MLT – OCBC
Likely resilient, even in downturn
Sanguine view on MLT’s outlook. We recently met Mapletree Logistics Trust (MLT) management for an update and came away with a positive view on its outlook. Despite the current uncertain economic backdrop, MLT shared that it has already secured a majority of the leases that are up for renewal in 3Q11. We believe some of these renewals may be made at higher rates than its passing rents, as the previous leases might have been secured at depressed levels during the financial crisis. Latest datapoints from Jones Lang LaSalle (JLL) showed that Singapore factory/ industrial rental growths have moderated (0-3% QoQ) in 3Q11, but were still 35-67% above their last troughs in end 2009. Hence, we anticipate MLT to report another round of positive rental reversion for the renewals, when it releases its 3Q11 results on 20 Oct.
Stable diversified portfolio. Management also highlighted that its portfolio is well-diversified, both in terms of geography and tenant types. We note that its end-users are also relatively well-spread across various industries, while its leases are typically covered by security deposits (average of 7.7-month coverage as at 30 Jun). Moreover, its annual portfolio occupancy rate has remained consistently high, even in market downturns (It has never fallen below 98.0% since its listing. In 2Q11, the rate was at 98.9%, an improvement from 98.3% seen in 1Q11). This clearly shows the resilience of its portfolio, in our view.
Continued focus on yield optimization. For 2Q11, the group announced a commendable 26.6% and 24.6% YoY growth in gross revenue and NPI respectively, due to contributions from its acquisitions made over 2010-11. In the same quarter, it also divested its properties at 9 and 39 Tampines Street 92. This reflects the MLT’s ability to recycle capital to optimize its yield. Going forward, we expect the group to continue to focus on this yield and growth strategy. While we believe it may be more selective in investments in this uncertain economic condition or even be facing difficulty in finding sizeable yield accretive third party acquisition, we note that MLT has a strong pipeline from its sponsor (~S$300m completed or near completion).
Maintain BUY. We continue to like MLT for its resilient portfolio, proven track record and strong sponsor support. Aggregate leverage may be a concern (40.6%), but MLT said it has sufficient resources and is already in advanced talks with banks to refinance its debts maturing in 2012. Maintain BUY with revised fair value of S$1.06 (S$1.01 previously), after incorporating its 2Q11 results.
PST – Lim and Tan
• The Teo family has proposed to take PCT private via voluntary delisting, with an offer price of US$0.43 a unit, 15% above the last traded price of 37.5 cents, but 4% off the IPO price of 45 cents back in 2006. (PCT was the first listed shipping trust, and indisputably the best of the lot.)
• The proposal needs, among others, to be passed by at least 75% of votes at an EGM to be convened, and is subject to the offerors getting at least 75% of the trust at the close of the offer.
• We are surprised with the proposed delisting, given financing has largely been arranged for the construction of 9 new vessels (7 bulk carriers and 2 multi-purpose vessels) costing US$333 mln, and to be delivered between Sept ’11 (PST has recently taken delivery of 1 bulk carrrier) and 2014.
• But this will raise PST’s gearing, which is already on the high side, at almost 50% at end Jun ’11.
• While the latest distribution (annualized 3.236 cents based on payout for H1 ’11) seems sustainable, translating to 8.6% at last traded price, the Teos are likely to succeed with their offer, given the nervous state of the stock market, and also given the general disappointment with shipping trusts, specifically cuts in distribution not very long after listing.
CLT – OCBC
Defensive stock with attractive yields
Defensive stock. We continue to maintain our positive view on Cache Logistics Trust (CACHE) and rate it as one of our preferred picks in the S-REIT space. Defensiveness and attractive yields have become the investment community buzzwords in recent months amid the market uncertainty, and we think CACHE fits into these themes smugly. The stock has posted a slight loss of 2.6% YTD, significantly outperforming FTSE ST REIT Index and STI, which were down 15.9% and 20.7% respectively during the same period. Operationally, CACHE is also relatively well protected from the market downturn and negative rental reversions due to the master lease arrangement for its portfolio. Specifically, this provides for long lease durations (weighted average lease to expiry of 5.1 years in 2Q11), with locked-in annual rental escalation of 1.5-2% and a triple-net lease structure for the contracted lease term, which in turn provides organic growth and earnings predictability for the group.
Attractive yields. CACHE also has one of the more attractive DPU yields in the sector. We estimate that the group would give out 8.3-8.6 S cents in FY11-12 (in line with Bloomberg consensus), representing yields of 8.8-9.1%. This is higher than the sector average consensus yields of 7.8-8.0%.
Acquisitions made are DPU accretive. CACHE made its maiden acquisitions in Mar, with the purchase of 6 Changi North Way and 4 Penjuru Lane, Singapore. In Jun, it announced that the acquisition of chemical warehouse facility in Shanghai from its sponsor CWT Limited, marking its foray into China. More recently, CACHE reported the completion of acquisition of purpose-built four-storey bonded warehouse at 22 Loyang Lane, Singapore. These acquisitions, we note, have NPI yields of 7.4-8.6% (relatively consistent with estimated NPI yield of 7.7% for its existing portfolio) and are DPU accretive.
Financial resources available. With additional debt headroom of ~S$60m before it reaches the regulatory aggregate leverage ceiling of 35% (from 30.2% currently) without a credit rating, CACHE has the financial resources to fund more acquisitions, possibly from CWT. We note that the latter has properties that are granted the Right of First Refusal to CACHE. We would not be surprised if the group announces more acquisitions in coming quarters, as several of these properties have completed construction.
Maintain BUY. We now revise our forecasts to include its 2Q11 results and contribution from 22 Loyang Lane. Our RNAV based fair value now stands at S$1.14 (previously S$1.06), representing an attractive upside potential of 21.6% (excluding FY11F DPU yield of 8.8%). Maintain BUY on CACHE.
FirstREIT – Phillip
A healthcare property giant in the making
• On a property tour to visit four properties in Jakarta, Indonesia
• The installation of state-of-the-art medical facilities and equipments are way beyond our expectations prior to the visit
• Strong sponsor with visible pipeline is the key to grow exponentially
• No rating given to First REIT
Background
First REIT is Singapore-based REIT with a mandate to invest in income-producing healthcare and healthcare-related assets in Singapore and Asia. The trust was listed in December 2006 and has concluded several transactions over the past one year. To date, it owned five hospitals and a hotel & country club in Indonesia and three nursing homes in Singapore with an estimated asset value of SGD 600 million.
Key takeaways
• Imperial Aryaduta Hotel & Country Club not only attracted business and leisure travelers but also outpatients and its families from Siloam Hospitals Lippo Village due to its close proximity.
• The Siloam Hospitals Group management and medical professionals are well-trained and portrayed proficiency in their field of specialization based on our conversation and observation.
• Multiple firsts in Indonesia’s medical developments have put Siloam Hospitals Group ahead of the curve. The two other private hospitals, namely, Rumah Sakit Pondok Indah Group – with two hospitals in Jakarta – and Grha Kedoya Hospital are considered new players in the healthcare industry with less than three-year in operation.
• Mochtar Riady Comprehensive Cancer Centre is Indonesia’s first private cancer treatment centre with state-of-the-art equipment. It can be a game changer to avert the drain of mid- to upper- income natives from seeking medication in the region.
Investment Merits
• Low gearing ratio (c.15.4%) leaves First REIT with SGD 200 million to acquire new property assets.
• Long lease term to expiry (c.11 years) provides visible and sustainable income which brings along stability and resilience.
• Visible pipeline from sponsor with over 10 hospitals to be completed over the next five years.
Potential risks
• High rental concentration from Indonesia properties which made up 94.4% of rental contribution.
PST – BT
PIL unveils plan to delist Pacific Shipping Trust
The group proposes to take PST private, offering 43 US cents in cash per unit
SINGAPORE’s first shipping trust to list – Pacific Shipping Trust (PST) – might soon become the first one to delist as well, after years of lacklustre share performance for the shipping trust brigade.
Holding company Pacific International Lines Pte Ltd (PIL) announced yesterday its proposal to take PST private. PIL plans to streamline the structure of the PST group along with that of the offeror group. The shipping firm will be offering 43 US cents in cash for every unit in the trust that it does not already own – a 14.7 per cent premium over its last-traded price of 37.5 US cents. PST listed on the Singapore Exchange in a 2006 initial public offering price of 45 US cents a unit.
Against the volume-weighted average price (VWAP) of 35.4 US cents for the six-month period before the offer, the offer price stands at a premium of 21 per cent.
So tepid has trading activity been for the business trust in recent months that the VWAPs for the one month, three months and six months before the offer were in a tight range of about 35 to 36 US cents.
Among other things, the proposed privatisation hinges on the delisting resolution being approved by at least 75 per cent of the total number of issued units held by the unitholders present and voting at an extraordinary general meeting to be called. Also, the resolution cannot be opposed by 10 per cent or more of the same such units.
Under the proposed voluntary delisting, the minimum acceptance condition is for PIL to end up holding a stake of at least 75 per cent in the trust. Currently, PIL holds about 59.19 per cent. Subject to the Securities Industry Council’s consent, the offeror has the right to waive this condition.
Trustee-manager PST Management Pte Ltd noted the trust’s low trading liquidity with an average daily trading volume that represents about 0.1 per cent of the trust’s total free float.
It also cited the need for greater operating flexibility as one of the reasons for the decision to go private.
‘For as long as PST remains a listed business trust and seeks to expand its business and vessel portfolio, PST would have to fund such new vessels through a combination of equity, debt and/or internal cash resources,’ it said.
‘Any potential acquisitions will be benchmarked against PST’s distribution yield. . . This places a constraint on PST’s ability to issue new units since its investment decision will be compared against its distribution yield, which is in turn a function of the prevailing trading prices of the units.’
The other two shipping trusts in Singapore have also seen their unit prices take a beating. Rickmers Maritime’s units have fallen 21.8 per cent in value year to date to 30.5 cents. It had listed at an offer price of $1.57 per unit. First Ship Lease Trust’s units have shed 44 per cent since January. They last traded at 26 cents, against their IPO price of $1.50 a unit.