Month: November 2012
MLT – Kim Eng
Acquisition Growth Reigniting
Buying Mapletree Wuxi Logistics Park. Mapletree Logistics Trust (MLT) recently announced that it intends to acquire Mapletree Wuxi Logistics Park (MWLP) from its sponsor for CNY116m (SGD22.8m) with an initial NPI yield of 8%. The purchase will be funded by debt and gearing is expected to increase marginally to 37.3% upon completion. Following this, we estimate that MLT still has debt headroom of SGD197m before hitting an aggregate leverage ratio of 40%.
Likely to be yield-accretive. MWLP is currently leased to reputable local and international companies, including Wuxi Hi-tech, Kerry Logistics, Fiege International Freight Forwarder and Konoike, with typical 2-3 year lease term. We expect MLT to complete the acquisition by end-March 2013 with an initial passing rent of SGD0.40 psf per month (or CNY0.73 psm per day). At the existing 2QFY3/13 portfolio yield of 6.5% and fully debt-funded, we think this acquisition will be yield-accretive.
30 Woodlands Loop divestment is off. MLT also said that the divestment of 30 Woodlands Loop to Accenovate Engineering Pte Ltd will not be completed. JTC Corporation has informed that the buyer’s application to purchase the property was not approved as it did not meet the evaluation criteria (value-add etc). Had the transaction gone through, MLT would have booked a net disposal gain of ~SGD4.96m, given that the sale consideration for this property was SGD15.5m. A-REIT encountered a similar disapproval for the divestment of Goldin Logistics Hub on 26 Nov and we suspect that these may be “soft” government attempts to put a lid on the already overheated industrial property prices.
Acquisition hotspots. MLT has previously opined that it will focus more on acquiring assets in China and South Korea, and less in Japan. We understand that there is a scarcity of modern logistics facilities in China but with only six properties (excluding MWLP), we doubt that MLT can scale fast enough to stand against big boys like Global Logistic Properties, which thrive on “network effect” and operational synergies.
Trading yield looks tight for further compression. From our estimates, the implied cap rate for MLT (based on 2QFY3/13 results) is 6.1%. The counter currently trades at 6.4% FY3/13 DPU yield, which we believe is almost near the end of its yield-compression cycle. MLT has risen 12% since our BUY call in Jun 2012 when we initiated coverage. For now, maintain HOLD with a TP of SGD1.14. We prefer A-REIT (TP: SGD2.65) which has more room for yield compression.
SREITs – CIMB
It’s getting “too hot”in here
We turn non-consensus Underweight on S-REITs. We find valuations un-compelling after the sector’s outperformance. Given rising valuations and low funding costs, we see risks from overpaying, riskier investments and capital-raising as pressure to grow intensifies.
Our picks are geared towards those with higher growth visibility from past AEIs/developments and less risk of expensive or riskier investments. We downgrade CCT and Suntec after their YTD outperformance and upgrade AREIT. Top picks are AREIT and MCT.
It’s getting “too hot”
Whilst above-average yield spreads have been a commonly-cited reason for further yield compression, this can only continue with sustained risk aversion. Risk indicators are, however, turning a net positive, which could prompt investors to switch out of defensive yields. This is particularly so with the sector unlikely to see the strong growth akin to 2004-8 given increased caution towards leverage and acquisitions post global financial crisis. Interest rates are also near the 0%-bound, with upside risks over the longer term. With spreads now just 50bp above the historical average, we think that it does not pay to get too bearish and continue hiding in yields.
Growing for the sake of growing?
As trading valuations rise and make accretive acquisitions easier, pressure to grow could increase. More could thus wind up overpaying for acquisitions or venturing into riskier greenfield developments or overseas purchases in search for higher returns. More equity fund-raisings could also follow, especially with sector gearing heading up to 35% levels. There has in fact an emerging trend of opportunistic equity fund-raising without accompanying new acquisitions or AEIs, which could lead to near-term dilution.
Time to take the heat off
Give poor risk-rewards and risks from acquisitions, we turn a non-consensus negative on S-REITs and downgrade the sector from Overweight to Underweight. We downgrade CCT and Suntec and upgrade AREIT. Our top picks are now AREIT and MCT.
MLT – OCBC
INCREASING PRESENCE IN CHINA
- Another accretive acquisition
- Unsuccessful divestment
- Fair value raised slightly
Acquisition of China warehouse
Mapletree Logistics Trust (MLT) recently announced its intention to acquire Mapletree Wuxi Logistics Park (MWLP) in China from its Sponsor. The purchase consideration of RMB116m (~S$22.8m) was at a 2.5% discount to the average valuation of RMB119m by two independent valuers. Management guided that the acquisition is expected to be accretive at the DPU level, with an initial NPI yield of 8.0%. This is higher than the implied yield of 6.0% for MLT’s existing China portfolio. According to MLT, MWLP is located in Wuxi New District where it enjoys good connectivity, hence making it suitable as a distribution centre for both domestic and overseas market. At present, we understand that MWLP is leased to a strong tenant base of reputable companies including Wuxi Hi-tech, Kerry Logistics and Fiege International Freight Forwarder. The transaction is in line with our view that MLT will seek to expand its presence in overseas market such as China. Upon completion, it will represent MLT’s third acquisition from its Sponsor’s development pipeline.
Sale of Woodlands property will not proceed
Separately, MLT also updated that the divestment of 30 Woodlands Loop in Singapore to Accenovate Engineering Pte Ltd will not proceed. This was because the buyer’s application to purchase the property was not approved by JTC Corporation as it did not meet its evaluation criteria. MLT expressed disappointment with the unsuccessful sale but said it will continue to optimize the property’s yield while actively explore divestment or other value-enhancing opportunities. We have earlier assumed the divestment to be completed by Feb 2013, as previously guided by MLT.
Maintain BUY
We now factor the China warehouse acquisition into our forecasts (expected to complete by Mar 2013). We also reverse the divestment of 30 Woodlands Loop as the sale will not be completed. Accordingly, our fair value inches up slightly from S$1.24 to S$1.25. Aggregate leverage is expected to reach 37.3% based on MLT’s estimates, assuming the acquisition is fully funded by debt. Maintain BUY.
CDL H-Trust – OCBC
AWAITING MORE POSITIVE HOSPITALITY FIGURES
- Cautious 1Q13, growth over LT
- Hotel rooms may get smaller
- Possible acquisition
Exciting 1H12, tempered 2H
Singapore’s hospitality industry posted excellent performance in 1Q12, clocking RevPAR growth of ~15% YoY in 1Q12, according to the STB. Being both a dividend play and one of the most liquid hospitality counters with good exposure to Singapore, CDLHT saw its unit price climb 36% end-2011 to a one-year high of S$2.10 as of 18 Oct 12. However, moderation in the industry’s pace of growth, first seen in 2Q12, increased further in 3Q12. 3Q12 RevPAR for CDLHT declined 0.9% (versus +7.5% YoY in 1H12), and its unit price has fallen 9% from the recent high. With information from multiple sources, we estimate that RevPAR for most Singapore hotels in 3Q12 was generally flat YoY. Our outlook for the hospitality industry remains cautious for the early part of 2013, especially since odd numbered years tend to see fewer MICE events.
Incumbents’ advantage
We estimate that for 2012-2014, overall hotel room stock will grow at 4.8% p.a. while hotel demand will grow faster at 6.4% p.a. We remain positive on the long term growth prospects of CDLHT. We note that hotel sites have been sold at high prices in the past several months. Earlier in Nov, a record price of S$1,167 psf ppr was set for hotel land in Singapore; Resorts World Sentosa’s subsidiary made the top offer for the GLS Jurong Town Hall Road site. In 2Q12, RB Capital’s winning bid for a 99-year leasehold, GLS hotel site at Rangoon Road/Farrer Park Station Road was at $1,079 psf ppr. Due to these high prices the size of future hotel rooms may shrink to ensure a reasonable profit margin. Such a phenomenon would favor existing hotel assets as these would be preferred by business travelers. Incumbents such as CDLHT will have an advantage.
Maintain HOLD
We keep our fair value of S$1.91 on CDLHT and HOLD rating. An acquisition or better-than-expected hospitality numbers in the near term could serve as price catalysts. We believe that a possible acquisition target over the next year is W Hotel Sentosa Cove.
CMT – DMG
Raise capital via private placement
Raised S$250m by placing 125m new units. CapitaMall Trust (CMT) just announced that it has successfully placed 125m new units through a private placement at an issue price of S$2.00 per new unit, a discount of 4.8% from the weighted average price of S$2.10, raising gross proceeds of S$250m. The number of shares placed is higher than the previously proposed of 100.5m units due to oversubscription. According to management, 98-99% of the gross proceeds will be primarily used to finance capital expenditure and AEIs of CMT properties, refinance existing debts and working capital. The remaining 1-2% of the gross proceeds will be used to pay for the estimated fees and expenses, including professional fees and expenses incurred in this placement.
Minimal impact on share price. As the new units issued via this placement would constitute only 3.8% of the total share base, we believe this would have minimal impact on the counter’s share price as the hunt for dividend yield plays continues on the back of high liquidity, prolonged low interest rate environment and a strong Singapore currency. Given the slight dilution in DPU, we maintain our BUY rating on CMT with a slightly revised TP to S$2.270.