Author: tfwee
CLT – BT
CWT in sale and leaseback deal worth $445m
Move a prelude to proposed listing of logistics trust
LOGISTICS group CWT Limited has proposed the sale and leaseback of two of its logistics facilities in a deal worth $445 million.
CWT will sell CWT Commodity Hub and CWT Cold Hub to Cache Logistics Trust, for the purposes of Cache’s eventual public listing as Asia’s first logistics-focused real estate investment trust.
Cache, whose setting up is subject to regulatory approval, will be managed by ARA-CWT Trust Management (Cache) Limited. CWT will have a 40 per cent stake in the manager. The remaining stake will be held by ARA Asset Management Limited – a real estate fund manager tied to Hong Kong tycoon Li Ka-shing’s Cheung Kong group.
The trust’s property manager will be Cache Property Management Pte Ltd. CWT will have a 60 per cent stake in the property manager and the remaining 40 per cent stake will be held by ARA.
CWT said it will book a one-off gain of $157.7 million from the sale of the two logistics facilities, which are valued at $443 million. They are part of CWT’s primary assets, located close to PSA Terminals, major ports and Singapore’s central business district.
Cache will pay $445 million for the two facilities, of which $65 million will be settled in the form of Cache units. The rest will be paid for in cash.
CWT will use the sale proceeds to expand its logistics business and to settle its outstanding borrowings early, which it says will result in a significant boost to the group’s financial muscle and competitiveness in the region.
In its statement yesterday, CWT also explained that Cache will be the first of its kind in Asia to capitalise on the positive outlook of the global logistics sector and the synergistic business models of CWT and Cache.
Cache holds an investment mandate that targets logistics properties in the Asia-Pacific region, with an initial portfolio of six logistics properties in Singapore, including CWT Commodity Hub and CWT Cold Hub.
CWT said Cache is expected to leverage on the rights of first refusal granted by CWT and the strengths of CWT to ‘pursue yield-accretive acquisitions to achieve long term, regular and predictable distributable income for unitholders’.
Loi Pok Yen, group CEO of CWT, said: ‘The creation of CLT (Cache) to invest in yield-accretive logistics properties in Asia is a historic milestone and enables CWT to own a capital-efficient asset-owning vehicle to complement our core logistics business operations as well as enhance the group’s ability to expand its business regionally and globally.’
‘In addition, the sale and leaseback will enable the group to participate in CLT through its holdings of Cache units and derive a stable income stream from CLT’s distributions,’ he said.
CWT is the largest listed logistics company in South-east Asia, offering integrated logistics solutions to the chemicals, commodities, automotive, marine, oil & gas, defence and industrial sectors.
Its shares closed half a cent down at 93 cents.
ART – OCBC
Still a compelling story
Scope for high yielding acquisitions. Ascott Residence Trust’s (ART) peer CDL-Hospitality Trusts [CDREIT, NOT RATED] announced last week that it intends to acquire five hotels in Australia. The assets were acquired from Tourism Asset Holdings, a private entity that we understand was
previously linked to Australia’s beleaguered Babcock & Brown. The assets were acquired on fairly attractive terms with the purchase price estimated to be at a discount of up to 66% to the current replacement value (including land cost). This deal, in our view, indicates scope for distressed or at least stressed acquisitions in the hospitality space.
Higher leverage than CDREIT not insurmountable to accretion. CDREIT is leveraged at 19.1% debt-to-assets as of Dec-09 and currently plans to fund the purchases using debt alone, taking its leverage to a still healthy 30%. ART, on the other hand, has a different balance sheet profile as it is already leveraged at 41.2% debt-to-assets. ART’s manager said it was comfortable going up to 45-50% debt-to-assets. With the easing of credit conditions and the re-rating of equity markets versus a year ago, we believe ART could make an accretive purchase using a combination of both debt and equity (potentially improving free float). A virtuous cycle of cheap acquisitions at cheaper capital is achievable if the manager maintains its focus on value protection and creation.
Asset enhancement plans in the meantime. Meanwhile, ART is targeting refurbishments of five properties each in 2010 and 2011. This includes Somerset Liang Court and Somerset Grand Cairnhill in Singapore and Somerset Grand Hanoi in Vietnam. These properties were last refurbished 11-13 years ago. ART is planning to spend roughly S$24.5m on the aforementioned three properties and expects payback within five years. The planned works will be funded using a combination of debt and operating cash flows.
Still a compelling story. As mentioned in our last report, we expect a pick-up in RevPAU in Singapore, China and Australia this year itself. We believe ART makes for a compelling earnings recovery story over 2010 and 2011 on the back of increasing business confidence and a revival of corporate travel. ART is currently trading at 0.85x book and a FY10F yield of 7%. We maintain our BUY rating with S$1.38 fair value estimate (28% total return). Key risks to our thesis are a slower-thanexpected global economic recovery and heightened regional economic risk, which could dampen investor sentiment towards diversified REITs.
CRCT – JPM
Portfolio still a work-in-progress
• FY09 results in line. CRCT announced FY09 DPU of S$0.0814/unit after retaining 1.1% of income, annualizing 6.8% yield and is in line with J.P. Morgan and consensus estimates, thanks to effective cost cutting and lower interest expense. Portfolio was revalued up in RMB terms by 1.2% to RMB5.7bn, 6.3% passing yield. Stock will trade ex-2H09 DPU of S$0.0406/unit on 8th March.
• Shift in leasing strategy. Management indicated that the negative rental reversion for 2H09 is partly due to the trust’s strategic move towards a lower base rent but a higher turnover component lease structure. Total gross revenue did increase 2.9% Y/Y on a SSS basis. The new lease structure, in our view, would allow the trust to be more competitive in rent negotiations, but introduced a lot more volatility in earnings. We also estimate that overall rental will increase only if the revise GTO rent component equals to previous base rent.
• Still a work-in-progress portfolio. With management still trying out different lease structures and also different tenant mix, we see CRCT’s portfolio still a work in progress. The operating performance is likely to be unexciting for the next 2 quarters in our view. Therefore, we have revised our FY10E – FY12E DPU estimates down by 3-5%. In addition, given management is unlikely to acquire assets from CMA, we have retained our long-term growth rate at a lower level of 3%.
• We retain our Neutral rating, but reduce our Dec-10 DDM based price target to S$1.25/unit as we lower our earnings estimates. Key risks to our rating and price target include surprises on operating fundamentals both on the upside or downside; and the uncertain timing of the introduction of China REIT code, which is likely to support or even lift up the valuation of the trust.
CDL H-Trust – Phillip
Acquisition
• Buys 5 hospitality properties in Australia at a purchase consideration of A$175 m
• Fixed rent portion from properties more than 90%, providing more stability to overall portfolio
• Gearing increases approximately to 30.0%
• Maintain hold recommendation, fair value raised to $1.96
Acquisition
CDL HT announced that it has entered into sales and purchase agreements to purchase 5 hospitality properties located in Australia for a purchase consideration of A$175 million (S$220.9 million). The purchase price is 8% below the market valuation of A$190.4 million. The properties come with a relatively long term lease agreement which expires in 2012 and rental comprises of a fixed component and a variable component. The lessee will pay an annual fixed rent of A$13.7 million and 10% of excess net operating profit. The fixed rent portion is approximately 93% of total rent.
With the addition of the Australia properties, the portfolio now consists of 80% Singapore properties, 14% Australia properties and 6% New Zealand properties. Revenue contribution from Singapore will decrease from 90% to 79%, New Zealand revenue will decrease from 10% to 8% while Australia will contribute 13% to total revenue.
The properties are acquired at a net property yield of 8.4%, which will bring accretion to the portfolio pre-acquisition net property yield of 5.4%. The properties are purchased at a cost of A$153,600 per key, in contrast to the replacement cost estimated by CBRE and Davis Langdon Australia Pty Ltd of A$376,000 – A$449,000 per key. The properties have achieved an average occupancy of more than 80% from 2007 to 2009. Average RevPAR for the properties in 2009 was A$116.
Funding
The acquisition is to be wholly debt funded through an equal weightage of AUD loan and SGD loan. The loan is funded by a multi-currency bridging facility that has a maturity period of one year. We estimate total loans will increase to $524.6 million. Gearing post acquisition will rise to 30%.
Financial Impact
With the contribution from Australia, the portfolio income stream is strengthened, as the minimum rent income will increase from 50% to approximately 56%. The addition also diversifies the geographical concentration. We think that CDL HT has made a good acquisition, considering the stability it brings to the overall portfolio and the attractive valuations of the properties. The initial portfolio has almost 90% of revenue contribution from Singapore and there is a lot of optimism built into Singapore tourism industry. The revenue stream from Australia will buffer the impact if the optimism fails to materialize. We add in the contribution to our projections, which, gives us a revenue growth for FY10E of 29.3%. Our adjusted DPU forecast for FY10E is 9.9 cents, up from our initial forecast of 9.02 cents. We raised our fair value to $1.96 and maintain a hold recommendation.