PLife – BT
Parkway Reit buys Japan nursing homes
PARKWAY Life Real Estate Investment Trust (P-Reit) said yesterday that it has agreed to buy seven nursing homes in Japan for a total of 7.85 billion yen (S$105.7 million).
The current turmoil in the financial markets has opened up opportunities, said P-Reit manager Parkway Trust Management (PTM). ‘P-Reit is taking advantage of current soft market conditions, to negotiate the purchase of a very high-quality nursing home portfolio on very favourable terms,’ said PTM chief executive Justine Wingrove. ‘There are few markets in Asia where an investor can enjoy a 400 basis point spread between the net initial yield and cost of debt.’
The acquisition of the nursing homes is yield accretive to unit-holders, P-Reit said. The net initial yield of the portfolio is 6.9 per cent, with individual yields ranging from 6.7 per cent to 7.2 per cent. P-Reit said that the acquisition will be funded by debt, which will increase its gearing from 10.3 per cent to 19.7 per cent. The trust said that it is drawing down committed debt facilities that are already in place.
Japan has the world’s fastest-growing population of elderly people. According to Japanese government statistics, 39.6 per cent of the country’s population will be over 65 by the year 2050, compared with just 21.5 per cent last year.
The aged-care industry is expected to grow as a result. P-Reit cited Japanese government forecasts that in 2015 and 2025, nursing care insurance payments are estimated to cost 12 trillion yen and more than 20 trillion yen respectively.
‘We have observed the exponential growth of the nursing care market in Japan and will continue to pro-actively seek similar yield-accretive acquisitions to diversify our asset portfolio and grow our income stream,’ said Ms Wingrove.
The seven nursing homes are located across Japan, including Tokyo, Chiba, Saitama, Kanagawa and Hyogo. All of them are managed by established operators in Japan.
P-Reit bought the homes through its wholly owned subsidiary Parkway Life Japan3 from a wholly owned subsidiary of Japanese property investment company Kenedix.
P-Reit, with a portfolio of $902 million at June 30, is the largest healthcare Reit in Singapore by asset size. It was set up to invest mainly in income-producing real estate and real estate-related assets in the Asia-Pacific region that are used primarily for healthcare purposes.
CRCT – BT
CRCT buys Beijing mall’s basement extension
CAPITARETAIL China Trust (CRCT) has entered into a conditional agreement to acquire Xizhimen Mall Basement 1 Extension (Phase 2) for 163.5 million yuan (S$32.7 million).
CRCT said yesterday it will acquire the property from Beijing Finance Street Construction Development Co for a total consideration – including the purchase price, capital expenditure and related costs – of about 195 million yuan.
In February, CRCT acquired Xizhimen Mall for $336 million. This involved an agreement for it to purchase, when completed, the planned Phase 2 from the vendor, subject to conditions.
CRCT said the acquisition will be fully funded through external debt and internal cash reserves.
Following the acquisition, CRCT’s gearing is expected to be 32.3 per cent.
Wee Hui Kan, deputy CEO and CEO designate of CRCT manager CapitaRetail China Trust Management, said Xizhimen Mall’s total gross rentable area will increase to 83,074 sq m. The mall is expected to benefit from, ‘higher shopper traffic and enhanced rental income growth over time’, he said.
Assuming 100 per cent occupancy and current average rental rates commanded by Basement 1 of Xizhimen Mall, Phase 2 is expected to achieve a net property income yield of 9.1 per cent. Phase 2 will add 9,217 sq m of gross rentable area to the existing Basement 1.
The acquisition is expected to be yield-accretive to CRCT unitholders compared with CRCT’s implied net property income yield of about 8.8 per cent, based on the trust’s closing unit price of $0.725 on Sept 26.
Xizhimen Mall is part of Xihuan Plaza, a mixed-use development that comprises three office towers, a small commercial block and a seven-level retail podium.
CMT – OCBC
Sailing through choppy waters
Strong REIT managers will shine in difficult times. The completion of 651,000 sqm of retail space between 3Q08 and 2011 would inevitably put downward pressure on rental rates. But during the slump in retail rental rates in 2001-2003, CMT had been able to raise its rental rates through asset enhancement initiatives (AEIs) and space reconfiguration despite challenging operating condition. As such, we think strong retail mall managers can still ride out the tough period through well-executed asset management and enhancement.
Expecting a smooth transition in stewardship. Last week, Mr Pua Seck Guan, the CEO of CMT, announced his resignation with effect from 1st November 2008 and Mr Lim Beng Chee will take over Mr Pua’s role as the new CEO. Transition in stewardship should be smooth as Mr Pua had already made known to CapitaLand of his intention to pursue personal interest since last year and this would have given CapitaLand ample time to prepare for the transition.
Growth unlikely to be derailed with management change. Mr Pua had been instrumental in the growth of CMT since its IPO. With his departure, concerns have been raised on the outlook of CMT, which was evidenced in the sharp decline in CMT’s share price after the announcement. We think such concerns have been overdone. With plans for future AEIs in place, we do not think the change in management will derail the progress of AEIs going forward.
Yield discount attributable to size difference. While CMT is still trading at FY08 yield discounts of 1.3% to 2.0% to other retail REITs, we note that this yield discount correlates to the size of the REIT and this is also prevalent in office and industrial REIT sectors. For CMT, this yield discount is expected to narrow in FY09 with the increase in DPU.
Fair value lowered to S$3.05. We do not see significant change in the fundamentals of CMT’s retail malls, but we are lowering our fair value to S$3.05 (previously S$3.21) after raising our office cap rate from 4.5% to 5% and lowering our office rental forecasts, in line with our cautious stance for the sector. Share price could stay depressed for a while as the market awaits further clarity on the direction of CMT under the new CEO and yield spread over 10-year bond could stay wide under the tight credit market condition. We are keeping our BUY rating.
CitySpring – BT
CitySpring seeks assets worth $1b
But infrastructure trust says valuations are still too high
CITYSPRING Infrastructure Trust, sponsored by Singapore investment company Temasek, is seeking buys worth over $1 billion but said asking prices were still too high.
‘We’re on the negotiating table for a number of opportunities but valuations are too high. Holders of good assets are not yet coming down to a value we find reasonable,’ CitySpring chief executive Au Yeung Fai told Reuters in an interview yesterday.
The trust was not in a desperate need to acquire, and would rather walk away from deals rather than overpay, Mr Au Yeung said, adding that some deals were as much as 30 per cent above what he was prepared to fork out.
CitySpring wants to buy assets such toll roads, ports, and power firms in countries including China, India, and in South-east Asia, and with two-thirds of the opportunities reviewed worth under $1 billion and a third worth over $1 billion.
CitySpring shares closed at $0.71 yesterday, down half a cent.
The stock has fallen 23 per cent so far this year, against the benchmark Straits Times Index’s 27 per cent drop.
Mr Au Yeung, a former investment banker with Barclays and then JP Morgan, said most sellers in Asia are still holding on in hopes of riding out the global economic downturn, although he sees the potential for plum deals in Australia.
‘In Australia there are a lot of infrastructure trusts which are financially distressed and are looking to offload their assets. Maybe some of those valuations will come down, but they haven’t come down sufficiently yet,’ said Mr Au Yeung.
Stocks of Australian trusts such as Macquarie Infrastructure, Babcock & Brown Infrastructure and Transurban Group have been battered by poor market conditions this year, putting pressure on them to sell assets.
CitySpring, in which Temasek has a 28-per cent stake, currently owns a town gas producer and water desalination plant in Singapore, and an undersea electricity cable linking two states in Australia.
It is also interested in the third and final power generation firm PowerSeraya, being divested by Temasek , but has not yet decided whether to bid, Mr Au Yeung said.
Backing from deep-pocketed Temasek has made it easier for CitySpring to obtain bank financing, and this relationship has not hindered deal negotiations despite political sensitivities linked to the wealth fund’s overseas investments, Mr Au Yeung said.
‘This has never been an issue for us. Temasek still has a good reputation across the region, and assets we target typically are not government privatisations but in private hands,’ said Mr Au Yeung, a Cambridge University mathematics graduate.
Unlike Singapore-listed real estate investment trusts such as CapitaMall and Ascendas Reit which typically distribute 90-100 per cent of income to shareholders, Mr Au Yeung said CitySpring will stick to a policy of retaining about half of its cashflow.
‘Some of the cash which is left over, we feel it’s prudent to keep in the trust, to cater for business needs and unforeseen events,’ he said.
‘If we cut everything to the wire, there’s no margin for error and in today’s market with so much uncertainties, that’s not a good model.’ – Reuters
Hotels – DBS
August’08 visitors number shows a continuing slide
Story: Based on STB statistics yesterday, Singapore continues to see weaker visitor numbers in August ’08; 842,000 visitor arrivals, which was a 7.7% decrease from a year ago. Average Room Rate (ARR) in August 2008 was S$232, + 4.9% YoY, Average Occupancy Rate (AOR) was c.81%, posting a 9.5% decline a year ago. As such, RevPAR growth narrowed to only +2.8% YoY at S$187 for the month.
Point: The performance is largely in line with our expectations. As per our Hospitality Sector report dated 4th Sept’08, titled ” Playtime is Over”, we have highlighted that 2H08 tourism sector performance to moderate compared to 1H08, and (i) Aug’08 should remain weak due to the distraction from the Chinese Olympics, (ii) high regional inflation and slowing GDP growth leading to cuts in discretionary spending and (iii) in the medium term, a slowing tourism sector arising from a global slowdown.
Moving forward, although Sept’08 sector performance is expected to be boosted by the Formula One Night race held over the coming weekend, weak underlying fundamentals could lead to further slowing tourism numbers in the medium term.
Relevance: Given the lack of catalyst for a re-rating and potential headwinds moving forward, we are maintaining our Neutral Call on the sector. In terms of stock picks, we remain selective as slowing tourist arrivals could imply weaker earnings for hoteliers moving forward.
We maintain BUY on ART, TP $0.94, which is trading at an attractive 30% discount to our revised RNAV of S$0.94. Earnings should remain resilient with leases locked in for an average of 8 months ahead.
For CDL HT, we view that exposure to slowing RevPAR could lead to weak earnings and thus cap performance in the near term. As such we maintain HOLD, TP $1.23.