Author: tfwee
JTC REIT – BT
Goodman Group set to manage JTC Reit
JTC Corporation is set to appoint Australian-listed property and wealth management company Goodman Group to manage its upcoming real estate investment trust (Reit), sources say.
The news follows last month’s report in the Australian Financial Review that Goodman Group beat competitors – including Singapore’s CapitaLand and Mapletree Investments – to become the manager of Singapore government-owned JTC Corporation’s upcoming trust.
Other names in the running included Challenger Financial Services Group and CapitaLand subsidiary Australand, both of which are listed on the Australian stock exchange, the report said.
The report also said that UBS, Goldman Sachs and DBS are in line to underwrite the offer.
Industry players said the Reit’s initial property portfolio is expected to be worth more than $1 billion.
When contacted by BT, JTC said that the selection is still ongoing. JTC said in July 2007 that it would announce the winning manager and underwriter by the end of that year.
‘We are in the process of selecting the Reit manager and we will give updates at the appropriate time,’ said a JTC spokeswoman.
Goodman already has substantial assets in Asia, including a 40 per cent stake in the manager of Singapore-listed Ascendas Real Estate Investment Trust (A-Reit).
Goodman is looking to expand in the region, market watchers have said. In mid-2007, Macquarie and Goodman ended a partnership that began in 2001. Macquarie paid more than A$730 million (S$922.4 million) to divest its investment in Goodman.
JTC, Singapore’s biggest industrial landlord, said last July that it will divest some $1.4 billion-$1.6 billion worth of assets and focus its attention on strategic developments with a longer payback time.
The bulk of the assets to be sold will be pumped into a Reit, chief executive Ow Foong Pheng told reporters at the time.
JTC also said at the same time that it has short-listed seven Reit managers and would announce the winning manager by the end of 2007. The Reit was scheduled to be listed on the Singapore Exchange (SGX) in the second quarter of this year.
A-Reit, Singapore’s second Reit, was set up by JTC unit Ascendas five years ago. The trust has since expanded by acquiring industrial buildings.
CCT – BT
Market St Car Park may be redeveloped into offices
The total project cost could range from $1 billion to $1.5 billion
CAPITACOMMERCIAL Trust (CCT) has been granted outline planning permission by the Urban Redevelopment Authority (URA) to redevelop Market Street Car Park into an office tower that could cost up to $1.5 billion.
Lynette Leong, chief executive of CCT’s manager CapitaCommercial Trust Management Ltd, said the viability of the project would depend on the development premium to be paid for changing the use of the 58,964 sq ft site from a car park to an office tower.
The premium will depend on the enhancement in land value as assessed by the chief valuer, which CCT expects to be made known by May.
Ms Leong said the outline permission is subject to the payment of 100 per cent of the enhancement in land value, instead of the standard 70 per cent, as well as there being no extension of the present lease, which runs to 2073.
Assuming a land value for 99-year commercial land of $900 psf per gross floor area, and adjusting for the shorter leasehold of the site, CCT estimates the land and development premium to be $800 psf.
Including construction and other costs, the project cost would be $1.25 billion.
But CCT said that depending on the development premium, the total project cost could range from $1 billion to $1.5 billion.
Assuming that necessary approvals are granted, a new office tower with an estimated gross floor area of 850,000 sq ft could be built within 36 or 40 months. Ms Leong said that existing tenants, who only moved into Market Street Car Park in end-2006 after a $14 million renovation, will be given notice soon.
Currently, there are 704 car parking spaces, 28 tenants, and 21,205 sq ft of net lettable area. As at June 1, it was valued at $59 million.
Saying that CCT has no plans to divest the office tower if built, Ms Leong added: ‘When completed, the property would augment the core assets in CCT’s portfolio which currently includes landmark office buildings such as Capital Tower and 6 Battery Road.’
She said she was bullish on the office sector. While she did not reveal estimated yields for the development, she said that it was looking at projected rents of $12-$14 psf per month.
The outline planning consent comes years after CCT parent CapitaLand first mooted plans to redevelop both Market Street Car Park and Golden Shoe Car Park.
It was reported that the URA first rejected redevelopment plans for the car parks as earlier as in the mid-1990s when the properties belonged to the now defunct Pidemco.
Ms Leong said there are currently no plans to redevelop Golden Shoe Car Park, although it has also applied for a change of use for the site.
CCT – CIMB
Market Street Carpark approved for conversion
CCT announced yesterday that the Urban Redevelopment Authority (URA) has granted outline planning permission for Market Street Carpark to be rezoned from “transport facility” to “commercial” use. CCT plans to redevelop the carpark into a Grade A office tower, subject to financial viability evaluation.
Potential increase in portfolio. The estimated net floor area of the new development is 640,799 sf, which could add 22% to CCT’s total floor area. The new development would be the second largest property in CCT’s portfolio, after Capital Tower.
Conditions imposed on change in land use. The rezoning of the carpark is subject to CCT paying 100% of the enhancement in land value as assessed by the Chief Valuer, non-extension of the existing land lease (which has 65 years remaining) and restricted use of the redeveloped project for offices only, with activity-generating uses (retail and food and beverage uses) allowed on the first storey.
Potential impact
Potential increase in net property income. With its sizeable plot and location, conversion of the carpark could result in significant net rental income for CCT. Our model assumes that upon completion of the redevelopment, CCT would be able to command a gross rental of S$12 psf per month, representing about one third of our gross revenue estimation for CCT for 2007.
No significant development gains. We estimate that the redevelopment of Market Street Carpark would be worth S$1.65bn, or S$2,575 psf of net lettable area. However, since gains in value would be creamed off by the payment of the development premium, CCT would be effectively purchasing a new development. Furthermore, since CCT is constrained by guidelines for REITs to hold development properties upon completion, it will not be able to enjoy development gains via a sale exit strategy.
Redeveloped project may not be yield-accretive. The redeveloped office tower may not be yield-accretive as the current property yield of Market Street Carpark is high at 9.8% vs. an estimated 5.6% for the proposed office project.
Restrictions on REITs taking on development projects. Property fund guidelines for REITs stipulate that the total contract value of property development undertaken should not exceed 10% of REITs’ deposited properties. CCT’s threshold for development as at 30 Sep 07 was 10% of its deposited property of S$4.7bn, or S$467m. Deducting its prior commitments to projects related to the Malaysia Commercial Development Fund (S$30.5m) and Wilkie Edge (S$182.7m), CCT’s remaining threshold for development projects is only S$254m, or 17% of the development cost of S$1.5bn.
Joint-venture option. One of the options for CCT is to redevelop Market Street Carpark via a JV with a developer, and taking a 17% stake in the development. This is the most straightforward option which would probably see CCT gearing up to fund the development. However, as CCT is constrained by guidelines for REITs to hold the developed property upon completion, it would need some form of buyback mechanism. In view of the significant value of the proposed redevelopment, new units may be issued for the buyback, resulting in some dilution in value.
Business trust option. Another option is development via a business trust stapled to the REIT. The benefit of this option is that the business trust will not be restricted by the 10% cap on development. However, the business trust would be subject to corporate tax.
Valuation and recommendation
Although rezoning the carpark would significantly increase contributions to CCT, it is uncertain if this redevelopment would be yield-accretive, since capark properties are higher-yielding than office properties. In addition, the conversion would likely be completed in 2012, when a large supply of new office space is expected, creating uncertainties in occupancy rates and rentals. Furthermore, the scale of the redevelopment may require complicated JV structures or the addition of a business trust which could potentially dilute distribution from CCT.
Maintain Neutral and target price of S$2.80, based on DDM valuation, pending confirmation of redevelopment plans.
Shipping Trusts – UOBKH
Compelling yield plays for 2008
With uncertainties over the impact of the US economic slowdown on the rest of the world, we advocate taking some position in high yield, defensive earnings stocks. We see value in Singapore shipping trusts, namely First Ship Lease Trust (FSLT), Pacific Shipping Trust (PST) and Rickmers Maritime (RMT). They offer earnings visibility and steady high distribution yields of between 10.2%-12.7%. All three Singapore shipping trusts also continue to trade at a discount to their RNAV and DCF valuations. As such we reiterate our OVERWEIGHT recommendation for the sector.
FSLT. Among the three shipping trusts, FSLT currently has the lowest debt-to equity ratio of 0.38x. The trust has a target long-term debt-to-equity ratio of 1x. As such, future ship acquisitions can be funded by low-cost debt, leading to high yield accretion to unitholders. In Nov 07, FSLT acquired two 47,000DWT product tankers for US$113m. This acquisition had a relatively high asset yield of approximately 12.5% and boosted FSLT’s expected FY08 DPU by 17% from 8.92 US cents to 10.43 US cents. Assuming FSLT’s remaining debt capacity (based on a maximum forecast FY08 debt-to-equity ratio of 1x) to be utilised for ship acquisitions at similar asset yield, the trust could potentially increase its DPU by an additional 3.34 US cents, implying a potential DPU yield of 16.8%. We maintain our BUY recommendation on FSLT with a target price of US$1.22 (S$1.76).
PST. Debt restructuring is PST trump card. Of the three trusts, PST has the most conservative debt repayment structure (straight-line over 10-12 years from IPO as compared to its initial fleet’s remaining economic lifespan of about 26 years). We do not discount the possibility of debt restructuring though PST’s management has no plan to do so currently. PST is currently trading at a FY08 DPU yield of 10.2%. We maintain our BUY recommendation on PST with a target price of US$0.50.
RMT. RMT’s share price fell by 18.9% in the last two months. We have discussed with management this unusual share price weakness that has been specific to RMT and not experienced by the other two shipping trusts. We attribute RMT’s recent share price weakness mainly to selling by some institutional shareholders to raise cash in times of uncertainty. For instance, one of RMT’s cornerstone investors, Fidelity Investments Management has decreased its shareholdings in RMT from 12.97% to 11.6% between early to late-Dec 07.
At RMT’s current share price, it is trading at a FY08 DCPU (distributable cash per unit) yield of 13.7%, the highest among the three shipping trusts and a FY08 DPU yield of 10.7%. Unlike the other two trusts, RMT has a more conservative stance of retaining 25% of its distributable cash for reinvestment whereas the other two trusts pay out 90-100% their distributable cash. RMT is also the most competitive among the shipping trusts in terms of trustee fees and this bodes well for long-term investors. We maintain our BUY recommendation on RMT with a target price of US$1.19 (S$1.72).