CRT – DBSV
Executing its growth strategy
- Acquires One’s Mall in Greater Tokyo for JPY11bn, a 5% discount to the independent market valuation
- Acquisition partially funded by recent S$72.2m share placement
- Maintain BUY, TP of S$1.10
Further expansion into Greater Tokyo. CRT announced the acquisition of One’s Mall for JPY11bn (S$132.5m) which represents (1) a 5.2% discount to the JPY11.6bn (S$139.8m) independent valuation, and (2) an initial NPI yield of 5.8%. One’s Mall is a freehold, large-scale retail complex (NLA of 52,844 sqm) located in Inage Ward within Chiba City, which is 40km southeast of Tokyo. As of end- Jun14, occupancy and WALE stood at 99.4% and 5.8 years respectively. The mall is located next to a major arterial road and is in an area served by three major train lines. It also provides exposure to a trade area which has a higher population/household growth and larger proportion of high income households than the national and prefecture average. The mall’s key tenants include Daiei, Central Sports, Toys ‘R’ Us, Nitori and Sports DEPO.
0.1%/0.8% uplifts to FY15/16F DPU. The acquisition of One’s Mall will be funded via (1) recently completed S$72.2m share placement – 78.9m shares at an issue price of S$0.915 per share, (2) new Japanese local bank debt of JPY6,150m (includes JPY650m payment of consumption tax which will be repaid within 12 months from completion of the acquisition) at an interest rate of 1.29%, and (3) JPY500m from the S$100m worth of bonds issued in Jan14. Post-acquisition, total NLA will increase 27% to 251,013 sqm with exposure to the top ten tenants dropping from 71% of NLA to 69%. WALE will also decline to 9.1 years from 10 years. In addition, we estimate 0.1%/0.8% uplifts to FY15/16F DPU with gearing increasing marginally to 52% (51.2% including JPY650m consumption tax) from 51.7% at end-FY14.
Maintain BUY. We continue to like CRT for its exposure to the Japanese retail market and the prospects of further cap rate compression. Maintain BUY with TP of S$1.10.
OUE H-Trust – OCBC
Better days ahead
- Expecting higher demand in 2H
- Well positioned for uptick
- Positives likely priced in
Anticipating a better 2H14
We expect OUE Hospitality Trust (OUEHT) to benefit from a seasonally higher hospitality demand in 2H14. A check on the preliminary hotel statistics published by Singapore Tourism Board (STB) painted an improved hospitality outlook in Jul – RevPAR grew by 5.4% MoM to S$223.4, while average occupancy rate increased to 90% from 84.9% in Jun. While the international tourist arrivals to Singapore declined by 2.5% for the first seven months of 2014, we note that the number of arrivals in Jul represented a 19.2% MoM jump to 1.4m. More importantly, the arrivals from Asia registered a 16.7% MoM increase in Jul. Given that Asia formed ~74% of OUEHT’s Mandarin Orchard Singapore (MOS) customer profile for 1H14, we believe that OUEHT is likely to put on a better showing in 2H should the demand be sustained.
Recent interim results met expectations
In 2Q14, OUEHT delivered a consistent set of results. NPI and income available for distribution came in at S$25.2m and S$21.1m respectively, which was 1.2% and 2.5% higher than its respective prospectus forecasts. DPU for the quarter was also 2.5% above its forecast at 1.64 S cents. For 1H14, DPU amounted to 3.32 S cents, meeting 49.5% of our full-year distribution projection. While 2Q RevPAR of S$242 missed its prospectus forecast of S$258, we understand that this was partly due to the accelerated renovation schedule in the quarter to capture the expected uptick in hospitality demand in 2H. As at Jul, 160 out of a total of 430 guestrooms have completed refurbishments. This would allow OUEHT to leverage on the newly renovated rooms to attract customers seeking a premium accommodation in Orchard Road area, in our view.
Maintain HOLD on valuation grounds
We are making minor adjustments to our FY14 forecasts since the interim results were largely consistent with our expectations. There is no change to our fair value of S$0.85. Maintain HOLD as OUEHT appears to be fairly priced at current level.
SB REIT – OCBC
Acquires light industrial building
- 10-year lease tenure
- Initial NPI yield likely at 7.5%
- Gearing to inch up slightly to 32.0%
Sale-and-leaseback agreement
Soilbuild Business Space REIT (Soilbuild REIT) proposed to acquire a light industrial building located at 20 Kian Teck Lane in Singapore last week. The total cost of the transaction was estimated at S$24.4m, including the purchase consideration of S$22.4m, upfront land premium of S$1.7m and other expenses. We understand the vendor is Speedy-Tech Electronics Ltd, an indirect wholly-owned subsidiary of Integrated Micro-Electronics listed on the Philippine stock exchange. Upon completion of the transaction, Soilbuild REIT will lease the property back to Speedy-Tech, which will undertake to commit 100% occupancy of the building on a 10-year triple-net lease.
More details on acquisition
We view the acquisition positively as the long leaseback term will add certainty to Soilbuild REIT’s income stream and provide further diversification to its portfolio assets. Based on our projections, the property is likely to generate an initial NPI yield of 7.5% with an annual rental escalation of 2.5%. This, we note, is higher than its portfolio yield of c. 6.0%, thus likely making the deal DPU-accretive. Management guided that it intends to fund the acquisition fully by drawing down part of the S$100m term loan facility that was signed in May 2014. Accordingly, Soilbuild REIT’s aggregate leverage is expected to increase from 30.3% as at 30 Jun to 32.0%.
Maintain BUY
Given that the acquisition is expected to complete in 4Q this year, we now incorporate its financial impact into our forecasts. In 2H14, we believe Soilbuild REIT’s portfolio performance will remain robust, supported by healthy organic growth and new contributions from its recently announced acquisitions. We continue to like Soilbuild REIT for its young portfolio assets, strong financial position and proactive management. There is currently no change to our fair value of S$0.88 on Soilbuild REIT. Maintain BUY as upside potential remains compelling.
CRT – CIMB
Executing acquisition growth
CRT’s purchase is not surprising, although the property was not part of its ROFR assets. This demonstrates management’s ability to source for assets in an increasingly competitive environment. The property would expand AUM by 16.6% and NLA by 26.7%. The initial NPI yield is 5.8%, lower than its existing portfolio NPI yield but we believe there is scope for further upside should the property undergo an AEI. The purchase is funded by a combination of debt and equity, and would initially raise DPU by 1.5%. Maintain Add and DDM-based target price at S$1.16. CRT offers investors 7.9-8% FY15-16 DPU yield.
What Happened
CRT has proposed to acquire One’s Mall in the Chiba prefecture for ¥11bn from a private fund. The acquisition price is below the independent valuation of ¥11.6bn, translating to an NPI yield of 5.8%. The mall, with 52,844 sq m of NLA is 99.4% occupied, with a WALE of 5.8 years. There are a total of 52 tenants but anchors such as Daiei, Central Sports, Toys’R’Us, Nitori and Sports DEPO take up c.80% of NLA. The deal will be funded by a combination of new yen local bank debt, proceeds from its MTN programme as well as a private placement of 78.9m new units, priced at S$0.915/unit (c.S$72.2m), a 3.2% discount to the adjusted 1-day VWAP of S$0.9455 (after subtracting the cumulative distributions).
What We Think
The purchase continues to enhance the portfolio with a 16.6% increase in AUM to ¥81.47bn and 26.7% expansion in total NLA. In addition, the shorter property lease profile has reduced portfolio WALE to 9.1 years, thus enabling the trust to better leverage the inflationary prospects in the country. The property is well located, close to three train lines and is situated in a densely populated area. In terms of earnings impact, we reckon, at an initial 5.8% yield, the acquisition would lift our DPU estimates by a marginal 1.5% on a fully-diluted basis and raise book NAV by 0.1%. However, we believe there is potential for upside should the asset undergo an asset enhancement initiative given the present large anchor tenant component. Gearing will dip slightly to 50.5% post-acquisition and equity offering.
What You Should Do
We continue to like CRT for its pure play exposure to the Japan retail real estate market through its capital-efficient platform. Prospects of strong organic growth and cap rate compression underpinning asset values remain catalysts for the stock.
CRT – OSK DMG
Expanding Its Presence In Japan
Croesus proposes to acquire One’s Mall in Chiba, Japan for SGD132.5m with a NLA area of around 52,000 sqm and a 99.4% occupancy rate. It will fund this acquisition partly via the issuance of 78.9m new private placement shares at SGD0.89-SGD0.92 a share, raising around SGD71m and the rest by local and Japanese debt. With this, gearing drops to 50% from 52% while DPU rises marginally to SGD0.09 from SGD0.0898. Maintain BUY with SGD1.15 TP.
- Private placement at SGD0.89-0.92/share. Croesus Retail Trust (Croesus) will partially fund this acquisition via a private placement of around 78.9m new shares at SGD0.89-0.92 per share, which will raise between SGD70.2m and SGD72.6m. It represents a 2.7%-5.9% discount to the adjusted volume weighted average price (VWAP) of SGD0.945 per share on 1 Sept (after deducting SGD5.4 cents from 2H14 declared dividend and advanced distribution). In addition, about SGD74.1m will be raised from new Japanese local debt (interest rate of 1.3% per annum) and the remaining SGD6m will be tapped from the existing local medium term note (MTN) programme (interest rate of 3.8% per annum).
- Large-scale retail shopping complex. One’s Mall is a freehold, largescale retail shopping complex with 52 tenants across a NLA of more than 52,000 sqm and a weighted average lease expiry (WALE) of 5.8 years. Opened in 2000, it is one of the largest retail facilities in Chiba Prefecture with a 99.4% occupancy rate. The property is situated in Inage Ward, one of the six wards in Chiba City, located within a suburban residential area with high population density. With 1,534 car park lots and a frontage along the National Road Route 16, a major arterial road, it provides visibility and easy accessibility to customers with cars.
- Maintain BUY with a SGD1.15 TP. We believe that this proposed acquisition is positive and in line with management’s strategy for Croesus, as it is marginally yield accretive (+0.002%), despite the fact that new shares are being placed out. Gearing drops to 50% from 52%, giving it more debt headroom for potential acquisitions down the road. Lastly, it allows the company to further expand its asset base and ride on any potential tightening of capitalisation rates. Maintain BUY with a SGD1.15 TP.