AIMSAMPReit – BT
AIMS AMP’s Japan warehouse sale completion delayed
No apparent structural damage, says Reit; buyer arranging checks
THE completion of AIMS AMP Capital Industrial Reit’s 1.49 billion yen sale of a warehouse in Tokyo’s Saitama city has been delayed following the massive earthquake that hit Japan.
The manager of the Singapore-listed real estate investment trust, which was due to complete the sale of the Asahi Ohmiya Warehouse yesterday, said in a statement that ‘there appears to be no structural damage’ to the property. But an investigation of the warehouse and logistics property ‘is currently being arranged’ by the purchaser, Tokyo-listed Industrial & Infrastructure Fund Investment Corporation (IIF), in conjunction with the trust’s asset manager in Japan.
IIF, in a news release, said that it has pushed back the acquisition of three properties, including the Asahi Ohmiya Warehouse, and ‘will acquire these properties after IIF gets the report from external research agency that there exists no problem’.
AIMS AMP’s manager said that it has received legal advice that the purchaser has no right to rescind the purchase. But any repairs, if required, must be carried out before the sale is completed.
If there is no damage to the building, the sale can be completed ‘as early as this week’, said Nicholas Paul McGrath, chief executive of AIMS AMP Capital Industrial Reit Management Ltd, the trust’s manager.
‘Completion of the sale of the property will be rescheduled to the first practicable date following completion of the investigation and any required repairs’, the Reit manager said.
The trust, formerly known as Macarthurcook Industrial Reit, said in late February that it was selling the Asahi Ohmiya Warehouse ‘to free up capital to provide the trust with greater financial flexibility for future investment opportunities’.
Net proceeds would be used to repay its debt under a revolving credit facility, reducing aggregate leverage to 32 per cent from 33.6 per cent, it said. The 1.49 billion yen sale price is slightly above the property’s book value (as at end December 2010) of 1.46 billion yen.
The units of AIMS AMP eased half a cent each yesterday to close trading at 20 cents.
Saizen – BT
Saizen Reit takes another hard knock
Trust has 22 of its 146 Japan properties in worst-hit Sendai
NOT all S-Reits with properties in Japan have been equally hit on the stock market. Of the Singapore-listed real estate investment trusts with such exposure, DMG Research pegged Saizen Reit as potentially the worst-off trust, since all of its 146 properties are in Japan, and 22 are in the worst-hit city of Sendai alone. Yesterday, the Saizen Reit counter took another hit, tanking 9.7 per cent to 14 cents.
In contrast, Parkway Life Reit, whose healthcare facilities are mainly in western Japan, dropped 1.2 per cent to $1.68. None of its properties were structurally affected.
Another Singapore-listed company, Uni-Asia Finance, which manages or has interests in hotel and residential properties in Japan, shed 3.8 per cent to 25 cents. Uni-Asia, an Asia-based structured finance arrangement and alternative assets direct investment firm, said none of its properties were structurally affected. All 13 of its hotels are operational.
In a late update yesterday, Saizen said: ‘In total, all 6 properties in Morioka and Koriyama, and 8 out of 22 properties in Sendai have been viewed by the property managers thus far, and preliminary reports have confirmed that these properties appear to have sustained only minor damage and are not in any imminent danger of collapse. However, the full extent of damage can only be ascertained after more detailed assessments.’
Of those 28 properties, 12 belong to YK Shintoku portfolio and do not contribute to distributions. Eleven are in Sendai and one in Morioka. Saizen’s 22 Sendai properties make up 11.2 per cent of its $581.8 million portfolio and contribute 10.6 per cent of the $56.3 million annual rental income. Koriyama’s three properties comprise 2.9 per cent of portfolio value and give 2.6 per cent rental income.
Morioka’s three properties constitue only 1.4 per cent of the Reit’s portfolio value and contribute 1.5 per cent of rental income.
For PLife Reit, it is ‘business as usual’ at its 29 nursing homes and one pharmaceutical manufacturing facility. The Reit’s closest property is in Akita, 200km away from the Sendai area.
The company does not foresee ‘any disruption to their long term business operations’. ‘Nursing homes residents usually stay for a longer term, at around three to five years on average. Hence, we do not expect any significant changes in occupancy rates. Our Japan nursing homes are on long term master leases and as such, income will not be affected by any dips in occupancy rates,’ said PLife Reit’s company spokesman.
CIMB analyst Janice Ding said in a note: ‘We are comforted that the manager is holding six to nine months of security deposits in the bank from all its Japanese master tenants.’ She added P-Life Matsudo, the Reit’s manufacturing facility, reported only minor water pipe leakage.
CIMB maintained its ‘outperform’ rating on the Reit, with a target price of $1.98.
MLT – CIMB
One property affected; impact not material
Maintain Outperform. MLT’s 14 Japanese assets which contribute 16% to its net property income are largely intact after the 8.9-magnitude earthquake in Japan on Friday. Only one property, Sendai Centre, located in Sendai City, is more severely damaged but its contribution to net property income is less than 1%. MLT’s 96 assets are spread over seven countries, which dilutes its concentration risks in Japan and we do not expect the quake to have a material impact on its operations. No changes to our DPU estimates or DDM-based target price of S$1.05 (discount rate 8.6%). We continue to expect acquisition catalysts and believe the 2.7% price pullback last Friday presents a buying opportunity. MLT trades at 1.06x P/BV and a forward yield of 7%.
The news
8.9-magnitude earthquake in north-eastern Japan. The 8.9-magnitude earthquake struck north-eastern Japan on Friday, triggering a tsunami, an explosion in the Fukushima Daiichi nuclear plant that may lead to nuclear radiation in the area, and fires and power outages in Japan’s north-eastern prefectures. The prefectures worst hit are Aomori, Iwate, Miyagi, Fukushima, Ibaraki and Chiba.
Sendai Centre accounts for 0.6% of NPI. We estimate that Sendai Centre (acquired in 2010 for S$22m) contributes S$1.5m of net property income or about 0.6% of our net property income estimation of S$248m for FY11. Preliminary reports suggest that the building is intact although the full extent of damage can only be known when access into the property is allowed. The manager estimates reinstatement costs of S$9m, although it does not expect the cost of repairs to come up to this amount.
Other buildings in Japan safe. The other 13 Japanese properties are intact with either no damage or minimal damages. The impact on rentals should be mitigated bylong leases on its Japanese assets which are also fully master-leased. Overall, we expect Japanese assets to contribute 20% (up from 16% in 2010) to MLT’s FY11 net property income. In terms of asset value, Japanese assets made up 28% of MLT’s portfolio value of S$3.4bn as at Dec 10.
Valuation and recommendation
Maintain Outperform and target price of S$1.05. MLT’s 96 assets spread over seven countries dilute its concentration risks in Japan and we do not expect the earthquake to have a material impact on its operations. Nonetheless, there could be additional capex going forward for damage repair. We keep our DPU estimates and DDM-based target price of S$1.05 (discount rate 8.6%) pending more developments and clarity from management. Meanwhile, we believe the price pullback last Friday presents a buying opportunity. We continue to expect acquisition catalysts and believe the 2.7% price pullback last Friday presents a buying opportunity. MLT trades at 1.06x P/BV and a forward yield of 7%.
Cambridge – DMG
Rights Issue for S$116.8m of acquisitions
EFR to acquire 3 acquisitions at estimated NPI yield of 8%. CREIT is proposing to raise S$56.7m through a fully underwritten renounceable 1-for-8 rights issue. A total of 132.1m shares will be issued at S$0.429/unit (15.6% discount to VWAP on 10 Mar). Nett proceeds of S$53.8m from the EFR would be utilized, together with S$40.9m debt financing and existing cash to fund 3 acquisitions of S$116.8m. We estimate CREIT’s cost of capital to be about 6.27% and expect the acquisitions to be mildly accretive, adding just 0.8%-2.8% to FY11 and FY12 DPU estimates. Maintain BUY, DDM-based TP of S$0.61.
Accretive Acquisitions. The acquisitions comprise of 4&6 Clementi Loop (binding S&P agreement signed) and 2 other acquisitions in the western part of Singapore (MOUs signed), and are purchased on sale-and-leaseback basis to the respective vendors for lease terms of between 5 and 6 years with options to renew. The purchase consideration for 4&6 Clementi Loop is split into an initial amount of S$40m upon completion of purchase, and a further S$23.3m upon completion of extension development works by the vendor around end of 2012. An additional new building would be constructed, adding 10,291 sqm of Gross Floor Area. CREIT’s asset size increases to S$1b post acquisition. The acquisitions are expected to be completed by 3QFY11.
Favourable valuations; maintain BUY. The acquisitions are expected to improve the operating statistics of CREIT, pushing out the weighted average lease expiry of the portfolio from 4.1 to 4.2 years and reducing lease concentration from 17.3% to 15.4% for 2013 and from 37.3% to 33.1% for 2014. Free float is expected to increase by 12.5%, potentially increasing the trading liquidity of the stock. Stock trades at 10% FY11 yield, attractive relative to its peer average of 7.3% and its pre-crisis yield of 6.7%.
CLT – OCBC
Stable income profile; but watch inflation
6.3% price upside since IPO. Cache Logistics Trust (CLT) was listed on SGX-ST on 12 Apr 2010 at an offering price of S$0.88. Compared to many companies listed last year that are still in the red, CLT’s share price has gone up 6.3% since IPO. It has six quality logistics properties located in Singapore, which are 100% leased with triple-net master-lease structures. FY10 DPU of 5.558 S-cents represents an annualized yield of 8.2%.
Initiate BUY on CLT. CLT’s sponsor, CWT, is one of the largest listed logistics operators in SEA. With forward yields of circa 8% for FY11/FY12, CLT also compares favorably with the overall S-REITs sector average yield of 6.9%. CLT enjoys stable rental-income streams as all properties are on master-leases to its sponsor (CWT) and CWT’s parent (C&P). It is also granted a ROFR to a rich pipeline of CWT/C&P-owned assets for future acquisitions. With total returns exceeding 10%, we initiate BUY on CLT with a fair value of S$1.03 largely on valuation grounds. Nonetheless, we remain cautious on its outlook due to increased competition and inflation risk.
Ramp-up niche under pressure. CLT has about 97.3% of portfolio GFA in modern ramp-up warehouses, representing 24.9% market share of ramp-up warehouse space in Singapore. Notwithstanding that this differentiates CLT from its competitors, it also manifests as a concentration risk. In addition, we recognize CLT’s competitive advantage in the ramp-up space in the near term. However, CLT’s assets, which are located in the prime locations of Jurong Industrial Estate, Changi International LogisPark and Airport Logistics Park, are expected to face increased competition due to new warehouse and logistics developments in the vicinity. We think the window of opportunity for its ramp-up advantage is likely to be challenged in the medium- to long-term. Beyond ramp-ups in Singapore, we understand that management is also on the look-outs for overseas acquisitions and further diversification of its portfolio.
Inflation risk. The master lease structure, with a weighted average lease to expiry of 5.8 years as at 31 Dec 2010 and annual rental escalation of 1.5% for the first five years, provides a high degree of predictability and stability in earnings for the trust. Nevertheless, we think the rental escalation component may have been contracted against CLT’s favor, given that Singapore’s FY10 annual inflation rate was 2.8% and MAS forecasted a sharper price inflation of 4% this year. Without further expansionary initiatives, we are wary that CLT’s stable income profile, over the next four years, may continue to be eroded by inflation in real terms. Further catalyst for upping our fair value includes yield-accretive acquisitions both locally and overseas.