Category: MMP
MMP – UOBKH
Evaluating proposals from strategic review
Received various proposals from third parties. Macquarie Pacific Star Prime REIT Management, manager of Macquarie MEAG Prime REIT (MMP REIT), has embarked on a strategic review with the objective of enhancing value for all MMP REIT unitholders. The manager has received a number of indicative proposals from third parties and is in the process of reviewing these proposals. Macquarie Real Estate Singapore, the largest unitholder with a 26% stake in MMP REIT, continues to support the strategic review.
Reiterate BUY recommendation. We like MMP REIT for strategic frontage on Orchard Road. MMP REIT benefits full year contribution from overseas investments in China and Japan in FY08. The on-going strategic review could also unlock value for investors. MMP REIT provides FY08 distribution yield of 6.08%. Our target price is S$1.55 based on two-stage dividend discount model.
SREIT – JPM
JPM Tips 3 S-REITS To Short Based On “Crash Tests”
JPMorgan tips three Singapore REITS, or S-REITs, to own based on “crash-test” scenarios. “The S-REITs to own have sustainable income streams, relatively conservative asset values and gearing levels at the lower end of the risk spectrum. General risk aversion toward the sector as well as the debt refinancing overhang has created the most obvious valuation anomalies when risk is taken into account,” analysts Christopher Gee and Joy Wang say in report. Expects the market-weighted long portfolio to post 31% total return through end-2008. Says likes A-REIT (A17U.SG) with target price of S$2.93, CapitaMall Trust (C38U.SG) with target price of S$3.67, CapitaCommercial Trust (C61U.SG) with target price of S$2.27; all three rated Overweight. At Thursday’s close, A-REIT ended down 3.9% at S$1.98, CapitaMall +0.3% at S$3.11, CapitaCommercial down 3.6% at S$1.90.
JPM Cuts K-REIT Tgt To S$1.34; Keeps Underweight
JPMorgan cuts K-REIT (K71U.SG) target price to S$1.34 from S$1.52 on prospect of more substantial dilution to equity holders resulting from REIT’s proposed rights issue. Keeps at Underweight. “The key upside risks to our price target for K-REIT could come from an unexpected improvement in the outlook for office property in Singapore, or confidence being restored in real estate capital markets, thus allowing K-REIT to get out of the vicious cycle it is in currently.”
JPM Downgrades CDL Hospitality To Underweight
JPMorgan downgrades CDL Hospitality Trust to Underweight from Overweight, cuts target price to S$1.51 from S$2.55. Cuts follow house running worst-case scenario through valuation models for all S-REITs under coverage. Says S-REITs with highest lease expiries in 2008-09 are most exposed to sudden deterioration in demand conditions if either rental rates or occupancy levels were to drop unexpectedly. Adds, hospitality-oriented S-REITs, such as CDL Hospitality Trust, are most acutely affected in this test.
MMP – BT
RECENT developments in the S-Reit market suggest that consolidation has begun and more merger and acquisition (M&A) activity is imminent, says Macquarie Capital Advisers executive director and global head of property group Antony Green.
In case there is any doubt, future M&As could turn hostile and will almost certainly grab the headlines. But Mr Green says: ‘History shows the first few deals are always friendly.’
He believes that the current state of the S-Reit market corresponds to that of the Australian market about 10 years ago.
In 1999, the number of Australian-listed property trusts (LPTs) peaked at 46, then slowly dwindled to around 26 today, with the asset pool remaining largely the same.
Consolidation, if or when it is considered by S-Reit players, will be trickier because property assets have surged in value recently, making acquisitions less likely to be yield-accretive.
Mr Green says that although yield-accretiveness ‘is one of the first tests’ when making an acquisition, ‘you have to think of total return’.
‘There is strategic merit in buying something that in several years’ time is going to create more value for you as an investor,’ he adds.
He also says: ‘With a bit of synergy, maybe a management fee waiver of some sort, a bit more or less debt, you can make it positive for both sides.’
Mr Green could, of course, be talking about Macquarie MEAG Prime Reit (MMP Reit), which recently announced a strategic review, on which he is advising.
MMP Reit could be sold in its entirety or have its underlying assets sold piecemeal.
On the attractiveness of MMP Reit, Mr Green says that while it was trading for around $1.05 a unit before the strategic review announcement, its NAV based on the underlying assets had been valued around $1.61 a unit. And at the end of the trading day on Thursday, it closed at $1.19 a unit unchanged.
For current investors, however, MMP Reit has not delivered growth.
‘A lot of S-Reits have traded on the fact that they will provide growth. MMP Reit, given its cost of capital, struggled to provide the acquisitions and the growth,’ Mr Green says.
He has no comment on the details of MMP’s strategic review, but says it is in Macquarie Group’s interest not to sell its 26 per cent independently but to seek an offer for all unitholders instead.
On consolidation of the S-Reit market and the Reit market in Asia in general, he believes this will make it more ‘efficient’. ‘Some Reits will disappear and some will go from strength to strength.’
Mr Green does not think the S-Reit market has matured yet. But the perception that S-Reits are a growth vehicle is changing. ‘Some of that gloss has come off a bit,’ he says.
‘It is not a bad thing that people realise what Reits actually are and not what they think they are supposed to be.’
MMP – BT
MMP Reit refinances $220m short-term loans
MACQUARIE MEAG Prime Reit (MMP Reit) has refinanced $220 million of short-term loans, $190 million of which are due in May and $30 million in August.
‘In light of the strategic review of MMP Reit announced on Feb 19, the new funding has been arranged to extend the maturity of the facilities until end-September,’ said Macquarie Pacific Star, the manager of MMP Reit. This will allow the review to proceed with flexibility. It also removes the need to incur additional costs to unwind longer-term loans, which may be necessary if there is a transaction arising from the strategic review, said the real estate investment trust (Reit) manager.
In its Feb 19 announcement on the strategic review, the Reit manager said the specific objective is to enhance value for MMP Reit unit-holders. The review includes the possibility of the Macquarie Group selling its stake in the Reit.
The financing renewals have been secured on competitive terms and will not have a material impact on distribution per unit to unit-holders, the Reit manager said, adding that the successful refinancing – a continuation of support for the trust by finance providers – shows the strong credit quality of MMP Reit.
‘MMP Reit’s creditworthiness is supported by the high quality of underlying assets, low gearing, rental reversions, occupancy levels and tenancies,’ said Macquarie Pacific Star chief executive officer Franklin Heng.
MMP Reit recently announced an increase in its net asset value to $1.61 per unit as at Dec 31, 2007. The Reit is trading at a discount to this value, closing yesterday at $1.22.
‘We remain committed to securing the most optimal financing arrangements to maximise returns to unit-holders,’ Mr Heng said yesterday. ‘We will continue to monitor MMP Reit’s funding position throughout the strategic review.’
MMP Reit posted a 15.7 per cent year-on-year rise in distributable income to $16.2 million for the fourth quarter ended Dec 31, 2007.
MMP – UOBKH
Secured refinancing
Secured refinancing for short-term loans. MacQuarie MEAG Prime (MMP) REIT has refinanced S$220m of short-term loans, S$190m of which are due in May 08 and another S$30m in Aug 08. The new funding was arranged to extend the maturity of the facilities until end September in light of the strategic review announced on 19 Feb 08. The renewal was secured on competitive terms and will not have a material impact on Distribution Per Unit (DPU). The refinancing will allow the review to proceed with flexibility.
Strategic review could result in restructuring. MacQuarie Pacific Star has embarked on a strategic review with the objective of enhancing value for all MMP REIT unitholders. The review will consider both corporate and asset level strategies and could involve a proposal to take over 100% of MMP REIT.
Reiterate BUY. We like MMP REIT for strategic frontage on Orchard Road. MMP REIT gains full year contribution from overseas investments in China and Japan in FY08. The on-going strategic review could also unlock value for investors. MMP REIT provides FY08 distribution yield of 6.13%, an attractive spread of 4.09% over 10-year Singapore government bond yield at 2.04%. Our target price is S$1.55 based on 2-stage dividend discount model (required rate of return: 7.85%, terminal growth: 2.5%).