MIREIT – BT
Cambridge Industrial Trust Management, a 10 per cent unit holder of MacarthurCook Industrial Reit, said on Monday it opposes a recapitalisation exercise announced earlier this month.
Earlier, MI reit announced a series of fundraising measures that will allow it to repay a portion of its borrowings that expire in December and at the same time buy five new properties. The combined measures, which include a rights issue, the introduction of a new strategic investor and the sale of new shares to eight cornerstone investors, will bring in S$217.1 million in fresh funds.
The proposed exercise will see MI-Reit issuing new units to AMP Capital Holdings and other ‘cornerstone’ investors, followed by the rights issue.
But CIT said the exercise will hurt existing unitholders because it is priced at a steep discount to MI-Reit’s net asset value.
It is urging unitholders to vote against the measure and has offered to take over as manager of MI-Reit.
PLife – DBS
Bulking up with Life
• Acquired 8 additional nursing homes for JPY5bn (c.$77.6m)
• NPI yield at 8.29%, favourable against existing nursing homes portfolio of 6.14% and cost of funds
at 3.22% (5 year term loan)
• Increased FY10F DPU forecast to 8.0 Scents (from 7.7 Scents), equating to c.6.6% yield
• Maintain Buy; TP: S$1.45.
8 more nursing homes. PREIT announced that it has entered into an agreement to acquire 8 nursing homes in Japan for a total consideration of JPY5bn (c.S$77.6m), which has a net property income (NPI) yield of 8.29%. This compares favourably against the 6.14% NPI of its existing nursing homes portfolio. The REIT will fund the acquisition via a 5 year unsecured term loan at a cost of 3.22%.
Gearing for the REIT will increase from 23.2% to 28.7%. Long leases with rental deficit support. The nursing homes have long-term lease agreement with the operators, with a weighted average lease term to expiry of 19.29 years. The vendors of the nursing homes are subsidiaries of Kenedix Inc, a real estate manager in Japan. Kenedix will be providing a rental deficit support for 7 years provided, capped at 5% of the purchase price (i.e. JPY250m or c.S$S$3.87m). Five of the eight properties also have backup operator agreements.
Maintain Buy, TP: S$1.45. We view this acquisition positively given that it is yield accretive, in line with the
REIT’s strategy to invest in healthcare related assets and diversify its income stream. Our DPU estimates are raised to 8.0 Scents (FY10F) and 8.2 Scents (FY11F), equating to a yield of 6.6-6.8%.
MIREIT – SGX
CONFIRMATION SOUGHT RE
MI-REIT EGM TO CHANGE MANAGER
In its announcement, MacarthurCook Investment Managers (Asia) Limited (“MIM”) has ignored the requisition by Cambridge Industrial Trust (“CIT”) and others for an EGM of MIREIT as lodged with both it and the trustee of MI-REIT this morning.
Cambridge Industrial Trust Management Limited, on behalf of CIT, the largest unitholder in MI-REIT, requires MIM to confirm that it has arranged with the MI-REIT trustee for the EGM to remove MIM as manager to be called on 4 December 2009.
CitySpring – OCBC
DPU surprises on the upside
Time lag impacts 2Q10. CitySpring Infrastructure Trust reported a 11% QoQ increase in 2Q10 revenue to S$92.1m but a 31% fall in cash earnings to S$9.6m. The negative variance was primarily due to the short-term timing mismatch between changes in City Gas’ tariff revenue and fuel costs, which we understand have shot up significantly over the last six months. City Gas raised its tariff by 7.5% effective 01 Aug and by 13.8% effective 01 Nov. Over time, City Gas should be net neutral to fluctuations in fuel costs. Basslink’s telecoms network made its maiden contribution to cash earnings this quarter.
DPU surprises on the upside. CitySpring declared 1.05 S cents in 2Q10 DPU, down 40% YoY and QoQ because of the enlarged post-rights unit base. This was 5% higher than the pro forma 1 S cents estimate. The manager said CitySpring will target the same quarterly payout for the remainder of FY10. The 4.2 S cents annualized payout outperforms our 3.9 to 4 S cents annual estimate. The manager said that the trust increased the absolute level of payout (S$41.2m versus S$34.3m) because of its “comfort” with the performance of the three businesses.
Looking ahead after the cash call. We believe CitySpring will likely be able to deliver gradual (but modest) organic growth in distributions in the long term, driven by increasing City Gas volumes and the fledgling telecoms business at Basslink. Still, significant income growth will (in our opinion) have to be fueled by external growth. The rights issue has improved CitySpring’s ability to consider such growth. One major project coming up is the City Gas network conversion project, where discussions continue with the regulator. At IPO, the project cost was estimated at S$200m (over a period of five years). The manager continues to explore acquisition opportunities but reiterated its skepticism of hard-and-fast yearly targets and its insistence on acquiring on its own terms. Our interpretation: don’t expect anything too soon.
Defensible yield. Our earning estimates now reflect actual 1H10 results. We note the manager is still in discussions with DBS Bank on the terms of the planned new revolving credit facility. Our DDM-derived valuation assumes a 6.4% discount rate and a 0% terminal growth rate. On this basis, our fair value estimate for the trust is 68 S cents (unchanged). The annual yield of 7.3% is fairly defensible in our view, because of the stability inherent to the business models of the three regulated assets. Maintain BUY (29% total return).
HWT – DBS
No pick up in utilisation rates yet
At a Glance
• 3Q09 distributable cash of S$3.5m in line with expectations – equates to 1.16Scts in DPU
• 2H09 DPU guidance maintained at 2.86Sccts – can be met with partial waiver from sponsor, Hyflux
• However, utilisation rate stays flat at 45%; management indicates muted demand growth over next 2-3 quarters
• Maintain HOLD in the absence of catalysts, TP S$0.65.
Comment on Results
With the addition of a new plant at the end of June’09, average treatment volumes picked up 10.2% from 234,000 cu m/day in 2Q09 to 258,000 cu m/day in 3Q09. This translated to a 10% q-oq rise in tariff receipts – from S$6.9m in 2Q09 to S$7.6m in 3Q09.
Operating costs were again well controlled, and net operating income was 17% higher q-o-q at S$3.2m. However, this did not translate to a growth in distributable income which stayed largely flat at S$3.5m for the quarter, implying a DPU of 1.16Scts for 3Q09. Higher interest expenses and the absence of interest rate swap gains resulted in this flat q-o-q performance.
Outlook & Recommendation
As we have highlighted before, DPU payout for 2H09 is protected by the Sponsor’s waiver, whereby Hyflux will subordinate its share of distribution entitlement to the extent required to ensure that 2H09 DPU projection of 2.86Scts is achieved. We estimate Hyflux may have to waive about 45-50% of its entitlements in 2H09.
However, we believe FY10 DPU may take a dip, in the absence of any such waiver. Going forward, management indicated that growth in demand for water treatment would be muted over the next 2-3 quarters, as new industries are not likely to be established in the industrial parks (where HWT operates) in the near-term, following the global slowdown. Acquisitions will be the key growth driver, but we do not foresee any action before 2H-FY10. Thus – in the absence of any positive near-term catalysts – we continue to maintain our HOLD call on the stock, TP unchanged at S$0.65.