Month: November 2011
PLife – DBSV
Stable and strong earnings stream
At a Glance
• 3Q11 DPU of 2.4 Scts in line
• AEI completed; looking forward to acquisitions
• Maintain HOLD, TP lowered to S$1.96
Comment on Results
3Q results in line. Parkway Life REIT (PREIT) reported a 4.1% and 3.6% hike in gross revenues and net property income to S$22.0m and S$20.1m respectively. The improved performance was attributable to (i) acquisition of Japanese nursing properties in Jul’10 and Jan’11; and (ii) higher rental income from Singapore on the back of annual rental adjustment (5.3% increase beginning 23r Aug’11). Distributable income increased by a higher 6.8% to S$14.5m (DPU of 2.4 Scts) benefiting from interest savings from its refinancing activities (all-in cost of 1.63%). 3Q11 results formed 74% of our FY11 estimates.
Optimizing yields – creating value from asset enhancement initiatives (AEI). PREIT has completed its 2nd AEI at Sawayaka Nokatakan, which involved the conversion of an underutilised pool into an income producing Day Service facility area, that increased its maximum day service capacity from 39 to 70 people. While impact on distribution is estimated to be small, returns are decent in our view – estimated ROI of 10% on capital of S$0.15m.
Financial position remains strong. Weighted average debt maturity is 3.19 years and interest cover remains a healthy 7.7x. Gearing is a comfortable 36%, empowering the trust with additional headroom of up to S$815m (to reach 60% gearing ratio). We believe that opportunities to acquire are aplenty in our view, with healthcare assets in Malaysia, Australia and Japan that PREIT is reportedly keen on. We have assumed S$200m worth of acquisitions but now expect these to be completed in 1H12 (previously 2H11).
Recommendation
Maintain HOLD. Our DPU estimates and TP have been adjusted to reflect the delay in new acquisitions. However , we like PREIT’s defensive metrics – 87.9% of portfolio revenue with downside rental protection and 98.4% with rent review provision. We believe that the market has priced in these positives, with its premium valuation of 1.3x P/BV and forward FY11-13F yields of 5.4-6%, vs S-REIT peers (0.95x P/BV, FY11-13F yields of 6.7-7.1%). Re-rating catalysts in our view will hinge on the REIT executing on its acquisition growth strategy.
PLife – BT
PLife Reit Q3 DPU rises 6.7%; revenue up 4.1%
Trust cautious about acquisition prospects due to uncertainties
PARKWAY Life Real Estate Investment Trust (PLife Reit) yesterday posted a 6.7 per cent rise year on year in distribution per unit (DPU), from 2.25 cents to 2.40 cents, for the third quarter ended Sept 30.
Gross revenue for the period went up by 4.1 per cent to $22 million, on the back of full-quarter revenue contributions from its Japan properties acquired in July 2010, as well as higher rent from its Singapore properties. Net property income rose 3.6 per cent to $20 million.
As a result of the yield-accretive acquisitions in Japan, higher rent from Singapore properties and savings from lower financing costs, distributable income for Q3 2011 rose 6.8 per cent, from $13.6 million to $14.5 million.
For the quarter, earnings per unit dropped to two cents, compared to 2.09 cents in the previous corresponding quarter.
For the nine months ended Sept 30, DPU was 7.13 cents compared to 6.41 cents in the same period last year. This accounted for 74 per cent of DMG & Partners Research’s estimates, which said that PLife Reit’s results were in line with expectations.
Gross revenue was 10.9 per cent higher at $64.9 million, while net property income climbed 10.2 per cent to $59.5 million.
Income available for distribution grew 11.4 per cent to $43.1 million, up from $38.7 million in the corresponding nine months last year.
In July this year, PLife Reit completed its second Japan nursing home asset enhancement initiative, to help drive more revenue for that property. At a capital outlay of $150,000, the converted area is expected to yield an annual return on investment of at least 10 per cent.
While it remains cautious about its near to medium-term acquisition prospects due to ongoing uncertainties in the global markets, PLife Reit said that the long-term prospects of the regional healthcare industry continue to be robust due to rising demand for better quality private healthcare services, driven by growing affluence and fast-ageing populations.
DMG & Partners Research said that PLife Reit is currently trading at 5.4 per cent yield. The research house maintained its ‘buy’ call on the counter, with a target price of $2.07.
PLife Reit units closed flat yesterday at $1.79 per unit.
CMT – BT
CMT units fall on news of placement
CAPITAMALL Trust (CMT) units lost as much as 5.3 per cent yesterday after the retail trust said it raised gross proceeds of about $250 million through a private placement.
CMT placed out 139.7 million new units at $1.79 each to fund upgrading works and investments in several of its shopping malls.
Net proceeds from the placement amount to about $245.7 million.
The new units will be issued to over 30 existing and new institutional investors from Asia, the United States and Europe.
The proceeds from the private placement will provide CMT with greater financial capacity to ramp up its organic growth through asset enhancement initiatives, said Simon Ho, chief executive of CMT’s manager.
‘These initiatives – which include those already announced for JCube, The Atrium@Orchard and Iluma – are expected to boost CMT’s net property income for the next few years,’ Mr Ho said.
‘At the same time, the proceeds from the exercise will reduce CMT’s gearing and provide greater financial flexibility in view of the uncertain economic outlook.’
CIMB Research said in a new report that the private placement will help to strengthen CMT’s balance sheet and raise equity at a time when its share price has held up at 1.2 times price-to-book value.
‘This should quash near-term cash-call concerns while giving it the flexibility to drive growth through asset enhancement initiatives,’ said CIMB’s analysts, who issued an ‘outperform’ call on CMT with a price target of $1.93.
DMG & Partners Securities analyst Goh Han Peng similarly said that the new funds will come in handy for CMT to execute its asset enhancement initiatives. DMG maintained its ‘neutral’ call and target price of $1.94 on the stock.
Analysts were also positive on CMT’s move to reduce its leverage marginally. The private placement is expected to reduce the trust’s aggregate leverage from 40.1 per cent to 39 per cent.
‘Moody’s views the equity issuance positively as it will reinforce CMT’s commitment to maintain its leverage below its targeted 40 per cent,’ said Alvin Tan, Moody’s Investors Service’s lead analyst for CMT.
The ratings agency said it sees no impact on CMT’s ‘A2’ corporate family rating or its ‘A3’ senior unsecured debt rating from its private placement.
But the market reacted negatively to the placement, and CMT units fell to as low as $1.775 before ending 8.5 cents down at $1.79 yesterday. Not helping the counter was the broad market retreat, which saw the Straits Times Index fall 2.33 per cent.
CMT is Singapore’s largest largest real estate investment trust (Reit) and holds assets worth $8.6 billion.
Suntec – Lim and Tan
• Investors are expected to welcome Suntec’s $410 mln asset-enhancement initiative (AEI), largely because it has no plans to tap existing unit-holders for fresh funds.
• The 4-phase AEI, starting in 2012 through 2015, is to be largely funded by the $177 mln proceeds from the sale of Chjmes and bank borrowings.
• While only time will tell whether CEO Yeo See Kiat’s optimism will pan out (rentals to rise to $12.59 psf from current $10.10 ), we believe investors accept the need for some kind of makeover for the 17 year-old “institution”, especially since:
(a) Suntec Reit raised its stake in the Convention Centre (Suntec Singapore) to >60%.
(b) minimal impact on the distribution to unitholders.
(c) completion of Downtown Line by the time the proposed AEI is completed (Suntec Citry is already being served by the Circle Line).
• Indeed, the expected 14% increase in retail space (by 125,000 sf to 980,000 sf) will come from the conversion of the first 2 levels of Suntec Singapore.
• We believe Suntec Reit merits a BUY.
• Based on the latest annualized DPU of 10.05 cents, yield is 8.1%.
Suntec – DBSV
Remaking of Suntec City
• Long awaited remaking of Suntec City announced
• Earnings and NAV accretive post AEI
• Maintain Buy, TP adjusted to $1.46 to reflect the near term earnings impact
$410m makeover. Suntec REIT has announced the long-awaited asset enhancement plans for Suntec City. The exercise involves a $230m makeover at Suntec Mall and $180m enhancement and conversion of Suntec Singapore into retail space. The project will be completed over 4 phases from mid-2012 to 2015, and transform Suntec City into an exciting shopping and MICE destination. The property will be refreshed with new facades and seamlessly integrated with the 2 current MRT stations. The mall will also be repositioned with the creation of duplex stores housing a mix of new and new-to-market brands while lower yielding space will be decanted into higher yielding space. Tenant mix will also be re-jigged with a selection of anchors and mini anchors offering a wider choice of F&B outlets. At the same time, L1&2 of Suntec Spore will be converted into prime retail space and increase total retail NLA at Suntec City by 14% from 855,000sf currently to 980,000sf. Suntec’s $230m portion will be funded with the $177m sales proceeds of CHIJMES and debt while the $180m Suntec Spore portion will be funded by debt at the entity level.
Reposition, refresh, remix. We view this exercise as positive for Suntec City, as the property is close to 17-20 yrs old, and will enable it to better compete with surrounding properties. Gearing could climb to 44-45% based on 10% ROI for both the mall and convention space but we see a potential for downward bias if Suntec Spore AEI space is revalued as retail property. More importantly, with the phased AEI, capex needs for the first two years will be more than met with the sale proceeds of CHIJMES. During the enhancement period, DPU could be affected by 2-4% but Suntec would use part of the sale proceeds of CHIJMES to mitigate the temporary dip. When completed post 2015, DPU would likely be boosted by at least 3%.
Maintain Buy. We remain positive on Suntec Reit as we believe there is strong value creation post AEI. Our TP is lowered by 5% to $1.46 to take into account the potential near term volatility in earnings. Maintain Buy with FY12 yield of 6.7%.