MCT – DBSV
Southern Belle
• First mover into Singapore’s Southern growth corridor
• Strong organic expansion with deep acquisition potential
• Recommend Buy, TP $1.05 translates to 26% total return
Strong growth play in the Southern corridor. Mapletree Commercial Trust (MCT) stands out as a key beneficiary of the growth potentials in the Southern corridor. Having a first-mover presence will allow the trust to leverage on the long-term benefits of the redevelopment and rejuvenation of the Harbourfront-Alexandra-Tanjong Pagar locality as well as Pulau Brani into a new waterfront city. These will have a positive knock-on effect on property values and rentals in the area. Recent addition of iconic landmarks such as the Sentosa Integrated Resort boosts tourist arrivals while a growing office and residence population will enable the trust to benefit from rising sales and shoppers’ footfall.
Strong organic growth, significant and visible acquisition growth potential. As VivoCity, Singapore’s largest mall moves into its first rental renewal cycle, we anticipate the trust to enjoy strong rental pricing ability given the robust double-digit growth in shoppers’ traffic and retail sales psf since the opening of the Sentosa IR. In addition, upgrading works at PSA Building (PSAB) and development of the Alexandra Retail Centre (ARC) will enable the trust to capture the growing working population once completed by end 2011. MCT has a ROFR for a pipeline of properties from its Sponsor, which could potentially triple its initial portfolio’s NLA. In our view, the recently completed Mapletree Business City located in the Harbourfront-Alexandra Precinct, could be the maiden purchase.
Recommend Buy, TP $1.05. The investment case for MCT is its first mover advantage into the Southern growth corridor and a very visible acquisition pipeline. The stock is currently trading at FY12 and FY13 yields of 5.8-6.4%. Our DCF-backed TP of $1.05 translates to an absolute total return of 26%. Key risks include location and asset concentration risks as well as susceptibility to general economic climate, which will affect tourism and consumption patterns in Singapore’s relatively open economy.
PCRT – BT
Perennial China to raise $776.2m in IPO
Firm confirms that its units will be priced at 70cents each
PERENNIAL China Retail Trust (PCRT) will be raising $776.2 million in gross proceeds from its initial public offering.
It confirmed yesterday that its units will be priced at 70 cents each – at the bottom of the indicative range of 70-76 cents. This is in line with what Reuters reported on Thursday.
‘We had a much stronger book at the lower range,’ said Pua Seck Guan, CEO of PCRT’s trustee-manager. By pricing units at that level, ‘we think we leave (a) few cents on the table . . . hopefully we give investors a better return’.
PCRT has been been on market watchers’ radar for several months. It was due to list earlier at $1 a unit to raise some $1.1 billion but plans were shelved in March, reportedly due to volatile market conditions.
But bad news, ranging from deepening sovereign debt problems in the eurozone and worries of slower growth in China, have continued to hit equity markets this month.
Based on the offer unit price of 70 cents, PCRT is expected to provide an annualised distribution yield of 5.3 per cent for Forecast Year 2011 and 5.51 per cent for Projection Year 2012.
The gross proceeds are expected to come from the offering of 563.6 million units and the issuance of sponsor as well as cornerstone units.
The 563.6 million units include around 52.1 million in a Singapore public offer, which opens today and closes on June 7. Trading is expected to start on June 9. There will also be an international placement of 511.45 million units.
Trust sponsor Perennial Real Estate will subscribe for $20 million worth of units for a 3.7 per cent stake.
PCRT’s IPO has drawn eight cornerstone investors, including CB Richard Ellis Global Real Estate Securities, Henderson Global Investors and Prudential Asset Management (Singapore). The eight will together own 46.1 per cent of PCRT.
PCRT will have an initial property portfolio of around $1.1 billion, comprising five assets in Shenyang, Foshan and Chengdu. These include Shenyang Longemont Shopping Mall and Shenyang Longemont Offices.
With the listing now on track, PCRT will be focusing on growth next. Mr Pua is looking to ‘very quickly activate’ the options to purchase two commercial developments projects which are directly connected to high speed rail stations in Chengdu and Xi’an.
CitySpring – DBSV
Lack of positive catalysts
At a Glance
• 4Q11 DPU maintained at 1.05Scts; no surprises
• Cash earnings down 9% q-o-q in 4Q11 as margins in CityGas were affected by higher fuel costs
• Negative risk sharing payments at Basslink continue to impact cash flows
• Guidance for FY12 stays flat at 4.20Scts; maintain HOLD with unchanged DDM-based TP of S$0.58
Comment on Results
Cash earnings down again. Cash earnings for 4Q11 came in at S$16.7m, down 9% q-o-q and almost 30% y-o-y, largely owing to higher fuel costs at CityGas and negative CRSM (risk sharing mechanism) payments at Basslink. Revenues were up slightly (3% q-o-q) to S$110m on the back of higher tariffs at CityGas, but it was not enough to counter the higher fuel prices during the quarter. Basslink again saw negative CRSM outflow in 4Q11 and FY11. Basslink recorded total negative CRSM payments of A$16.7m, impacting cash flows. Overall, total cash earnings of S$77m in FY11 were 30% higher than S$59m earned in FY10.
Payout maintained, guidance flat. The Group paid out 1.05Scts for 4Q11, in line with guidance, and a payout ratio of 54% for FY11. Total gross cash increased to S$159m at end-FY11, up from S$133m at end-FY10. This included restricted cash of about S$26m placed in escrow account earlier to meet S&P criteria and avoid a downgrade on Basslink’s credit rating.
Outlook and Recommendation
Refinancing secured. The Trustee-Manager also announced that DBS Bank has agreed to roll over the S$128m term loan at CityGas (Feb’12 to Feb’14) and S$142m corporate loan at CitySpring (from Aug’11 to Aug’14). The Trustee-Manager will complete its review of the Group’s capital structure by Sep 2011 to ensure sustainability of dividends. While balance sheet risks have subsided somewhat, given the lack of DPU growth or any other positive catalysts, we maintain our HOLD call at an unchanged TP of S$0.58.
PCRT – BT
Perennial China said to raise $784m in IPO
PERENNIAL China Retail Trust has raised $784 million in an initial public offering (IPO) that was postponed in March because of stockmarket volatility, a person with knowledge of the matter said yesterday.
The Singapore-based business trust is selling 1.1 billion units at $0.70 apiece, the bottom end of a range marketed to investors, the person said, requesting anonymity because the pricing hasn’t been publicly announced. Perennial, which owns Chinese malls, had marketed the units at $0.70 to $0.76.
The MSCI Asia Pacific Index fell to a two-month low on Wednesday as Greece’s debt crisis intensified, Japan’s economy contracted, and disappointing US economic data fuelled concern about the global recovery. In Singapore, Hutchison Port Holdings Trust – which completed Southeast Asia’s biggest IPO in March – has fallen almost 10 per cent below its offer price.
Perennial China is managed by Pua Seck Guan, former CEO of the manager of CapitaMall Trust, Singapore’s first property trust. CapitaMall shares posted a record decline in September 2008 after Mr Pua’s resignation.
The IPO includes five properties in Shenyang, Foshan and Chengdu, the company said in a prospectus filed last week. Perennial plans to use the funds raised to develop malls in China, and said investors in the offering will benefit from retail sales growth in the country.
The units are scheduled to start trading on June 8. – Bloomberg
MIT – BT
Three parties in final race for JTC assets
Ascendas unit, MIT and Soilbuild said to have been shortlisted
THREE parties – a unit of Ascendas group, Mapletree Industrial Trust (MIT) and Soilbuild Group – are said to have been shortlisted to take part in the second and final round of bidding for two tranches of JTC Corporation’s flatted factories and amenity centres which were earlier tipped to be worth a total $600-650 million.
Market watchers suggest the Ascendas entity could be the listed Ascendas Real Estate Investment Trust (A-Reit), which along with MIT and Soilbuild, is said to have been shortlisted to bid for one tranche of assets, while the Ascendas entity and MIT will bid for the second tranche of properties.
Final submissions for both tranches of properties are expected to close next week, BT understands.
DTZ, which is managing the sale, could not be reached for comment.
Five or more parties are believed to have submitted bids in the first phase of the two-stage tender process which closed in early March. The contenders were allowed to bid for either or both tranches of assets and had to state their indicative bid prices for the respective tranche of assets in addition to listing their track record, financial strength and proposed business plans for the properties, among other things.
The three parties were then said to have been shortlisted, and invited to perform due diligence on the assets in the tranche or tranches they were eyeing.
For the second stage of the tender process, analysts reckon that the bid price is likely to be the main factor JTC Corp will use in deciding whom to award the two tranches of properties to, since it would have factored in the qualitative factors in shortlisting the bidders under stage one.
Sources suggest that the bidders taking part in Round 2 cannot bid lower than a stipulated percentage of their indicative bids under Round 1.
‘So basically they have some leeway to adjust their prices downwards if necessary since their initial indicative bid prices were formulated without the benefit of doing due diligence on the assets,’ said an analyst.
JTC is selling 21 blocks of flatted factories and amenity centres adding up to over 300,000 sq metres and located mainly in places like Kolam Ayer, Kallang Basin, Tai Seng, Bedok and Kampong Ubi, according to earlier reports.
This marks the second phase of JTC’s asset divestment exercise. The first phase culminated in the $1.71 billion sale to Temasek unit Mapletree Investments of 39 blocks of flatted factories, 12 amenity centres, six stack-up buildings, one ramp-up building, three multi-tenanted business park buildings and one warehouse building.
Mapletree later roped in Arcapita Bank and the portfolio was floated last year under MIT.
JTC has previously said the second phase sale of its portfolio will allow it to focus on seeding new ideas and developing innovative projects that can create a differentiating advantage for Singapore.
Market watchers reckon JTC would be gunning to wrap up the sale before the year runs out.