Author: tfwee
StarHill Gbl – DBS
Going Global
• Deploying its cash
• Potential issue of convertible equity could cap share price performance
• Maintain HOLD, TP S$0.65
Deploying cash. Starhill Global REIT (SGREIT) has finally announced the deployment of its war-chest : (i) acquisition of David Jones Building (DJB) in Perth for S$148m; and (ii) signing of heads of agreements to purchase Lot 10 and Starhill Gallery for S$423.3m from Starhill REIT. The combined injection yield is estimated to be c7.2%, which compares favorably to the current yield on book (5.5%).
Australian acquisition raises DPU by 6%. We have included the DJB acquisition in our numbers; raising FY10F-11F DPU by c6%.
Still assessing funding options for Malaysian purchases. The manager intends to utilize an asset backed securitisation structure (“ABS”) to acquire the Malaysian assets given tax benefits. This structure is awaiting further regulatory approvals. SGREIT intends to use a combination of its cash from the rights issue (completed back in 2Q09) and to issue new convertible preference units (CPS) but has yet to decide on the terms and size. We have not included earnings from the Malaysian assets in our forecast.
Maintain HOLD, TP S$0.65. While size of the acquisition is big (26% of portfolio), the uncertainty of the funding for the larger-sized Malaysian assets could cap share price performance in the near term till further clarity is obtained. As such, maintain HOLD.
MI-REIT, Cambridge – BT
MI-Reit manager hits out at rival CIT’s proposal
Subordinated loan likely more pricey than MI-Reit’s cost of equity
THE battle for control of MacArthurCook Industrial Reit (MI-Reit) continued yesterday with MI-Reit’s manager Nicholas McGrath slamming a rival proposal from Cambridge Industrial Trust (CIT) as ‘entirely ingenuous’.
MI-Reit is asking unitholders to approve next Monday a $430 million rescue package involving a share placement to ‘cornerstone’ investors, a rights issue, and $215 million in new loans.
The troubled Reit needs the money to refinance $226 million in loans and meet a $90 million obligation to buy the 1A International Business Park (IBP) property, both by the end of the year.
But CIT, which bought a 9.76 per cent stake in MI-Reit after the announcement of the rescue package and is angling to take over management of MI-Reit, said the recapitalisation exercise destroyed value for unitholders as the discount to net asset value was too steep.
Non-sponsor existing unitholders post-transaction would be left with just 40 per cent of total holdings, CIT said, from over 70 per cent at present.
It is instead proposing itself as manager of MI-Reit and has pledged an ‘initiative to take advantage of an enlarged pool of assets to benefit all investors’, Chris Calvert, chief executive officer of its manager, said on Tuesday.
He said MI-Reit investors would benefit from access to a subordinated loan facility which CIT holds, and which it could use to fully pay off its $90 million obligation to buy the IBP property.
But in an interview yesterday with BT, Mr McGrath said a subordinated loan would likely be more expensive than MI-Reit’s cost of equity and much higher than the 350 to 450 basis points over Sibor that it will pay for its negotiated term loan.
Mr McGrath added that MI-Reit’s aggregate leverage would increase, while CIT, with just $13 million in cash, has little debt overhead to increase its own gearing. ‘Any which way you put it, they will need to do capital raising and so far they’ve said nothing about that,’ he said.
He admitted that an orderly sale of MI-Reit’s assets – which has been suggested in some quarters, as its units are trading far below net asset value – might realise close to market value, or about 90 cents per unit. ‘But I’m entirely uncomfortable with losing control of the process,’ Mr McGrath said, adding that if creditors force a quick firesale, investors might be left with nothing.
The steep discounts were necessary because the Reit had to urgently raise a minimum of $125 million – twice its market capitalisation in June – to rebalance its capital structure so that it could take on new loans, Mr McGrath said.
In a report released on Tuesday, Phillip Securities analyst Lee Kok Joo said that whatever the outcome of the extraordinary general meeting on Monday, ‘the risk is more on the part of CIT unitholders rather than MI-Reit unitholders’ but said the proposal opens up the possibility that MI-Reit unitholders’ stakes would not be heavily diluted.
According to its calculations, MI-Reit offers a potential FY2011 distribution per unit (DPU) of 1.89 cents, which translates into a dividend yield of 11 per cent based on the rights price of 15.9 cents, if the proposed transactions go through. ‘For investors who are not keen, we maintain our ‘sell’ recommendation,’ Phillips said.
Starhill – BT
YTL Pacific Star, the Manager of Starhill Global REIT said on Wednesday that Starhill Global REIT plans to acquire David Jones Building in central Perth, Australia for A$114.5 million (about S$148.0 million) from Centro, a fully integrated real estate company based in Australia.
The company added that a heads of agreement has also been entered into with the trustee of Starhill REIT of Malaysia, to indirectly acquire Starhill REIT’s interests in Starhill Gallery and Lot 10 Shopping Centre on Bukit Bintang, Kuala Lumpur’s main shopping street, through an asset backed securitisation (ABS) structure, for a total of RM1,030 million (about S$423.3 million).
The proposed Australian acquisition is expected to be completed in January 2010 and will be funded by a combination of debt and proceeds raised from Starhill Global REIT’s recent rights issue.
The acquisition is expected to be accretive to Starhill Global REIT’s distribution per unit (DPU). The pro forma financial effect of the acquisition on the DPU for the financial year ended 31 December 2008 is an additional 0.22 Singapore cents per unit.
With the signing of the heads of agreement for the acquisition of the properties in Malaysia, both parties agree that they shall negotiate in good faith and use their best efforts to finalise the definitive agreements in relation to the properties. Further details will be announced at the appropriate time in due course.
Shipping Trusts – OCBC
3Q09 results recap
Results recap. All three shipping trusts reported 3Q results recently. FSL Trust (FSLT) results were in line with our expectations while Rickmers Maritime (RMT)’s were below as the trust did not accept delivery of the latest Hanjin newbuild vessel, which the sponsor will hold on to, while talks continue on challenges regarding the trust’s large debt load; a maturing loan facility; and a large committed order book. Pacific Shipping Trust (PST) results were above our estimates as we had factored in charter rate cuts to CSAV but negotiations on that front have yet to be resolved. All three trusts reported that their charterers have been making charter payments on time so far.
DPU visibility is limited. Only FSLT has given DPU guidance for 4Q09 (1.50 US cents, flat QoQ). In our opinion, the other two trusts are not in a position to give much forward guidance because of ongoing issues. In fact, we believe FSLT has relatively the most visibility on 12 months forward DPU. Counterparty risk – the risk of a charterer defaulting or renegotiation charter terms – remains the major concern for the sector and consequently a major threat to DPU. Still, FSLT has addressed the most immediate threat to distributions by securing loan-to-value (LTV) covenant waivers. On the other hand, the CSAV renegotiation continues to be an overhang on PST. Rate concessions would impact cash flows and potentially give just cause to its other charterer (its sponsor) for demanding similar concessions. Meanwhile, we believe it is more prudent to not expect further distributions from RMT, the most at-risk trust in our view, while negotiations with lenders and its sponsor continue to be unresolved.
Prefer FSLT. We maintain our UNDERWEIGHT rating on the sector. We believe the tide has yet to turn for the container industry, and believe investors should limit their exposure to leveraged asset owners in this space. FSLT [BUY, FV: S$0.72] is our preferred play for the shipping trust sector as it has addressed many of our concerns regarding its balance sheet and previously aggressive payout policy. We also like its diversified portfolio and the relative visibility of its yield. Proceeds from its recent placement have been earmarked for acquisitions, which could be made in the coming months. On the other extreme, we have a SELL rating on RMT [FV: S$0.16] driven by the complex challenges faced by the trust. In our opinion, a resolution here is: uncertain; likely to be time-consuming; and perhaps significantly dilutive to unitholders.
MI-REIT, Cambridge – BT
Rivals in MI-Reit tussle turn to newspaper ads
Both set out their respective positions ahead of Monday’s EGM
THE managers of MacArthurCook Industrial Reit (MI-Reit) and Cambridge Industrial Trust (CIT) – its single largest shareholder – have taken a very public battle for control of MI-Reit to the newspapers.
Yesterday, both spent thousands of dollars to take out full page advertisements setting out their respective positions ahead of an extraordinary general meeting next Monday.
MI-Reit is seeking unitholder approval for a $217 million share placement and rights issue package, which it says is critical if the Reit is to survive into the new year.
It has to refinance $226 million in loans and meet a $90 million obligation to buy the 1A International Business Park property, both by the end of the year.
CIT – led by Chris Calvert, the former CEO of MI-Reit’s manager – is arguing that the share placement destroys value for present unitholders.
MI-Reit is seeking to issue some 83 per cent of units outstanding at a ‘massively dilutive’ 70 per cent discount to net asset value, Mr Calvert said. He is urging other unitholders to reject the recapitalisation plan and to support a motion, to install CIT as manager of MI-Reit at another meeting of unitholders to be convened in due course.
That that would give MI-Reit access to a CIT subordinated loan facility, which could pay in full its $90 million obligation to purchase the building at IBP, Mr Calvert said yesterday in a statement to unitholders.
He added that CIT expects to be able to refinance MI-Reit’s loans maturing at the end of the year with takeout debt financing ‘on substantially equivalent terms’. The loans would be secured against more than $500 million of unencumbered assets.
‘Through managing both CIT and MI-Reit, (we expect) to generate economies of scale associated with an enlarged asset pool. This will result in achieving cost savings for both unitholders in a number of areas, including property management costs, valuation fees and others derived from having increased purchasing power,’ Mr Calvert said. He added that there was no intention to merge the two Reits and that it was also not seeking to liquidate MI-Reit’s assets.
MI-Reit hit back yesterday with a point-by-point rebuttal of a CIT statement issued on Monday setting out CIT’s opposition to MI-Reit’s financing plan.
Nicholas McGrath, CEO of MI-Reit’s manager, said unitholders ‘should not allow themselves to be distracted by such analyses that are inaccurate, incomplete and misleading’.
‘It also does not discuss the key benefits of the transactions,’ Mr McGrath said, which was removal of financing risk, reduction of total leverage and an enhanced portfolio and tenant base.
He added that it was wrong to say $2.1 million was payable in underwriting fees to Standard Chartered, pointing that commissions were shared among all bookrunners, and also rebutted a claim by CIT that a fee-payment arrangement was ‘double dipping’.
Yesterday, George Wang of AIMS Financial Group – the present sponsor of MI-Reit and which along with AMP Capital Holdings and ‘cornerstone’ investors will participate in the controversial placement – raised his deemed stake to 9.96 per cent or 26.54 million shares through the further purchase of 3.5 million units at 40.2 cents apiece.
CIT, with 26 million units, has a 9.768 per cent stake.