FCOT – Kim Eng
Ready to fly high
Catalysts abound. Frasers Commercial Trust (FCOT) is an office REIT backed by a strong sponsor and offers income stability through long-term master lease agreements. In our view, the positive rental reversion for its two key assets, China Square Central (CSC) and Central Park (CP), and the unlocking of value through a sale or redevelopment of KeyPoint are positive catalysts for the REIT.
Positive rental reversion a boon. When the existing master lease agreement for CSC expires on 29 March 2012, FCOT will take over direct management of the property. CSC will likely experience an immediate lift to its net property income as the positive rental reversion kicks in – 53% of total gross rental income expiring in FY Sep12F with the average passing rent at $6 psf vs current market rent at $6.3-8.0 psf. The completion of the Telok Ayer MRT station next year should also boost CSC’s signing rents this year and next.
Potential asset sale to unlock value. FCOT has been granted an outline planning permission (OPP) for the redevelopment of KeyPoint, which could be rezoned from commercial to mixed commercial and residential use. In our view, FCOT could sell the asset and use the proceeds to purchase its sponsor’s pipeline of assets, redeem the convertible perpetual preferred units (5.5% coupon), and/or reduce its debt. We would prefer FCOT to refrain from redeveloping KeyPoint to preempt the risk of reducing the building’s attractiveness as an instrument for stable income. KeyPoint could possibly be sold for $1,200-1,300 psf, above its purchase price of $1,186 psf.
Trading at steep discount to book. FCOT trades at a steep 40% discount to its NAV and offers an attractive DPU yield of 7.7% based on consensus. It does not have any major debt refinancing risk until FY Sep13, when S$500m Singapore-denominated loan and S$120m JPY loan are due. Its gearing level is not excessively high at 36.8%. The average borrowing rate of 4% could be reduced upon the successful refinancing of its AUD loan next year.
MLT – OCBC
ACQUIRES TWO WAREHOUSES IN SOUTH KOREA
• Acquisitions to be DPU-accretive
• Funding via proceeds from perpetuals
• Leverage around 39% post acquisition
Acquisition of two quality warehouses in South Korea
Mapletree Logistics Trust (MLT) announced last Friday evening that it had entered into separate Sale and Purchase agreements to acquire two cold storage warehouses in South Korea, namely Jungbu Cold Warehouse (JCW) and Dooil Cold Warehouse (DCW), for an aggregate purchase price of KRW63.5b (~S$71.3m). This marks MLT’s maiden entry into South Korea’s growing cold storage warehouse market. The two assets, which have a total GFA of 38,800 sqm, are each equipped with over 20 cold chambers that offer temperature control ranging from -5°C to -40°C, and are located in Gyeonggi-do, the largest logistics cluster in the country.
Attractive NPI yields and lease terms
We note that each of the properties will be leased back to the respective vendors for a term of 10 years. The lease terms also incorporate a built-in rental escalation of 3% per annum. Altogether, this provides strong and regular cash flows, as well as organic growth to MLT. In addition, both acquisitions are expected to be DPU accretive, according to management. Specifically, JCW is expected to generate an initial NPI yield of 9.5%, while DCW a yield of 9.9%. These returns are significantly higher than the implied NPI yield of 8.2% for its existing South Korea portfolio of dry warehouses, due to the value-adding building specifications of acquisition assets.
Leverage likely to reach 39% post acquisition
We understand that the acquisitions are expected to complete by Apr 2012. Funding for the investments is expected to come from the proceeds raised from the recent issuance of its S$350m perpetual securities. In addition, MLT’s aggregate leverage post all acquisitions announced to date is likely to reach ~39%. We now factor in the two acquisitions into our forecasts. This raises our FY13-14F revenue and distributable income by 2.4-3.9%. Our RNAV-based fair value, however, remains at S$1.20. Maintain BUY on MLT.
MLT – BT
MLT buying two Korean cold storage warehouses
MAPLETREE Logistics Trust (MLT) is acquiring two cold storage warehouses in South Korea for $71.3 million, marking a maiden entry into South Korea’s growing cold storage warehouse market.
Its trust manager, Mapletree Logistics Trust Management (MLTM), has entered into separate sale-and-purchase agreements to acquire these properties located in Gyeonggi-do.
‘These acquisitions are in line with our strategy to scale up our presence in South Korea to a large and profitable asset platform,’ said MLTM chief executive Richard Lai.
MLTM agreed to acquire Jungbu Cold Warehouse, comprising three blocks of cold storage warehouses with three auxiliary buildings, from Chungbu The First Logistics Co for 33.5 billion won (S$37.6 million). This property has a gross floor area of 20,800 sq m.
The other property, Dooil Cold Warehouse, will be acquired from Dooil Cold Store Co Ltd and Woosung Cold Store for 30 billion won. This warehouse comprises three single-storey cold storage warehouses with three auxiliary buildings and has a gross floor area of 18,000 sq m.
Both acquisitions, expected to be completed by April, are likely to be accretive in terms of distribution per unit (DPU) and will bring the total number of cold storage warehouses in MLT’s portfolio to six.
Each of these properties will be leased back to the respective vendors for a term of 10 years with a built-in rental escalation of 3 per cent per annum.
‘We are optimistic about the cold supply chain industry, not just here in South Korea, but also in other parts of Asia where we operate in,’ Mr Lai said. ‘Factors such as rising affluence and higher demand for frozen and packaged food products due to convenience and changing lifestyle all bode well for the industry.’
Based on their respective purchase prices, Jungbu Cold Warehouse is expected to generate an initial net property income yield of 9.5 per cent and Dooil Cold Warehouse is expected to generate a 9.9 per cent yield. This compares to a 8.2 per cent implied property yield from MLT’s existing South Korean portfolio of dry warehouses.
MLTM intends to fund these acquisitions with the proceeds raised from a recent issuance of Singapore dollar-denominated perpetual securities.
With the two new properties, the gross revenue contribution from South Korea to MLT’s total portfolio will increase from 5 per cent to 7 per cent, Mr Lai said.
Including all announced acquisitions to date, MLT’s portfolio will increase to 109 properties with a book value of about $4.1 billion.
HPH Trust – BT
HPH Trust to launch dual currency trading
Hutchison Port Holdings Trust (HPH Trust) is set to be the first to launch dual currency trading of its units on Singapore Exchange’s (SGX) recently introduced dual currency trading platform.
‘We believe dual currency trading is in the best interests of our unitholders and may enhance the liquidity of our units by attracting investors who wish to invest in S$. Fungibility between the two currency counters also means potential and existing Unitholders have the added flexibility to trade in either counter,’ Canning Fok, Chairman of the trustee-manager of HPH Trust, said.
The SGX recently introduced a Singapore dollar (S$) counter to the existing system where units are quoted and traded in United States dollars (US$).
Trades made in the US$ counter will be settled through SGX in US$, while trades made in the S$ counter will be settled through SGX in S$; units traded in both counters are identical.
HPH Trust is a container port business trust listed in Singapore, which is managed by Hutchison Port Holdings Management Pte. Limited.
Investors will be able to buy or sell in either counter beginning 9.00am on 2 April 2012.
Yuan REIT – BT
ARA eyeing yuan Reit listing in S’pore
ARA Asset Management Ltd, part-owned by Hong Kong billionaire Li Ka- shing’s Cheung Kong (Holdings) Ltd, said it is considering the listing of what would be Singapore’s first yuan-denominated property trust.
‘One of the opportunities which the company is exploring includes the possible establishment and listing of a yuan-denominated real estate investment trust (Reit) with assets located in the People’s Republic of China,’ ARA said in a stock market filing.
Sources familiar with the deal said Citigroup, DBS Group and Standard Chartered have already started working on the planned listing. Citi and DBS declined to comment while Stanchart could not be reached.
Dow Jones said in a Tuesday report that ARA will inject Chinese properties now held by its unlisted Dragon Fund II into the Reit. — Reuters