MI-REIT – Phillip
Expansion Within Sight
We are initiating coverage on MacarthurCook Industrial REIT (MIREIT) with a BUY call and a 12 month fair value of $1.39/share. The counter is currently trading at a discount of 15% to our fair value. With a projected FY08 DPU of 7.43 cents, MI-REIT offers a yield of 6.35%. We expect the Manager to annouce further acquisitions in the coming months in anticipation of its target of $500 million of acquisitions a year.
Diverse Industrial Portfolio. The initial property portfolio consists of a diversified portfolio of 12 industrial properties located in Singapore. MIREIT’s investment objective is to pursue acquisition opportunities locally as well as across Asia. Recently MI-REIT annouces the acquisition of 2 additional properties. MI-REIT will add an office park, which is in increasing
demand to its portfolio. With the increased diversification, it reduces the reliance on any one sub-sector or tenant.
Lowest geared REIT. MI-REIT’s current gearing stands at 8.6% which is the lowest among the S-REIT. MI-REIT had obtained a corporate rating of Baa3 from Moody’s in June, which will increase its gearing limit to 60%. This provides substantial capability for future acquisitions. Currently MIREIT has an available $193 million of corporate debt facility to utilise.
Stable income. MI-REIT’s properties has a 100% occupancy rate with an average lease term of 6.3 years. The leases have a built-in rental escalation component which ensures rentals are up to market. 70.8% of tenants are SGX listed companies or subsidiaries of SGX listed companies. With a security deposit ranging from 3 months to 24 months, it reduces the risk of income variability in the event of any lease termination.
Valuation. Our DCF model gives us a fair value of $1.39. MI-REIT compares attractively in terms of yield and P/NAV to the other listed SREIT. With a forecasted distribution of 7.43 cents, MI-REIT offers an attractive yield of 6.35%, which is higher than the average S-REIT yield of 5.05% and a spread of 366bp over Singapore 10-yr bond yield of 2.69%(as at 14 Sep 2007). MI-REIT also trades at a lower P/NAV of 1.03 to the SREIT average of 1.23. We believed regional acquisitions would provide a near term catalyst to the share price.
PLife – UOBKH
An oasis in sea of turbulence
Parkway Life REIT invests in income-producing real estate assets in the Asia Pacific region. The assets, used primarily for healthcare and related purposes, include hospitals, ambulatory surgery centres, primary clinics, medical office building, step-down care facilities such as nursing homes, research & development facilities and pharmaceutical facilities. The initial portfolio comprises Mount Elizabeth Hospital, Gleneagles Hospital and East Shore Hospital in Singapore.
Riding on growth in healthcare focus. The annual rental payable by Mount Elizabeth Hospital, Gleneagles Hospital and East Shore Hospital comprises a base rent and a variable rent. The variable rent is equivalent to 3.8% of adjusted hospital revenue. This allows unitholders to ride on the growth of the healthcare industry due to an ageing population, medical tourism and growing affluence in Singapore and across the region.
Downside protection enhances defensive qualities. The minimum rent payable by each hospital is set at Consumer Price Index + 1% above rent payable in the preceding year. Where Consumer Price Index is negative for any given year, then it is deemed to be zero. This ensures that total rent payable is always increasing, which enhances the defensive quality of Parkway Life REIT.
Acquisition strategy drives growth in distribution yield. Parkway Life REIT has been granted the first right of refusal by Parkway Holdings over future sale of healthcare and related facilities. It will diversify its portfolio by acquiring medical offices, research & development facilities, storage and distribution facilities for pharmaceutical companies, and nursing homes.
Initiate coverage with BUY. We like Parkway Life REIT for its healthcare focus. Acquisitions in Singapore and in the region will provide catalysts for growth in distribution yield. Our target price is S$1.72 based on the discounted dividend model (WACC: 6.2%, terminal growth: 2%).
AllCo – BT
Allco’s new Japan buys to be yield- accretive straightaway
ALLCO Reit is buying three freehold properties in Japan for just over $153 million, which will be immediately yield-accretive to distribution per unit, it said yesterday.
The Galleria Otemae Building, ACO Azabu Aco Building and Ebara Techno-Service Headquarters Building are commercial developments in prominent locations in Osaka and Tokyo.
The buildings have a total net lettable area of 17,078 square metres and a weighted yield of 4.68 per cent for the first 12 months.
Allco said the purchase price is a 1.6 per cent discount to valuation and the deal is expected to be completed by Sept 26.
Allco will then own four commercial property assets in Japan, representing 16.4 per cent of its total property investments. The Reit’s portfolio will be worth more than $1.45 billion, with 42 per cent in Singapore properties and about 41 per cent in Australian properties.
The Galleria building in Osaka has 12 levels of office space and basement retail space. The Aco building in Tokyo has three levels of office space plus office/studio space. The Ebara building in Tokyo has five levels of office space.
The acquisitions will be funded by debt, with the weighted average cost of funding expected to be 2.09 per cent. Allco’s leverage will rise from 25.1 per cent to 33.5 per cent, which is well within its gearing limit of 60 per cent.
PST – BT
PST’s two new vessels to boost capacity 61% in ’09
PACIFIC Shipping Trust (PST) said yesterday that its proposed US$136.2 million acquisition of two new vessels will significantly raise its revenue and total fleet capacity in 2009.
Giving more details about the acquisition in a filing to the Singapore Exchange, PST (Singapore’s first publicly listed business trust) said revenue will increase by 54 per cent to about US$53 million per annum and is expected to be yield accretive once the ships are in operation. PST’s fleet capacity will increase by 61 per cent to 22,364 TEU (20ft containers) from 13,864 TEU previously.
The acquisition was first announced in May. The 4,250 TEU vessels cost approximately US$68.1 million each and are chartered to Chilean operator Compania SudAmericana de Vapores (CSAV), the largest liner shipping company in South America. The two ships are being constructed by Dalian Shipbuilding Industry Co in China. They are scheduled for delivery in November and December 2008.
The acquisition is PST’s first since it went public in May 2006.
After the acquisition, the total number of vessels under its portfolio will increase from eight to 10 and trust expenses per vessel could potentially be lower due to greater economies of scale, PST said.
The new vessels will be chartered to CSAV for US$26,000 per day for the first two years and US$25,500 per day for the remaining three years.
AllCo – SGX
ALLCO REIT TO ACQUIRE AN ADDITIONAL THREE PROPERTIES IN JAPAN
Key Highlights
Acquisition of two high quality commercial properties in Tokyo and one in Osaka
Increased presence in Asia
Immediately accretive to Allco REIT’s distribution per unit
Singapore, 14 September 2007 – Allco Commercial Real Estate Investment Trust (“Allco
REIT”) (SGX:ALLC) today announced that it will acquire a 100% interest in three properties in Japan (collectively the “Properties”) for a total purchase price of ¥11.65 billion1 (S$153.05 million)2 at a discount to independent valuation.
Mr Nicholas McGrath, Chief Executive Officer and Managing Director of Allco (Singapore) Limited, manager of Allco REIT, said, “These acquisitions are consistent with our investment strategy of acquiring well-located, yield accretive assets in our target markets.”
Japanese property assets will represent 16.4% of Allco REIT’s total property assets upon completion4. The Properties will improve the quality and diversification of Allco REIT’s income.
The acquisitions are in line with Allco REIT’s regional growth strategy and continue to diversify its portfolio of assets within Asia.
“We are particularly pleased to be entering the Tokyo market and increasing our exposure to the commercial property market in Osaka. It is expected that these markets will continue to benefit from increased rentals and capital appreciation.”
The acquisitions of the Properties will be funded entirely by debt. The weighted average cost of debt funding for the acquisition of the Properties will be 2.09% and will be fixed for five years.
Following completion of the acquisitions, Allco REIT’s leverage (calculated as gross borrowings plus deferred payments divided by total assets) is expected to increase from 25.1% to approximately 33.5%, which is within the aggregate leverage limit as set out in the guidelines for real estate investment trusts in Appendix 2 of the Code on Collective Investment Schemes issued by the Monetary Authority of Singapore (“Property Funds Guidelines”). Allco REIT has an investment grade credit rating from Moody’s Investor Services Inc. which, under the Property Funds Guidelines, permits gearing of up to 60.0%.
“Debt continues to be readily accessible for Allco REIT, with lenders supportive of Allco REIT’s strategy. We have seen a reduction in Yen-denominated debt costs since our previous Japanese acquisition a month ago in Osaka.” Mr McGrath said.
1 References to purchase consideration in this release exclude expenses associated with the acquisitions and consumption tax.
2 The exchange rate used in this release is S$1.00:¥76.1198.
4 Represented by the aggregate appraised value as a percentage of the sum of total property investments held and valued as at 30 June 2007, the aggregate appraised value and the valuation of Cosmo Plaza as at 30 May 2007.
Source : SGX