Who will mine the Orchard Gold ?

Story: According to news reports today, it has been quoted that sponsor Macquarie Group could be reviewing its 26% stake in MMP with a possible divestment in the works. The news report also cited that there could also be potential differences between Macquarie and other main shareholders within the MMP REIT manager in terms of strategic direction that may also see some resistance for any potential divestment.

Point: The above piece of news is likely to cast doubts on the cohesiveness of the REIT manager. In the near term, this piece of news may also result some overhang on the unit price. However, this supports our earlier view that M&A could emerge as a positive catalyst for the stock and MMP to be a likely target due to the following : i) MMP has a relatively fragmented ownership structure; ii) its position as an independent REIT without a developer as a sponsor; iii) Attractive yield spreads of c.200 bps compared to its Singapore-listed peers which supports MMP’s attractiveness as a takeover target; and iv) MMP’s portfolio is backed by prime assets in Singapore such as Wisma Atria (41% of portfolio value) and Ngee Ann City (47% of portfolio value) and is currently trading at an attractive 34% discount to NAV.

Relevance: We are maintaining our BUY on MMP which is currently trading at an attractive 7.0% FY08 yield and 7.3% FY09 yield and at an attractive 34% discount to NAV backed by prime retail assets. Target price is S$1.63 based on DCF.

MMP Reit posts 15.7% rise in distributable income for Q4

MACQUARIE MEAG Prime Real Estate Investment Trust (MMP Reit) has reported a 15.7 per cent year-on-year rise in distributable income to $16.2 million for the fourth quarter ended Dec 31, 2007. The Q4 distribution brought 2007 full year’s distributable income to $59 million, up 7.5 per cent.

Distribution per unit (DPU) for the quarter rose 14.3 per cent to 1.68 cents, bringing full-year DPU to 6.19 cents, a rise of 6.9 per cent. ‘This is a result of our regional diversification strategy and focused asset management efforts,’ said Franklin Heng, CEO of MMP Reit’s manager Macquarie Pacific Star.

On an annualised basis, the latest distribution represents a yield of 6.06 per cent based on MMP Reit’s traded unit price of $1.10 on Dec 31, 2007. An increase in the valuations of MMP Reit’s portfolio of 10 properties raised group net asset value (NAV) per unit to $1.61 as at Dec 31, 2007, up 38.8 per cent from end-2006’s $1.16.

Gross revenue for Q4 2007 was $29.8 million, up 32.1 per cent year-on-year. This was due to higher rental rates from renewals, new leases and revenue from new acquisitions. Full-year gross revenue rose 14.6 per cent to $103 million. Net property income for Q4 rose 29.1 per cent to $22.1 million, despite higher year-on-year expenses. This brought full year’s net property income to $76.8 million, up 10.9 per cent. Mr Heng said: ‘As at Dec 31, 2007, our Singapore properties enjoyed full occupancy for retail space and 99 per cent occupancy for office space. The 79,100 square feet of office leases which expired in 2007 had average quarterly passing rents of $4.90 to $5.30 per square foot per month (psfpm) and these were renewed or contracted at average rents of $7.70 to $12.10 psfpm.’

MMP Reit’s portfolio includes a 74.23 per cent strata title interest in Wisma Atria and a 27.23 per cent strata title interest in Ngee Ann City. In 2007, it acquired seven prime properties in Tokyo and a retail property in Chengdu in China, growing its asset portfolio to $2.2 billion.

The Reit said it continues to exercise prudent capital management by maintaining a low gearing and strong balance sheet. ‘Our gearing of 29 per cent is at a healthy level. To shield MMP Reit from interest rate volatility, 89 per cent of our debt is fixed and the average interest rate is 2.69 per cent. Interest cover is 4.4 times. The recent establishment of a $2 billion multi-currency medium term note (MTN) programme will provide additional sources of funding,’ said Mr Heng.

On MMP Reit’s outlook, Stephen Girdis, chairman of Macquarie Pacific Star, said: ‘MMP Reit has in the past year laid the foundations for strong organic growth for the next couple of years, through its maiden acquisitions in Japan and China, and its tenancy remix and asset enhancement initiatives for MMP Reits’s Singapore properties, Wisma Atria and Ngee Ann City.’

SINGAPORE, 16 January 2008 – Macquarie Pacific Star, Manager of MMP REIT – the S-REIT with the largest presence in Orchard Road – is pleased to announce that Moody’s Investors Service (Moody’s) has assigned a ‘Baa2’ rating to the S$2 billion multi-currency Medium Term Note (MTN) programme set up for MMP REIT on 8 January 2008. Moody’s corporate family rating of ‘Baa1’ with a stable outlook for MMP REIT remains unchanged. The corporate family rating was first assigned to MMP REIT in July 2006 and reaffirmed in May 2007.

CLARIFICATION OF BLOOMBERG AND OTHER PRESS REPORTS DATED 8 JANUARY 2008

Macquarie Pacific Star Prime REIT Management Limited (the “Manager”), as Manager of Macquarie MEAG Prime Real Estate Investment Trust (“MMP REIT”), wishes to clarify statements made in reports published by Bloomberg, Business Times and various other press sources today (the “Reports”).

The Manager is always evaluating sources of funding and other means of effective capital management for MMP REIT. Reference should be made to the SGX-ST announcement released by the Manager on SGXNET today in respect of the medium term note programme (the “MTN Programme”) established for and on behalf of MMP REIT. Whilst the Manager is considering raising debt capital for MMP REIT in the near future (which may be by way of a bond issuance, in conjunction with the MTN Programme or otherwise), no definitive agreements or terms have yet been finalised, in the manner the Reports would suggest or otherwise.

In the event of any material developments in this respect, the Manager would issue the appropriate announcements in compliance with the listing rules of the SGX-ST.

Source : SGX

Macquarie MEAG to raise S$150m from bond sale

Trust is acquiring more property assets in Asia

MACQUARIE MEAG Prime Reit, which owns stakes in two Singapore downtown malls, plans to raise as much as S$150 million from a bond sale, according to an e-mail sent to investors.

The property trust, which also owns offices in the city-state, hired Citigroup Inc to arrange the sale. Macquarie MEAG is offering investors yield premiums of 30 basis points more than corporate benchmark borrowing rates in Singapore for bonds that mature in a year, and 70 basis points for three-year securities. A basis point is 0.01 percentage point.

Macquarie MEAG is raising more debt as it acquires more property assets in Asia. Its leverage increased to about 34 per cent as of Sept 30, from 25 per cent at the end of 2006, according to the trust.

The Singapore-listed trust owns office buildings and retail malls in Singapore, Tokyo and Chengdu, China.

Macquarie MEAG will likely buy assets similar to those it is holding, which may raise its leverage to between 40 to 45 per cent, according to Moody’s Investors Service on May 14.

The trust is rated Baa1, the third-lowest investment grade, by the credit assessor.

Macquarie MEAG owns 74 per cent of Wisma Atria, whose tenants include the Isetan department store, and 27 per cent of Ngee Ann City, anchored by retailer Takashimaya.

The trust is managed by Macquarie Pacific Star Prime Reit Management Ltd, which is 50 per cent-owned by Macquarie Group Ltd, Australia’s largest securities firm. — Bloomberg