FCOT – SGX
Singapore, 5 March 2010 – Further to its announcement dated 9 February 2010 in relation to the non-renounceable offer for sale of 116,789,400 Series A convertible perpetual preferred units in FCOT (units in FCOT, “Units”, the Series A convertible perpetual preferred Units, the “Series A CPPUs” and the non-renounceable offer for sale by FCL Investments Pte. Ltd. (the “Vendor”) of 116,789,400 Series A CPPUs, the “Series A CPPU Offering”), Frasers Centrepoint Asset Management (Commercial) Ltd., as the manager of FCOT (the “Manager”), is pleased to announce that following the close of the Series A CPPU Offering on 2 March 2010, 36,342,116 Series A CPPUs have been accepted and will be transferred to the relevant holders of Units (“Unitholders”) and credited into their respective securities accounts on 9 March 2010 and the Vendor will be retaining 98,157,884 Series A CPPUs (including 80,447,284 Series A CPPUs which were not taken up pursuant to the Series A CPPU Offering). Frasers Centrepoint Limited will, through the Vendor and FCL Trust Holdings (Commercial) Pte. Ltd., hold an aggregate of 306,157,884 Series A CPPUs.
REITs – OCBC
Upgrading view to OW; Ascott & Suntec top picks
4Q CY2009 results review. Five out of the eight S-REITs under our coverage reported earnings in line with our estimates, with quarterly DPU differing 0-4% from our estimates. A- REIT, Mapletree Logistics Trust (MLT), and CapitaCommercial Trust (CCT) beat our DPU estimates by 9%, 9.5% and 17.5% respectively.
Significant activity year-to-date. In the past two months, the S-REIT sector has announced a sizeable S$1,218m worth of acquisitions. These have primarily been funded on the back of proceeds from equity issues completed in 2009 and 2010. K-REIT [NOT RATED] and CDL Hospitality Trusts [NR] made their maiden foray outside of Singapore into Australia. We believe this was primarily motivated by a search for value – distressed or even stressed opportunities are currently more plentiful in regions such as Australia and Japan vis-à-vis Singapore. Meanwhile, CCT agreed to divest Robinson Point for S$203.3m or roughly S$1527 per square feet of net lettable area to a private real estate fund. It also announced it was exploring options to re-develop Starhub Centre and change its use to a mix of residential and commercial. The equity market was also active with Frasers Centrepoint Trust raising S$182.2m to fund the purchase of two retail malls from its sponsor. ARA Asset Management [NR] and CWT Ltd [NR] also announced plans to launch a new logistics REIT. We expect REIT managers to continue down the acquisition path with stressed opportunities emerging as the broader market deleverages and with investors demanding yield growth. In turn, this growth push is likely to require further equity issues due to increased leverage conservatism.
Upgrading sector view. In a volatile market, we believe yield is an increasingly important contributor of overall return. Greater visibility may also drive further price-to-book compression. Ascott Residence Trust continues to be one of our top picks as a proxy to corporate investment and travel. We replace MLT with Suntec REIT as our second top pick on Suntec’s often over-looked retail portfolio and a possible shift in sentiment towards office REITs on increasing leasing activity, active supply management, and a slowing rate of decline in office rents. MLT continues to be a viable investment option, in our view, for investors seeking yield and stability. We upgrade our view on S-REITs to OVERWEIGHT from NEUTRAL. Key risks to our thesis are macro-economic risk, interest rate hikes (more of an issue for big caps REITs that have re-rated strongly, in our view) and an uncertain policy climate (the easy liquidity regime has to end at some point).
Suntec – BT
Suntec, Resorts World to cross-sell
Suntec Singapore and Resorts World Sentosa on Wednesday announced an exclusive partnership that will have the two properties cross-sell each other to create real business opportunities for both venues while growing the international MICE business for Singapore as a whole.
The exclusive agreement between Asia’s leading convention and exhibition centre and Singapore’s first integrated resort allows event planners to offer their clients the opportunity to conduct their exhibitions and day meetings within the Central Business District in Suntec Singapore, and continue with after-hours social functions at Resorts World Sentosa.
Together, the two heavyweights will cross-sell venues through joint sales calls, customised proposals and event concepts to international meeting planners, whose guests and delegates could enjoy seamless transfers between the two venues, as well as exclusive and customised services and experiences.
K-REIT – Nomura
Brisbane acquisition completed
Action
KREIT yesterday announced the completion of its acquisition in Brisbane. In this, a follow-up to our email (Adds prime Grade A office building in Brisbane to portfolio, 1 February, 2010), we revise up our estimates. The acquisition adds 0.6-0.7Scts to KREIT’s FY10-12F DPU, on our numbers, while our NAV estimate and price target are little changed at S$1.40. BUY maintained.
Catalysts
How KREIT deploys its balance-sheet capacity amid disappearing acquisitive opportunities and, on the other hand, increases stock liquidity will be key catalysts.
Anchor themes
With REITs having grappled with the issues of refinancing, the spectre of revaluation deficits and negative rental reversions should dominate. We see risks being priced in the office sector, though we retain our view that the market has been too complacent in its assessment of the retail and industrial REIT sectors.
Acquisition of 275 George Street completed
KREIT yesterday announced the completion of its acquisition of a 50% stake in 275 George Street in Brisbane. The all-in acquisition cost of S$225.1mn was funded by rights proceeds raised in 4Q09. In our model, we have assumed rents for the 40,307 sq m occupied by Telstra and Queensland Gas on 10-year leases escalate at an annual rate of 5.5% from A$500-550psm in FY09, and rents for the retail space now occupied by Cicada remain constant at A$1,000psm over our forecast period. In addition, we have assumed a withholding tax rate of 7.5% in arriving at our estimates. There is an annual net income guarantee of A$12.8mn/year till June 2012.
Raising FY10-12F DPU by 0.6-0.7Scts
As highlighted previously, we had assumed the 30-month loan of S$390mn from Keppel Corp would be repaid with the rights proceeds. Following the acquisition, we are now assuming in our model a partial repayment of S$300mn with the remaining rights proceeds. Overall, we raise our FY10-12F DPU by 0.6-0.7Scts — a 1-1.2Scts accretion from 275 George Street’s income, offset by a 0.1Sct increase in tax expenses and a 0.3-0.4Sct increase in net finance costs.
Reiterating BUY; price target tweaked to S$1.40
We value KREIT’s newly acquired 50% stake in 275 George Street at its all-in acquisition cost of S$225.1mn and because the acquisition is funded by cash, there is minimal change in our NAV estimate and price target (now S$1.40, from S$1.41, on account of a marginal change to our FY10F net debt estimate). Our price target implies a potential total return of 34.8%, including a projected FY10F yield of 6.4%. Trading at an implied EV of S$1,183psf for its SG office portfolio, valuation remains undemanding, in our view.
Shipping Trusts – OCBC
4Q09 results review
Results in line; payouts lower. Full year results for the three Singapore-listed shipping trusts were in line with our expectations, with FY09 distributable income within 4% of our estimate for each trust. The trusts all declared significantly lower payouts for 4Q09 vis-à-vis 4Q08. FSL Trust’s (FSLT) payout represented 56% of cash earnings compared to 100% in the corresponding quarter. Pacific Shipping Trust’s (PST) 4Q09 payout was equivalent to 43% of cash earnings versus 53% in 4Q08. Meanwhile Rickmers Maritime’s (RMT) quarterly distributions amounted to 13% of cash earnings versus 59% a year ago. The trusts used the retained cash to repay loans and/or bolster cash reserves.
No movement on key issues. The results were fairly uneventful with limited or little progress on the outstanding fronts. PST has not re-opened talks with charterer CSAV on the liner’s request for rate renegotiations. On a positive note, CSAV’s debt re-structuring and equity fund-raising plans are coming along on target, which PST’s manager was “encouraged” by. FSLT, meanwhile, continues to scout acquisition opportunities that will utilize the funds raised through the recent placement. The manager also kept its options open for another attempt to diversify its funding sources through a senior unsecured notes offering. RMT is still in talks with its bankers and sponsor on loan-to-value covenants, a US$130m loan facility maturing in April, and large capex commitments. While talks continue, completed newbuilds are being warehoused by sponsor Rickmers Group.
Too soon to call for a recovery. There are arguments for both sides. The bull case for containers: 1) inventory restocking; 2) some economic growth; 3) slow steaming; 4) scrapping and order book management. The bear case: 1) uneven economic data pointing to the likelihood of a slow, ‘benign’ recovery; 2) a still substantial order book; 3) financing difficulties; and 4) precarious industry discipline – laid up vessels are already being re-introduced into service, and it’s unclear who controls the tap. The broader industry’s stance on the ‘knife-edge’ of recovery moves us to upgrade our sector view from UNDERWEIGHT to NEUTRAL. Nevertheless, we leave our ratings on the individual trusts unchanged for now, as we wait to see more sustained evidence of a recovery. A cautious approach in the coming weeks may be prudent considering that RMT’s US$130m loan facility is maturing just next month. How that maturity is handled may drive sector valuations and sentiment in the near-term.