Month: October 2007
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%.
ART – OCBC
Upgrading to Buy on valuation
Results benefited from recent acquisitions. Ascott Residence Trust (ART) reported a good set of 3Q07 results with both revenue and distributable income higher than its own forecast. Revenue came in at S$42.3m (9% above forecast) and distributable income came in at S$12m (9% higher than forecast). The better performance was due to out-performance in Singapore, Philippines and Vietnam. All 3 had better-than-expected revenue per available unit (RevPau). DPU was 1.99 cents, better than our estimate of 1.70 cents. In light of the good performance, we are adjusting our FY07 and FY08 forecast from 6.8 cents and 6.9 cents to 7.65 cents and 8.01 cents, respectively.
Star performer was Vietnam. In 3Q07, China was most important in terms of revenue contribution (24% of group revenue). However at the gross profit level, it only provided 23% of group profit, this is well below the 27% contribution by Vietnam. More importantly, Vietnam was the most profitable segment, providing a gross margin of 61%, with Singapore in second place at 54% followed by Japan at 45%. China is well behind at only 42%.
Acquisition to continue to drive earnings. Year to date, ART has acquired S$144m worth of properties, and this has boosted its portfolio from 12 properties (at IPO) to the current 18 properties. Presently ART’s asset value stands at S$1.26b but management has guided a size of S$2.0b by end 2008. This implies that ART will be buying S$0.74b worth of assets over the next 12 months. Currently, ART has a gearing of 29%, and with a capacity to gear up to 60%, ART has a debt capacity of S$620m. This means that the bulk of the acquisitions that ART will do is likely to be “free” accretion to unit-holders as it is likely to be debt funded. We anticipate an equity cash call only in late 1H08 or 2H08.
Upgrade to BUY on valuation. Finally since our last report, ART has corrected from S$1.85 to last traded price of S$1.58. More importantly, the price correction means that ART’s price to book ratio has come down from 1.34x (April) to the present 1.14x. In our opinion this does not reflect the expected strong acquisition growth that management has guided. We continue to like ART and our previous HOLD rating was purely on valuation grounds. In light of the recent correction, we are upgrading our rating on ART from HOLD to BUY and maintaining our fair value of S$1.94.
ART – BT
ART Q3 distribution up 84% to $12m
ASCOTT Residence Trust (ART), the first pan-Asian serviced residence real estate investment trust (Reit), achieved an 84 per cent year-on-year growth in unitholders’ distribution to $12 million for the third quarter ended Sept 30. The results, which also exceeded its own estimate by 9 per cent, were underpinned by strong operating performance and accretive acquisitions.
This gave a distribution per unit of 1.99 cents for the quarter, which is 39 per cent higher than for the corresponding period last year and 9 per cent better than forecast.
What stood out was that revenues per available unit for its serviced residences in the Philippines and Singapore were 32 per cent and 22 per cent better than forecast in the third quarter.
‘As part of the overall growth strategy, ART will continue to acquire quality serviced residences and rental housing properties to achieve a portfolio value of $2 billion by end-2008,’ said Lim Jit Poh, chairman of Ascott Residence Trust Management Ltd (ARTML), the manager of the trust.
ART has a geographically diversified portfolio of 18 properties in 10 cities across seven countries including Australia, China, Indonesia, Japan, the Philippines, Singapore and Vietnam. Its portfolio value is currently $1.2 billion, comprising of 2,952 serviced residence units.
‘Demand for serviced residences is expected to remain strong and we are confident of delivering the forecast distribution per unit of 7.27 cents for the year,’ ARTML’s chief executive Chong Kee Hiong said.
MI-REIT – BT
MI-Reit’s Q2 distributable income meets forecast
MACARTHURCOOK Industrial Reit (MI-Reit) said yesterday that its distributable income for the second quarter ended Sept 30 came in at $4.85 million, with distribution per unit (DPU) at 1.86 cents, both in line with its forecast.
This worked out to an annualised DPU of 7.38 cents, said MI-Reit. The annualised yield is 6.05 per cent based on the closing price of $1.22 per unit on Sept 30.
Its net property income of $5.91 million for the quarter was higher than the $4.7 million seen in the preceding quarter but was a 0.6 per cent dip from its own estimate.
Thanks to a revaluation of the initial 12 properties in MI-Reit’s portfolio, its net asset value per unit rose by 13.3 per cent quarter-on-quarter to $1.28, and raised its book value from $316.2 million to $354 million at the end of the fiscal second quarter.
‘In the short time since listing on April 19, we have successfully executed the acquisition of three properties; two of which are pending completion with an aggregate value of $109.3 million and the third, which has been completed for $16.8 million,’ said Chris Calvert, chief executive of the MI-Reit manager.
‘We continue to be focused on achieving our target of $500 million in acquisitions per annum,’ he added.
He noted that these acquisitions will enhance income stability and diversification as a result of the reduced reliance on any single asset for income.
Over the next 12-18 months, a majority of MI-Reit’s acquisitions will be made in Singapore but investment grade industrial property in Japan, Hong Kong, Korea and Malaysia will also be considered.
Given the bullish outlook on the rents and capital values of industrial space, which are poised for a further rise of up to 10 per cent in the final quarter of 2007, MI-Reit manager said it expects to deliver an annualised distribution of 7.58 cents for the current financial year ending March 31, 2008, in line with forecasts.
MI-Reit also announced yesterday that it has signed an agreement to buy a logistics and warehouse building at 11 Changi South Street 3 from Prologis Singapore Pte Ltd for $20.8 million. The property will then be sub-leased to its current tenant, Builders Shop Pte Ltd, for the remainder of the existing 10- year lease term that commenced on Dec 16, 2004.
At an initial yield of 7.23 per cent, the acquisition is accretive to MI-Reit’s DPU, it said, and is estimated to raise its fiscal 2008 DPU by 0.23 cent to 7.64 cents per unit and fiscal 2009 DPU by 0.22 cents to 7.81 cents per unit.
MapleTree – CIMB
Conducive growth environment
• Expect higher distributable income in 3Q07. MLT will be releasing its 3Q07 results on 25 Oct. We expect increased distributable income of S$20m, up 87% yoy and 13% qoq, powered by the acquisition of 32 properties totalling S$883m YTD. This includes the completion of acquisitions made in FY06 as well as acquisitions announced in FY07. DPU is expected to reach 6.4cts, 10% above our previous estimate of 5.8cts for the whole of FY07.
• DPU upgrade. In view of higher distributable income expectations for 2H07 with more completed properties, we have increased our DPU forecasts for FY07-09 by 10-13%.
• Low interest rates good for acquisitions. As long leases in MLT’s existing portfolio limit rental reversions and escalation, MLT’s income growth would be mainly driven by acquisitions, we believe. The downtrend in US interest rates is therefore a positive for MLT, which is highly leveraged.
• Maintain Outperform with a higher target price of S$1.65. Following our DPU upgrades, we have raised our DDM-derived target price from S$1.43 to S$1.65. We have also rolled over our valuation basis to CY08, with an unchanged cost of equity assumption of 6.9%.