Month: June 2011
CLT – DBSV
Tapping sponsor’s pipeline
• Acquiring Chemical warehouse from sponsor, CWT Limited in Shanghai
• 8.6% yield is earnings accretive; long-term lease arrangement ensures strong earnings visibility
• BUY call, TP S$1.11 maintained
Acquire Chemical warehouse facility in Shanghai @ 8.6% NPI yield from CWT Limited. Cache Logistics Trust (“Cache”) announced that the trust would be acquiring a chemical warehouse facility in Jinshan district, Shanghai from its sponsor, CWT Limited for a total consideration of RMB 76m or S$14.6m (including attributable professional, acquisition fees). The property is located in Shanghai Chemical Industrial Park (“SCIP”), an established and also one of the largest petrochemical bases in Asia.
Accretive deal; strong earnings visibility from long-term lease arrangement. Initial yield of 8.6% is accretive and compares favourably against its implied trading yield of 7.2% and above recent transactions completed in Singapore (at 8.0% yield). Vendor CWT Limited will lease back the property at a net rent of RMB1.30/day for the next 3 years with an option to renew for an additional 3 years, with annual escalations of 2.0%, ensuring a stable step-up growth profile for Cache in the medium term. Cache is expected to fund the acquisition through debt and raise its gearing level slightly to 29.2% (from 27.9% previously).
BUY, TP S$1.11 maintained. We maintain our estimates as we have assumed acquisitions in our forecasts. The manager remains keen to grow its portfolio and continues to see acquisition possibilities in Singapore & Asia, on top of its pipeline of assets from sponsor CWT Limited. The stock remains attractive for its above consensus FY11-12F yield 8.6-9.2%, which is 260-590 bps above the peers.
CLT – BT
Cache buys China warehouse for 71m yuan
CACHE Logistics Trust is buying a chemical warehouse facility in Shanghai for 71 million yuan (S$13.5 million), marking its entry into China.
The real estate investment trust (Reit) is purchasing the property from its sponsor CWT Ltd under an acquisition-and-leaseback arrangement. This is its first purchase of a CWT property since the trust’s listing in April last year.
CWT will leaseback the facility for a period of three years with an option for a further three years.
With a built-up gross floor area (GFA) of 13,547 square metres, the facility is located in the Jinshan District – which is situated within one of the largest petrochemical bases in Asia, the Shanghai Chemical Industrial Park (SCIP).
Risk and earnings diversifications were among reasons cited by Cache for the latest addition to its portfolio.
‘The acquisition will enable Cache to capitalise on the economic growth in the region and in particular, the resilient chemical and commodity logistics businesses.
‘Concurrently, by diversifying into a different market, Cache is expected to benefit from risk diversification from the property and the economic cycles where Cache’s portfolio is located,’ said Daniel Cerf, chief executive officer of Cache’s manager, ARA-CWT Trust Management Limited.
The management has guided that the transaction will be accretive at both net property income (NPI) and distribution per unit (DPU) levels.
The NPI yield of 8.6 per cent is one percentage point higher than Cache’s present portfolio yield of 7.6 per cent.
Likewise, after factoring in applicable taxes in China, FY2011 DPU is expected to see a boost of 0.03 cent per unit.
The Reit has guided that it will be keeping an ‘open eye’ for opportunistic acquisitions in the Asian region, with a special focus on China.
Mr Cerf said in an interview yesterday: ‘We believe wholeheartedly that the China market still has quite a lot of depth and good resilient growth especially on the logistics side.’
He added that cities of particular interest for Cache include tier-one types such as Beijing, Chengdu, Shanghai, and Tianjin, though he maintains that the Reit’s portfolio will likely continue to be predominantly Singapore- based.
Cache’s counter closed trading one cent higher at 94 cents yesterday.
CMT – BT
CapitaLand, CMA and CMT unveil $1.5b Jurong project
CAPITAMALLS Asia (CMA), CapitaMall Trust (CMT), and CapitaLand will be developing a 25-storey retail- cum-office project on a site at Jurong Gateway which they won in a tender.
The total development cost is expected to come up to around $1.5 billion. The partners had put in the top bid of $969 million or $1,012 per square foot (psf) per plot ratio for the site.
The project will be among several new ones coming up in the area. Next door, a mixed-use development by Lend Lease is on the way.
CMA, CMT, and CapitaLand believe that their plot is the ‘most prime’ in Jurong Gateway. Behind their confidence is its connectivity – the new building will have links to Jurong East MRT station, bus interchange, and Ng Teng Fong hospital.
‘It’s a place that everybody must pass through if they’re in Jurong Gateway,’ said CMA CEO Lim Beng Chee.
Of the maximum permissible gross floor area of 957,780 sq ft, 60 per cent will be set aside as retail space. The mall is likely to take up five levels and may open its doors in time for the Christmas shopping season in 2013.
The project partners are expecting rents to be in the range of $16-18 psf. There are no plans to sign up anchor tenants because there will be large retailers in IMM and JCube – malls in CMT’s stable – and also in Lend Lease’s development, they said.
JCube, which is expected to open in the first quarter of next year, is more than 70 per cent pre- leased.
Offices – spanning 20 storeys – will take up 40 per cent of the project and may be ready in December 2014.
The partners are looking to incorporate regular- size column-free floor plates in the design and they believe rents can go up to $8 psf.
There is a lack of quality offices in Jurong and the development will fill a market void, said CEO of CMT’s manager Simon Ho.
Target tenants include government agencies, medical firms, and multinational corporations in the energy and marine sectors with operations in Jurong Island and Tuas.
The government is promoting Jurong Lake District as a new major regional centre and has released sites in the area for sale. Last year, Lend Lease won the tender for its plot with a bid of $650 psf ppr.
CMA, CMT, and CapitaLand note that Jurong Gateway is 2.5 times the size of Tampines Regional Centre and has a catchment of one million residents in the surrounding towns.
On the stock market yesterday, CMA gained three cents to close at $1.63, CMT lost a cent to $1.99, and CapitaLand rose two cents to $3.11.
MCT – CIMB
King of the South
• King of the South; initiate with Outperform. MCT is a Singapore-centric commercial REIT whose initial portfolio includes VivoCity, Bank of America Merrill Lynch Harbour Front (MLHF) and PSA Building, all located in Singapore’s Southern Corridor. We value MCT using DDM (discount rate 8.1%) and arrive at a target price of S$1.08. MCT offers one of the strongest organic and acquisition growth potentials among REITs within our coverage. Our target price of S$1.08 implies a total return of 29%. We see catalysts from higher-than-expected rental growth and accretive acquisitions.
• Strong opportunities for organic and acquisition growth. We expect organic growth to be fuelled by: 1) an under-rented portfolio (key asset VivoCity) coupled with significant leases expiring in FY12-13; 2) the development of Alexander Retail Centre (ARC) with increased footfalls expected after the completion of the nearby Labrador MRT Station; and 3) step-up rent increases for MLHF in 2011. Acquisition growth could come from rights of first refusal (ROFR) to its sponsor’s office, retail and business-space assets totalling 5m sf GFA.
• Strong sponsor to support growth. Sponsor, Mapletree Investments, a wholly owned subsidiary of Temasek Holdings, is a leading Asia-focused real-estate development and investment company. MCT should be able to depend on its sponsor for incubation or the joint development of greenfield projects. The sponsor is also likely to support MCT in future debt or equity fund-raising.
• Debt headroom to fuel acquisitions and asset enhancement. Starting off with asset leverage of 39.5%, MCT is in the process of obtaining a credit rating which would allow it to gear up to 60%. This provides debt headroom of S$282m to fuel acquisitions and asset enhancement, at 45% leverage.