Month: January 2007
A-REIT : CIMB
Still a distinct advantage
• 3Q07 results beat our expectations. 3Q07 DPU of 3.2cts represents 26% of our full-year forecast and 25% of consensus. Our FY07 DPU forecast is 77% fulfilled YTD. Gross rental revenue was up 16% yoy to S$71.1m in 3Q07, on account of a larger portfolio as well as improved occupancy of 96.1% vs. 94.7% a year ago. Renewal rentals for Hi-Tech Industrial and Business & Science Park properties, which make up 46% of Areit’s portfolio, also increased by about 14% from existing rates in 3Q07. Gearing remained manageable at 40% as at end-3Q07.
• Adds new business park property. Areit has acquired 27 International Business Park, a multi-tenanted property with an NLA of about 9,079 sq m, from Primefield for S$18.6m. Annualised proforma addition to FY06 DPU is 0.02ct, assuming the acquisition is funded by 40% debt and 60% equity. According to Jones Lang LaSalle, business park rentals rose for the sixth consecutive quarter in 3QCY06 to S$155/sq m p.a., up 16% from a year ago. As surging office rentals drive more tenants into housing their backroom operations in business parks, we expect Areit’s business park business to remain strong.
• Headroom for more development projects. Areit currently has five acquisitions worth S$214m, pending completion. About S$127m of these are built-to-suit projects, which translates into S$170m (S$236m, excluding the Cold Storage WRS property which would be ready in Mar 07) worth of potential development projects. As these development projects are typically high-yielding, we see more robust DPU growth for FY08 and beyond.
• Maintain Outperform; target price raised to S$2.82. Considering that 27 International Business Park (estimated yield of 6.7%) will be contributing this quarter and our FY07 DPU forecast is already 77%-met, we have raised our DPU forecast for this year by 3% to 12.8cts. FY08-09 DPU forecasts have also been raised by 2-5% to reflect the higher-yielding acquisitions that will be completed after FY07. Accordingly, our DDM-derived target price has been lifted from S$2.60 to S$2.82 (cost of equity still 6.2%). Forward yields of 5-5.6% remain attractive compared to the 4.5-5% yields that S-Reits currently trade at. Maintain Outperform.
MMP – DBS
Stable retail growth
Consistent distribution backed by resilient rents. MMP has been consistently delivering distributions of 1.44 cents per unit quarterly. Management has dispelled concerns of the tunnel closure on basement retail rents as basement space leases are still being transacted at above S$60 levels.
Competition not an issue. New malls such as Orchard Turn, Orchard Central and Somerset Central are coming up, bringing on additional 1.2m sf of retail supply by FY09, yet there is still room to grow for retail stock in Singapore. With retail space per capita of about 7 sf, Singapore trails behind HK’s 11 sf and Japan’s 12 sf, according to Knight Frank.
Revaluation expected on the back of strong physical market. Office space in Orchard Road is enjoying positive spillover demand from tight office vacancy in prime office space at about 2.7% currently. MMP is already looking at S$8 rentals for some of its office space. With about 16% of MMP’s assets exposed to office, upward revaluation is likely given that its office portfolio is currently only valued at 900 psf. Upward revaluation will potentially enhance debt capacity and NAV.
Is the wait finally over? MMP has been lagging behind other REITs in terms of acquisitions since listing in Sept 05. Management is targeting to deliver an acquisition by 1H07, after which a certain degree of yield compression may set in. Currently MMP is trading at 5% yield compared to retail S-REITs trading at 4%.
Maintain BUY, TP S$1.29. Forward yield of 5% is supported by limited downside from retail rents from the two prime retail assets in Orchard Road. With prime retail rents growing by 4.5% in FY06, we expect retail rents to continue rising for the next three years. We have raised our retail rental growth assumptions from 2% to 5% for FY07 to FY09 and DPU estimates in the range of 3.6%-4.6%. Therefore we have accordingly raised our DCF derived target price of S$1.29. Maintain Buy.
CCT – CIMB
Visit Malaysia year
• Tapping rising rents in Kuala Lumpur. Last December, CCT invested in 30% of Quill Capita Trust (QCT), a Reit listed on Bursa Malaysia. QCT has an initial portfolio of four commercial assets in Kuala Lumpur, worth RM280m. Rents for commercial space in Kuala Lumpur are set to rise further, given the demandsupply imbalance. We believe CCT’s increasing exposure to this market is timely.
• Pipeline assured. MCDF, a development fund set up by parent CapitaLand and Maybank, is expected to give QCT access to completed properties for future acquisitions. As the number of properties that CapitaLand can itself inject into CCT dwindles, yield-accretive investment in other fast-growing commercial Reits such as QCT can provide CCT with an alternative growth avenue.
• Contributions still small at this stage. While we consider the investment in QCT a positive move, we estimate that QCT can only add 1-2% to CCT’s distributable profit over the next 2-3 years. QCT’s portfolio will probably make up just 3% of CCT’s overall assets over the same period.
• Yield is still demanding. Our FY07-08 DPU forecasts have been raised by 3-4% to reflect QCT’s contribution. Accordingly, our DDM-derived target price has been raised from S$2.30 to S$2.55, still based on a cost of equity of 5%. CCT’s forward yields of 3-4% are below the average 4.5-5% that S-Reits are trading at. Our target price of S$2.55 translates into a yield of 3.2%, which is in line with CCT’s current valuation. Maintain Neutral.
AllCo – Phillip
High Yielding Office REIT
Allco REIT (“Allco”) is the first real estate investment trust (“REIT”) listed on the SGX (30th Mar 06) with retail and commercial assets located in Singapore and Australia. Allco’s investment policy focuses on high quality office and retail properties across the Asia-Pacific region.
High quality and well located commercial properties. Allco’s initial portfolio comprises 100% direct interest in China Square Central, 50% indirect interest in Central Park (Perth) and an investment of 20% interest in AWPF. The total initial portfolio of Allco comprises 3 properties with approximately 74,282 sq m of net lettable area as well as an investment of S$55.5 m in AWPF. The total appraised value of the whole portfolio (excluding 55 Market Street) amounts to approximately S$624.6m.
Allco’s first acquistion after listing (55 Market Street) has been an excellent investment, tapping into the booming office property market. We believe that Allco has a good acquisition strategy that can act quickly to benefit from opportunities.
Strengthening of property market in Singapore and Australia. Strong demand and absorption are expected in both Singapore and Australia property markets. Rental rates are expected to perform better with lower vacancy rate for the next six months. This positive news brings in continuous strong interest in the REIT market as well as higher revalued properties.
Tax efficient structure. Allco has shown its creativity in maximizing distribution through a different approach other than asset enhancement or rental growth. Allco’s recent internal restructuring is estimated to increase distribution payout by approximately S$2m per annum for FY07 and FY08, increasing DPU by approximately 7%.
Stable and secure distribution. Most of Allco’s lease agreements have long lease term creating income stability. 79.3% of the leases will only expire beyond 2008 as shown in Fig 5. At the current price of S$1.13, Allco is trading at a yield of 5.22%, way above the office average yield of 3.83% and a price to net asset value of 1.39x.
Valuation. Our fair value for Allco is S$1.27. This translates to a 4.61% yield and a price to net asset value of 1.35x for FY06F; a 5.53% yield and a price to net asset value of 1.39x for FY07F. In our relative comparison, our fair value is above the average S-REITs/office yield and below the average price to net asset value. At the current price of S$1.13, we recommend a Buy for Allco with a 12% return.
MapleTree – OCBC
All eyes on equity fund raising
Growth again due to acquisitions. Mapletree Logistics Trust (MLT) will be reporting its 4Q06 results on 16 Jan 2007. We are forecasting FY06 DPU of 5.0 cents or 1.38 cents for 4Q06. This represents a 4.5% QoQ and 29% YoY improvement and comes mainly from completed acquisitions over the last quarter. The market is going for 4Q06 DPU of 0.98 to 1.88 cents.
Equity cash call as expected. In our last report dated 27 Oct 2006, we had warned that an equity cash call was imminent. This was because we saw the rapid rate of acquisition that is likely to push MLT’s gearing close to the maximum allowable of 60%. Indeed, MLT has over the last two months of 2006 bought a total of 14 properties with a total value of S$227m. Assuming that MLT continues to debt finance its acquisitions, gearing would be at an unacceptable level of 58%. Over Christmas, MLT announced its intention to raise S$359m in new funds via an Equity Fun Raining exercise (EFR). With this new funding, MLT’s gearing would 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 at least two cash calls per year.
Maintain BUY for now. MLT has done exceedingly well since our “A possible laggard play” report in Oct. The unit price has risen from S$0.97 to current S$1.17 or up about 21%. At present valuation, it is trading in line with our fair value of S$1.12 based on an asset size of S$2.1bn. At the current pace of acquisition, our target size could be breached fairly soon and we are likely to revise up our asset target size. In light of MLT’s impending FY06 results, to be released in a week’s time, we are maintaining our estimates and our BUY recommendation for now.