Month: July 2012
CLT – OCBC
BEEFING UP MARKET POSITION
•Approval on proposed acquisition
•Enhanced debt profile
•Valuation remains attractive
Addition of another quality asset
Cache Logistics Trust (CACHE) had received approval from unitholders pertaining to the proposed acquisition of Pandan Logistics Hub and the entry of a master lease agreement with CWT Limited. With the addition of this prime logistics property, CACHE will have 12 quality assets under management (eight with ramp-up features) and an enlarged GFA of ~4.83m sq ft (+7.3%). As a note, Pandan Logistics Hub is expected to contribute S$5.2m in rental income to the REIT in the first year, translating to an initial NPI yield of 7.6%. This is likely to add ~0.28 S cents to its DPU on an annualized basis, based on our estimates.
Refinancing on more favourable terms
CACHE also embarked on a capital management exercise to increase the amount and duration of its debt facility, consistent with our expectations communicated in our 11 Jun report. According to the May 2012 circular to unitholders, a new bank facility of S$375.0m will be used to retire its existing bank facility of S$203.0m and repay its S$40m unsecured loan, while an projected S$79.6m (including S$11.0m refinancing costs) is expected to be used to finance the Pandan Logistics Hub acquisition. Notably, the effective interest rate for the new bank facility is 2.8% plus SOR, which is at 30bps below its existing rate of 3.1% plus SOR. Hence, CACHE is likely to gain from interest savings going forward.
Retain BUY with higher fair value of S$1.18
We continue to like CACHE for its resilient portfolio (100% occupied; master lease arrangements), healthy financial position and attractive FY12F DPU yield of 7.9%. We now incorporate the acquisition of Pandan Logistics Hub into our model as the transaction is expected to complete by 9 Jul. We also tweak our estimates to reflect a marginally lower cost of debt. Accordingly, our fair value is raised from S$1.11 to S$1.18. Reiterate BUY on CACHE.
CDL H-Trust – OCBC
GARDEN OF SUPERTREES
•The unveiling of a major attraction
•Marina Bay highlights
•Good growth to continue for hotels
Gardens by the Bay
“Supertrees” and “Cloud Forest” – Singapore has reached another major tourism milestone with the official opening of the 101-hectares Gardens by the Bay last Thursday. The top 10 gated attractions for 2011 were Sentosa Island (excluding RWS), Universal Studios Singapore, Singapore Zoo, Singapore Flyer, Skyline Luge, Science Centre Singapore, Underwater World Singapore, Songs of the Sea, Night Safari, and the MBS Sky Park. Night Safari has upwards of 1.1m visitors annually, which means the current minimum number of visitors to make the top 10 list could be less than 1.1m. We would not be surprised if the conservatories of Gardens by the Bay break into the top 10 attractions list by 2015.
Solidifying the Marina Bay tourism cluster
Sentosa Island is the tourism heavyweight, accounting for half of the top 10 attractions. With Gardens by the Bay and the recently-opened Marina Bay Cruise Centre, the Marina Bay area will strengthen as a tourism cluster that complements Sentosa. The obvious key beneficiary will be MBS, but there should be significant spillover for other hotel players. The continuous upgrading of Singapore’s position as a leisure hotspot will help the city keep the crown as the global MICE king.
Impact on hotel room demand
STB has a target of 17m visitor arrivals by 2015, implying a growth rate of 6.6% p.a. from 2011. Even with a “leakage” from the conversion of visitor arrivals into hotel rooms nights because cruise passengers are much less likely to book hotel rooms, we estimate that hotel room demand will grow by an enviable 6.4% p.a., easily outstripping the growth in hotel rooms, which we estimate at 3.7% p.a. The 6.4% estimate conservatively assumes no change in hotel room nights per hotel guest.
Maintain BUY
We maintain our BUY rating on CDLHT and our RNAV-derived fair value estimate of S$2.04. It is offering an attractive yield of 6.3%.
PCRT – BT
Perennial China Retail Trust ups stake in Chengdu mall to 80% for US$353.45m
Perennial China Retail Trust (PCRT) has exercised its option to increase its stake in Chengdu Longemont Shopping Mall Development to 80 per cent from 50 per cent, at a total purchase consideration of 2.24 billion yuan (US$353.45 million), its manager Perennial China Retail Trust Management Pte Ltd announced on Monday.
The manager said it is acquiring the additional 30 per cent stake in the mall as it believes the increased stake in the property will create potential upside for PCRT and a majority ownership gives PCRT greater control over the operations of the property.
The gross floor area of the Mall is expected to be reduced to 280,000 sqm from 455,260 sq m, hence reducing the planned number of above-ground levels to five from eight.
The manager said it expects the value of the mall to increase with the reduction of the gross floor area.