research facilities and business parks, has a 60-year land lease and is on the confirmed list of the government’s industrial land sales programme for the first half of this year.
It has a maximum plot ratio of four and can be developed up to 160 metres above sea level.
The site is also within walking distance of the one-north MRT station that is expected to open in the fourth quarter of this year.
The sale of the site for the third phase of the Fusionopolis development within one-north marks its latest expansion since the completion of the first phase in 2008.
The second phase is currently in development.
‘The strategic location of the site will reinforce A-Reit’s presence and market share within the business and science parks segment while achieving economics of scale in operations,’ A-Reit said in a statement.
Other bidders for the site included a joint venture of Ho Lee Properties and ZACD Investments, which submitted a bid of $83.1 million, and Far East Organization unit Tuas Hi-Tech Park Pte Ltd, which bid $64.78 million.
Two other Singapore developers – Ho Bee Investment and Soilbuild Group – also put in their own bids. Ho Bee bid $60.18 million, while Soilbuild offered $54.12 million.
CDL H-Trust – Phillip
Riding on the up cycle of hospitality sector
•Tapped on its sponsor’s pipeline of properties – Studio M Hotel.
•Stayed on track to compete with newly-completed and upcoming hotels.
•Downplay the upsides in the tourism market.
•Downgrade recommendation to Hold with revised target price of S$2.04.
Studio M hotel acquisition
CDL HT made a comeback to Singapore hospitality property sector by acquiring Studio M Hotel from its sponsor to ride on the tourism wave. The record high visitor arrivals in 2010 and renewed confidence in Singapore tourism market lent support to the acquisition since the subject property just completed in March 2010. Following the acquisition, Singapore room inventory added 360 room counts to 2,711. The S$154.0 million price tag works out to ~S$428,000 per room less the transaction costs. The purchase was fully debt-funded and therefore it is DPU accretive to the unit holders. Post acquisition, the gearing ratio remains at a healthy level of 26.9% and a debt headroom of ~S$400 million for inorganic growth based on 40% total debt-asset leverage ratio.
Asset enhancement at Orchard Hotel and Novotel Clarke Quay
Ongoing upgrading works are scheduled in phases at the Orchard Hotel (OR, 401 rooms) and will continue until 3Q 2011, while the balance of the works at Novotel Clarke Quay (NCQ, 331 rooms) are slated to commence at the year end. In the long run, the short-term loss of rental income from the refurbishment works will be offset by the additional premium commanded on the refurbished rooms. In our opinion, the new facelift will increase competitiveness of CDL HT’s hotels with the new kids on the block.
Downside risks weigh on the potential upsides
Hospitality sector has always been susceptible to dwindling external economies and tourism performance. Downside risks may creep in and overshadow the buoyant tourism market. Possible interest rate hike at the year end, increased foreign worker levies in phases till July 2013 and rising fuel surcharge in aviation sector may dampen the hotel businesses going forward. On the flip side, the lag effect of ADR on higher AOR will be reflected in 2011. Nevertheless, the pipeline supply from 2011 to 2013 will put a cap on the trajectory growth in room rate.
Valuation
Our DDM model has priced in the property tax revision (25% of gross room receipts) from 2011 onwards for Singapore hotel properties, lower RevPAR for OH and NCQ due to refurbishment as well as revenue contribution from Studio M Hotel. We are still positive on the tourism sector for this year but the aforesaid downside risks and pipeline supply coming on stream in the next few years will keep a lid on rental growth. To account for the downside risks, we raise the cost of equity from 6.3 to 7.6% and derive the target price of S$2.04. We believe the current price reflected the fair value of the stock and therefore downgrade our recommendation to hold.