Month: September 2011
FCT – Lim and Tan
• FCT has priced its placement of 48 mln new units at $1.39 each, top end of the proposed $1.35-1.39 range, as a result of strong demand.
• The placement was 4x subscribed by new and existing institutional investors, hence the low 2.5% discount to yesterday’s adjusted volume weighted average price of $1.426.
• The $64.3 mln net proceeds are to part finance the $129 mln acquisition of Bedok Point, which brings to 5 suburban malls in FCT’s portfolio.
• The acquisition is yield accretive.
• Based on minimum 8.42 cents DPU for ye Sept ’11, FCT offers 5.8% yield.
• Major enhancement works at Causeway Point, FCT’s biggest asset, are largely completed, which suggests the recent mild decline in Net Property Income will be more than made up for in ye Sept’12.
• We maintain BUY.
Sabana – Phillip
On course to cross $1 billion portfolio
•Acquisition of 3A Joo Koon Circle and 2 Toh Tuck Link at a total price of $80m
•DPU accretive resulted from debt financing
•Maintain Buy recommendation with unchanged target price of $1.120
Bagged two industrial properties through third-party acquisition
Sabana REIT purchased two industrial properties, comprising a factory and a warehouse in the western part of Singapore. The property at 3A Joo Koon Circle, is a 2-storey building with mezzanine floor and a 3-storey factory building, well served by two major expressways – Pan-Island Expressway (PIE) and Ayer Rajah Expressway (AYE) – and close proximity to Joo Koon MRT station. While the property at 2 Toh Tuck Link, is a 6-storey warehouse, well connected by both PIE and AYE and approximately 2 km away from Jurong East and Clementi MRT stations.
Both properties have a total GFA of 398,315 sq ft. This raised the portfolio GFA from 3.4 million sq ft to 3.8 million sq ft. Since the two properties are segmented under the general industrial and warehouse property type, the lion share of high-tech industrial is reduced to 38% in term of percentage to the entire portfolio GFA. The inclusion of new property assets will diversify the source of income stream and result in less reliance on Master lessees such as Branbury Investments Ltd and its sponsor which have substantial revenue contributions. These two properties were sold to Sabana REIT at a total price of $80m through a sale and leaseback arrangement. Upon completion, a triple net master lease for a term of three years will be entered and the lease will be expired in 2014. Both transactions will further lengthen the weighted master lease tenure and spread out the renewal risk in the event that the master lessees choose not to renew the lease.
The purchases were wholly financed by debt and would enhance DPU growth. The gearing ratio is expected to increase to c.33.7% upon completion. Based on comfortable leverage target of 40%, Sabana REIT has a debt headroom of c.$80m to drive acquisition growth.
Valuation
With the surge of 31% in semi-annual review of average development charge rates for industrial and warehousing use on 1 September 2011, we opined that the revaluation of properties will boost the asset value to exceed its target of $1 billion portfolio even without any further acquisition towards the end of 2011. Similar to the acquisition made last month, both the new acquisitions are not factored into our model as details of the lease agreement are not available. The rental contributions from the three acquisitions will take place in the fourth quarter when the transactions are understood to be completed. Anticipated DPU growth and revaluation gains will support the price from the external headwinds. Based on previous closing price, our target price represents a 26% potential upside. Thus, we maintain our BUY recommendation with an unchanged target price of $1.120.
Suntec – DBSV
UBS renews Suntec Space lease for 3 years
UBS renews lease at Suntec. UBS is understood to have renewed its lease for about 150,000sf at Suntec Tower 5 for three years. The bank is currently occupying the entire top two floors of the 18-storey Suntec Tower 5, as well as parts of several other floors in the tower, which has net lettable area of 28,000sf per floor. The lease at Suntec was due to expire sometime in the first quarter of next year.
Estimated rents in line with recent transaction for large spaces. Market estimates that UBS could be paying around $7-8psf a month to renew their lease, which is slightly lower than the recent transacted rents at around S$9 psf pm in the area but we think this is in line with the recent transacted and renewal rents for large space at around $6-9 psf pm.
Early lease negotiation, a smart move in view of the upcoming supply. We view Suntec reit’s strategy to forward lock in tenant as a positive move in view of the uncertainty on the global macroeconomic. As at June 2011, the trust has about 74,313sf and 449,023sf of offices leases expiring in FY11 and FY12 respectively. Tying UBS’s lease, which represent 30% of next year’s expiring NLA, will mean that the trust will have a smaller tranche of leases to renew going into next year. We understand from management that they will continue to carry out early negotiations for some of the other tenants progressively. The group proactive efforts in lease management will help to minimize downside risk to Suntec’s occupancy which is currently at a high of 99.5%. Maintain BUY with TP S$1.69.
Sabana Reit – BT
Sabana Real Estate Investment Management Pte Ltd announced on Monday that Sabana Shari'ah Compliant Industrial Real Estate Investment Trust (Sabana Reit) has entered into two sale and purchase agreements to acquire two properties to diversify its income stream.
In the first acquisition, Sabana Reit will purchase a 217,580 sqft property along Joo Koon Circle from Ringford Pte Ltd for S$40.2 million. Comprising of a two-storey building with mezzanine floor and a three-storey factory building, the property is a JTC leasehold estate with a remaining tenure of 36.3 years.
The second property, also a JTC leasehold estate with 45.3 years remaining on the lease, carries a purchase consideration of S$39.8 million from Winfred Pte Ltd, and is a six-storey warehouse along Toh Tuck Link occupying 180,735 sqft.
Both properties are being sold on a sale and lease basis wherein Sabana Reit will upon completion of the acquisition, take master lease of the entire premises for a term of three years on a triple net basis.
Sabana Reit has paid a 1 per cent deposit for each property and the acquisitions, completely funded by debt, are expected to be completed by the fourth quarter of 2011
FCOT – DBSV
Gravitating towards an exciting year!
• Steady portfolio performance with enhancements/repositioning and capital management to boost DPU
• Resilient earnings tied by long/master leases
• Attractive valuations; maintain BUY, S$1.05 TP
Multi-pronged growth strategies to drive DPU. In a recent NDR with FCOT, investors view management’s efforts to reshape its portfolio and strengthen its balance sheet as proactive steps to steer the reit in the right direction. Performance portfolio has improved remarkably compared to the last crisis with occupancy standing at a high of 98% and signing rents moving up nicely. Meanwhile, its balance sheet has improved with gearing at 37% and the imminent refinancing that is likely to lower all-in interest cost by 50-100 bps. The recent approval for an outline planning permission (OPP) to redevelop KeyPoint as well as possible asset enhancement plans at China Square Central (CSC) upon expiry of the master lease in Mar 2012 should further help to optimize portfolio yield.
Stable earnings supported by “sticky” tenant base and long leases. Excluding CSC’s master lease (expiring in Mar 2012), almost half of its revenue is tied to master/long leases of up to 25 years. This would ensure resilient and stable earnings, while allowing the trust to enjoy positive rental reversion. At the same time, we note that rents for its SG portfolio are competitive, hence it is able to cater to a “niche market” ie cost conscious small-to mid-size companies or relocating tenants from soon-to be demolished older buildings. In addition, our scenario study shows that FY12/13F DPU will only fall by a marginal 2-5% should reversion rents fall by 5-10% or to 2009 levels for its SG portfolio, hence minimizing downside risk should there be an economic slowdown.
Attractive valuations at 7.4-7.8% yield. At 0.61x P/BV NAV, FCOT’s implied property yield is significantly higher than the current book cap rates. Therefore, we see potential for the gap to narrow as the group executes its multi-pronged strategies. FY11/12F yields of 7.4-7.8% are also much higher than its peers at 5.6%-6.6%. Maintain BUY at an unchanged DCF-backed TP of S$1.05.