PCRT – BT
Perennial trust units at $1 each
Business trust expected to raise $1.1b in gross proceeds
PERENNIAl Real Estate, led by former CapitaLand Retail chief Pua Seck Guan, has set an indicative price of $1 per unit for the listing of its business trust that is estimated to raise $1.1 billion in gross proceeds.
It is offering 1.09 billion units comprising an international placement of 610.2 million units, a public tranche of 50 million units, and cornerstone units of 432 million units for Perennial China Retail Trust (PCRT).
The cornerstone investors, which will snap up about 40 per cent of the offering, are Nan Fung Group, AEW Capital Management, AIA, CBRE, Henderson Global Investors, Lion Global, and Prudential.
According to a term sheet seen by BT, the IPO price represents a 22 per cent discount to analysts' consensus net asset value (NAV) per unit of $1.29, based on three banks' pre-deal research reports.
Perennial is wholly owned by Pua Seck Guan, the former CEO of the manager of CapitaMall Trust, Singapore's first real estate investment trust (Reit).
With a projected market cap of $1.11 billion at listing, PCRT will have an initial portfolio size of $1.1 billion covering four properties in China. The IPO proceeds will be mainly used to finance the acquisition of these properties.
One is a 50 per cent stake in retail mall Shenyang Red Star Macalline Furniture Mall and the other is a 50 per cent stake in Shenyang Longemont, a retail cum office development.
Perennial also has the contractual rights to acquire a 100 per cent stake in two other retail malls – Foshan Yicui Shijia Shopping Mall and Chengdu Qingyang Guanghua Shopping Mall.
The business trust is projected to have a distribution yield of 3.02 per cent for fiscal 2011 and 3.08 per cent for fiscal 2012, according to the prospectus lodged with the Monetary Authority of Singapore.
Perennial said in a term sheet to potential investors that PCRT offers attractive total returns (yield plus NAV growth) and hence 'it should not be compared with the pure yield-play vehicles'.
It explained that the estimated yields are lower than comparable Reits' or business trusts', primarily because Red Star Macalline Furniture Mall is the only completed and leased-out property at IPO, while the rest are in pre-leasing stage or under development and due for completion between 2012 to 2014.
'The property yields of the underlying properties are expected to increase to approximately 6.5 per cent as rents stabilise,' it said. 'Accordingly, the DPU yield is expected to potentially increase. Valuer CBRE expects NPI (net property income) yield on purchase price at full maturity to be at approximately 7.8 per cent.'
While a business trust typically has no restrictions on distribution payout or leverage, Perennial has pledged, in the prospectus, to distribute at least 90 per cent of PCRT's distributable income to unitholders and pegged its leverage limit at up to 60 per cent of the value of PCRT's properties as set out in the trust deed.
Separate from the offering, the sponsor will subscribe to 10 million units in PCRT and has agreed to a lock-up period of six months for all the units and a 12-month lock-up for 50 per cent of those units.
DBS is the sole financial adviser for the IPO. It and Goldman Sachs and Standard Chartered are the joint global coordinators, bookrunners, issue managers and underwriters for the IPO.
Bookbuilding for the IPO has begun. The roadshow started on Thursday and will end on March 4. The public offer is expected to open on March 8 and close on March 14 and trading of the business units is expected to begin on March 16.
a-iTrust – DBSV
Growing presence in Hyderabad
• Proposed acquisition of portfolio of 5 buildings in Hyderabad
• Positives seen in deal; earnings accretion
• BUY Call maintained, TP adjusted to S$1.13 based on DDM
Deepens Hyderabad exposure. a-itrust proposes purchasing a portfolio of up to 5 buildings (2.2m sqft, +34% portfolio SBA) in Hyderabad, India for a total consideration of INR 8.5bn. The properties are located in an established IT Park – Hitec City 2 Special Economic Zone (“HTC2 SEZ”). The portfolio consists of two operating buildings, immediately acquired for INR 1.7bn (S$50.4m), while the remaining three are to be acquired progressively when they complete over 2012-2014. Through the vendor, a-itrust also has a right of first refusal to acquire up to another 1.16m sqft of SBA ( 4 buildings) in the future.
Positives on this deal. We are positive on this acquisition, aitrust will boost its portfolio in Hyderabad, enabling them to enjoy economies of scale, while the impact on distributions should be immediately accretive as operating buildings are currently trading at 100% occupancy, with established MNCs as tenants. We estimate initial yield to be c10% for the two operating buildings, comparing favorably against its implied yield of 8.5%. An attractive pipeline awaits a-itrust (3 pipeline acquisitions, 4 in a ROFR) , underpinning expected steady portfolio growth in the mid-longer term. We raise our earnings by c1-3% over FY12-13F, assuming a-itrust fund the acquisitions of three buildings (completed and under construction) via debt.
Growth visibility strengthens, BUY, TP S$1.13. We continue to like a-itrust for its growth trajectory. The trust offers an attractive DPU CAGR of 13% over FY11-13, underpinned by a growing portfolio. Currently offers a prospective yield of 7.3-9.3%. Maintain BUY.
FirstREIT – BT
Fortis acquires First Reit property for $33m
SOME seven months after bowing out of the take-over battle for Parkway Holdings, Indian billionaires Malvinder and Shivinder Singh are re-entering Singapore’s healthcare scene with the $33 million acquisition of an upcoming cancer hospital from First Real Estate Investment Trust (First Reit).
The purchase – to be funded by internal resources and completed by March – is being made via Fortis Global Healthcare, which is owned by the Singh family.
The hospital under development at No 19 Adam Road is a proposed three-storey Cancer Centre. The sale will provide First REIT with a net cash gain of about $8.3 million (after subtracting divestment fees, related costs and repayment of loans).
‘The sale proceeds will provide First Reit with greater financial flexibility to pursue other possible attractive acquisition opportunities and/or to repay debt,’ First Reit’s manager Bowsprit Capital Corporation said in an announcement to the Singapore Exchange. It will also reduce First Reit’s gearing from 17.6 per cent to 14.2 per cent.
At $33 million, the sale is 17 per cent above the property’s latest valuation of $28.2 million as at Dec 28 last year by CB Richard Ellis and 52.1 per cent higher than its cost of $21.7 million as at Dec 31 last year.
Speaking to BT yesterday, Fortis Global’s CEO Vishal Bali said that the company is creating verticals around different specialities in line with its vision to be an integrated healthcare provider.
According to Mr Bali, Fortis Global plans to tweak the existing design of the facility and the hospital is likely to come on-stream in the second or third quarter of next year.
‘We are also looking at future expansion in Singapore,’ Mr Bali went on to say, but declined to comment on whether Fortis Global is in talks with any other local companies at present.
This latest acquisition comes on the heels of two other purchases by Fortis Global in the last five months – that of Hong-Kong based primary healthcare service provider Quality HealthCare in November last year as well as the acquisition of a significant stake in Australia’s largest dentistry network, Dental Corporation, in January this year.
‘We will continue to look for opportunities to further expand our presence in the region,’ said Malvinder Singh, Fortis Global’s executive chairman, in an announcement yesterday.
The Singh family also owns a majority stake in India-based hospital operator Fortis Healthcare, which was embroiled in a corporate tussle last year with Malaysia’s sovereign wealth fund, Khazanah Nasional, over local healthcare provider Parkway. The Indian group eventually rescinded its offer after Khazanah trumped Fortis’ $3.2 billion general offer with a $3.5 billion general offer of its own.
a-iTrust – BT
Ascendas India Trust snaps up five buildings in Hyderabad
ASCENDAS India Trust (a-iTrust) announced yesterday that it will acquire five buildings in Hyderabad, India with a total built-up area of 2.2 million square feet.
Two of the buildings – which are completed and 100 per cent occupied – will be acquired for 1.74 billion rupees (S$48.8 million). The total purchase cost would be 1.77 billion rupees if transaction expenses were to be included.
The other three buildings are expected to be completed over the next four to five years. Based on estimated net property income, they will cost 6.81 billion rupees.
All five buildings are expected to be acquired from Indian property developer Phoenix Infocity Private Limited. Upon acquisition, the buildings – situated in Hitec City 2 Special Economic Zone – will be managed by Ascendas Group.
While the two completed buildings will be immediately acquired, a-iTrust said it will pay for the three other buildings as and when they are completed and leased.
The acquisition is expected to be distribution per unit accretive, with accretion from the acquisition of the two completed buildings estimated at 0.16 cents per unit in the first year, said a-iTrust. ‘Further accretion is expected from the acquisition of the remaining buildings over the next few years,’ it added.
If the acquisition is funded fully by debt, a-iTrust’s gearing will be 22 per cent after buying the two completed buildings, and 33 per cent after buying all five buildings over the next few years.
Ascendas Property Fund Trustee – the trustee-manger of a-iTrust – said it has ‘secured debt commitment from banks’.
‘We are optimistic that the demand for business space in Hyderabad will remain buoyant, supported by the city’s strong economic fundamentals and its IT sector,’ said Jonathan Yap, chief executive of Ascendas Property Fund Trustee. ‘Strong demand for business space has driven the occupancy of Hyderabad’s Grade A office space up, to 97 per cent as at Dec 31, 2010.’
The counter closed trading unchanged at 93.5 cents yesterday.
CMT – OCBC
Retail Bond Issue – A First for S-REITs
Retail Bond Issue. CapitaMall Trust (CMT) has recently announced the establishment of S$2.5b Retail Bond Programme. As a start, it is offering S$200m 2-year retail bonds at a fixed coupon rate of 2%. In the event of oversubscription, CMT may increase the size of the retail bond to S$300m. This issue marks the third corporate retail-bond offering (after SIA and CMA) in less than six months. One of the reasons for doing so is to lock in the low interest rate (fixed rate) before further rate hikes. As of 31 Dec 2010, CMT has an average cost-of-debt of 3.7%, with about 98.7% of total debt on fixed rate basis. On the back of the successful offering from its sponsor CMA, we view this move positively as it helps to lower the average cost-of-debt for CMT. Recall that CMT has S$601.2m convertible bonds due in 2013, with a put option on 2 July 2011. It also has an additional S$346.4m of CMBS and S$38m RCF1 maturing in 2011. We think the proceeds from the retail bond issue may be used to repay some of these borrowings. We have thus lowered our average cost-of-debt estimates by 15bps for our valuation, in anticipation of the successful take-up of the retail bonds.
Operational Performance. Despite the financial crisis, we have seen both CMT’s gross revenue and net property income (NPI) growing at a CAGR of 6.6% and 10.2% respectively since FY2008. If we exclude the newly acquired properties (Clarke Quay & Atrium@Orchard) during this period, the CAGR is around 3.3% & 7.1% respectively. Notably, properties such as Junction 8, Plaza Singapore and Bugis Junction have all registered NPI CAGR of more than 5% over the past two years. In terms of rental rates, CMT also registered positive rental reversions of 9.3%, 2.3% & 6.5% in FY2008, FY2009 & FY2010 respectively. Shopper traffic remains strong at around 200-230m per annum. CMT malls are strategically located in catchment areas (with an established or growing population) and well connected to public transportation systems. Going forward, with the enhancements works at Jcube & the Atrium@Orchard in focus, we are confident that the REIT manager will continue to exploit good value from its assets for unitholders.
Valuation. CMT’s share price has fallen 6.7% YTD. It is presently trading at a PBR of 1.17x PBR, versus its historical PBR of 1.35x since listing. We think the discount is unwarranted, considering CMT’s track record of impeccable property selection and operational management. We upgrade CMT to a BUY rating on valuation grounds, with an increased RNAV-derived fair value of S$1.98.