FrasersCT – OCBC
Oversold on perception of high valuation
Market pricing in higher risk premium. Frasers Centrepoint Trust (FCT), like all the other S-REITs, has been sold down severely since early July. Trading yields have expanded by 50bp to 170bp. However, FCT appeared to have been more severely affected. Over the period of early July to late August, the retail REIT sector has lost about 11% of its value; FCT was the poorest performer, losing about 18% of its value; the next poor performer was CapitaMall Trust (CMT) which lost about 14%. We believe the market was punishing REITs with high price to book ratio as the risks of disappointment by these high-growth REITs are now much higher in the current uncertain market.
Price to book is key. Prior to the US sub-prime woes, FCT’s P/B ratio was 1.6x (11th July) and was among the highest within the retail REIT sector, and was second only to CMT (P/B >2.3x). The sector average P/B ratio then was about 1.5x, so it was natural for the market to sell FCT down. However unlike all the other retail REITs, FCT did not revalue its book in its last results. All the other retail REITs performed a revaluation and recognized gains of S$112m to over S$610m, resulting in gains in their respective portfolio of 6.3% to 19%. In other words, FCT’s book is understated and hence its price to book ratio was overstated.
We estimate that if FCT were to revalue its assets, it could achieve a revaluation surplus of at least 17%. This in turn could boost its book value to S$1.28 (from S$1.09), or lower its price to book to only 1.14x, well below the current sector average of 1.28x. Hence we see the sell down of FCT as unjustified.
Upgrade to BUY. The investment case for FCT is simple; pipeline of properties from parent, growth from asset enhancement and finally acquisition in Malaysia. The key issue has been valuation and that has been the reason for our HOLD rating since April 07. However in light of the recent sell-down and the fact that we believe FCT is likely to see a meaningful rise in its book value, we thus upgrade our recommendation from HOLD to BUY while keeping our fair value at S$1.67.
CCT – SGX
PROPOSED ACQUISITION OF WILKIE EDGE – OPTION EXERCISED BY THE ASCOTT GROUP TO LEASE THE SERVICED APARTMENTS
1. On 20 July 2007, CapitaCommercial Trust Management Limited (the “Manager”) announced on behalf of CapitaCommercial Trust (“CCT”) the proposed acquisition by CCT’s trustee, HSBC Institutional Trust Services (Singapore) Limited (the “Trustee”),of a mixed development known as “Wilkie Edge” at No. 8 Wilkie Road Singapore 228095 (the “Property”). The development is situated on Land Lot No. 230C of Town Subdivision 19. The vendor of the Property is CapitaLand Selegie Private Limited (“CSPL”). Completion of the proposed acquisition is conditional upon, inter alia, approval by unitholders of CCT at an extraordinary general meeting to be convened by 30 November 2007 or such other date as CSPL and the Trustee may agree. Such approval is required under the Listing Manual and under the Property Funds Guidelines.
2. The Manager is now pleased to announce that CSPL has exercised the option to give notice (the “Vendor Nomination Notice”) to the Trustee to enter into an agreement (the “Agreement for Lease”) to facilitate the grant of a lease (the “Lease”) of the serviced apartment component of the Property (the “Serviced Apartments”) in favour of its nominee, Ascott Scotts Pte Ltd (the “Nominee”). The Nominee is an indirect wholly-owned subsidiary of The Ascott Group Limited.
3. Following the Vendor Nomination Notice, CSPL, the Trustee and the Nominee have entered into the Agreement for Lease.
4. The Agreement for Lease is for a leasehold term commencing on the earlier of the date on which the Nominee takes possession of the Serviced Apartments or the date falling 14 days after notice to take possession is issued on the Nominee, and ending on 19 February 2105.
5. The lease consideration of S$79,300,000 (the “Lease Consideration”) for the Serviced Apartments was arrived at on a willing-buyer willing-seller basis.
6. For the proposed acquisition of the Property, the Manager has commissioned an independent property valuer, CB Richard Ellis (Pte) Ltd (“CBRE”) and the Trustee has commissioned an independent property valuer, Jones Lang Lasalle Property Consultants Pte Ltd (“JLL”) to value the Property (including the Serviced Apartments). CBRE certified on 16 July 2007 that the open market value of the Property and the Serviced Apartments is S$262,000,000 and S$79,300,000 respectively. JLL certified on 17 July 2007 that the open market value of the Property and the Serviced Apartments is S$260,500,000 and S$80,500,000 respectively.
7. The obligation of the Trustee to grant, and the obligation of the Nominee to take, the Lease of the Serviced Apartments is conditional upon, inter alia, the following conditions being fulfilled by 30 November 2007 (or such other date as the parties may agree):
7.1 (where required by the Singapore Exchange Securities Trading Limited) the obtaining of approval by the shareholders of The Ascott Group Limited at an extraordinary general meeting for (i) the Nominee’s entry into the Agreement for Lease and (ii) the Nominee’s acceptance of the Lease, on the terms and subject to the conditions set forth in the Agreement for Lease and the Lease, respectively; and
7.2 the obtaining by the Trustee of the approval of the President of the Republic of Singapore (as head lessor of the Property) for the lease of the Serviced Apartments to the Nominee for the Term of the Lease.
8. Upon the execution of the Agreement for Lease, the Trustee’s purchase consideration for the Property is reduced by the Lease Consideration from S$262,000,000 to S$182,700,000 (the “Revised Purchase Consideration”). If the Agreement for Lease is subsequently annulled or terminated, or deemed annulled or terminated pursuant to the provisions thereof and the Trustee ceases to be obliged to enter into the Lease, the Trustee shall, in addition to the Revised Purchase Consideration, pay to CSPL an amount equal to the Lease Consideration.
9. A copy of the Agreement for Lease is available for inspection during normal business hours at the registered office of the Manager at 39 Robinson Road, #18-01 Robinson Point, Singapore 068911, for a period of 3 months commencing from the date of this Announcement.
Parkway Life – SGX
Pursuant to Regulation 3(13) of the Securities and Futures (Market Conduct) (Exemptions) Regulations 2006, UBS AG, acting through its business group, UBS Investment Bank, as stabilising
manager designated in connection with the Offering, wishes to announce that it has purchased a total of 1,731,000 Units at a price of S$1.19 per Unit on 28 August, 2007.
MMP – SGX
COMPLETION OF ACQUISITION OF RETAIL PROPERTY IN CHENGDU
Further to the announcements of 22 August 2007 and 23 August 2007, Macquarie Pacific Star Prime REIT Management Limited (“Manager”), the Manager of Macquarie MEAG Prime Real Estate Investment Trust (“MMP REIT”), is pleased to announce that HSBC Institutional Trust Services (Singapore) Limited, the Trustee of MMP REIT (“Trustee”), has today completed the indirect acquisition of Renhe Spring Department Store in Chengdu, China (the “Property”).
The total purchase price of RMB350 million (equivalent to S$70 million) and other acquisition costs have been fully funded by debt.
Pursuant to the Business Cooperation Agreement dated 28 August 2007 between PRC WFOE and Chengdu Renhe Spring Department Store Co., Ltd (“Rendong”), the property management functions in respect of the Property will be carried out by Rendong.
With the completion of this acquisition, MMP REIT’s portfolio has been enlarged and comprises nine assets located in Singapore, Japan and China, valued in aggregate at approximately S$1.8 billion.
MMP – SGX
SGX-ST Announcement
ESTABLISHMENT OF WHOLLY-OWNED SUBSIDIARY
The Trustee is the sole shareholder of the SPV and beneficially entitled to the entire issued share capital of the SPV, which is comprised in US$2.00.
None of the directors of the Manager, nor of the controlling unitholders of MMP REIT, has any interest, direct or indirect, in the above transaction.