Month: March 2013
CLT – OCBC
RAISING EQUITY TO FUND ACQUISITION
- Exercise option to buy warehouse
- Fully funding acquisition by equity
- FV revised to S$1.33
Acquisition of ramp-up warehouse
Cache Logistics Trust (CACHE) has exercised the call option to acquire Precise Two from Precise Development Pte Ltd (PDPL) for S$55.2m. Precise Two is a newly completed ramp-up logistics warehouse which is strategically located in the Jurong Industrial Precinct and has modern and attractive technical specifications. The transaction is a sale and leaseback to PDPL on a lease agreement for six years with an option to renew for another six years, and incorporates a locked-in rental escalation of 4.0% every two years. The property’s FY12 NPI is estimated to be ~S$4.8m, implying an initial NPI yield of 8.7%. Upon completion of the acquisition (expected in early Apr), CACHE’s portfolio size is expected to increase to over S$1.0b.
Private placement to raise S$86.8m
In a separate announcement, CACHE also launched a private placement of 70m new units to raise gross proceeds of S$86.8m. According to management, the placement saw strong participation from new and existing institutional investors. The issue price has been fixed at S$1.24 per unit, which is at the low end of the indicative price range of S$1.24-S$1.265. We view the placement as opportunistic as the issue price represents a considerable 29.2% premium to its NAV and only a 5.3% discount to the last transacted price prior to the announcement. CACHE intends to use ~66.0% (S$57.3m) of the gross proceeds to wholly fund the proposed acquisition of Precise Two, another 31.0% (S$26.9m) to fund potential acquisitions or pare down debt, and the balance for estimated fees/working capital purposes.
Maintain BUY
We have earlier anticipated CACHE to fund the acquisition fully by debt, since it has recently received its maiden credit rating from Moody’s (which allows it to exceed its previous debt ceiling of 35%). With this new development, we now adjust our estimates to factor in the placement and enlarged unit base. We also forecast a reduction in leverage as we believe CACHE may pare down its debts using the remaining proceeds to cushion a near-term dilution in DPU. Our fair value is revised slightly down to S$1.33 from S$1.34. Maintain BUY.
CLT – AmFraser
Opportunistically turning on the equity tap
Raising S$86.8mil through a private placement. Cache Logistics Trust announced the close of a private placement of 70mil new units at an issue price of S$1.24 per new unit. Net proceeds will amount to approximately S$84.2mil. Funds raised from the private placement will be utilised to finance the acquisition of Precise Two, a fully ramp‐up warehouse that is valued at approx. S$55.2mil.
Opportunistically leveraging on its low cost of equity. We are not surprised that Cache has opted to tap on the equity market to finance its proposed acquisition. Pu
A-REIT – OCBC
ACQUIRES PROPERTY FOLLOWING PLACEMENT
- Purchase price of S$126.0m
- NPI yield at 6.8%
- Bigger presence in Science Park vicinity
Proposed acquisition of The Galen
Ascendas REIT (A-REIT) yesterday announced the proposed acquisition of The Galen at 61 Science Park Road from Singapore Science Park Ltd, a wholly-owned subsidiary of Ascendas Land (S) Pte Ltd. The purchase consideration was S$126.0m, representing a marginal discount to the independent valuations of S$126.8m-S$127.0m by JLL and CBRE.
Details of transaction
The Galen is a six-storey multi-tenanted science park building located within Singapore Science Park II and has a NLA of 234,384 sqft. It is currently 97.5% occupied, with Ascendas Land and the REIT manager taking up c. 22.5% of the lease space. The property, we note, was first mentioned as a potential acquisition asset when it raised S$406.4m through a private placement of 160m new units on 8 Mar. According to A-REIT, the asset is expected to generate a NPI yield of 6.8% and add 0.052 S cents to its DPU on an annualised basis, assuming the acquisition is fully funded using the placement proceeds. This is in line with our initial assumptions made on the transaction.
Stronger footprint in Science Park segment
A-REIT expects the property to complement and strengthen its foothold in the science park segment in Singapore, and in turn allow A-REIT to enjoy enhanced operational efficiency and economies of scale. Upon completion of the acquisition (expected by end-Mar), we understand that a land lease of 66-year tenure will be granted to AREIT. As mentioned in our 11 Mar report, the upfront land premium is not applicable as the annual land rent payable has been waived by the Singapore government.
News factored in; maintain HOLD
We now make minor adjustments to our forecasts to factor in the projected time of completion and reported operating/property details. There is no change to our fair value of S$2.60. At current price level, we believe the acquisition news have been factored in. As such, we maintain HOLD on A-REIT.
KGT – AmFraser
Delivering a predictable stream of cash flows
K‐Green Trust (KGT) is structured as a business trust with three assets, specifically waste‐to‐energy incineration plants Senoko plant and Tuas DBOO plant as well as Ulu Pandan plant, which is a NEWater plant. These assets are operated under concession agreements with the NEA and PUB, of which KGT will build and operate the plant for a concession period between 15 and 25 years and subsequently transfer the plant to the governing agencies at the end of the concession period. Such concession arrangements are accounted for as service concession receivables.
A predictable stream of cash flows: As 80% of KGT’s revenue is derived from fixed capacity payments from the NEA and PUB under long‐term concession agreements, it offers a sustainable stream of cash flows that will continue to support its dividend yield. KGT offers a dividend yield of 7.2%, one of the highest among S‐REITs and business trusts currently. However, there will be no further distributions from the assets upon the expiry of the concession period. Upon the concession expiry of the Senoko plant in 2024, which contributes approx. 50% of the trust’s overall revenue, KGT will witness a significant step‐down in its overall distributions to Unitholders.
Scope to carry out yield‐accretive acquisitions: Due to its net cash position with zero debt, KGT has the financial clout to take on yield‐accretive acquisitions without raising equity finance.
Should KGT engage in acquisitions, this should help to mitigate the loss of income from the expiry of its existing concession agreements.
Declining NAV: The nature of KGT’s service concession agreements means that KGT is subject to declining service concession receivables as it approaches the expirations of its respective concession agreements. This will translate into declining book value over the coming years.
CDL H-Trust – OCBC
COMPETITION TO INCREASE
- Challenging to increase visitor spend
- Increased competition in CDLHT’s tiers
- Raise FV to S$2.11
STB targets for 2013 are out
In 2012, Singapore registered visitor arrivals of 14.4m (+9.1%) and tourism receipts of S$23b (+3.1%). For 2013, STB is targeting 14.8m-15.5m arrivals (+2.9% to +7.7% YoY) and tourism receipts of S$23.5b-24.5b (+2.2% to +6.5% YoY). The government has noted that the next phase of growth will have to come from increasing the spend per visitor, as opposed to just adding more visitors. However, STB seems to be incorporating slightly lower spend per visitor arrival assumptions for 2013 compared to 2012, based on the implied YoY growth rates of the 2013 targets. We believe that this highlights the challenge of converting arrivals into increased spending, and supports our thesis that the 1H13 outlook for Singapore hospitality is muted.
Blended exposure to Upscale and Mid-tier
We believe that CDLHT’s Singapore hotels are fairly evenly exposed to the Mid-tier and Upscale segments, because their FY12 RevPAR was S$211, close to the mean of S$264 and S$171, which are the RevPAR averages for Singapore Upscale and Midtier hotels respectively. As detailed in our hospitality sector report dated 5 Mar 2013, we project that for 2013-2015, the Economy, Mid-tier and Upscale/Luxury categories will grow +5.9% p.a., +8.5% p.a. and +4.4% p.a. respectively. As a group, the Midtier/ Upscale/Luxury segment will grow 5.8% p.a., the same rate that the overall supply will grow. This rate is lower than the projected room demand of 5.4% p.a., indicating that competition is likely to intensify in the segments that CDLHT is represented in. We also note that 1Q13 results are probably going to be weak due to the lack of the biennial Singapore Airshow and the fact that Chinese New Year is in Feb this year instead of Jan (corporate travel picks up after CNY).
Maintain HOLD
Adjusting our assumptions and removing the 10% discount to RNAV to better reflect the worth of CDLHT’s hotel properties, we are raising our fair value from S$1.93 to S$2.11; but maintain a HOLD rating since CDLHT is trading near our fair value.