Author: tfwee
PLife – BT
Parkway Life to acquire nursing homes in Japan
A MONTH after making its maiden foray in Japan, Parkway Life Reit has agreed to buy another two properties there for a total of 2.62 billion yen (S$34.3 million).
The target acquisitions are a nursing home in Yokohama City and another in Osaka’s Ibaraki City. Both are owned by vendor ZECS Community Co, which has agreed to lease them back for 15 years with an option for a further five years. Its parent company Zecs Co will guarantee the leases.
At a price of 1.44 billion yen, the Yokohama facility has a net operating income yield of 6.1 per cent. The freehold, five-storey building is next to a scenic canal. It has 74 lettable units spread over a gross floor area of 3,273 sq m.
The Ibaraki nursing home is in a four-storey, 50-year leasehold property beside the University of Osaka and Ibaraki Country Club. It has a lettable area of 3,706 sq m and 94 units. At 1.18 billion yen, its net operating income yield is 6.7 per cent.
Explaining the acquisitions, Justine Wingrove, CEO of the Reit’s manager Parkway Trust Management, said demand for quality nursing homes in Japan will grow with the ageing population. ‘By 2050, it is estimated that one in three Japanese will be over 65,’ she noted.
Rents at both properties are index-linked to Japan’s inflation rate on an upward-only basis. Rents may also be revised by mutual agreement at five-year intervals.
Expected to be completed this month, the investments will be made through special purpose vehicle Parkway Life Japan2, a wholly owned subsidiary of Parkway Life Reit. They will be funded by debt, raising the Reit’s gearing to 11 per cent from 8 per cent.
ZECS Community operates 30 nursing homes in Japan under the Bon Sejour brand. The leases are also protected by a back-up agreement with Japan Care Service Co, another operator of nursing homes.
Parkway Trust Management did not say how much the acquisitions will add to the Reit’s distribution per unit (DPU). ‘As the deal size is only $35 million, the increase to DPU is not significant,’ said Ms Wingrove.
Last month, the Reit made its first investment in Japan – a pharmaceutical warehousing and distribution facility in Chiba that cost 2.59 billion yen.
Following yesterday’s announcement, Parkway Life Reit ended one cent higher at $1.23.
SREIT – UOBKH
Real Estate Investment Trusts
Yields are more attractive now
Yields are more attractive now. The average distribution yield for Singapore REITs has improved from 4.00% in Jul 07 to 5.64% in May 08. Investors should take this opportunity to accumulate Singapore REITs to lock in the attractive yields.
CMT – UOBKH
On An Acquisition Spree
CapitaMall Trust (CMT) has entered into a sale and purchase agreement with the Singapore government to acquire The Atrium@Orchard at S$839.8m, or S$2,249psf. The Atrium comprises two Grade A office towers of seven and 10 storeys with ground floor retail space. It is zoned as a commercial development. It is located above the Dhoby Ghaut MRT interchange station and adjacent to Plaza Singapura, which is part of CMT’s portfolio. Dhoby Ghaut MRT station is served by the North South Line, North East Line and Circle Line (ready in 2010). The acquisition is expected to be completed by end-Aug 08.
High gearing a concern. CMT has grown its asset size from S$6.0b to S$6.9b via this acquisition and has revised its local target asset size from S$8b to S$9b by 2010. Gearing has increased from 35.3% to 45.0%. Management appears eager to move on to acquire Clarke Quay (NLA: 262,230sf) and Orchard Ion (NLA: 660,000sf). CapitaLand is likely to monetise its investment in Orchard Ion once it is able to demonstrate stability of rental income. The injection of the two abovementioned assets will likely put a strain on CMT’s financial resources as the aggregate price tag exceeds S$3b.
We have revised our 2009 DPU forecast by 5.1% to 16.5 cents. We have factored in contribution from The Atrium as an office building and the impact of positive rental reversion. We are unable to assess the impact of asset enhancement initiative as management did not provide guidance on construction costs. The conversion of office space into retail space may require government approval.
CMT provides 2009 distribution yield of 4.71%. We have fine-tuned our dividend discount model to reflect the risk of more fund-raising exercises for the pipeline of acquisitions when both the equity and debt markets are fairly weak. Our new fair price is S$3.72. Downgrade from BUY to HOLD due to limited upside. Our entry price is S$3.10, which provides upside of 20%.
CMT – BT
CapitaMall Trust bags Atrium for $839.8m
It will strengthen its retail presence by integrating Atrium, Plaza Singapura
CapitaMall Trust (CMT) yesterday emerged the winner to clinch the Atrium@Orchard with a purchase price of $839.8 million or $2,249 per square foot (psf) of net lettable area (NLA) from the Singapore Land Authority.
This has raised the value of its assets to $6.9 billion and prompted the trust manager to revise its local targeted portfolio size from $8 billion to $9 billion by 2010.
This acquisition confirms an earlier BT report which pointed out CMT as one of the two final contenders for the Atrium and estimated the price of the sale to be $2,200-2,300 psf of NLA.
CMT is set to strengthen its retail presence at the premier Orchard shopping belt, given its plans to create more than 100,000 sq ft of prime retail lettable area at the Atrium.
Situated next to one of CMT’s existing properties, Plaza Singapura, Atrium comprises two Grade A office towers of seven and 10 storeys and some ground floor retail space.
CMT said that it plans to integrate Atrium with Plaza Singapura to create a combined 170 m of prime retail frontage along the Orchard Road strip to create duplex flagship stores and over 900,000 sq ft of net lettable space.
By decanting and converting lower yielding spaces at the Atrium and changing the use of gross floor area, the retail net lettable area on levels 1 and 2 of the property is expected to grow from the current 16,092 sq ft to 100,590 sq ft.
Pua Seck Guan, CEO of CMT, said in a briefing yesterday that the retail enhancement works at Atrium is expected to take place within the next three years.
‘With the improved integrated asset plan and the enhanced direct connectivity from the Dhoby Ghaut MRT interchange station to Level 3 of Plaza Singapura, the values of both assets are expected to increase,’ he added.
He noted that the grade A office space at the Atrium is currently under-rented, which provides opportunities for value creation. The current office rentals are locked in at an average $5.87 per square foot per month (psfpm), resulting in an initial property yield of about 2.1 per cent.
Using the recent renewal of an office lease at Atrium at $13 psfpm as a gauge, Mr Pua said that there is room for average office rental to double to $10-12 psfpm by 2010-2011, even after taking into account rental cap conditions in certain anchor tenants’ leases.
Assuming that all the office leases are being renewed at $10 psfpm today, the estimated property yield today will be about 4.5 per cent, Mr Pua said.
The majority of the leases – some 89 per cent of the total committed NLA – will be up for renewal in 2009 and 2010. Only 7.9 per cent of the total committed NLA is due for renewal this year.
The acquisition of the Atrium, brokered by CB Richard Ellis, is expected to be completed by end-August. The total acquisition costs, including other fees and expenses, will work out to $850 million.
CMT will fund it with the issuance of $650 million worth of convertible bonds and the balance from the $395 million proceeds from its medium term notes programme that it has issued.
Moody’s yesterday affirmed CapitaMall’s ‘A2’ rating but changed the outlook to negative, citing the increase in gearing ratio to 45 per cent from 35 per cent and other execution risks related to the redevelopment of Atrium.
But Mr Pua said that he is confident that the gearing ratio will come down soon.
The five-year convertible bonds (CBs) due 2013, which is fully underwritten by Goldman Sachs, has a coupon rate of one per cent, a yield to maturity of 2-3 per cent per annum and a conversion premium of 20-35 per cent over the share price. Even if the CBs are fully converted, the funding provides yield accretion on a stabilised basis, CMT said.
Yesterday, CMT was trading at $3.51, 12 cents lower than Wednesday’s close before its units were halted, pending the announcement.
SREIT – BT
S’pore Reits face credit ratings pressure: Moody’s
They are affected by tighter conditions for borrowing
SINGAPORE’S real estate investment trusts’ (Reits) credit ratings will face pressure in the next 12 to 18 months because of their rising difficulty in raising funds from debt and equity markets, according to Moody’s Investors Service.
Moody’s has cut or put on review for possible downgrade the ratings of Allco Commercial Real Estate Investment Trust, Macquarie MEAG Prime Reit and CapitaCommercial Trust in the first quarter to reflect growing risk to the debt of the trusts.
‘Tighter conditions for borrowing has adversely affected both the availability and price of credit at a time when a number of Singapore Reits face imminent refinancing needs,’ Moody’s analysts led by Singapore- based Kathleen Lee write in a report.
‘In addition, the depressed unit prices of many trusts have reduced the attractiveness of equity funding.’
Unit prices of Singapore’s Reits have slumped to trade at 15 per cent to 30 per cent of their net- asset values, according to the rating assessor. Mapletree Logistics Trust, which owns industrial buildings, called off a plan to raise as much as $500 million through a rights offer in January because of volatile market conditions.
Singapore’s Reits are also paying more to get bank loans or sell bonds as the commercial mortgage- backed securities market remains shut.
In the first quarter, banks in Singapore raised interest spread by between 0.5 and one percentage point for short-term or refinancing loans, Moody’s said.
‘Many Singapore Reits are relying more heavily than in the past on bank lending,’ the analysts write.
‘Previously, some Singapore Reits had not spent sufficient time cultivating strong bank relationships because, in the past, they had enjoyed easy access to equity and commercial mortgage-backed securities funding.’
CapitaMall Trust and CapitaCommercial, both managed by CapitaLand Ltd, South-east Asia’s biggest developer, have sold six bond deals this year, raising a total of $1 billion at yields ranging from 2.8 per cent and 3.2 per cent, data compiled by Bloomberg show.
Suntec Real Estate Investment Trust, controlled by Hong Kong billionaire Li Ka-shing, raised $270 million from a five-year convertible bond sale in February, paying a 4.25 per cent yield, compared with its average financing cost of 3.1 per cent in 2007, Moody’s said.
Smaller Reits are becoming increasingly likely to be acquired by their bigger rivals in the remainder of the year because of limited access to funding, according to Moody’s.
‘Such a consolidation would leave a sector with the bigger entities having greater financial capacity to expand abroad,’ the analysts say. — Bloomberg