MMP – Media Release (SGX)
SINGAPORE, 13 March 2008 – Macquarie Pacific Star, the Manager of MMP REIT, today announced that it has refinanced S$220 million of short-term loans, S$190 million of which are due in May 2008 and another S$30 million due in August 2008.
In light of the strategic review of MMP REIT announced on 19 February 2008, the new funding has been arranged to extend the maturity of the facilities until end September 2008. The renewals have been secured on competitive terms and will not have a material impact on Distribution Per Unit to unitholders. The refinancing, which is expected to cover the period during which the strategic review is undertaken, will allow the review to proceed with flexibility and remove the need to incur additional costs to unwind longer-term loans, which may be necessary if there is a transaction pursuant to the strategic review.
Mr Franklin Heng, Chief Executive Officer of Macquarie Pacific Star, said, “The successful refinancing of MMP REIT’s debt facilities demonstrates the strong credit quality of MMP REIT, with finance providers continuing to support the trust.
“We remain committed to securing the most optimal financing arrangements to maximise returns to unitholders. We will continue to monitor MMP REIT’s funding position throughout the strategic review and will put in place funding strategies which address the various scenarios which may emerge.
“MMP REIT’s credit worthiness is supported by the high quality of MMP REIT’s underlying assets, low gearing, rental reversions, occupancy levels and tenancies. These attributes remain unchanged.”
AREIT – BT
Goodman exit seen as chance for A-Reit expansion
IN A move that could pave the way for Ascendas Real Estate Investment Trust (A-Reit) to finally expand overseas, Australia’s Goodman Group has exited the trust.
Goodman is selling its 40 per cent stake in the entity that manages A-Reit as well as a 6.28 per cent stake in the trust itself. The latter transaction is for $158.16 million or about $1.90 per A-Reit unit. The counter closed at $1.95 yesterday, down two cents.
The buyers in both transactions are fully owned units of Ascendas Pte Ltd, which will gain full control of the Reit manager, which will be renamed from Ascendas-MGM Funds Management to Ascendas Funds Management (S).
Ascendas’ stake in A-Reit will also go up to 26.77 per cent.
An announcement last night put an end to speculation late last year that Goodman would exit A-Reit. Market watchers expected Goodman to sell its stake in the A-Reit manager when the Australian group was tipped to land the job of managing a proposed Reit that will hold some properties being divested by JTC Corp.
The strategy would have been to remove the conflict of interest of Goodman having an interest in two Singapore industrial Reit managers potentially competing for the same assets and tenants.
However, JTC eventually gave its Reit management job to Mapletree Investments in February. Although Goodman did not clinch that deal, some market watchers nonetheless welcome Goodman’s exit from A-Reit’s manager, as it paves the way for A-Reit to invest in properties outside Singapore.
A-Reit has never expanded overseas because of an understanding among the shareholders of the Reit manager to avoid conflict of interest, analysts say.
Goodman Group CEO Greg Goodman possibly hinted almost as much when he told BT last night that ‘we have operations in the region, and so does Ascendas’ and parting ways will minimise mutual conflict of interest.
Another important reason Goodman is exiting its involvement with A-Reit’s manager is because ‘our approach is that we prefer to have full control of any Reit manager we’re involved with, and that’s not possible in this case’, Mr Goodman said.
However, the group is not bidding goodbye to the Singapore industrial property market.
‘Goodman will re-enter the Singapore market at some point. We know this market well and we like it,’ Mr Goodman said.
The group could invest in the Singapore industrial property scene again, possibly through its wholesale property funds, or development activity.
MMP – UOBKH
Unassailable frontage on Orchard Road
MacQuarie MEAG Prime (MMP) REIT invests in real estate used for retail and office purposes in Singapore and overseas. MMP REIT’s initial portfolio comprises 74.2% strata title interest in Wisma Atria (WA) and 27.2% strata title interest in Ngee Ann City (NAC). WA and NAC are landmark retail malls within the Orchard Road shopping district next to Orchard MRT station. MMP REIT is managed by MacQuarie Pacific Star Prime REIT Management, which is owned by MacQuarie Bank (50%), MEAG Munich Ergo (25%) and Investmore (25%). MacQuarie Real Estate Singapore owns 23.9% of MMP REIT.
NAC: positive impact from rent review with Toshin. MMP REIT will review rental of master lease for 226,275sf of retail space with Toshin Development, a subsidiary of Takashimaya, in Jun 08. The magnitude of rent increase is capped at 25% and we have assumed an increase of 12.5% in our forecast. MMP REIT will also reconfigure 16,780sf of space previously occupied by National Library into a beauty and wellness precinct. Management expects rental to increase from S$7.10 to S$14psf pm after reconfiguration is completed in May 08.
Benefiting from positive office rental reversion. MMP REIT owns a total of 239,972sf of office space at WA and NAC. Rentals for renewed and new leases has increased from S$7.70psf pm in 1Q07 to S$12.10psf pm in 4Q07, substantially higher than average passing rent of S$6.22psf pm in 4Q07. According to Colliers, asking rents for office space in Orchard Road were as high as S$16psf pm in 4Q07.
Riding on rapid growth in Sichuan, China. MMP REIT has acquired Renhe Spring Department Store in Chengdu, the capital city of Sichuan Province, for Rmb350m or S$70m. The mall houses premium foreign brands such as Burberry, Prada, Dunhill, Ermenegildo Zegna, Gucci and Hugo Boss. The property achieved sales of Rmb263m in 2006, an increase of 23%, and will be linked to Chengdu’s new subway system in 2010. The vendor Renhe Spring Group provided guaranteed net profit of Rmb26.4m for four years, equivalent to net distribution yield of 7.5%. MMP REIT has been granted right of first refusal for another two malls in Chengdu with total GFA of more than 1m sf.
Strategic review could result in restructuring. MacQuarie Pacific Star has embarked on a strategic review with the objective of enhancing value for all MMP REIT unitholders. The review will consider both corporate and asset level strategies and could also involve a proposal to take over 100% of MMP REIT. Management intends to refinance borrowings of S$235.8m with short-term borrowings to provide flexibility. MMP REIT has earlier established a S$2b multicurrency Medium Term Note (MTN) with tenor of one to five years.
Upgrade to BUY. We like MMP REIT for strategic frontage on Orchard Road. MMP REIT gains full year contribution from overseas investments in China and Japan in FY08. The on-going strategic review could also unlock value for investors. MMP REIT provides FY08 distribution yield of 6.56%, an attractive spread of 4.32% over 10-year Singapore government bond yield at 2.24%. Our target price is S$1.55 based on 2-stage dividend discount model (required rate of return: 7.85%, terminal growth: 2.5%).
Rickmers – OCBC
A Tale of Two Bets
Competitive distribution yield despite cash retention. Rickmers Maritime (RMT) is a listed shipping trust. Its shipping and distribution incomes are tax-exempt for all investors. RMT currently distributes 8.56 US cents annually. With its current price at S$1.06, or US$0.76, this translates to an attractive yield of 11.2%. In comparison, the Singapore 10-yr government bond yields 2.24%. RMT’s yield is also on par with the other shipping trusts listed on SGX, despite RMT retaining more than 25% of its cash income (net income + non-cash charges like depreciation) for capex. Note that non-USD investors would see their distributable income
subject to forex fluctuations.
Relatively lower asset yields. The shipping trusts’ vessels can be judged on their earning prowess – or their asset yield (annual lease income to acquisition cost of asset). We estimate that RMT’s vessels feature relatively lower asset yields, net of time charter expenses, versus the other listed peers.
Big plans for growth. RMT is growing at the fastest pace and magnitude of all the shipping trusts. RMT has already grown its portfolio from five vessels at its May 2007 IPO to ten by January this year. It is contracted to purchase another 13 ships over 2008-2010 for a total consideration of about US$1.35b. This will boost its fleet capacity by 3.2x, from 40,910 TEU currently to 131,560 TEU.
Leverage will spike. When RMT listed, it was entirely equity-funded. At 31 Dec 2007, its debt-to-equity ratio was 0.58x. To support its US$1.35b worth of acquisition plans, RMT would have to raise new equity eventually. However, the trust’s debt-to-equity could increase to 3x before the next tranche is raised. This is a double-bet, as RMT is focusing solely on the market for containerships, which is driven by the trade of manufactured goods.
Target price S$1.22. Our DCF value of the unitholders’ share in the trust is US$0.90 per unit. Based on OCBC Treasury’s view of a 1.35 SGD/USD exchange rate by end 2008, we set our target price at S$1.22, a 15% upside from the current price. Our valuation assumes the acquisition of another seven vessels for about US$500m over 2008-2012. With limited
clarity on RMT’s future distribution policy, we assume it continues to retain about 25-30% of its cash income. This still translates to high yields of 12.2% in FY08 (9.33 US cents DPU) and 14.4% in FY09 (11.01 US cents DPU). We are initiating coverage on RMT with a BUY rating.
AllCo – DBS
Unlocking its asset values
Story: Allco REIT has announced that I) Allco Principals Investment Pty Limited (API) has been served a receivership notice. While API does not have a direct stake in Allco REIT, it holds 51% in the REIT manager and has an income support arrangement totaling A$8m till Mar’09.
Separately, Allco REIT also announced a strategic review in of its portfolio, which may result in a divestment in its Australian properties.
Point: In our view, both this events could have a slight dilutive impact on earnings in the near term. The loss of income support agreement is possible given that it is unsecured. Therefore, we have cut our DPU forecasts by 5% in FY08 and FY09 to 6.7cts and 7.0 cts respectively.
In addition, while we view that it could be a good time to divest its Australian property given the toppish office cycle, interest savings from paring down debt is unlikely to offset the vacuum in earnings in the near term. Our sensitivity analysis of a sale of Central Park indicates a base case scenario where we have assumed management to use sales proceeds to repay its existing debt facilities further erodes DPU by another 10%. Management has also indicated that it could look to diversify into Malaysia to boost forward income streams. However, no timeline is indicated.
Relevance: Allco’s share price had fallen by c.10% since the beginning of the year and is currently trading at attractive 8.3% FY08 and 8.7% FY09 yield. Our DCF – backed revised TP of S$1.54 offers 49% upside. Key uncertainty for this stock is the lack of clarity of potential reinvestment plans moving forward, which will lead to a drag in share price in the near term.