Author: tfwee
CRCT – SGX
CAPITARETAIL CHINA TRUST’S PROPERTIES IN CHINA NOT AFFECTED BY EARTHQUAKE IN CHINA’S SOUTHWEST SICHUAN PROVINCE
CRCT’s portfolio of eight retail malls is located in China’s five key cities, namely, Beijing,Shanghai, Zhengzhou, Huhehaote and Wuhu, which are outside the region affected by the
Earthquake.
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Cambridge – SGX
PRESS RELEASE
COMMENT ON ARTICLE IN “TODAY” NEWSPAPER, 13 MAY 2008
AREIT – CIMB
A-REIT acquires Creative Building for S$246.8m
A-REIT has entered into a put and call option to acquire Creative Building at 31 International Business Park from Creative Technologies (CREAF SP, S$6.53, Underperform, target price S$5.31) for S$246.8m. The purchase comes with a leaseback term of five years, and an option to renew for 3+2 years. Additional rent is payable in the third and fifth years of the lease if Singapore’s cumulative CPI in years 1-3 and in years 4-5 exceed 5%. The additional rent payable would be equivalent to the inflation rate in excess of 5%.
Yield-accretive and rents secured. The building is being acquired at an average yield of 6.24% for the initial 5-year lease, above A-REIT’s current trading yield of 6.1%. Creative Technologies will be paying a cash security deposit of S$72.2m, almost equivalent to its 5-year rent. Rent payable under the lease will be deducted monthly from this deposit. This lease arrangement offers almost a 100% guarantee of the rent of the 5-year lease period and excludes only the additional payments pegged to the inflation rate.
Asset leverage increases to 44% from 43%. This is A-REIT’s single largest acquisition to date. A-REIT’s portfolio will increase to 90 properties totalling S$4.6bn by the end of FY09. A-REIT’s business parks component will also be raised to 30% of its portfolio, from 25%. We estimate that asset leverage will reach 44%, assuming 100% debt funding for all its acquisitions this year. Additional acquisitions for the rest of FY09 are likely to require equity-funding, in order to keep asset leverage within the long-term target of 45%.
FSL – UOBKH
New acquisitions boost distribution yield to 14.8%
First Ship Lease Trust (FSLT) has announced that it has entered into a conditional agreement to acquire three 4,250 TEU container vessels from a wholly owned subsidiary of Taiwan based Yang Ming Marine Transport Corporation (YML) for a consideration of US$210m. The three vessels are scheduled for delivery to FSL Trust by end May, end June and end October this year. The vessels will concurrently be leased back to YML on a fixed basis for 12 years.
Acquisitions significantly boost DPU. FSLT has guided that the acquisition of the initial two vessels will be significantly accretive to FSL Trust’s distribution per unit (DPU) and projects that the acquisition will increase the distribution for 2Q08 to 2.77 US cents (from 2.05 US cents) and from 3Q08 onwards to 3.05 US cents (from 2.87 US cents). This translates into a FY09 yield of 14.8%.
Vessel acquisition price fairly attractive given recent transactions. Other recent market purchases for 4,250 TEU vessels also average in the US$73m to US$77m range. As such, the average acquisition price of US$70m per for these new acquisitions seems fairly attractive. Based on management’s DPU guidance, we estimate the bareboat charter rates for these vessels to be slightly less than US$20,000/ day, fairly reasonable given current market rates.
No guidance on third vessel as funding not secured. While FSLT has not provided guidance on the DPU accretion for the third vessel at this time as financing has yet to be secured (US$60m required), we estimate the potential accretion to be in the region of 0.07 US cents per quarter from 1QFY09 onwards, translating into a yield of 15.1% (assuming similar debt financing and similar charter terms as the first two vessels). However, as the acquisition of this third vessel is conditional upon FSL Trust securing financing, we have not factored potential earnings and DPU accretion for this vessel into our forecasts and target price as yet.
The paradox: Rising DPU but falling EPU. We continue to like FSLT for its stable and visible distributions which are supported by its long bareboat charters which have an average remaining lease term of approximately 9.2 years. FSLT offers investors an interesting paradox due to its aggressive depreciation policy which depreciates its assets at between 5-7% per year. As such, while this latest acquisition is DPU accretive, EPU has declined sharply as earnings after interest for these vessels is less than the associated depreciation (FY08: -44%, FY09: -87%, FY10: -87%). However, we remind investors that distribution yield should be the focus for FSLT and maintain our BUY recommendation on FSLT with a target price of US$1.24 (S$1.61).
AREIT – DBS
A-REIT acquires Creative building for S$247m (TP S$2.86)
Story: A-REIT announced yesterday that it has entered into a put-call arrangement with Creative Technologies Ltd to purchase their asset at 31 International Business Park for a total consideration of S$246.8m. Based on this acquisition price, the asset is purchased at a 6.24% NPI yield and with the tenant, Creative Technologies Centre Pte Ltd, paying a cash security deposit of S$72.2m ( equivalent to 5 years rental). The tenant will lease back the property for 5
years with an option to renew for a further 3+2 years.
Point: The reit has started their new financial year with a bang with this new capture worth S$246m and is in line with our expectations of S$400m worth of acquisitions this year. This latest acquisition will add a further 50.3 sqm of NLA to their portfolio, expanding it 3% to 1.73m sqm valued at c. S$4.3bn. Post purchase, A-REIT’s exposure to Business & Science park assets will increase to 31% from 25% of total portfolio previously.
The purchase is expected to be funded fully by debt/and or with part equity. However, we have assumed that management will draw down its debt facilities for this purchase. This will increase its gearing from 38.2% to 42% , which is still within its comfortable 40-45% LT gearing level.
In addition, development projects currently in the works ( worth c. S$ 179m ) will also be progressively added to the portfolio over the coming financial year which will further grow DPU moving forward.
Earnings surprise for A-REIT will derive from further 3rd party acquisitions and/or asset injections by their sponsor that are currently not factored in our estimates (above our S$400m p.a estimates)
Relevance: Maintain BUY on A-REIT , TP unchanged at S$2.86. We continue to like A-REIT as one of Singapore’s largest industrial property landlord. At current trading price of S$2.50, the reit is currently trading at FY09 and FY10 yield of 6.2% and 6.4% respectively.