Month: January 2007
CMT – DBS
Signing of a top Chinese player
Indirect entry into the PRC retail market. The PRC retail market has been experiencing strong demand. Retail sales have been growing by about 12.5% per annum for the past 10 years, outperforming the GDP growth at about 9.7%. Retail rental growth is expected to grow between 5-8% for the next five years and we like the exposure in PRC retail malls from CMT’s perspective.
Inheriting CRCT’s robust pipeline. With ROFR to acquire assets under two Capitaland funds in CapitaRetail China Development Fund (“CRCDF”) and CapitaRetail China Incubator Fund (“CRCIF”), CRCT now holds a proprietory pipeline of acquisitions to more than 70 retail malls. They cover over 3.2m sqm of gross retail space which when injected, would see CRCT expand its portfolio by more than six fold. Based on the sheer size of the acquisition pipeline for CRCT, CMT now possess an alternative channel of growth, leveraging on the strong growth of the PRC retail property market.
Upgrading to Buy, TP S$ 3.30 based on sum of parts valuation. In view of expected robust growth for CRCT, we now view that a sum-of-parts valuation is more appropriate, pricing the cash flows of CMT’s portfolio as well as upside from the strategic stake in CRCT. We now peg our fair value of CMT based on 1) DCF valuation of CMT’s portfolio and 2) marked-to-market value of CRCT. Therefore in view of strong acquisition pipeline, further value creation from AEI initiatives, and active leasing management driving asset yield, we are positive on CMT with an added avenue for growth now, leveraging on exposure to China retail property sector through CRCT. Therefore we upgrade our recommendation from Hold to Buy, TP S$ 3.30 based on our new sum-of-parts valuation for CMT.
A-REIT : Phillip
Continuing to Perform
3Q07 Results. 3Q07 net income available for distribution increased 6.8% YoY to S$41.0m. 3Q07 DPU of 3.2 cts increased 6.3% YoY and 1.3% QoQ. Annualized DPU based on 9 months to 31 Dec 06 works out to be 12.6 cts, up 8% YoY. Gross revenue was up 16% YoY mainly due to additional rental income from the following completed acquisitions: Steel Industries, Hamilton Sundstrand, Thales, Aztech, Noel Corporate, 138 Depot Road and 150 Ubi, Sembawang Kimtrans, Logistics 21 and LabOne. As of 31st Dec 06, gearing worked out to be 39.5% with a debt of S$1,126m and interest cover ratio of 5.7x. NAV per unit of 136 cents translates to a current P/B of 1.95x. The ex-date of the distribution of 3.2 cts per unit is on 24 Jan 07 and will be paid out on 28th Feb 2007.
As of 31st Dec 06, weighted average lease term to expiry was 6.3 years based on 68 properties. Portfolio occupancy increased to 96.1% with multi-tenanted buildings occupancy (54% of portfolio) at 93.1%. Concentration risk from top 10 tenants dropped from 35.7% at 31st Dec 05 to 33.8% at 31st Dec 06, representing a well-diversified portfolio.
Investment highlights. AREIT has recently completed the purchase of two properties, Super Industrial Building and 26 Senoko Way, for S$49.0m, funded by bank debt. Asset enhancement is ongoing for Alpha building, and has been completed for Telepark. Courts Megastore has been completed on schedule in Dec 06 with lower than expected development cost. In summary, S$211m worth of acquisitions has been completed year-to-date and S$214m worth of investments as shown in Fig. 1 is in progress for completion.
Singapore Industrial Property. According to URA, prices of multiple-user factory space rose 1.1% QoQ in 3Q06 with rentals of multiple-user factory space remaining unchanged. Prime industrial space increased QoQ at a range of 1.2% to 3.8%. The best performer goes to high-tech space which increased 7.6% QoQ for the ground floor and 4.9% QoQ for upper floor, backed by the improving manufacturing sector, research & development firms and government injection of S$1.5 billion into the biomedical sciences. Results have been within our expectation and we believe that demand for high-tech space will continue to remain high and drive rental rate up.
Valuation. 12 acquisitions and developments were announced in financial year to date amounting to S$425m, exceeding our initial assumption of S$400m. We revise our projection for acquisitions upwards to S$500m worth of acquisitions for FY07 as well as FY08. Interest rate decrease over the last quarter has also allowed us to decrease our required rate of return (WACC) to 6.8%.
Using DDM with a growth rate of 2.5%, we increase our fair value to S$2.74, representing a FY07F yield of 4.66% and a healthy spread of 1.6%. FY07F P/NAV using our fair value is 1.94x but we believe that this will decrease after AREIT revalues its properties for FY07. We maintain Hold on AREIT.
MapleTree – CIMB
Keep the assets coming
• Full year below expectations. FY06 DPU of 5.1cts is 2% short of our forecast but in line with consensus estimate. A larger mix of multi-tenanted acquisitions compressed MLT’s NPI margin, which came in below expectations. Gross rental revenue surged 167% yoy to S$26.9m in 4Q06, on account of a larger portfolio of S$1.4bn at end-FY06 vs. S$462m a year ago. Jurong Logistics Hub, MLT’s largest property in Singapore to date, also began contributing in 4Q06. Overall occupancy was 99.6% while renewed rent rates were on average 7.1% higher than the rates in 4Q06. MLT’s gross gearing remained manageable at 55%.
• Portfolio to grow by another S$1bn this year. MLT has announced S$221m worth of acquisitions scheduled for completion by 1Q07. These acquisitions will bring MLT’s assets to S$1.6bn. MLT will have additional debt headroom following the latest round of equity fund-raising (assuming unitholders’ approval is secured today). As such, we believe MLT is financially equipped to meet our portfolio target of S$2.4bn by end-FY07.
• Overseas properties from sponsor. Two overseas properties that sponsor Mapletree is developing – Lingang Free Port (S$39m, GFA 46,500 sq m) in China and the Vietnam Singapore Industrial Park (VSIP 1, GFA 23,600 sq m), are near completion. Pre-leasing activities have begun for both properties, which could be injected into MLT as soon as this year.
• Introducing FY09 DPU forecast. Assuming MLT’s assets grow from S$3.4bn in FY08 to S$4.4bn by end-FY09, with the acquisitions financed by 45% debt and 55% equity, we initiate our FY09 DPU forecast of 7.1cts. Our FY07-08 DPU forecasts remain intact, translating into forward yields of 4.8-5.8%, which are attractive compared with the average 4.5-5% that S-Reits currently offer.
• Maintain Outperform. Our DDM-based target price of S$1.32 remains relevant. At our FY07 DPU forecast of 5.8cts, prospective dividend yield is 4.4%. This is in line with the FY06 dividend yield that MLT trades at. MLT has met its portfolio target in its first full year of operation. Its expansion pipeline remains solid and it remains one of the fastest-growing Reits in Singapore. Maintain Outperform.
MapleTree – OCBC
More of the same in FY07
Growth again due to acquisitions. Mapletree Logistics Trust (MLT) reported a good set of 4Q06 results. Revenue was up over 167% YoY to S$26.9m and distributable income improved 97% to S$11.8m. Distributable income per unit (DPU) was less robust, improving by 38% YoY to 1.45 cents and slightly better than market’s forecast of about 1.40 cents. The bulk of the growth came mainly from the acquisition of 23 properties over the last 12 months. At the end of 4Q06, MLT has a portfolio of 41 properties. This enlarged portfolio in turn led to MLT’s asset size increasing by over 3-fold from just above S$460m in FY05 to about S$1.4bn by end FY06.
All eyes on equity raising. Presently, MLT is in the processing of raising new equity from unit-holders. The fund to be raised is estimated at S$359m and will be used in multiple areas; to lower MLT’s high gearing (of about 55%), to finance previously announced acquisition of 15 properties with a total value of about S$221m and finally to provide debt headroom for future acquisitions. Post the equity fund raising, we estimate MLT’s gearing to fall to about 46% and this would position it well to continue its growth strategy via acquisition. The EFR is expected to complete no later than end Feb 2007 with an Extraordinary General Meeting to be held on 17 Jan 2007.
Expect more of the same in 2007. Including the recently announced purchases and when completed, MLT’s asset size will increase to about S$1.7bn. Going into 2007 and with the expected success of the EFR, MLT is well positioned to continue its growth strategy. We see an annual acquisition of S$1.0bn as not improbable with one or two cash calls per year.
Maintain BUY with higher fair value. MLT has done exceedingly well since our “A possible laggard play” report in Oct. The unit price has risen from S$0.97 to S$1.19 currently, up more than 22%. However, at the current pace of acquisition, our target asset size of S$2.1bn is likely to be breached fairly soon. We have thus revised up our target size to S$3.0bn, and this in turn has a positive impact on our fair value estimate. We have thus revised up our fair value from S$1.12 to S$1.34 and maintain our BUY recommendation.
A-REIT : DBS
3QFY07 results were in line
3QFY07 results were in line. Gross revenue and net income available for distribution grew 16% and 7% y-o-y to S$71.1m and S$41.0m respectively. This improvement was mainly due to the additional rental income from completed acquisitions. Property expenses grew 23% as a result of higher electricity costs from the aggregation of energy costs for nine properties in the portfolio and an increase in the number of properties in the portfolio. Interest expense grew 100% due to additional debt drawdown. Distribution per unit (“DPU”) grew 6% y-oy to 3.20 cents.
Update on acquisitions and developments. To date, A-REIT announced committed investments of S$425m in FY07 of which S$214m is still pending completion. Efforts have also been taken by A-REIT to enhance its existing assets (i.e. increase of 3,527 sqm space for The Alpha Building which is expected to complete by Sep 07 and the increase of GFA by around 352 sqm for Telepark Building), which in turn has created higher yields for the assets. Moving forward, A-REIT would continue to focus on built-to-suit development projects, which creates greater value to unitholders as acquisition costs will be lower if assets are acquired from the market. A-Reit still has an additional capacity of S$173.0m to utilise.
Maintain Hold. With the limited new supply of office space in the CBD area, there is potential of a positive spillover effect on demand for Business & Science Park and high-tech industrial sectors. We raised our target price to S$2.68 based on 10-year DCF valuation, which has assumed S$500.0m acquisitions pipeline per annum from 2007 to 2010. Maintain Hold as upside is limited at 5%.