Category: MI-REIT
MI-REIT : BT
It has available debt capacity of about $193m to fund acquisitions
MACARTHURCOOK Industrial Reit (MI-Reit) yesterday got a first-time Baa3 investment grade rating from Moody’s, boosting its maximum gearing limit from 35 per cent to 60 per cent of gross assets, which translates to over $75 million of additional debt capacity.
The Reit, which has a portfolio of 12 industrial real estate assets in Singapore and was listed in April this year at an issue price of $1.20 and distribution yield of 6.2 per cent, traded up to a high of $1.35 at yesterday’s close.
‘With the credit rating, MI-Reit has increased gearing capacity, with available debt capacity of approximately $193 million to fund acquisitions,’ said chief executive Chris Calvert.
The trust said it intends to maintain a long-term target gearing of between 40 to 45 per cent, but might on occasion increase this to secure strategic industrial properties around Asia. Debt is an ‘efficient mechanism’ by which to achieve the target of growing the Reit’s assets by at least $500 million in new acquisitions per year, said Mr Calvert.
The trust’s portfolio had a combined value of about $316 million at listing date. It has not announced any acquisitions post-listing.
Analysts have received the stock warmly, with a present total of four ‘buy’ calls on MI-Reit, according to Bloomberg. These include two reports initiating coverage in the last two days – HSBC and UBS each issued calls on MI-Reit with target prices of $1.57 and $2.07 respectively, making much of its relatively low gearing and capacity for further purchases.
MI-Reit’s acquisition target ‘is achievable given the asset-light trend in a fragmented real estate environment’, HSBC said yesterday. ‘This represents more than doubling its asset size within the first year and a CAGR (compounded annual growth rate) of 79 per cent in portfolio size over the next three years to end FY10.’
Only 12 per cent of the 286 million square feet of Singapore’s private industrial space is owned by Reits, though yields have been driven down by stiff competition, it said.
The bank expects MI-Reit to benefit from JTC’s potential divestment of $3 billion worth of industrial assets, as well as from the networks of strategic partner United Engineers, which it said is expanding in the region.
MI-Reit should trade at a lower yield than peer Cambridge Industrial Trust, due to lower gearing and smaller asset base, which implies higher proportionate accretion from the same value of acquisitions, according to HSBC.
Meanwhile, UBS said industrial assets around Asia are ‘typically the highest-yielding of the main Reit asset classes, providing around a 250 basis point spread over cost of capital’. It believes MI-Reit has identified potential purchases valued at around $210 million in Singapore, to be injected over the next 18 months.
However, UBS noted that 10-year bond yields in Singapore – which have fallen to 2.9 per cent – could rise in the medium term to a forecast 3.2 per cent at the end of the year and put pressure on the Singapore Reit sector.
For its part, HSBC noted MI-Reit’s lack of a sponsor pipeline, but said third-party acquisitions are historically more prevalent for industrial Reits. The potential establishment of JTC Reit could also intensify competition, it noted.
MI-Reit said separately it has appointed Matthew Wrigley, currently head of legal and compliance at parent MacarthurCook in Australia, as chief operating officer of the Reit’s manager in Singapore.
MIREIT – Press Release
MACARTHURCOOK INDUSTRIAL REIT RATED Baa3 INVESTMENT GRADE BY MOODY’S
– A first time corporate rating by Moody’s
– Debt funding capacity increased to approximately S$220.8 million Singapore, 7 June 2007
Chris Calvert, Chief Executive Officer of the Manager, said, We are very pleased with Moody s corporate rating for MI-REIT, which is a positive reflection of MI-REIT s strategically located properties, quality tenant base, 100% occupancy rate long average lease expiry profile of 6.7 years. The rating is a testament MacarthurCook s proactive investment management style, disciplined property acquisition process and strong capital and risk management strategy.
With the credit rating, MI-REIT has increased gearing capability, with available capacity of approximately S$193 million to fund acquisitions. The higher leverage limit increases our operational flexibility and allows us to move quickly to acquire assets in line with our investment policy, added Mr Calvert.
Under the Property Fund Guidelines issued by the Monetary Authority of Singapore, as amended in October 2005, a REIT may increase its aggregate leverage maximum of 60% of the value of its deposited property, provided it obtains discloses to the public a credit rating from one of the major rating agencies, including Moody’s.
To maintain the appropriate risk profile of MI-REIT, the Manager expects to maintain a long-term target gearing ratio of between 40%-45%.
Mr Calvert continued, On occasion however, we may increase the leverage ratio above 45% in order to secure strategic industrial properties throughout Asia, which will enhance our capital growth and asset quality. We view debt in the current environment as an efficient mechanism to enable us to attain our target of growing MI-REIT by at least S$500 million in new acquisitions per annum.
The Manager has also successfully negotiated with its bank lending syndicate, which comprised of the National Australia Bank Limited and the Commonwealth Bank of Australia Limited, to increase its facility from S$128.8 million to S$220.8 million, which reflects MI-REIT s increased gearing capability.
In a separate press release issued by Moody s, the rating agency acknowledged that MI-REIT s properties are well located, with seasoned operating histories and stable and high occupancy rates. The agency also stated that it expects stable cash flow generation from the portfolio, supported by committed rental revenues, favourable industrial market conditions, low level of development risk exposure and ongoing financial discipline by the trusts management in pursuit of growth.
MIREIT – UBS
MACARTHURCOOK, ubs put new rating BUY with target price $2.07
- MacarthurCook Limited’s foothold in Asia . MacarthurCook Limited (MCK), a specialist fund manager in Australia, launched MacarthurCook Industrial REIT (MI-REIT) with an initial portfolio of 12 Singapore industrial assets valued at S$316m. MCK sees MI-REIT as the primary vehicle to expand its direct industrial real estate funds management business in Asia. MI-REIT aims to grow its portfolio in Asia by S$300-500m pa over the next three years.
- First right of refusal from MCK and UEL . The manager of MI-REIT is jointly owned by MCK (92.5%) and United Engineers (UEL, 7.2%). MI-REIT has been granted first right of refusal for five years for industrial assets offered to MCK in Asia. We believe UEL has also granted MIREIT first right of refusal to buy Print Media Hub in 2007, and is considering selling other assets in Singapore to MI-REIT.
- Debt capacity of over S$200m and potential 23% accretion . MI-REIT’s current portfolio provides 2% pa organic rental growth. In addition, MI-REIT’s current gearing is 8%. We expect MI-REIT to acquire more assets in Singapore and reach its gearing target of 45% within the next 18 months. We estimate this could increase DPU by 23% between now and end-FY09.
- Valuation initiate coverage with Buy 2, S$2.07/unit PT . Our DCF valuation is S$2.04/unit, with our 12-month forward DCF-based price target of S$2.07/unit. At the current price level, MI-REIT’s DPU yield for FY08 is 6.5%.
MI-REIT : UBS
Good Exposure To Singapore’s Stable Industrial REIT Segment
MacarthurCook Industrial REIT (MI-REIT) is the fourth industrial real estate investment trust (REIT) in Singapore, with a portfolio of 12 fully tenanted industrial properties in Singapore. The assets are valued at a total of S$316.2m, with a total net lettable area of 2.10m sf. More than 70% of MI-REIT’s total rental income comes from SGX-listed companies or their subsidiaries.
Attractive yield and steady income. The forecast DPU yields of 6.18% and 6.32% for FY08 and FY09 respectively are the highest among Singapore’s industrial REITs. In addition, all of MI-REIT’s leases are long-term leases ranging from three to 10 years, with an average lease duration of 6.7 years. There is no rental expiry for all of its 12 properties until 2010, when 12.1% of the rental income is due for renewal, providing a steady stream of income for the next three years at least. We see organic growth potential as the rental agreements come with escalation clauses with an average compounded annual rental income growth rate of 3.00% in FY08-12.
Acquisitions to drive DPU growth and enhance unit value. MI-REIT aims to acquire up to S$500m worth of industrial assets p.a. over the next three years and increase its overseas mix to 60%, with the initial focus on acquisitions in Hong Kong, China, Japan and Malaysia. We believe there are abundant acquisition opportunities in Singapore and overseas for MIREIT to meet its objectives. In addition, MI-REIT has the first right of refusal to purchase all the industrial properties in Asia sourced by its parent, MacarthurCook, for a period of five years from the launch date.
Key risks. We see key risks from the following: a) high concentration risk in UE Tech Park, b) uncertainty in quality of subtenants, and c) competition from peers for quality assets.
MI-REIT : BT
MacarthurCook Reit paints bullish outlook before S’pore debut
MACARTHURCOOK Industrial real estate investment trust (MacarthurCook Reit) , which starts trading here on Thursday, is upbeat about expanding its portfolio, hoping to take advantage of Asia’s growing industrial property market. The Reit, managed by Australia’s MacarthurCook Ltd, has set a target of adding $500 million worth of assets to its portfolio annually and is optimistic of achieving this within a year of listing.
‘We are confident we can achieve our target,’ MacarthurCook Reit chief executive officer Chris Calvert told XFN-Asia in an interview. Funding for further acquisitions would probably come from the sale of additional shares in the Reit, given the company’s rapid expansion plans. ‘With our IPO our gearing is only going to be about 8 per cent, so we can acquire more properties without raising anymore equity. We can just borrow more money till we get to 35 per cent,’ MacarthurCook Reit managing director and chief investment officer Craig Dunstan said, referring to the gearing level the firm is comfortable with.’But the reality is we would probably have to go to the equity market at least once a year, probably for a very long time,’ Mr Dunstan said.
The Reit is selling 247.33 million shares at $1.20 each at its IPO, and another 6 million shares to MacarthurCook Ltd and 7.1 million shares to MacarthurCook’s partners. In all, MacarthurCook Reit will raise $312.5 million, which it will use to pay for its initial portfolio of 12 properties in Singapore, valued at $316.2 million.
The 12 properties are currently 100 per cent-leased and are expected to generate a combined rental income of $24.47 million in the year to March 2008 and $25.82 million in the following financial year. With these assets, Mr Calvert believes the Reit has gained good traction on the industrial property market here, with more opportunities to make further acquisitions. ‘At this stage it is still not a very highly securitised market and we see ample opportunities (for growth),’ he said, adding, ‘we are very busy behind the scenes’.
MacarthurCook Reit will compete with other industrial Reits in Singapore including Ascendas Reit, Mapletree Logistics Trust, and Cambridge Industrial Trust, but the firm believes there is enough room for all players to continue to make yield-accretive acquisitions. ‘There are so few Reits focused on industrial property and so much industrial property out there, we actually don’t come across each other that often,’ Mr Dunstan said. ‘Ascendas Reit is focused on office parks, Mapletree just logistical facilities, whereas our portfolio looks at office parks, logistic facilities and also manufacturing facilities. So we have a broader scope of investment.
‘MacarthurCook Reit is also actively looking for properties in Japan, Malaysia and Hong Kong. And further down the road, it intends to acquire industrial properties in China, South Korea and the Philippines. The firm aims to keep 40 per cent of its assets located in Singapore to provide the Reit with stable returns.