CLT – BT
Cache IPO 7.8 times subscribed
CACHE Logistics Trust’s initial public offering (IPO) of 474.1 million units was about 7.8 times subscribed, drawing support from major institutional investors from Asia, Europe, the Middle East and Australia.
Other institutional investors who were allocated units under the placement tranche include DBS Asset Management Ltd and Fullerton Fund Management Company Ltd.
Trading in the counter on the Singapore Exchange is expected to begin at 2pm today.
At the offer price of 88 cents per unit, gross proceeds of $417.2 million have been raised.
The trust will be managed by ARA-CWT Trust Management (Cache) Limited, a 60:40 JV between ARA Asset Management and CWT Limited. CWT is also the Reit’s sponsor.
The offering comprised an international placement of about 433.1 million units, as well as 41 million units to the public in Singapore of which 14 million units were reserved for subscription by the directors, management, employees and business associates of CWT, ARA and their subsidiaries.
The real estate investment trust (Reit) will hold an initial portfolio of six properties in Singapore with a total gross floor area (GFA) of 3.9 million square feet.
The Reit will focus on expanding locally in the near term before looking at acquisitions in foreign markets such as Greater China and Malaysia.
Some of the principal unitholders of Cache include CWT (12.2 per cent), ARA, C&P Holdings, and cornerstone investors JF Asset Management Ltd and Morgan Stanley Investment Management Company.
Cache’s manager has forecast for the current year ending Dec 31, 2010 a distribution per unit of about 7.65 cents, which reflects a distribution yield of 8.7 per cent.
CLT – CIMB
Ramping up logistics yields
• Initiate with Outperform and target price of S$1.23. Cache Logistics Trust is a REIT sponsored by CWT investing in income-producing logistics assets in Asia-Pacific. We value Cache using DDM valuation (discount rate 8.4%) and arrive a target price of S$1.23 which factors in S$220m of potential acquisitions. We believe it is reasonable to assume acquisitions given limited scope for organic growth via asset enhancement as the buildings are relatively new. Our target price offers a total prospective return of 45.1% from potential price upside of 39.2% and forward 2010 yield of 5.9% from its IPO price of S$0.88.
• Master leases ensure defensible income streams. Cache’s initial portfolio is leased back to its sponsor CWT with a triple net master lease structure. There is limited property expenses and capital expenditure for the REIT on such a structure. Cache’s weighted average lease expiry of 6.4 years is significantly longer than the industrial REIT average of 4.8 years.
• Pure Singapore logistics play for now. Cache is likely to acquire assets from its sponsor CWT, and from C&P in the short term. Staying Singapore-centric will give it significant edge over its closest peer MapleLog which is subject to higher country risk with a geographically diversified portfolio. The IPO price of S$0.88 prices Cache at book value. At this level, Cache’s annualised yield of 8.8% looks highly attractive against the SREIT sector (0.9 P/BV, 6.8% yield); and its industrial peers AREIT (1.2x P/BV, 6.7% yield ), and MapleLog (at book value, 6.7% yield).
CLT – SGX
Extracts from SGX,
Based on the 474,108,000 Units under the Offering, the valid applications received under the Public Offer as at the close of the Public Offer, the aggregate indications of interest received under the Placement as at the close of the book building exercise and the close of the Reserved Tranche, the Offering is approximately 7.8 times subscribed.
Source : SGX
SREITs – DBS
Upside for Industrial REITS
• Room for earnings upgrade for industrial reits
• Hospitality reits to lead earnings growth in 1Q10
• Prefer industrial, retail and hospitality reits
• Top picks – ART, CDL HT, MLT, FCT, AiT
1Q earnings growth driven by economic recovery and acquisitions. We expect Sreits earnings momentum to continue into 1Q10, led by hospitality reits. Hospitality Reits should grow by at least 10% qoq in 1Q10, owing to a secular sector recovery while industrial reits should enjoy sequential mid single digit earnings uplift from new acquisitions. Retail reits are likely to show modest growth on the back of improving retail sales and office reits are likely to see marginal qoq increase, given the previous high base in rents.
Raising our earnings projection for the industrial Sreits. Looking ahead, we see 3 catalysts for Sreits – organic growth, acquisitions and refinancing into current lower interest cost environment. We have raised our earnings estimates for industrial Sreits by 1.5-4% to factor in potential new acquisitions in FY10. On the operating front, the pick up in economic activity has resulted in increased leasing enquiries, particularly for logistics warehouse, light and hi-tech industrial space. Rental hikes in 1H are likely to remain modest, although we anticipate this trend will be more evident in 2H10. Suburban retail rents have benefited from rising retail sales and a nascent recovery in rental pricing power.
Interest burden to reduce on refinancing options. The present window of opportunity for refinancing exercises at competitive rates have brought our attention to the possible uplifting impact of reduced interest burden on earnings. Potential beneficiaries would include reits with debt refinancing due this year and next such as CCT, CMT, Suntec, K-reit and Starhill Global. This has not been factored into our existing forecast.
Going for alpha. Sreits have outperformed developers YTD and are currently trading at DPU yields of 7.4%. Our 12-month price target translates to a projected yield of 6.5%, or 13% upside from here. Our strategy for Sreits would be to look for alpha, given the outperformance to date. We continue to favour the hospitality, retail and industrial segments, that offers the greatest upside based on our price objectives. Our top picks include CDL HT, ART, FCT, Ascendas India and MLT. The risk to our view is the prospect of rising long bond yields, which could drag on share price performance.
PLife – BT
Parkway Life Reit a model for India’s Fortis: analyst
2 ways to ride on India market: replicate Reit or pump in properties
EVEN as Fortis Healthcare and Parkway Holdings are pondering over the possible synergies that the healthcare partners can leverage on from their new relationship, one analyst has suggested that they look into real estate too.
Simranjit Singh, director of healthcare practice at Frost & Sullivan Asia Pacific, said that with the India property market heating up, Fortis could leverage on Parkway Life Reit (of which Parkway is a substantial unit-holder) by ‘offloading its Indian properties’ to the Reit or ‘by replicating a similar healthcare Reit model in India’.
‘In fact, many analysts speculate that there will be about three to four large-sized initial public offerings of Reits this year,’ said Mr Singh. ‘This is likely to come from India, where business parks are maturing and attracting stable, healthy income streams for property owners. It will also be hard to rule out the possibility for hospitals to join the fray.’
However, analysts that BT spoke to expressed a mixed response to that suggestion.
‘Although India is one of the markets that have huge untapped potential, an acquisition of an Indian asset in the near term is unlikely,’ said Kim Eng Research investment analyst Anni Kum. ‘Japan and Australia currently present better opportunities due to the still attractive asset yields and stable income structure that potential targets offer. I do not think India is a market that PLife Reit is seriously looking at at this moment. But the Reit may still consider opportunistic buys at compelling prices.’
Broadly agreeing, DMG Securities’ Terence Wong said that Malaysia would be more attractive to PLife Reit. ‘They’ve always mentioned that they will focus on four markets – Singapore, Japan, Malaysia, as well as Australia. So after Japan, probably it’ll be Malaysia.’
PLife Reit owns the Gleneagles, Mt Elizabeth and Parkway East hospitals in Singapore as well as 18 properties in Japan.
Another analyst from a research house based here noted that the defensive nature of a Reit model requires that the properties that PLife Reit acquires be able to generate a stable income stream. While India is a possibility, an injection of assets is unlikely in the near term, he said.
‘The management of PLife Reit is very focused on where they want to invest in,’ said the analyst. ‘Those countries that they are looking into are usually more mature in terms of regulations, like Singapore, Japan as well as Australia. Offhand, I would think India, in terms of regulations, is still behind these three countries.’
When asked what he thinks of the real estate suggestion, Parkway Trust Management CEO Yong Yean Chau said he is positive about the growing regional healthcare market but each acquisition ‘will have to be yield-accretive’.
‘As always, we remain open to opportunities for strategic partnerships with high-quality operators at the right time to enhance our business and portfolio,’ said Mr Yong, whose company manages PLife Reit.
Interestingly, Fortis Healthcare is listed as a competitor in PLife Reit’s IPO prospectus. The Indian hospital chain owner, which bought a stake in Parkway last month for close to $1 billion, operates a network of 46 hospitals, with another eight still under construction. Fortis Healthcare now owns 25 per cent of Parkway, which in turn holds a 36 per cent interest in PLife Reit.
In a statement yesterday, Frost & Sullivan’s Mr Singh also said that Fortis could tap on Parkway’s expertise in providing primary healthcare for the expatriate segment as India is also seeing a growth in its expatriate community. There are also growth opportunities for Parkway’s laboratory business and that of Super Religare Laboratories, which is owned by Fortis.
‘In fact, this could be a business unit that could be further developed and listed as a separate entity,’ said Mr Singh.