MI-REIT – Phillip
MI-REIT reported its half-year result which is largely inline with forecast. MI-REIT recored a net property income of $5.9 million for the 2nd quarter. Distributable income rose 23% from $3.94 million in 1QFY08 to $4.85 million in 2QFY08, translating to a same percentage increase in DPU from 1.52 cents to 1.86 cents. At the same time, MIREIT annouces its fourth acquisition of a logistic/warehouse facility at an acqusition price of $20.8 million.
Developments to-date. MI-REIT announces its fourth acquisition of 11 Changi South St 3 at an acquisition price of $20.8 million. The property has an initial yield of 7.23% with an NLA of 11,547sqm. The acquisition is slated for completion by 4QFY08. Total acquisitions to-date amount to $146.9 millon. The acquisition improves both the asset mix as well as the lease expiry profile. WALE improves to 6.8 years assuming completion of all annouced acquitions. Revaluation on 12 of the initial properties was carried out in September and has resulted in a revaluation gain of $37.8 million to the book value. Asset size now stands at $370.8 million from the initial $316.2 million.
Future developments. MI-REIT has a pan-Asian focus to diversify across the Asian region. With an acquisition target of $500 million annually, we would expect more acquisition news to roll out in the coming months. MI-REIT has an additional $190.7 million debt room to utillise. Current gearing of 11.6% allows much flexibility to play with.
Recommendation. Our fair value represents a 19.8% upside from the closing price of $1.16 and a P/NAV of 1.07 against an SREIT average of 1.27. The stock is currently trading below its NAV of $1.29, which represents the intrinsic value of a REIT. We notice the REITs sector is underperfoming the broad market recently and feel that due to euphemism in some other sectors, market sentiment is generally lacking towards REITs. Our general view is that REITs are defensive in nature with the investment aim of providing long term stable distributions to unitholders. Interested investors should capitalise on market downturn to lock-in the higher yields achievable. Reiterate BUY with a fair value of $1.39.
Valuation. We adjust our earnings estimates in accordance with the acquisition. In view of the present market nature, we revise our valuation matrix across the REITs sector to better reflect the current market nature and to incorporate a more robust valuation. Key change to our assumption includes a 0% terminal growth from a 2% previously. Our fair value remains unchanged at $1.39. Our forecasted DPU of 7.41 cents for FY08 and 8.03 cents for FY09, which translates to a yield of 6.38% and 6.92%.