MLT – OCBC
Capital Recycle Play kick-started
Strategic divestment of older assets… Mapletree Logistics Trust (MLT) recently announced that a local IT solutions company and CK Holdings have exercised their purchase options on 8 Apr for two MLT properties – 9 and 39 Tampines Street 92 at a purchase consideration of S$12.8m and S$14.7m, respectively. A total net disposal gain of S$2.1m is expected from the divestment. MLT cited that the two properties have building specifications that are now outdated and no longer ideal for modern logistics operations.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 maximise returns. MLT expects the disposal gain to result in a one-time increase in FY11 DPU by 0.07-0.09 S cents.
… to fund better-yielding Acquisitions. The net proceeds (after deducting the net disposal gain distributable to unitholders) will be deployed to fund MLT’s recent S$24.5m acquisition of Jian Huang Building (JHB), which is a five-storey warehouse-cum-office building located at 15A Tuas Avenue 18. Under the sale-and-leaseback arrangement, JHB will be leased to Jian Huang Engineering for a period of seven years with an annual built-in rental escalation of 2% and a sevenyear extension option. The two-year old property provides an initial NPI yield of 8.2% and has a remaining land lease of about 27 years. In addition, MLT also made its first acquisition for FY2011 on 25 Mar with the purchase of Hiroshima Centre, Japan for S$114.2m (debt-funded). The total GFA is about 43,600 sqm, making it a major logistics facility in the Hiroshima prefecture of Chugoku region. The acquisition provides only an initial yield of 7%, but MLT believes there is further scope for organic growth, since it has not yet reached its maximum permissible plot ratio of 45,000 sqm. Despite our concern of greater exposure in Japan, MLT reiterated that the acquisition is in line with its “Follow-the-Client” strategy and its aim to grow the portfolio through repeat customers. Hiroshima Centre is currently leased to Nippon Access Group which is an existing MLT customer, taking up approximately 87,700 sqm of space. With this acquisition, Nippon Access will take up approximately 131,300 sqm of space and contribute towards 4.3% of MLT’s gross revenue.
Still compelling but Japan woes remains. MLT has a proven track record of executing a virtuous cycle of accretive acquisitions and competitive fund-raising. We take delight that it is also starting to recycle proceeds into better-yielding assets. However, we remain wary of Japan’s woes and increased the country risk premium to 75 bp for its Japan assets in our valuation. Maintain BUY with a reduced RNAVderived fair value of S$1.01 (prev: S$1.03).
REITs – BT
SHOW ME THE MONEY
In Reits we trust?
A report card on the performance of various types of trusts listed in Singapore shows that Reits remain the best bets
By TEH HOOI LING
SENIOR CORRESPONDENT
A FEW weeks back, I was having dinner with some colleagues, one of whom is from The Straits Times when a colleague from Lianhe Zaobao walked past. We started chatting, and the topic naturally veered towards the stock market, given that we are all business writers.
The Straits Times colleague asked the Zaobao colleague what she thought of Hutchison Port Holdings (HPH), whose initial public offering was about to close then. Instead of directly answering the question, the Zaobao colleague said: ‘CitySpring is now trading at half its IPO price!’
The Straits Times colleague interpreted the comment as negative for HPH. ‘She’s saying don’t buy, that the new IPO may suffer a similar fate as that of CitySpring,’ he said. Then, our marketing colleague sheepishly admitted that he has CitySpring in his portfolio. I didn’t own up at the time, but I too had CitySpring languishing somewhere in my portfolio.
The conversation set me thinking. Has CitySpring done that badly if we take into consideration all the dividends paid out since its IPO?
How about the other investment trusts? We’ve had a number of property investment trusts, shipping trusts and business trusts listed on the Singapore Exchange. In general, how have they done since IPO, in absolute terms, and relative to the broad market movement?
So I decided to find out. Basically, I obtained from Bloomberg the total return for each of the trust relative to their IPO price. Bloomberg assumes that all dividends received are reinvested back into the security.
Also, the Bloomberg program can only calculate total return up to a certain number of days. So, for Reits that were listed before 2005, I had to switch to the weekly return numbers. Hence, the returns for Reits such as Ascendas, CapitaMall, CapitaCommercial, Suntec and Fortune are calculated based on the closing price on the first Friday after they started trading, and not the IPO price.
Here’s what I found. Of all the various types of trusts, the real estate investment trust (Reit) has been the most successful. The performance of shipping trusts and other forms of business trusts have generally been rather dismal.
And among the Reits, those with Singapore-based properties have on the whole performed better than those with overseas properties.
So which has been the most successful Reit to date? Excluding those with trading records of less than one year, CDL Hospitality Trust appears to be the star. Since July 18, 2006, it has returned 225 per cent to its unitholders. That’s an equivalent of 28.5 per cent a year, and it outperformed the FTSE Straits Times All Shares Index by a whopping 198 percentage points during that period.
First Reit, which owns hospitals and hotels in Indonesia and Singapore, is the second-best performer with a return of 20 per cent a year. Both were listed in 2006.
The first batch of Reits to hit the market also fared well. Ascendas Reit rewarded investors with return in excess of 17 per cent a year since 2002 – that’s a near 10-year record. CapitaMall Trust, meanwhile, returned 16 per cent a year, outpacing the general market by more than 170 percentage points.
Earning the dubious honour as the worst Reit to have listed on the Singapore Exchange is Saizen, which owns residential properties in Japan. It is now 78 per cent below its IPO price, and after taking into consideration its distribution, investors have seen their capital getting shaved by 33 per cent a year since November 2007. It underperformed the general market by 66 percentage points.
AIMS AMP Capital Industrial Reit, formerly known as MacarthurCook Industrial Reit, is the second-worst Reit. It has lost 72 per cent of its share price, or the equivalent of 17 per cent a year after dividend since 2007. It trailed the general market by 37 percentage points.
The median return of all the Reits listed on SGX since their IPOs up till end-March 2011 is 8.9 per cent a year. That’s a return not to be sniffed at. Reits which bombed tended to have high gearing, so that’s a good metric to start one’s screening process.
As at this week, the average yield for all the Reits listed in Singapore is 7 per cent. There’s a website – http://reitdata.com/ – which provides a comprehensive and updated listing of all the reits and business trusts in Singapore.
Meanwhile, the performance of the other two types of trusts – shipping and business or infrastructure trusts – leaves very much to be desired. On average, the three shipping trusts – Pacific Shipping Trust, FSL Trust and Rickmers – have seen their unit price slumped by 56 per cent since their IPO. Only the distributions from Pacific Shipping Trust has more than made up for the capital loss.
Investors who bought into Pacific Shipping Trust are still better off than leaving their money in the bank, or buying into the general Singapore market. The trust returned 7.43 per cent a year since May 2006. It outperformed the FTSE All Shares Index by 17.5 percentage points.
No such luck for holders of FSL and Rickmers. Investors in the two suffered a loss of 14 per cent and 20 per cent a year respectively since 2007 when they were listed.
As for the other business trusts, the performance in general has also been lacklustre. The average annual return is -18.9 per cent a year. The average is dragged down by Indiabulls Properties Investment Trust which has seen its unit price slump 70 per cent since its listing in July 2008. The best performer in this category is Ascendas India Trust – with an annual return of 2.3 per cent a year since 2007.
What about CitySpring? Well, what do you know – after taking in all its distributions, investors are actually up by 1.4 per cent a year. That’s an outperformance of 14.5 per cent over the FTSE All Shares Index between February 2007 and end-March 2011.
From the report card above, on the whole, it appears that of the various types of trusts, Reits remain the best bets. There seems to be a lot more uncertainties associated with the other forms of trusts.
The writer is a CFA charterholder
Saizen – BT
Saizen may get rating boost on clearing defaulted debt
SAIZEN Reit’s corporate family rating is up for a possible upgrade to positive by Moody’s following its plans to repay a loan that went into maturity default in November 2009.
‘The repayment plan is a positive action in resolving the defaulted commercial mortgaged-backed-securities loan of YK Shintoku,’ said Moody’s senior vice-president Philipp Lotter.
The manager of the purely Japanese Reit play said on Wednesday that the 4.2 billion yen (S$62 million) outstanding loan balance under its YK Shintoku portfolio can be repaid by the end of May this year.
The loan had been in default due to the collapse of the commercial mortgage-backed securities market in Japan in 2008. Since then, Saizen has been repaying the loan from its operational cash flow and the sale of its property assets.
Moody’s last revised Saizen’s Caa1 corporate family rating in June 2010 from negative to stable.
In this review of Saizen Reit’s outlook, Moody’s will consider Saizen’s credit profile after the loan repayment, its ability to access funding and the extent of damage the Japanese earthquake and tsunami has wreaked on Saizen’s Japanese properties.
Moody’s observed that after the defaulted YK Shintoku loan is settled, the next material debt of 5.7 billion yen would mature in 2013.
‘Moody’s estimates that Saizen has unencumbered assets of around 11.5 billion yen which are available to repay the YK Shintoku loan and other maturing debts,’ it said yesterday.
Saizen Reit’s manager laid out a repayment schedule that spans across three instalments, mostly through cash, but also through proceeds raised from property sales under three portfolios: YK Shintoku, YK Shingen or YK Keizan.
Saizen’s first repayment of at least two billion yen will be in cash on April 11. Between April 12 and May 30, there will be a repayment of about 800 million yen from property sales proceeds. Saizen will repay the difference – about 1.4 billion yen – with internal resources.
The Saizen Reit counter closed trading unchanged at 15 cents yesterday.
MCT – BT
MapletreeCom rated Baa2 by Moody’s
Provisional rating comes with ‘stable’ outlook; trust’s key asset is VivoCity
MOODY’S Investors Service has assigned a provisional Baa2 rating to Mapletree Commercial Trust (MCT). The outlook for the rating is stable, the agency said.
The rating is based on MCT’s stable and recurring income from its investment property portfolio, Moody’s said.
The trust’s initial portfolio comprises three properties, of which the ‘key asset’, VivoCity, accounts for over 70 per cent of the portfolio by income and value.
‘VivoCity is a prize asset. It is a very busy, family destination-cum-retail and leisure mall, located over the HarbourFront MRT Station,’ said Alan Greene, a Moody’s vice-president and senior credit officer.
‘In addition to footfall generated by the resident Singaporean population, VivoCity is at the gateway to Sentosa, and so benefits from the large tourist numbers drawn to Sentosa’s numerous attractions and casino,’ added Mr Greene, who is also Moody’s lead analyst for MCT.
The other two properties – the Bank of America Merrill Lynch HarbourFront and PSA Building office buildings – are fringe area office buildings.
‘Compared with VivoCity, the initial two office properties are relatively modest. However, one is leased to a single tenant until 2017, with built-in triennial rent increases, while rental income from the other building (PSA Building) will benefit later this year once its adjacent retail centre is completed,’ noted Mr Greene.
Based on the properties available under the right of first refusal agreements with sponsor Mapletree Investments, the proportion of income derived from offices will increase over time and may exceed that from retail properties, Moody’s noted.
The agency’s rating for MCT is currently constrained by concentration risk, but this concern is expected to decline with the asset enhancement activities underway and with the potential injection of pipeline properties acquired from the sponsor.
MCT – BT
Mapletree to raise up to $1b from commercial Reit IPO
Offering to be second-biggest here this year after HPH Trust’s US$5.4b IPO
Mapletree Investments plans to raise up to $1.02 billion by listing three of its retail and office assets in a property trust, it said yesterday.
The deal values Mapletree Commercial Trust (MCT) at up to $1.69 billion. Mapletree Investments, which is fully owned by Temasek Holdings, will hold between 40 per cent and 45.5 per cent of the trust after the offer.
The initial public offering (IPO) will be the second-biggest listing in Singapore this year after the US$5.4 billion offering by Hutchison Port Holdings (HPH) Trust last month.
Mapletree Investments had planned to lodge the prospectus for MCT in March, but had to delay the IPO process due to volatile markets caused by the earthquake and tsunami in Japan.
In a preliminary prospectus filed with the Monetary Authority of Singapore yesterday, MCT said it will sell up to 814.4 million units (including an over-allotment option) at 84 cents to 91 cents per unit to institutional investors and the public.
In addition, cornerstone investors – including insurance company AIA Group – have committed to take up another 302.2 million units.
Including the sponsor’s stake, there will be a total of 1.86 billion units. This places MCT’s market capitalisation at between $1.56 billion and $1.69 billion.
Mapletree, for its part, will raise between $852.7 million and $1.02 billion from the IPO depending on the pricing and whether the over-allotment option is taken up.
The trust will initially hold three assets worth $2.82 billion in all – Singapore’s largest mall VivoCity, and the Bank of America Merrill Lynch HarbourFront and PSA Building office buildings.
Mapletree Investments has also granted MCT the right of first refusal for the acquisition of properties with about 5.1 million square feet of net lettable area – including Mapletree Business City.
Analysts BT spoke to said the valuations of the three initial properties should be attractive to investors.
For example, the largest asset in MCT’s portfolio, VivoCity, is valued at $1.98 billion, or around $1,900 per square foot of net lettable area. This compares favourably with similar malls in the portfolios of other retail real estate investment trusts (Reits) listed in Singapore, the analysts said.
Because of this, demand for MCT’s units should still be strong in spite of recent market volatility, said an analyst with a foreign brokerage here.
‘I think if the units are priced right, there is no reason why there shouldn’t be demand, and right now, it (the pricing) looks pretty reasonable,’ he said. ‘It looks like the (projected) yields are in line with other blended retail and office Reits listed here.’
MCT has projected a yield of between 5.47 per cent and 5.92 per cent for the year ending March 31, 2012; and a yield of between 5.96 per cent and 6.46 per cent for the year after.
Analysts put the weighted average yield for the entire Reit sector in Singapore at around 6 per cent.
MCT also said in its prospectus that it has firmed up four cornerstone investors who have committed to invest up to $275 million in the IPO.
The cornerstone investors include AIA, which has agreed to invest up to $125 million. The other three investors – Hillsboro Capital, Japan’s Itochu Corp and retailer NTUC FairPrice Co-operative – have agreed to invest up to $50 million each.
Citigroup, CIMB, DBS, Deutsche Bank and Goldman Sachs have been appointed as joint bookrunners, issue managers and underwriters for the offer.
Mapletree Investments’ third Reit, Mapletree Industrial Trust, raised close to $1 billion when it was listed in October 2010.
As at end-December 2010, the group and its subsidiaries own and manage more than $14.4 billion of office, logistics, industrial, residential and retail properties with an extensive network of offices in Singapore, China, Hong Kong, India, Japan, Malaysia, South Korea and Vietnam.