Month: November 2010
PLife – DBSV
Growing from Strength to Strength
At a Glance
• 3Q10 DPU of 2.25 Scents (+18%) within our expectations
• Post refinancing, effective borrowing costs lowered to 2.1% while maturity lengthened to 4.37 years
• Buy, S$1.84 TP assumes S$200m acquisitions in 2011
Comment on Results
3Q10 DPU 2.25 Scts, within expectations. 3Q10 DPU of 2.25 Scts (+18% yoy; 8% qoq) was within our expectations. Gross revenue grew 28% yoy to S$21.2 m, driven largely by additional contributions from a total of 19 nursing homes acquired – Nov’09 (8 homes), Jun’10 (6 homes) and Jul’10 (5 homes). NPI margin moderated slightly to 91.5% arising from expenses related to the 19 new nursing homes. As a result, NPI grew by 26.5% to S$19.4m.
Interest savings from lower effective borrowing costs of 2.1% (vs 2.6% in 2Q10). During 3Q, management successfully refinanced its S$207m JPY facility at a lower interest cost and at the same time lengthened its debt weighted average term to maturity to 4.37 years, from 2.87 years a quarter ago. Going forward, we expect the REIT to continue adopting a proactive stance towards lengthening its debt maturity profile to match the long leases of its assets. Gearing level remains low at 35%.
Recommendation
Defensive play… We like PREIT for its stable and defensive portfolio; 88% of portfolio revenue with downside rental protection and 98.4% with rent review provision. We believe the REIT will continue to provide organic growth (through AEI and rental upside), while exploring portfolio expansion opportunities going forward. In line with the robust outlook for healthcare facilities, we believe management will probably look to structure its new leases such that it provides upside benefit to the REIT.
…with upside from acquisition pipeline; factored in S$200m worth. We have assumed S$200m worth of acquisitions in 2011, funded 70%/30% by equity/debt to maintain its existing gearing ratio of c.35% empowering PREIT to undertake opportunistic acquisitions. Maintain BUY and S$1.84 TP.
LMIR – OCBC
3Q10 in line; investment case still compelling
3Q10 in line. LMIR Trust (LMIR) reported 53% YoY gains in 3Q revenue to S$33.8m, thanks to the collection of additional income from services charges receipt / utilities cost recovery on seven retail malls with the 31 Dec expiry of an operating costs agreement in place at listing. This income was offset by the additional costs incurred relating to the maintenance and operation of the malls. Revenue fell 15.9% QoQ but recall that 2Q10 results had reflected the full six months effect for 1H10 due to a delay in the transfer of operations. Net property income of S$22.2m was up 14.5% YoY and 2.7% QoQ, boosted by the strong Indonesian Rupiah (IDR) against the Singapore Dollar (SGD).
DPU of 1.09 S cents. DPU fell 10.7% YoY but gained 4.8% QoQ to 1.09 S cents. The manager attributed this to the appreciation in the IDR, which has caused the gap between the hedged rate on distributions and the physical rate to reverse unfavorably in the last five quarters. LMIR booked a realized (cash) forex loss this quarter of S$2.9m versus a loss of S$2.4m in 2Q10 and a loss of S$0.4m in 3Q09. DPU was just 2.8% ahead of our 1.06 S cents estimate.
Portfolio performance stable. Occupancy at LMIR’s retail malls ticked up 70 basis points from 97.1% at 30 Jun to 98.1% at 30 Sep. This compares favorably to the Jakarta average occupancy of 84.5% (ex strata-title malls) as of Sep 20101 . We note that while some new supply is coming up in the region, the manager was unperturbed due to location and/or positioning factors. It also cited an environment of increasing confidence, with more retailers exploring expansion options. We understand LMIR is also exploring asset enhancement opportunities at some of its existing malls.
Valuation. LMIR is up 9.1% since our last report on 30 Jul. We have revised our earnings estimates upwards marginally. At the same time, we have relaxed our discount rate inputs to better reflect improved market conditions. These factors push our fair value estimate up from S$0.52 to S$0.60 (still at a 20% discount to our SOTP value for LMIR). The investment case for LMIR remains compelling, in our opinion, considering the Indonesia consumption story; LMIR’s defensive portfolio; and the potential for growth on the back of its strong balance sheet (10.8% leverage) and attractive sponsor / third-party pipelines. With 19% estimated total return, maintain BUY.
Industrial REITs – OCBC
Common themes of 3QCY10 results; OVERWEIGHT
Positive Outlook. At 3QCY10 results, we found a few common themes in the guidance given by the industrial REIT managers: positive outlook, strengthening rents, acquisitions and equity fund raising (EFR). The unifying motivation is to capitalise on the recovery cycle that will both strengthen the REITs and also grow distributable income.
Economic conditions remain favourable. Non-oil domestic exports (NODX) grew 23% YoY in Sep 10. Manufacturing output also increased 26.2% YoY. Going forward, the government remains committed to keep manufacturing as a key economic-driver in Singapore with new stimuli to raise the productivity and image of the different industries. These include a new branding campaign called the “We Can Movement” to attract talent to the logistics/SCM industry and the commitment to inject $16.1b over the next five years to support research, innovation and enterprise in the biomedicalsciences, electronics, info-communications, as well as other “white spaces”.
Industrial rents strengthening. The 3Q10 price and rental indices of industrial space continue to improve by 8.3% and 4.8% QoQ, respectively. Rental rates for business parks moderated slightly to S$3.65 psf pm while both light industrial and warehouse rental rates improved by 6.5% and 3.3% to S$1.65 psf pm and S$1.55 psf pm, respectively. With improved rail connectivity to the suburban regions, we also expect further upside to the industrial buildings situated near the upcoming MRT lines (Downtown, Thomson, Eastern Region).
Acquisitions are back on the table. Mapletree Logistics Trust (MLT) has acquired some 11 properties in Asia YTD on the back of a S$305m EFR launched in Sep 10. A-REIT has also completed the acquisition of 31 Joo Koon Circle and DBS Asia Hub for S$131m in Apr 10. Cambridge Industrial Trust is undergoing a S$50.4m EFR presently to fund the acquisition of 25 Tai-Seng Avenue, 511/513 Yishun Industrial Park A and two other potential sites for S$73.2m. In addition, the two newly-listed REITs this year, Cache Logistics Trust and Mapletree Industrial Trust may be silent for now, but we look forward to them contributing actively to the acquisition pot progressively.
Valuations. The industrial sector typically lags the office sector by a few quarters. With the upbeat momentum in the office space, Industrial REITs stand to capitalise on the spillovers to business parks, high-tech and light industrial buildings. In terms of forward yields, Industrial REITs also trade at a premium of 70 basis points to the broader sector. We are bullish on the industrial sector recovery and now have an OVERWEIGHT rating for the Industrial REITs subsector. Top of our pick is Mapletree Logistics Trust (MLT) with a fair value estimate of S$0.97.
AIMSAMPIREIT – SGX
Sale of 23 Changi South Avenue 2 Singapore 486443 above independently appraised value
- Sale price: S$16.7 million
- Book value as at 30 September 2010: S$16.2 million
- Sale expected to complete in January 2011
- Provides opportunity for future investment opportunities
- In the interim, net sale proceeds will be used to repay debt under the Trust’s newly established revolving credit facility, reducing aggregate leverage to approximately 33.4% from approximately 34.8%
- Continued execution of Manager’s strategy to maximise returns for unitholders
AIMS AMP Capital Industrial REIT Management Limited, the manager (the "Manager") of AIMS AMP Capital Industrial REIT (the "Trust") wishes to announce that HSBC Institutional Trust Services (Singapore) Limited, in its capacity as trustee of AIMSAMPIREIT (the "Trustee"), has today issued an option (the "Option") to Premier Land (East) Pte. Ltd. (the "Purchaser") for the sale (“Sale”) of 23 Changi South Avenue 2 486443 (“Property”) for a consideration of S$16.7 million (the "Sale
Consideration").
The book value of the Property is S$16.2 million based on an independent appraisal by CBRE as at 30 September 2010.
Principal terms of the Sale
The Purchaser has today paid to the Trust S$167,000, equivalent to 1.0% of the Sale Consideration, as a non refundable option fee. The Purchaser will pay S$1.5 million, equivalent to 9.0% of the Sale Consideration, on exercise of the Option on or before 16 November 2010. The balance of the Sale Consideration will be paid in cash on completion of the Sale, which is expected to take place in January 2011.The completion of the Sale is conditional upon, among others, the approval of JTC Corporation to the Sale.
Rationale for the Sale
The Sale is consistent with the Manager’s strategy of recycling the Trust’s capital to maximise returns for unitholders. The Manager adopts a proactive approach towards managing the Trust’s properties with a view to enhancing their quality and value. The approach includes identifying properties within the Trust’s portfolio which have reached the optimal stage of their life cycle for divestment. This allows the Manager to free up capital to provide the Trust with greater financial flexibility for future investment opportunities.
Use of Sale proceeds
The Sale proceeds, net of sale related costs, will be used to repay debt under the Trust’s newly established revolving credit facility, reducing aggregate leverage to approximately 33.4% from approximately 34.8%. This increased headroom will provide the Trust with greater financial flexibility for future investment opportunities.