MI-Reit pays $29.2m for Japanese warehouse

It sees 20 per cent of portfolio in Japan, partner APJ will help manage, find assets

MACARTHURCOOK Industrial Reit (MI-Reit) is making its maiden foray into Japan, after purchasing a property there and forging an alliance with a Japanese asset management firm.

MI-Reit said that it will pay $29.2 million for the Asahi Ohmiya warehouse. The property was recently valued at this amount by independent property valuer CB Richard Ellis.

Located in Saitama, the property is a purpose-built, four-level warehouse with an ancillary three-storey office building, currently used as a distribution centre for pharmaceutical products.
MI-Reit also formed an alliance with Atlas Partners Japan (APJ), to which it will outsource the asset management of the property acquired.

APJ is a specialist in Japanese real estate fund and asset management for global institutional investors and its assets under management are worth more than US$740 million as at Oct 31.

In return, APJ will source for acquisition opportunities and provide asset management support for other properties acquired in Japan.

MI-Reit said that the Japanese real estate market will now be its ‘second most important market outside of Singapore’, even though it will continue to focus on growth within the Singapore market.

Over time, it expects 20 per cent of its portfolio to be located in Japan, while Singapore assets will take up 50 per cent. The rest is expected to be spread across other major Asian industrial property markets.

MI-Reit expects the acquisition to be completed next month, adding that it will be accretive to the trust’s distribution per unit (DPU).

The pro forma financial effects include an additional 0.06 cents per unit – representing a 0.79 per cent rise from the forecast FY08 DPU of 7.41 Singapore cents per unit, plus another 0.06 cents per unit in FY09, or a 0.75 per cent increase from the forecast DPU of 7.59 cents.

The property will also contribute to the trust income’s stability through enhanced tenancy and property diversification.

Exposure to MI-Reit’s largest tenant, UE Tech Park, is reduced from 31.6 per cent to 29.8 per cent of portfolio income.

MI-Reit intends to finance the acquisition wholly with debt, given the relative lower cost of borrowing in Japanese yen.

The acquisition is expected to increase MI-Reit’s gearing level from 33 per cent to 36.7 per cent.

MI-REIT ACQUIRES 15 TAI SENG DRIVE FOR S$28.9 MILLION

– Increases FY2008 DPU by 0.33 cents to 7.75 cents per unit and FY2009 DPU by 0.35 cents to 7.94 cents per unit
– MI-REIT’s total property investments increase to approximately S$529.8 million

Singapore, 29 October 2007 – MacarthurCook Investment Managers (Asia) Limited (“MCKIM Asia”), the Manager of MacarthurCook Industrial REIT ( “MI-REIT”), is pleased to announce that MI-REIT, through its Trustee, HSBC Institutional Trust Services (Singapore) Limited ( the “Trustee”), has signed a Sale and Purchase Agreement (the “Agreement”) to acquire a warehouse building from Ascendas Global Gateway Pte Ltd ( the “Vendor” ) for a total consideration of S$28.9 million.

The property at 15 Tai Seng Drive, also known as the Axis Industrial Building, (the “Property” ) will continue to be leased to its existing tenants, who are:

MI-REIT reported its half-year result which is largely inline with forecast. MI-REIT recored a net property income of $5.9 million for the 2nd quarter. Distributable income rose 23% from $3.94 million in 1QFY08 to $4.85 million in 2QFY08, translating to a same percentage increase in DPU from 1.52 cents to 1.86 cents. At the same time, MIREIT annouces its fourth acquisition of a logistic/warehouse facility at an acqusition price of $20.8 million.

Developments to-date. MI-REIT announces its fourth acquisition of 11 Changi South St 3 at an acquisition price of $20.8 million. The property has an initial yield of 7.23% with an NLA of 11,547sqm. The acquisition is slated for completion by 4QFY08. Total acquisitions to-date amount to $146.9 millon. The acquisition improves both the asset mix as well as the lease expiry profile. WALE improves to 6.8 years assuming completion of all annouced acquitions. Revaluation on 12 of the initial properties was carried out in September and has resulted in a revaluation gain of $37.8 million to the book value. Asset size now stands at $370.8 million from the initial $316.2 million.

Future developments. MI-REIT has a pan-Asian focus to diversify across the Asian region. With an acquisition target of $500 million annually, we would expect more acquisition news to roll out in the coming months. MI-REIT has an additional $190.7 million debt room to utillise. Current gearing of 11.6% allows much flexibility to play with.

Recommendation. Our fair value represents a 19.8% upside from the closing price of $1.16 and a P/NAV of 1.07 against an SREIT average of 1.27. The stock is currently trading below its NAV of $1.29, which represents the intrinsic value of a REIT. We notice the REITs sector is underperfoming the broad market recently and feel that due to euphemism in some other sectors, market sentiment is generally lacking towards REITs. Our general view is that REITs are defensive in nature with the investment aim of providing long term stable distributions to unitholders. Interested investors should capitalise on market downturn to lock-in the higher yields achievable. Reiterate BUY with a fair value of $1.39.

Valuation. We adjust our earnings estimates in accordance with the acquisition. In view of the present market nature, we revise our valuation matrix across the REITs sector to better reflect the current market nature and to incorporate a more robust valuation. Key change to our assumption includes a 0% terminal growth from a 2% previously. Our fair value remains unchanged at $1.39. Our forecasted DPU of 7.41 cents for FY08 and 8.03 cents for FY09, which translates to a yield of 6.38% and 6.92%.

MI-Reit’s Q2 distributable income meets forecast

MACARTHURCOOK Industrial Reit (MI-Reit) said yesterday that its distributable income for the second quarter ended Sept 30 came in at $4.85 million, with distribution per unit (DPU) at 1.86 cents, both in line with its forecast.

This worked out to an annualised DPU of 7.38 cents, said MI-Reit. The annualised yield is 6.05 per cent based on the closing price of $1.22 per unit on Sept 30.

Its net property income of $5.91 million for the quarter was higher than the $4.7 million seen in the preceding quarter but was a 0.6 per cent dip from its own estimate.

Thanks to a revaluation of the initial 12 properties in MI-Reit’s portfolio, its net asset value per unit rose by 13.3 per cent quarter-on-quarter to $1.28, and raised its book value from $316.2 million to $354 million at the end of the fiscal second quarter.

‘In the short time since listing on April 19, we have successfully executed the acquisition of three properties; two of which are pending completion with an aggregate value of $109.3 million and the third, which has been completed for $16.8 million,’ said Chris Calvert, chief executive of the MI-Reit manager.

‘We continue to be focused on achieving our target of $500 million in acquisitions per annum,’ he added.

He noted that these acquisitions will enhance income stability and diversification as a result of the reduced reliance on any single asset for income.

Over the next 12-18 months, a majority of MI-Reit’s acquisitions will be made in Singapore but investment grade industrial property in Japan, Hong Kong, Korea and Malaysia will also be considered.

Given the bullish outlook on the rents and capital values of industrial space, which are poised for a further rise of up to 10 per cent in the final quarter of 2007, MI-Reit manager said it expects to deliver an annualised distribution of 7.58 cents for the current financial year ending March 31, 2008, in line with forecasts.

MI-Reit also announced yesterday that it has signed an agreement to buy a logistics and warehouse building at 11 Changi South Street 3 from Prologis Singapore Pte Ltd for $20.8 million. The property will then be sub-leased to its current tenant, Builders Shop Pte Ltd, for the remainder of the existing 10- year lease term that commenced on Dec 16, 2004.

At an initial yield of 7.23 per cent, the acquisition is accretive to MI-Reit’s DPU, it said, and is estimated to raise its fiscal 2008 DPU by 0.23 cent to 7.64 cents per unit and fiscal 2009 DPU by 0.22 cents to 7.81 cents per unit.