Month: April 2011
Cambridge – DMG
Sharp drop in DPU following rights issue
1Q11 DP U dropped sharply mainly due to share base expansion. Cambridge Industrial Trust (CIT) reported a lower DPU of 1.0S¢ in 1Q11 (- 21.4% YoY; -16.1% QoQ), representing 19.9% of our FY11 DPU estimate. The sharp drop in DPU is mainly attributable to the rights issue which was listed in Apr 2011. We expect CIT’s DPU to pick up in subsequent quarters as two acquisitions are expected to be completed and commence contributions in 2Q11. Given the 132m rights units have been officially listed on 15 Apr 2011, we lowered our FY11-12F DPU estimates by 13.9-9.2% respectively to account for the enlarged share base. Consequently, our TP is lowered to S$0.59, based on DDM (COE: 10.1%, TGR: 1.0%). Maintain BUY as CIT is still trading at undemanding spread of 6.5% vs pre-crisis spread of 4.9%.
S$46.4m worth of property acquisitions to be completed in 2Q11. Two new additions – a warehouse at 4 & 6 Clementi Loop, and an industrial building at 60 Tuas South Street 1 – will add ~233k sqft of GFA to CIT’s existing portfolio GFA of 6.98m sqft. Based on assumption of 40% debt funding, we expect incremental DPU of 0.09-0.23S¢ from the acquisitions in FY11-12. Meanwhile, the S$13.1m BTS project at Tuas View Circuit is expected to be completed only in 2Q12.
New term loan facility being mooted. CIT will need to refinance its loans beginning next year where its existing syndicated term loan of S$303m will mature in Feb 2012. It is currently in discussion with four financial institutions for new term loan of S$320m which comprises of a three-year tranche of S$220m and a five-year tranche of S$100m. Estimated all-in borrowing cost for the new term loan facility is ~4.4%/year. Coupled with the acquisition term loan facility which has debt cost of 3%, we expect CIT’s all in cost of debt to drop from current 5.7% to 4.0-4.1%. In addition, we believe CIT’s gearing will decline to ~30% by end FY11.
LMIR – OCBC
1Q11 results mostly in line; Riding on Indonesia’s economic growth
1Q DPU of 1.17 S-cents. LMIR Trust (LMIR) reported 1Q11 gross revenue of S$32.8m, up 40.8% YoY and 1.9% QoQ, which was also in line with our expectation and street estimates. The yearly increase was largely due to the (1) additional income derived from the service charges receipt and utilities cost recovery from tenants at seven of its malls and (2) positive rental reversion of renewed leases. NPI rose 9.9% YoY and 6.1% QoQ to S$22.4m. Distributable income, however, dropped 1.6% YoY but rose 5.3% QoQ to S$12.7m. The yearly decline was partially the result of an increase in realized loss on foreign exchange forward contracts of S$2.1m as the cross currency swap remained “out of the money”, compared to $1.7m in 1Q 2010. 1Q11 DPU is 1.17 S-cents (also in line with our forecast of 1.14 S-cents) compared to 1.11 S-cents in 4Q10 and 1.20 S-cents in 1Q10. On an annualized basis, this represents a yield of 8.5% based on yesterday’s close of S$0.555. As at 31 Mar 2011, LMIR’s gearing remained flat QoQ at 10%, with total borrowings stable at S$125m.
Portfolio Performance. Overall portfolio occupancy dipped from 98.3% the previous quarter to 98%. We note that the occupancy for Plaza Semanggi declined 3.4pp to 93.7%, possibly due to non-renewal of tenants. Nonetheless, this compares well against Jakarta’s average occupancy rate of 86.3%. LMIR also benefited from positive rental reversion with renewed leases contracted at 9% higher on average than the ones that have expired during the quarter. LMIR continues to have a well-diversified portfolio, with no particular trade sector accounting for more than 25% of total net leasable area (NLA), and no single property accounting for more than 16% of total net property income (NPI). We continue to like LMIR’s market positioning. The main shopper traffic at its retail malls and spaces comprises urban middle-income to upper middleincome consumers, whilst its malls are deemed as “everyday malls” for daily essentials, food outlets and family entertainment.
Supported by Indonesia’s Growth Story. Management guided that Indonesia’s retail sales are expected to rise by 20% to S$13.8b in 2011, due to the growing number of retail outlets and strong domestic demand. With Indonesia’s continued economic growth, rising middle class income and greater spending power, we believe LMIR is poised to benefit from the growth of the mall culture in Indonesia. Reiterate BUY with an unchanged fair value of S$0.59 (total returns of 14.7%). Further increase in fair value, in our view, would stem from the manager announcing further acquisitions or development projects.
MIT – DBSV
Key take-aways from meeting
• Strong operational performance
• Organic growth robust, further upside from acquisitions, asset enhancement works
• Maintain BUY, DCF-based TP raised to S$1.21
Strong operational performance. Mapletree Industrial Trust’s (“MINT”) strong set of 4Q11 results unveiled encouraging datapoints. Firstly, occupancy increased to 93.2% on the back of high retention rate of 86%, indicating a strong underlying demand for industrial space. Secondly, MINT continues to renew c99.1% of leases at the maximum cap (for the non-business parks space in its portfolio) while new leases secured at market rates are in excess of 20% above expiring rents. These highlight that the average portfolio rental rate of S$1.49 psf/pm is not excessive and there is room for further upside once the rental caps affecting c84% of its NLA fall off in Jun’11.
Organic growth remains robust over FY12-13F. We expect MINT to deliver strong organically-driven DPU CAGR of 9% over FY12-13F. As rental caps expire, the manager will re-price rents nearer to market when leases, amounting to c23%/c26% of revenues are renewed over FY12/13. Further earnings growth is likely to come from a myriad of opportunities – (i) with strong take-up for its first initiative at property development in Redhill – a conversion of flatted factory space into e-business use – the manager is looking for more asset enhancement opportunities within its portfolio. Possibilities include similar conversion of vacant space and redevelopment of un-utilized GFAs in certain properties, (ii) 3rd party acquisitions, which the manager is actively pursuing, including JTC’s trade sale of a portfolio of assets.
BUY call maintained, TP raised to S$1.21. MINT currently trades at implied yield of 6.6%, which means that target acquisitions should be accretive when executed. Prospective FY12-13F yields of 7.2-7.7% are attractive given its mid-large cap status and strong sponsor backing.
a-iTrust – DBSV
Portfolio expansion in progress
• 4Q11 DPU of 1.5 Scts in line
• Visible development pipeline, growth likely to be backend loaded from 2H12
• Maintain BUY with TP revised to S$1.05
4Q11 DPU of 1.5 Scts in line. A strong S$ continues to “distort” actual performance of a-itrust 4Q11 again. Revenues in S$ terms grew 1% y-o-y S$31.1m (+10% in INR) while net property income fell by 3% to S$16.4m (+6% in INR). Operating expenses were higher due to an increase in portfolio size coupled with higher utilities expenses and cost of fuel. Distributable income of S$11.5m (DPU of 1.5Scts) was 16% lower y-o-y due to higher interests costs due to loans (previously capitalized) taken out to fund the construction of Zenith and Park Square. In 4Q11, a-itrust recorded a revaluation of S$1.2m, translating to an NAV of S$0.80.
Visible development pipeline, but earnings growth likely to be back-end loaded from 2H12 onwards. Portfolio occupancy levels remain stable at 97%, and portfolio rentals remain flattish with incremental earnings growth primarily driven by its development project completions and its recent acquisitions, which are expected to complete soon. Zenith and Park Square Mall added 1.2m sqft of NLA to the portfolio but have not contributed significantly to earnings in 4Q11 as it is still 42% and 61% precommitted but expected to inch up slowly in coming quarters. Moreover, tenants are currently in their rent-free periods as they are undergoing fit-outs. Commitment levels at another completing development project, Voyager (ITPB), is progressing well at 68% YTD and is expected to head towards 80% soon. This strong demand for space prompted a-itrust to begin the planning and designing of another development project within the SEZ zone in ITPB – a 540,000 sqft multi-tenanted building which is expected to complete in 2013.
BUY, TP revised to S$1.05. We adjust our DPU estimates slightly to account for delayed earnings contribution from development projects and a stronger S$-INR exchange. We believe earnings have hit a trough in 4Q11 and should see sequential growth with the completion of new buildings at Hitec City coupled with the continuous ramp up in operations at its 3 recently completed development projects
Starhill Global – DBSV
Boost from acquisitions
At a Glance
• DPU of 1.07cts in line with expectations.
• Positive master lease rental reversion and asset enhancement works to underpin growth
• Maintain Buy with S$0.73 TP
Comment on Results
No surprises, although DPU highest since listing. Starhill Global REIT (SGREIT) reported a strong 21.9% y-o-y growth in topline to S$45.8m and 27.2% y-o-y growth in NPI to S$37.1m boosted by the higher revenue from Chengdu property and expansion of its portfolio – full quarter contributions from David Jones Building and Malaysia properties acquired last year. However, gross revenue and NPI improved by a marginal 0.5% and 0.9% respectively on sequential basis, as the SG office portfolio continued to experience negative rental reversion coupled with poorer performance from its Japanese portfolio (-13.0% qoq). After retaining S$0.8m, distributable income of S$20.8m (net of S$2.4m to CPU holders) translates to a DPU of 1.07 Scts.
Moving occupancy up. Chengdu property and David Jones Building are fully occupied. Take-up at Wisma Atria rose 1.7 ppt qoq to 94.5%, while Ngee Ann stabilised at 98.4% (-0.3 ppt qoq). Meanwhile, retail sales at Wisma Atria increased by 0.4% YTD backed by 6% higher footfalls to 6.8m. Going forward, we expect stronger performance in 2H11 from the completion of asset enhancements at Starhill Gallery in 2Q and the positive rental renewals from Toshin and David Jones master leases that are up for renewal in June and Aug 2011.
Healthy financials. Gearing remains healthy at 30.2%, well below the optimum level of 45%. With no major refinancing needs till 2013, the group is in good financial position to make further acquisitions.
Recommendation
We maintain our BUY call, TP of $0.73. The improving office outlook and stabilised retail market should lead to further improvement in its SG portfolio that represents 60% of its total revenue. We see relative value in SGREIT with the stock trading at 0.7x P/BV and offering forward FY11-12 yields of c6.9-7.3%.