A-REIT – DBSV
Ascendas REIT acquires Nordic European Centre at International Business Park for S$121.5m
In the News
Ascendas REIT announced the acquisition of Nordic European Centre – a 7 Storey business park building located in International Business Park within the Jurong Lake District masterplan. The property has a total GFA
of 28,378 sqm (NLA of 22,066 sqm) and located in close proximity to Ayer Rajah Expressway. This is the 6th property within the International Business Park that AREIT owns, which empowers the landlord with
significant presence to extract possible operational efficiencies. In addition, the acquisition will bring in quality MNCs tenants like Merck Pte Ltd, Evonik Degussa (SEA) Pte Ltd and Thyseenkrupp Mannex Asia
Pte Ltd. The building was previously owned by a fund managed by Alpha Investment Partners Limited since July 2006.
The purchase consideration is S$121.5m representing a price/GFA of S$398 psf.
Our thoughts:
(1) Initial yield is estimated to be c6.0%; accretive to earnings. This compares favorably against the current NPI yield of c.5.9% on its portfolio of Business Parks assets, based on latest valuation and reported numbers
by the REIT. Current occupancy level of 83% also offers opportunity for further earnings upside going forward. We note that this acquisition will be funded through proceeds of recent placement/debt and will be accretive
to DPU. However, the acquisition is relatively small in comparison to its portfolio, and DPU is estimated to increase by only c 0.02 Scts or <1%.
(2) debunks “excess capital theory” in the street; acquisition within our estimates. With this acquisition, Ascendas REIT deploys a major part of its “excess capital” that was raised in previous placement exercise.
We understand that the manager will continue to hunt for assets in Singapore and could possibly tie up a couple of other opportunities over the coming quarters. We have assumed S$200m worth of acquisitions in our numbers for FY12.
We maintain our TP and Call.
MIT – DBSV
Looking for synergies and benefits
• Creating synergies from latest acquisition from JTC
• “Strategic Premium” paid for exclusive assets
• BUY maintained, DCF-based TP S$1.21
Creating synergies from latest acquisition from JTC. Mapletree Industrial Trust (“MINT”) has been awarded tranche 2 of the latest JTC tender exercise of 11 properties (8 flatted factories and 3 amenity centers) of over 2.1m sqft, increasing its total portfolio size by 18% to S$2.6bn. A key advantage is the ability for MINT to create operational efficiencies given its leadership & experience in managing the flatted factory space. MINT is expected to extract the embedded earnings growth from this target portfolio through (i) improving current occupancy level, which is at c95%; (ii) higher rents as the current passing rent is more than 30% below JTC’s latest posted rents as at 1st July’11; and (iii) asset enhancement works on certain assets to improve efficiency and/or GFA. This implies further earnings upside in the coming years when these expiring leases are renewed.
“Strategic Premium” paid for exclusive assets. While we like the attributes of this target portfolio, we believe that the purchase consideration of S$400.3m, translating to an initial yield of 5.0%, appears to have factored in a fair amount of forward growth in our view. We have raised our earnings to account for the contribution from this portfolio, assuming rental reversions of 15% in FY12-13 and 5% thereafter for the new portfolio, funded by a 40-60% debt-equity scenario, keeping gearing at 36.5%.
Longer term benefits, BUY, TP maintained at S$1.21. We believe that synergies from an enlarged portfolio will flow through in the longer term. In addition, we have not factored in any potential enhancement works that would be yield accretive.
CitySpring – Kim Eng
Staying one step ahead
Event
• CitySpring Infrastructure has proposed a renounceable 11‐for‐20 rights issue at $0.39 per rights unit to raise $205m in net proceeds. The proceeds will be used to fund a partial buyback of the A$486m floating rate bonds ahead of their maturity in August 2015. Taking into account the interest savings from debt reduction and the enlarged base of 1,519m units, we lower our target price from $0.540 to $0.46. Maintain HOLD.
Our View
• The proposed capital injection is a preemptive move intended to deflect the effect of a negative outlook on Basslink bonds’ rating and to ensure that Basslink’s distributions to CitySpring will not be disrupted in the event of a rating downgrade.
• Even though the use of the rights proceeds to partially buy back the A$ bonds will result in net interest savings of about $8.5m, the capital raising exercise is still viewed as a negative on the whole as there is no financing of any yield‐accretive acquisition.
• Temasek Holdings, the sponsor, has committed to subscribe for up to 85% of the rights units. If it were allotted the entire undertaking, the Singapore investment company will hold 48% of all units following the rights issue. However, the rights units are not subject to any lock‐up agreement that precludes their subsequent disposal by Temasek.
Action & Recommendation
Assuming that the amount distributed to unitholders in FY Mar12 is kept at around the same level as in FY Mar11, we estimate full‐year DPU to be 3.3 cents in view of the enlarged unit base. While the dividend yield is still attractive, there does not seem to be any major driver for a re‐rating. Management is seeking organic growth in distributions to unitholders through the gas network conversion project for City Gas. However, the project’s timeline has yet to be determined. Maintain HOLD with a target price of $0.46.
MIT – CIMB
Positive accretion but at high cost
Wins Tranche 2 of JTC second divestment
MINT has been awarded Tranche 2 of JTC’s second-phase divestment portfolio of S$400.3m, a shade below the appointed valuers’ S$402.7m valuation but 46% above the second bid by AREIT. With an implied entry yield of 5%, we believe the bid was aggressive. Management, however, highlighted the stronger reversionary growth potential for this acquired tranche vs. its existing portfolio, with rentals estimated at more than 30% below JTC’s newly-posted rents. Part of the acquired portfolio is also located near its existing assets within the Kallang Basin, providing opportunities for operational and leasing efficiencies. Management is reviewing financing options. No change to our DPU estimates pending details on financing. We continue to like MINT for its organic growth potential and maintain our earnings estimates as well as DDMbased target price of S$1.27 (discount rate 8.4%). Catalysts could include higher-thanexpected rental reversions.
The news
MINT has been awarded Tranche 2 of JTC’s second-phase portfolio divestment of S$400.3m, a shade below the appointed valuers’ valuation of S$402.7m. This implies a valuation of S$145 psf GFA and S$189 psf NLA. With a total GFA of 256,251sq m and NLA of 196,898 sq m, the portfolio comprises eight flatted factories and three amenity centres across five property clusters within established industrial estates in the central and eastern regions of Singapore. Contrary to our expectations, renewal rates will still be subject to a rental escalation cap of 5% per annum on JTC’s latest posted rents (1 Jul 11) for three years from the completion date (estimated Aug 11), mirroring MINT’s existing portfolio of flatted factories. Management is still reviewing its financing options.
Comments
Entry yield of 5%. Management estimates overall rentals for the acquired portfolio at more than 30% below JTC’s latest posted rents of about S$1.53 psf for the clusters near the acquired tranche. Coming in 46% above the second highest bid by AREIT (AREIT was likely less keen on this portfolio) and implying an entry yield of only 5% (vs. its current portfolio’s 7%), we believe the bid was aggressive, notwithstanding the growth potential.
Strong potential. Management, however, sees stronger rental reversion for this acquired tranche vs. its existing portfolio, due to an under-rented portfolio and the ability to benefit from JTC’s newly posted rents in Jul 11. Kallang Basins 1, 2 and 3 clusters would also complement its nearby assets in Kallang Basins 4, 5 and 6, which should afford some operational and leasing efficiencies and cost savings. Management also notes a more centralised location for these newly acquired assets and opportunities for asset enhancement which could further propel rental growth.
Funding likely through debt and equity. Management is reviewing its financing options and will be releasing more details after its 1Q12 results on 26 Jul. With limited debt headroom of S$373m to a 45% gearing, we expect the acquisition to be funded by a mix of debt and equity. Assuming 50:50 debt-equity, we expect moderate DPU accretion of about 1% for FY13 when full-year contributions kick in. We set out below the DPU accretion expected in FY13 on different assumed debt-equity funding and placement prices.
Valuation and recommendation
Maintain Outperform. We keep our DPU estimates pending details on the funding mix. Assuming 50:50 debt-equity, we expect moderate DPU accretion of 1% for FY13 when full-year contributions kick in. We continue to like MINT for its organic growth potential and expect catalysts from higher-than-expected rental reversions.
MIT – BT
Mapletree Industrial Trust, Soilbuild win JTC properties
They bagged over 300,000 sq m of industrial space for $688.6m
MAPLETREE Industrial Trust (MIT) and Soilbuild Group have secured over 300,000 square metres worth of industrial space from JTC Corporation at a combined price of $688.6 million, JTC said yesterday.
MIT took up the more expensive tranche – which consisted of 11 blocks of flatted factories and amenity centres – which was sold by JTC at $400.3 million.
The other tranche – comprising 10 blocks of flatted factories and amenity centres – was sold to Soilbuild for $288.3 million.
The factories are located mainly in places such as Kolam Ayer, Kallang Basin, Tai Seng, Bedok and Kampong Ubi.
This is the second divestment of industrial properties by JTC.
The first was finalised in 2008 when JTC sold 39 high-rise ready-built factories worth a total of $1.7 billion to Temasek Holdings’ unit Mapletree Investments.
According to an earlier BT report, at least five parties had submitted bids in the first phase of the two-stage tender process that closed in early March.
The contenders could bid for either or both tranches of assets and had to state their indicative bid prices for the respective tranche of assets, as well as listing their track record, financial strength and proposed business plans for the properties, among other things.
The three parties were then shortlisted and invited to perform due diligence on the assets in the tranche or tranches they were eyeing.
The same report cited analysts saying that the bid price is likely to be the main factor that JTC will use in deciding whom to award the two tranches of properties to under the second stage of the tender process.
This is because it would have factored in the qualitative factors in shortlisting the bidders under stage one.
Shares of MIT gained one cent to close at $1.18 yesterday. Soilbuild was privatised last year.