A-REIT – BT
A-Reit tops bid for site at Fusionopolis
Total of seven bids, ranging from Cambridge trust’s $50.38m to A-Reit’s $110m
A-Reit’s bid of $110 million, or $4,397.89 per square metre per plot ratio (psm ppr), was 29 per cent above the next-highest bid of $85.24 million, by Marina Trust trustee Mapletree Trustee Pte Ltd, and more than double the lowest bid of $50.38 million, by Cambridge Industrial Trust.
If awarded the site, A-Reit will develop it into a modern business facility with 25,000 square metres of gross floor area – comprising 60 per cent business park space and 40 per cent office space, it said yesterday.
The facility will cater to tenants in the infocomm technology and media industries as well as research and development activities in physical science and engineering, A-Reit said.
The site, which lies within the 200-hectare one-north development housing research facilities and business parks, has a 60-year land lease and is on the confirmed list of the government’s industrial land sales programme for the first half of this year.
It has a maximum plot ratio of four and can be developed up to 160 metres above sea level.
The site is also within walking distance of the one-north MRT station that is expected to open in the fourth quarter of this year.
The sale of the site for the third phase of the Fusionopolis development within one-north marks its latest expansion since the completion of the first phase in 2008.
The second phase is currently in development.
‘The strategic location of the site will reinforce A-Reit’s presence and market share within the business and science parks segment while achieving economics of scale in operations,’ A-Reit said in a statement.
Other bidders for the site included a joint venture of Ho Lee Properties and ZACD Investments, which submitted a bid of $83.1 million, and Far East Organization unit Tuas Hi-Tech Park Pte Ltd, which bid $64.78 million.
Two other Singapore developers – Ho Bee Investment and Soilbuild Group – also put in their own bids. Ho Bee bid $60.18 million, while Soilbuild offered $54.12 million.
CDL H-Trust – Phillip
Riding on the up cycle of hospitality sector
•Tapped on its sponsor’s pipeline of properties – Studio M Hotel.
•Stayed on track to compete with newly-completed and upcoming hotels.
•Downplay the upsides in the tourism market.
•Downgrade recommendation to Hold with revised target price of S$2.04.
Studio M hotel acquisition
CDL HT made a comeback to Singapore hospitality property sector by acquiring Studio M Hotel from its sponsor to ride on the tourism wave. The record high visitor arrivals in 2010 and renewed confidence in Singapore tourism market lent support to the acquisition since the subject property just completed in March 2010. Following the acquisition, Singapore room inventory added 360 room counts to 2,711. The S$154.0 million price tag works out to ~S$428,000 per room less the transaction costs. The purchase was fully debt-funded and therefore it is DPU accretive to the unit holders. Post acquisition, the gearing ratio remains at a healthy level of 26.9% and a debt headroom of ~S$400 million for inorganic growth based on 40% total debt-asset leverage ratio.
Asset enhancement at Orchard Hotel and Novotel Clarke Quay
Ongoing upgrading works are scheduled in phases at the Orchard Hotel (OR, 401 rooms) and will continue until 3Q 2011, while the balance of the works at Novotel Clarke Quay (NCQ, 331 rooms) are slated to commence at the year end. In the long run, the short-term loss of rental income from the refurbishment works will be offset by the additional premium commanded on the refurbished rooms. In our opinion, the new facelift will increase competitiveness of CDL HT’s hotels with the new kids on the block.
Downside risks weigh on the potential upsides
Hospitality sector has always been susceptible to dwindling external economies and tourism performance. Downside risks may creep in and overshadow the buoyant tourism market. Possible interest rate hike at the year end, increased foreign worker levies in phases till July 2013 and rising fuel surcharge in aviation sector may dampen the hotel businesses going forward. On the flip side, the lag effect of ADR on higher AOR will be reflected in 2011. Nevertheless, the pipeline supply from 2011 to 2013 will put a cap on the trajectory growth in room rate.
Valuation
Our DDM model has priced in the property tax revision (25% of gross room receipts) from 2011 onwards for Singapore hotel properties, lower RevPAR for OH and NCQ due to refurbishment as well as revenue contribution from Studio M Hotel. We are still positive on the tourism sector for this year but the aforesaid downside risks and pipeline supply coming on stream in the next few years will keep a lid on rental growth. To account for the downside risks, we raise the cost of equity from 6.3 to 7.6% and derive the target price of S$2.04. We believe the current price reflected the fair value of the stock and therefore downgrade our recommendation to hold.
Retail REITs – OCBC
Limited near term catalysts; Maintain NEUTRAL
Mixed retail sales data. Singapore Retail sales in Mar 2011, excluding motor vehicles, were up 7% YoY but down 1.3% MoM. The yearly sales increase was partly the result of escalating inflation. At constant price, retail sales were, nonetheless, up 4.6% YoY but down 2.4% MoM. Compared to Mar 2010 and adjusted for inflation, only the food & beverages, wearing apparel & footwear and furniture & household equipment segments recorded growth of more than 7%. The largest drop, however, came from supermarkets and optical goods & books which declined approx. 2%.
Rental rates mixed as well. According to CBRE, the retail leasing market also gave mixed signals in 1Q11, with major leasing deals concluded (Abercrombie & Fitch at Knightbridge, Cold Stone Creamery at Orchard Building) as well as the exit of some anchor tenants (such as ALT at Heeren) along Orchard Road. Monthly rents for prime Orchard Road averaged $30.10 psf/month in 1Q11, dropping 0.5% QoQ. Suburban rents remained at $29.10 psf/month, unchanged from the previous quarter. On average, the gap between prime Orchard and suburban rents continues to narrow, amounting to S$1.00 this quarter compared to S$4.10 a year ago. It is likely that prime retail rents along Orchard Road will continue to slide in the near term as recent completions along Orchard Road have not been digested and rental re-negotiations at some of these malls are impending. For example, more than 20 retailers at shopping mall 313@Somerset have banded together recently to petition for lower rents after struggling to attract customers. We also heard on the street that business for tenants in older malls such as Orchard Plaza, Far East Plaza, Heeren and Midpoint Orchard continue to deteriorate, dropping by some 30%-50% ever since the newer malls opened.
Supply Issues. According to our estimates, there is approximately 1.9m sq ft of mall space in the 2011-2012 pipeline. The retail sector continues to grapple with supplyside issues, brought on by the massive injection of new retail space in 2009-10. Some of the tourism expenditure is also diverted to the casinos and more consumers are shopping online, particularly among the younger group. The appreciating SGD will also affect tourist spending and motivate more Singaporeans to shop overseas. In fact, Knight Frank has forecasted that prime Orchards rents are likely to remain flat while suburban rents are likely to see only upside of about 2% – 3% this year. Landlords face an increasingly uphill task ahead to maintain attractive rentals, not only to retain but also to enhance the tenant mix. With limited near term catalysts, we think Singapore-based Retail REITs are likely to trade range bound. Maintain NEUTRAL on the overall sector.
Perennial – BT
Perennial China revives IPO, seeks $843m
Distribution yields are forecast by the trust to be up to 5.3% for 2011 and up to 5.5% for 2012
PERENNIAL China Retail Trust (PCRT) revived its stalled initial public offering yesterday, but on a slightly smaller scale – the business trust now aims to raise up to $843 million, down from the $1.1 billion it planned to raise in March.
This means that estimated yields are higher this time round. The trust is now forecasting annualised distribution yields of up to 5.3 per cent for 2011 and up to 5.5 per cent for 2012. Previously, PCRT projected yields of around 3 per cent for both 2011 and 2012.
Sponsor Perennial Real Estate, which is headed by former CapitaLand Retail chief Pua Seck Guan, had initially planned to launch the trust in March.
But the offering was delayed following international roadshows, with the trust citing volatile market conditions. PCRT was to have offered 1.09 billion units priced at $1 per unit. This would have raised about $1.1 billion in gross proceeds to be used mostly for the acquisition of five properties in China.
Mr Pua said then that the PCRT deal will be tweaked to current market conditions and brought to market as soon as possible.
BT understands that the revised offering is expected to be better received by cornerstone and other institutional investors. Among other things, Perennial was able to get discounts of between 3 per cent and 12 per cent off the prices of some properties it will acquire, sources said.
‘The new and higher projected annualised distribution yields are closer to that of most Singapore-listed Reits (real estate investment trusts) which will make PCRT more attractive to investors,’ said an analyst.
Perennial explained in February that PCRT’s estimated yields were lower than comparable Reits’ or business trusts’ mainly because there will be only one completed and leased-out property at the time of listing.
The rest are in pre-leasing stage or under development. The trust instead offers attractive total returns (yield plus net asset value growth).
‘(There is the) potential to quadruple asset base on cost of acquisitions alone,’ said a term sheet sent to potential investors, which was seen by BT.
In addition to the initial portfolio of five properties, PCRT has firm options to acquire 50 per cent of at least one million square metres of gross floor area each in high speed rail-linked developments in Chengdu and Xian.
In the revised prospectus submitted to the Monetary Authority of Singapore yesterday, PCRT said that it will now offer up to 1.09 billion units priced at 70-76 cents each.
It will sell up to 577.8 million units to institutional investors and the public, and another up to 516.7 million units to cornerstone investors such as Nan Fung Group, Asdew Acquisitions, AEW, Shanghai Summit, CBRE, Henderson Global Investors and Prudential.
Sources said that roadshows for the IPO started yesterday and will continue until May 25. The trust is expected to be listed on June 8.
Perennial – BT
Perennial launches S’pore IPO to raise up to S$843m
SINGAPORE – Perennial China Retail Trust, which owns shopping mall assets in China, on Thursday launched an initial public offering to raise as much as S$843 million (US$679.6 million).
The trust, managed by a firm controlled by former CapitaLand retail chief Pua Seck Guan, is selling 563.6-577.8 million units at S$0.70-S$0.76 apiece, according to a prospectus filed with the Monetary Authority of Singapore.
The trust has already signed agreements to sell 504.7 million to 516.7 million units to a group of cornerstone investors including AEW Capital, Henderson Global Investors and Prudential Asset Management.
Perennial said the units will start trading on June 8 but did not indicate when it will price the IPO.
DBS, Goldman Sachs, Standard Chartered and Citigroup are joint global coordinators and bookrunners.
Perennial originally planned to raise about S$1.1 billion from the IPO but reduced the offer size due to weak market conditions.
According to a note from one of the bookrunners, Perennial has priced its units at a 46-50 per cent discount to net asset value. — REUTERS