PCRT – TODAY
Perennial on fast track
Singapore’s next big listing, Perennial China Retail Trust (PCRT), is hopping on board the transportation phenomenon that is sweeping over China. Plans for developments in high-speed rail are already underway across the country, such as the line between Beijing and Shanghai which cuts travel time in half.
PCRT may not be involved in the development of such tier one city stations but it does have second-tier cities in its sights.
The initial portfolio of the trust includes retail space connected to metro stations. The trust has also secured the option to invest in a pipeline of commercial development sites which are directly connected to high-speed railway stations in Chengdu and Xi’an. And with some 400,000 passengers expected to flow through Chengdu East Railway Station when it is completed, it is easy to see where the attraction and potential is for the retail developer and its partners.
Mr Pua Seck Guan, CEO of the Trustee Manager for PCRT, says that in an increasingly competitive environment, customer catchment is key, “I think it must be within the population catchment, well served by the transportation network, i.e. roads, MRT. I think these are very important because more than 60 per cent, 70 per cent of our customers come from means of transportation other than cars, so transportation network is very important.”
Mr Pua adds that he is already in discussions with other cities to develop retail and transportation models similar to PCRT’s current projects.
Industry players say that retail rentals in strategically located malls in Shenyang and Chengdu could climb at a pace of 10 to 15 per cent annually for the next eight years.
The bustling transportation hubs have also had an impact on the surrounding residential prices. For example, some experts note that residential property prices have doubled in value in the last two years in select areas surrounding new transportation infrastructure on the back of anticipated economic progression.
But while rental prices may be moving up at a rate akin to the high-speed transport they link too, market watchers say the verdict is not yet out on PCRT’s offerings. PCRT says yield for forecast year 2011 will come in at 5.30 per cent and 5.51 per cent for next year.
However, Mr Gabriel Yap, executive chairman at GCP Global, says: “The offer yields are even below 6.8 per cent yield of CapitaRetail China Trust, whose assets are in relatively better located areas in first and second tier cities in China.”
PCRT plans to raise S$776.2 million in gross proceeds from what is set to be the third-largest initial public offering in Singapore this year, behind Hutchison Port Holdings Trust and Mapletree Commercial Trust.
Funds will be raised from the offer and the issuance of sponsor units, as well as cornerstone units at 70 cents each. The business trust is offering about 564 million units and is expected to start trading on the SGX on June 9.
FSL – BT
FSLT buys product tanker in sale-and-leaseback deal
This will raise the trust’s portfolio size to 24 vessels
FIRST Ship Lease Trust (FSLT) is buying a product tanker for US$46 million and leasing it out on a seven-year bareboat charter.
The Long Range II (LR2) product tanker – FSLT’s first – will be bought from Torm Singapore Pte Ltd, a wholly owned subsidiary of Torm A/S, and leased back to Torm Singapore. The vessel is expected to be delivered within this month.
‘The bareboat charter agreement is structured with recourse to Torm and contains a purchase option at the expiry of the base lease term, an early buy-out option on or after the fifth anniversary of the lease term, as well as three extension options of one year each,’ FSLT’s trustee manager said in a statement on Wednesday night.
The purchase of the vessel will be fully financed by the drawdown of US$23 million from the trust’s existing revolving credit facility and the utilisation of US$23 million from the previous equity issue in September 2009, which raised net proceeds of US$28.3 million.
After funding this transaction, the trust’s total projected outstanding secured debt as at July 1, 2011, will be about US$460 million.
This deal will be immediately cash flow accretive to the trust and will increase its total remaining contracted revenue to US$602 million, excluding extension options.
‘We believe that the growing demand for alternative shipping finance such as ship leasing will present a healthy pipeline of transaction opportunities that we are well-positioned to take advantage of,’ said Vijay Kamath, senior vice-president and head of sales of First Ship Lease Trust Management.
‘While we now have the flexibility to take on both time and bareboat charters with terms shorter than seven years, our ship leasing business will remain ‘long-biased’.’
The average remaining lease term of the trust’s portfolio remains at the current 6.8 years.
The acquisition of the 109,672 deadweight ton product tanker – called the MT Torm Margrethe – will bring the trust’s portfolio size to 24 vessels. Including Torm, the trust will have eight lessees.
StarHill Global – CIMB
Attractive yields for well-heeled retail malls
• Attractive yields for well-heeled retail malls; initiate with Outperform. Starhill’s portfolio is dominated by high-end retail properties located in prime shopping districts in Singapore, Malaysia, China, Australia and Japan. We use DDM (discount rate 8.4%) to value Starhill and arrive at a target price of S$0.74. We believe its well located assets, master leases and low asset leverage offer income stability. FY11 DPU yield of 6.7% is also the highest among retail REITs under our coverage. We see catalysts from higher rental revisions, asset-enhancement initiatives and accretive acquisitions.
• Master leases for income stability. While exposure to discretionary spending (in high-end retail malls) typically increases volatility, we expect master and long leases, which anchor about 44% of our FY11 revenue forecast, to mitigate these volatilities. Master and long leases on its overseas assets, likewise provide income stability as the REIT ventures overseas for growth.
• Growth catalysts. Its Toshin and David Jones master leases will be up for reviews in FY11. With both properties substantially under-rented, we see room for upward rental revisions. Management has also announced asset-enhancement plans for Wisma Atria, which should drive rental growth on completion. Meanwhile, low asset leverage at 30% leaves room for acquisitions without the need for substantial equity fund-raising.
CLT – OCBC
Maiden foray into China
Maiden foray into China. Cache Logistics Trust (CACHE) announced on 1 Jun that it is acquiring a chemical warehouse facility in Shanghai (Jinshan Chemical Warehouse) from its sponsor, CWT Limited, via an acquisition and leaseback arrangement for a purchase consideration of S$13.5m. This asset falls under the right of first refusal (ROFR) granted to CACHE at the time of IPO in Apr 2010. CWT will lease back the facility for a period of three years with an option for a further three years. The lease is triple-net and rental will commence at RMB 1.30 psm/day for the first year and increased by 2% per annum thereafter. Any extension of the lease will be on the same lease terms, save for rental and associated increase which will be at fair market rates. This acquisition marks CACHE’s first acquisition outside Singapore into China.
About the property. The property is located in Jinshan District within the successful Shanghai Chemical Industrial Park (SCIP), one of the largest petrochemical bases in Asia. SCIP is well-positioned and commands the interest of both local and multi-national end-users with an overall occupancy rate of around 90%. The property was developed by CWT and completed in 2007. The premises comprised of four single storey chemical warehouse buildings, ancillary office space, loading bays and car parks. The facility is sited on a land area of 33,506 sqm, with a built-up gross floor area of about 13,547 sqm. CACHE intends to finance the acquisition by debt. Upon completion of the transaction, expected to be within Jun 2011, CACHE’s gearing will rise from 27.9% to 29.2%.
Yield-accretive acquisition. The NPI yield of the new property is 8.6%. This is higher than CACHE’s existing portfolio yield of 7.6%, making the acquisition yield-accretive. The average of the two valuations provided by CB Richard Ellis and Knight Frank Petty, who acted on behalf of the manager and trustee respectively, is approximately S$14.6m, higher than the purchase consideration. This acquisition will enable CACHE to capitalise on the economic growth in China and in particular the resilient chemical and commodity logistics businesses. Concurrently, by diversifying into a different market, CACHE is expected to benefit from risk diversification from the property and the economic cycles where CACHE’s portfolio is located. CACHE stated that it is actively also looking to expand to other tier-one Chinese cities such as Tianjin, Beijing and Chengdu. We look forward to more property additions not only to diversify CACHE’s tenant base, but also to reduce its concentration risk on a single asset (CWT Hub which still account for 46.3% of FY11 gross revenue). Factoring in contributions from the new acquisition, our fair value increased marginally from S$1.05 to S$1.06. Reiterate BUY.
MLT – OCBC
Spotlight is on South Korea
KPPC Pyeongtaek Centre. Mapletree Logistics Trust (MLT) recently announced that it has signed a conditional sale and purchase agreement with Korea Port Processing Co. Ltd (KPPC) for the acquisition of KPPC Pyeongtaek Centre at a purchase price of approximately S$85.9m. The property comprises two blocks of dry goods warehouses with a total GFA of about 100,900 sqm. There is also potential for organic growth as it has yet to maximise its permissible plot ratio, which will yield an additional GFA of close to 20,000 sqm. The property provides an initial NPI yield of 8.6%. The vendor, KPPC, will lease the entire property for a period of 5 years with an annual rental escalation of 3.0%. MLT has stated that this acquisition marks an important milestone to entrench the trust into the South Korea market. The acquisition is expected to be completed by 3Q11. Given the sizeable acquisition, the contribution of South Korea to the total portfolio’s gross revenue is expected to increase from 2.7% to 5.6%. Consequently, KPPC will be the first Korean customer in MLT’s list of top ten tenants; thus further diversifying its tenant base. Assuming that the purchase price and other acquisition costs of the property are fully funded by debt, MLT’s gearing level will increase to about 41% (after taking into account all acquisitions and divestments announced to date).
Capital recycle play in action. MLT also announced on 31 May that it has completed the divestment of 9 Tampines Street 92 for a total consideration of S$12.8m. Approximately S$11.2m will be redeployed to partially fund the acquisition of Jian Huang Building. Recall that 39 Tampines Street 92 is still in the midst of divestment for S$14.7m. MLT has previously cited that the two properties have building specifications that are now outdated and no longer ideal for modern logistics operations. Given its limited growth potential, it believes that divesting these assets would be the best option to maximize returns. MLT expects the disposal gain to result in a one-time increase in FY11 DPU by 0.07- 0.09 S cents.
More acquisitions to come. Apart from Korea, MLT has also added that it is actively looking at acquiring a warehouse (60,000 sqm and 98% leased) in Malaysia from its sponsor. MLT should be able to complete the acquisition by this year. Going forward, its main acquisition focus continues to be in Singapore, Malaysia and South Korea. MLT has a proven track record of executing a virtuous cycle of accretive acquisitions and competitive fund-raising. It is also a favourable move to recycle proceeds into better-yielding assets. Factoring in contributions from the new acquisition, our fair value increased from S$1.00 to S$1.01. Reiterate BUY.