Month: January 2012
REITs – BT
Reits outshine STI; healthcare plays lead
THE majority of Singapore real estate investment trusts (Reits) outperformed the Straits Times Index (STI) last year, data from the Singapore Exchange (SGX) shows.
Of the 22 Reits here, 17 performed better than the benchmark index – which ended down 17 per cent in 2011 – with healthcare-related plays leading the way.
In price performance terms, Parkway Life (PLife) Reit – which holds Mount Elizabeth Hospital, Gleneagles Hospital and Parkway East Hospital – floated to the top of the chart with an 8.5 per cent gain in its unit price last year.
PLife Reit said last year that it remained positive on the long-term prospects of the regional healthcare industry, given the rising demand for better-quality private healthcare services that is being driven by growing affluence and a fast-ageing population.
Its sector peer, First Reit, was ranked second, with a price return of 7 per cent.
The remaining 20 Reits, of which 15 did better than the STI, posted negative price returns in 2011.
Top loser was K-Reit Asia, which saw its unit price slump 36.2 per cent. The office property trust underwent a 17-for-20 rights issue to raise about $976 million to fund its purchase of Keppel Land’s controlling stake in Ocean Financial Centre.
The next poorest performer was CapitaCommercial Trust, which ended the year with negative returns of 29.7 per cent.
Taking into account price and dividends, First Reit – Singapore’s first healthcare Reit – provided the highest total return of 16.3 per cent in 2011. PLife Reit was ranked second with 14.4 per cent gains in total return terms.
First Reit offered a dividend yield of 9.3 per cent – the highest among the 22 Reits – while that of PLife Reit was 5.9 per cent.
Others that emerged stronger in total returns include Mapletree Industrial Trust and Cache Logistics, which offered gains of 6.4 per cent and 7 per cent, respectively.
K-Reit Asia was also the biggest loser in total return terms, with a 32.8 per cent drop in returns. It was followed by CapitaCommercial Trust, which registered a 25.9 per cent fall in total return terms.
CLT – OCBC
POISED TO REPEAT ITS SUCCESS
•Expecting good 4Q results
•Earnings to stay resilient
•Recent government measures are Positive
Expecting another round of good performance.
Cache Logistics Trust (CACHE) is due to release its 4QFY11 results after the trading hours on 18 Jan. We project that the REIT would rake up 10.8% and 6.4% YoY growth in its gross revenue and DPU respectively, bolstered by additional rental income from its recent acquisitions. This would bring the total FY11F DPU to 8.2 S cents, representing an attractive yield of 8.4% versus the industry average of 7.4%.
Limited impact from market slowdown.
While the Singapore economy growth is anticipated to moderate in 2012, including the prospect of a technical recession in 1Q, we believe the impact to its financial performance is likely to be limited. The REIT offers one of the highest earnings visibility and stability, due to master lease arrangements with Sponsor CWT and C&P Holdings. The weighted average lease to expiry (WALE), for example, was at 4.9 years as at 30 Sep, which compares favourably to its peers’ median of 3.5 years. Moreover, its leases usually encompass locked-in annual rental escalation of 1.5-2% and a triple-net lease structure for the contracted lease term. This limits the downside risks from a market downturn while ensuring organic growth for CACHE.
Government measures likely a positive.
Pertaining to the recent steps taken by the Ministry of Trade and Industry (MTI) to better meet genuine end-user industrialists’ needs and to quell increasing speculation in the industrial space, we are of the view that it will be beneficial to CACHE. We have earlier noted in our strategy report dated 19 Dec 2011 that the high capital values of industrial properties in the current uncertain economic conditions are likely to make it harder for REITs to justify their potential acquisitions. With these measures, we expect better stability in the end-user demand and industrial property prices, as well as opportunities for asset injection. Maintain BUY rating and S$1.14 fair value.
Sabana – Phillip
Company Overview
Sabana REIT is a Singapore-based REIT with a mandate to invest in income-producing industrial real estate and real estate-related assets in Singapore and Asia with compliance to Shari’ah investment principles.
• Acquisition of 6 Woodlands Loop at $14.8m
• DPU accretion resulted from debt financing
• Incorporated payout ratio of 94.0% from 2013 to 2015
• Maintain Buy recommendation but with target price cuts to $1.04
What is the news?
Sabana REIT wrapped up 2011 with a total of five properties. The 3-storey general industrial building located at 6 Woodlands Loop was its latest acquisition completed on 15 December 2011. The single-tenanted property is strategically located along Woodlands Loop and is easily accessible by Bukit Timah Expressway (BKE) and Seletar Expressway (SLE). The permissible plot ratio of the site is not completely optimized to its potential and may provide addition and alternation opportunity should the need arisen from the existing tenant.
Upon completion, a lease term of three years commencing from the date of completion of the property will be entered with the existing tenant, MMI Holdings Limited. As the contractual rents are below the market rate, up to a maximum of $958,058 rental income support will be supplemented for a period of three years under the Sales and Purchase agreement.
How do we view this?
DPU expects to improve by 0.06 cents as debt financing is employed to purchase the property asset. While the gearing ratio is expected to increase to c.34.2% upon completion based on the announcement. This leaves Sabana REIT with a debt headroom of c.$110m given 40% leverage.
Investment Actions?
Sabana REIT’s distribution policy is to distribute 100% of its taxable income and tax-exempt income (if any) till 31 December 2012 and thereafter to distribute at least 90%. We therefore assume a payout ratio of 94.0% from 2013- 2015 in order to maintain stability of distributions while retain some earnings for capital expenditure. To reiterate, we also assume occupancy to drop in 2013 as the head tenant may not renew the contract when the bulk of the master leases expired. Hence, FY13 DPU will slide down but recover in FY14 and FY15. Above assumptions trim our target price to $1.04 and it still warrants a buy call with a potential upside 18.2% excluding dividend yield.
LMIR – OCBC
OUTLOOK REMAINS HEALTHY
• Demand likely to stay sturdy
• Strong contribution from new additions
• No immediate refinancing needs
Demand for retail malls/spaces to remain strong.
We remain positive on Lippo Malls Indonesia Retail Trust’s (LMIRT) financial performance in 2012. Retail sales in Indonesia have been treading along a positive trend line since 1Q11, based on survey by Bank Indonesia. In Jakarta and Medan where the most of LMIRT’s retail malls/spaces are located, we note that Oct retail sales accelerated by 41.1% and 22.3% YoY respectively, following Sep sales growth of 26.1% and 16.3%. While the Consumer Confidence Index in Nov eased slightlyby 1.6% MoM to 114.3, respondents were still optimistic that retail sales in 1Q12 are likely to remain high. As such, we believe the demand for its retail malls/spaces is likely to remain healthy.
Recent acquisitions to drive growth.
LMIRT had also recently announced the completion of acquisitions of Pluit Village and Plaza Medan Fair. We expect these new additions, which collectively make up around 26.3% of its portfolio NLA, to contribute significantly to its rental revenue in 2012. According to management, the investments are likely to boost its distributable income by 61% from S$47.9m seen in FY10, while its adjusted DPU yield would increase to 8.43% from 8.38%. We view this positively as the acquisitions were expected to be DPU yield accretive and were done at a discount of 4.1-5.7% to their average valuations.
Maintain BUY.
LMIRT is also in a comfortable position for further growth opportunities. We estimate that its aggregate leverage will remain fairly unchanged at around 10% post acquisitions, giving it ample funding capacity for future investments. Moreover, LMIRT has successfully refinanced its bank borrowings due 26 Mar with a drawdown of S$147.5m under its new loan facility arrangement. With the debt due for repayment only in Jun 2014, LMIRT has no immediate refinancing requirements over the next year. We maintain our BUY rating and S$0.45 fair value on LMIRT.
CCT – BT
Partners may loan up to $794m for Market Street Car Park project
They are CapitaLand, CapitaCommercial Trust and Mitsubishi Estate Asia
UP to $794 million of funding for the redevelopment of Market Street Car Park could be provided via a unitholder loan from its project partners CapitaLand, CapitaCommercial Trust (CCT) and Mitsubishi Estate Asia (MEA).
CapitaCommercial Trust Management said yesterday that the unitholder loan will be drawn down in multiple tranches over time, with interest pegged to market rates on the relevant dates of drawdown.
CapitaLand, CCT and MEA are redeveloping Market Street Car Park for some $1.4 billion. Their respective interests in the joint venture are 50 per cent, 40 per cent and 10 per cent.
Assuming that $794 million of unitholder loan is drawn down in one tranche, with a loan tenure of four years, the estimated total interest expense for the loan will be $100 million.
CCT’s proportionate share of the unitholder loan would be $317.6 million, and its share of the estimated interest expense payable would be $40 million.
Separately, CCT’s manager also said that CapitaLand has agreed to renew its lease at Capital Tower, a property in CCT’s portfolio. The current lease expires in July next year and the new one will run for three years from July 2012, with an option to renew for another three years on terms to be determined. The lease consideration is about $7.7 million.
Because CapitaLand has a deemed interest of 32 per cent in CCT and is a controlling unitholder, the lease deal is seen as an interested person transaction.
CCT’s manager believes that the lease consideration is fair and reasonable, saying that CapitaLand has been prompt in its rental payment and the lease will help generate a stable income flow.
Independent valuer CB Richard Ellis also found that the rental rate for the lease is ‘at market level’ and the other terms are consistent with normal commercial terms.
Meanwhile, CapitaLand announced that its joint venture with CapitaMalls Asia (CMA) and Singbridge Holdings has incorporated a 100 per cent-owned project company in China with a registered capital of $377 million. The partnership won a site in Chongqing for the development of a mixed use project.
In another development, CMA said that its wholly owned subsidiary Chengdu Huayun Jiangnan Real Estate Development, which holds CapitaMall Tianfu in Chengdu, has increased its registered capital by over $58 million to $170.54 million.