Month: September 2007
AllCo – Phillip
Allco annouced 3 yield accretive acquisitions of an additional three properties in Japan, which will result in an exposure of 43% Singapore properties, 42% Australia properties and 16% Japan properties. The acquisitions are expected to be completed in late September.
About the properties. Allco will acquire the three properties for a total consideration of S$153.05 million, a discount of 1.6% to the appraised value, with a weighted initial yield of 4.68%. The acquisitions will be fully funded by debt which will bring gearing up to 33% post acquisitions. The leases are relatively short-term and management has indicated a possibility of 5-10% rental reversions upward upon renewal of leases.
Valuation and Recommendation. We adjusted our revenue estimates accordingly with the acquisitions. We retained our fair value estimate of $1.68, derived from our DCF model. Key assumptions include a WACC of 6.65, risk premium of 6.7%, beta of 0.9 and a terminal growth rate of 2%. We have a forecasted payout of 5.94 cents for FY07 and 7.42 cents for FY08, which translate to 5.76% and 7.2% yields respectively. The increased exposure in the world’s 2nd largest economy improves the diversification and reduces the reliance on any single market. We maintained our view that Allco is currently attractively priced, offering the highest yield of 5.76% among the office REIT, and is poised to benefit from the rising office rental trend.
ALLCO – ML
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%).