Month: April 2012
HPH Trust – Lim and Tan
• In US$ terms, HPH Trust is at its lowest in 3 months.
• Clearly, the introduction of the S$ counter (announced on Mar 22nd) has not really “helped”, other than the knee jerk up-tick in unit price, as we had expected, to 79 US cents (on Mar 27th).
• In fact, trading volume, on an aggregate basis, has actually declined:
– In the 7 trading sessions since debut of the S$ counter, total volume came to 106 mln units (87.68 mln in US$, and 19 mln S$, which could also suggest less-than-strong retail interest) or 15 mln units average a day.
– In March, volume totaled 554.42 mln units or 25.2 mln units average a day.
– For the week ended Feb 24th, when 2011 results were released, it was 222.7 mln units or 44.5 mln units daily average.
• For period Mar 16 – Dec 31 ’11, HPHT earned HK$1970.3 mln and paid out 37.7 HK cents / 4.86 US cents a unit (6.09 US cents annualized ) to unit holders. Yield would be 8.5%.
• Profit in H2 was HK$1316.6 mln; distribution 23.4 HK cents / 3.02 US cents or 5.99 cents annualized, a unit, giving a yield of 8.3%.
• We maintain individual investors in Singapore would do better sticking with S-Reits / business trusts. Our picks remain City Spring, Fraser Centrepoint, Mapletree Commercial, Parkway Life.
Notes
* Suggesting exchange rate of US$1=S$1.27. Note the rate has been pretty stable at this level, although most experts expect MAS to allow S$ to strengthen to combat the difficult inflation situation in Singapore.
Fortune – OCBC
HK RETAIL RENTS AND PRICE INDEXES AT NEW HIGHS
•Retail rents and prices set new records
•New Territories sees largest rent climb
•Growing influx of Chinese tourists
Retail rents and prices at new highs
The monthly HK property review supplement was released on Tuesday. The Feb private retail rent index reached a new high of 141.1, 2.8% higher than in Jan (137.3) and 0.8% greater than the previous record of 140.0 in Nov 2011. The private retail price index, which could be interpreted as a leading indicator for rents, also set a new record of 347.2, a 1.6% increase from Jan (341.8) or a 1.5% increase from the previous high of 342.2 in Dec 2011.
Largest rent increase for New Territories
14 out of Fortune’s 16 malls, including its top three by valuation, are located in the New Territories, which saw the largest increase in retail rents. Rent in the New Territories grew 15% from Jan to Feb. Hong Kong Island and Kowloon saw increases of 2% and 1% respectively.
Jump in Chinese arrivals
In the first two months of 2012, visitor arrivals to HK increased 15.2% year-on-year, with visitors from the mainland increasing by 19.7%. Mainlanders are driving retail purchases in two key categories: luxury products and safe groceries. Of greater relevance to suburban retail mall owners like Fortune and Link REIT is the mainlander’s desire for safe foodstuffs, with milk powder being the most prominent example. The most recent tainted milk powder scandal in China erupted in Jan.
Dragon baby boom
As this is the Dragon year in the lunar calendar, we note that China and Hong Kong are expecting a 5% and 5-10% increase respectively in the number of babies born in 2012, according to state news agency Xinhua and the HK Hospital Authority. HK retail sales for milk powder and baby products should increase significantly this year.
Maintain BUY
Fortune is trading at a P/B of 0.5x and an est. FY12 dividend yield of 7.2%. We maintain our BUY rating and a HK$4.88 fair value estimate.
CLT – OCBC
GEARING UP FOR GROWTH
•Placement to boost financial position
•Expecting to see stable results in 1Q
•Possibly in active search for growth
Successful private placement
Cache Logistics Trust (CACHE) had recently announced the close of its private placement of 60m new units. The issue price was fixed slightly north of the midpoint of the initial price range at S$0.985 apiece and represented a 5.2% discount to its volume weighted average price of S$1.0387. While the issue was somewhat unexpected, given its already healthy financial position (29.6% aggregate leverage as at 31 Dec 2011) and lack of new acquisition drive, we note that the placement saw strong participation from Asian and European investors (1.24x subscribed). The net proceeds from this exercise are expected to amount to ~S$57.1m, and will likely be used to fund the acquisition of 21 Changi North Way and partially repay debt. We estimate CACHE’s aggregate leverage to drop to ~26% post placement. This provides the REIT with additional debt headroom of ~S$120m (possibly secured at more favourable terms) before it reaches the regulatory leverage limit of 35%, which is strong enough to capitalize on any attractive growth opportunities as they arise.
Expecting stable 1Q12 performance
In relation to the placement, CACHE also announced an advanced distribution of its distributable income for the period from 1 Jan to 29 Mar 2012, just two days before 1Q12 ends. The quantum was initially guided at ~2 S cents, and is in line with the DPU of 1.95 S cents and 2.10 S cents seen in 1Q11 and 4Q11 respectively. Assuming that CACHE distributes 100% of its income for the quarter, this is consistent with our expectation that the REIT is likely to showcase another set of stable performance in 1Q12.
Maintain BUY
We continue to favour CACHE as one of the preferred picks in the industrial REIT space. While the placement may dilute the DPU payout in the short term, we believe CACHE will actively seek avenues to make up for the shortfall. Adjusting for the private placement, our fair value now eases to S$1.11 from S$1.19 previously. Maintain BUY as upside potential still remain attractive.
FSL – BT
FSL renegotiates terms for TORM product tankers
FIRST Ship Lease Trust (FSL Trust) has renegotiated charter terms for two product tankers, TORM Margrethe and TORM Marie, which were leased to a wholly owned subsidiary of Denmark’s TORM.
The new terms state that the bareboat charter rates for the two vessels will be realigned to the variable rates TORM achieves in the market. In exchange for the rate concessions, FSL will be allocated equity in TORM, FSL said.
The original bareboat agreements also had early buyout, purchase and lease extension options, but these will be cancelled under the new terms.
In addition, should the actual rates achieved by TORM for the vessels underperform the market benchmark by a pre-agreed, semi-annually tested margin, FSL will have the right to terminate the charters.
TORM said earlier this month that the company had reached a conditional agreement with the coordination committee of its banks regarding a deferral of instalments and a covenant standstill on its ship financing until the end of this month.
Due to the carrier’s current financial difficulties, it had also been in talks with its time charter partners to provide a long-term financing solution to its problems by amending its charter-in agreements.
Despite the amended terms, FSL said assured investors that it did not expect any material impact on the net tangible assets per unit of the trust for the current financial year.
The new terms are subject to consent from FSL’s lenders. ‘While some lenders have already given their consent, formal approval is still pending,’ said FSL.
Units in the trust closed 0.5 cent up at 22 cents yesterday.
CMT – CIMB
An AEI-ventful year
CMT could start reaping the fruits of its labour this year from a few major AEI completions. These would include the newly-opened JCube and its upcoming Atrium@Orchard and Iluma. Our JCube visit and strong tourist arrivals leave us confident of its performance this year.
We adjust DPUs by -1% to +3% on housekeeping matters but keep our DDM target price (discount rate: 8.6%). Maintain Outperform for its exposure to resilient mall spending, with upside from strong city malls and higher-than-expected ROIs from AEI.
JCube visit fuels positivity
We visited CMT‟s newly-opened JCube and came away positive on management‟s design and leasing capabilities. The mall is fully pre-committed. Though some stores (est. 10-15%) have yet to open, JCube was bustling with families and teenagers on a weekend afternoon. JCube has a good mix of F&B and activity-oriented (sports, hobbies & collectibles, IT, entertainment) tenants with fewer fashion offerings, in a possibly deliberate attempt to limit head-on competition with nearby malls, and Lend Lease‟s upcoming JEM and Capland/CMA/CMT‟s Westgate.
More AEI completions
Having gone through a bout of AEI works in 2011, 2012-13 could be years of reckoning. Apart from JCube, major AEIs slated for completion this year include Iluma and Atrium@Orchard. We are hopeful of upside given these malls‟ exposure to tourism spending in the core central region. We expect this to mitigate opex pressures stemming from higher utility and security expenses. New malls (after AEI) such as JCube also typically come with energy-saving features to lower utility expenses.
Tourism boost for city malls
We expect CMT‟s city malls to benefit from surging tourist arrivals. 2M12 tourist arrivals were up 14% yoy, quashing our previous expectation of 3-5% growth for the year. With Atrium@Orchard being the sole retail addition in the core central region this year, we expect CMT‟s city malls to benefit. Particularly, AEI completion at Atrium@Orchard and Iluma is expected this year, which should position both well in rental negotiations.