Month: August 2012
FE-HTrust – Lim and Tan
IPO 93¢
- We would recommend Subscribe, despite the consensus (as reflected in media coverage in recent days) that it is a worthwhile investment, hence the pricing at the absolute top end of the indicative range.
- The key point is the indicative first year yield of 6%.
- Fact that at least 60% of the base income is "guaranteed" by the master-lease arrangement, suggests "worst-case" yield of under 4%. (Note: yields of reits are not guaranteed as recently pointed by a local analyst.)
- We are not unduly concerned that Orchard Parade Hotel''s lease runs out in has 50 years. (OPH is the largest asset in FEH's portfolio, accounting for about a third.)
- Or for that matter that OPH is being valued at $1 mln a key vs $686,000 for Orchard Hotel, owned by CDL Hospitality. A possible reason is that unlike Orchard Hotel, OPH does not separate contributions from the asset into retail and hotel.
- 329.4 mln units will be offered to institutional investors and the public; and 376.3 mln units to cornerstone investors, which include Aberdeen Asset (value fund) and AIG (insurance).
- FEH's initial portfolio will comprise 7 hotels (including OPH, Albert Court Village) and 4 serviced residences.
- One casualty, if we can call it that, would be Ascendas Hospitality, now trading cents off IPO price.
PCRT – DBSV
Still ramping up
- Results in line; operational drag mitigated by earn-out income as properties stabilize
- Shenyang assets in stabilisation stage, development assets on track
- Maintain Buy, TP S$0.83
Highlights
Supported by earn out income. PCRT reported distribution income of S$10.9m for 2Q12, +3% q-o-q, supported by earn-out income of S$10.7m and S$0.2m from operations. This translates to a DPU of 0.96Scts. For 1H12, distribution income totaled S$21.5m or DPU of 1.9Scts. This is in line with expectations and makes up 49% of our FY12F.
SLSM, RSMFM yet to stabilise. Shenyang Longemont Shopping Mall (SLSM) saw occupancy trickling up to 70.7% vs 69.7% in 1Q while rents averaged RMB3.32psm/day. For the Shenyang Red Star Macalline Furniture Mall (RSMFM), occupancy dipped sequentially to 50.6% in 2Q from 60.2% as tenant rejigging and relocation continues. The group has revised target occupancy for the furniture mall to 60% (from 95%) and 75% (from 78%) for the shopping mall by end FY12. Leasing activities for Shenyang Longemont Office has begun with leases secured for 1,780sm of space (10% of total office) coming from names such as Hui Ming Transportation Agent, Kang Li Elevator and Zhi Lian Recruitment Company. Leasing activities will also be ramped up in coming month and the office component is scheduled to begin operations in 4Q12.
Our View
Shenyang properties still in a ramping up stage. SLSM and RSMFM will continue to be ramped up in 2H12. One block of the RSMFM is being converted into an outlet mall as well as for education, medical trades and wholesale centre. Discussions with potential tenants are ongoing and if committed, will boost occupancy levels. For SLSM, tenants offering local and mid-tier brands products are doing well as are those catering to family kids-focused trades. To strengthen its offering, it has secured a children language centre as third mini anchor (to commence in 1Q13) in addition to a KTV and a bowling centre as well as new tenants including Kids Photography Studio, Hotwind, Zodiac Restaurant as part of the move to rejig tenant mix during this stabilisation period.
Development assets on track. Perennial Jihua Mall in Foshan (former Foshan Yicui Shijia Mall) has secured key tenants such as H&M, Monki, KFC and Pizza Hut and together with anchor tenants secured earlier is 30% precommitted to date. This property is targeted to commence operations in 1Q13. For Perennial Qingyang Mall (former Chengdu Qingyang Guanghua Mall), construction has begun and preleasing stands at c21%. This mall is scheduled to commence operations in 2Q14. Meanwhile, the group has exercised its option to increase its stake in Perennial Dongzhan Mall to 80%. Gearing stands at 13.5%.
Recommendation
Maintain Buy. Maintain Buy with RNAV-backed TP of S$0.83. We see FY13 as the earnings inflexion point with new contributions from the Foshan development. As operational ramp up improves, we expect the stock to close the gap between share price and RNAV. The stock is trading close to implied replacement cost for its initial portfolio.
Sabana – Phillip
Income diversification from the newly acquired
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 23 Serangoon North Avenue 5 at $61.0mn
- DPU accretion resulting from debt financing
- Maintain accumulate with unchanged target price of $1.04
What is the news?
Sabana REIT acquired 23 Serangoon North Avenue 5 at S$61.0mn. The property is a purpose-built five storey light industrial building with a mezzanine level, located within Serangoon North Industrial Estate. It boasts a remaining tenure of approximately 44.2 years and GFA of 159,384 sq ft. Upon completion, a triple net master lease of three years, with an option to renew for another three years will be entered with the vendor, Ban Teck Han Enterprise Co Pte Ltd. The acquisition is expected to complete in the fourth quarter of 2012.
How do we view this?
As the purchase is wholly funded by debt, DPU accretion will take place in the fourth quarter onwards. With the new acquisition, asset and tenant diversification is further improved and also reduced the reliance of income stream on any single asset or lessee. Post acquisition, the leverage ratio is expected to increase from 34.1% to c.37.6% based on the announcement. This leaves approximately S$25.9mn of debt capacity for further acquisitions. During the conference call for 2Q12 results briefing, the management guided that either one or two properties may be added to the portfolio this year. In this regard, investors could anticipate another industrial property to be added for the rest of the year.
Investment Actions?
At this juncture, we are waiting for more detailed information before incorporating the new property to our model. We therefore maintain our accumulate call with unchanged price target of $1.04 with the use of dividend discount model.
CRCT – OCBC
RAISE FV TO S$1.70
- Only pure-play mainland China retail REIT
- Strong operations
- Raising FV
Deserves scarcity premium
We believe that CRCT deserves a scarcity premium since, as we understand, it is the only pure-play mainland China retail REIT in the world, offering positive exposure to structural shift towards domestic consumption in the second largest economy. In our view, the closest two peers are Hui Xian REIT and Perennial China Retail Trust. Hui Xian is a mixed PRC REIT play, which exposure to mainland retail, office and hospitality segments. Perennial is a PRC retail development trust and is thus exposed to development risks. Hui Xian and Perennial are trading at Bloomberg consensus yields of 7.8% and 6.7% respectively.
Good outlook, operationally solid
China’s real GDP grew by 7.8% YoY in 1H12. 1H12 total retail sales of consumer goods grew faster at 14.4%. On a long term basis, retail sales growth should continue to outpace GDP growth as people increasingly turn towards organized retail with urbanization and rising disposable incomes. CRCT has nine malls in first-tier and second/third-tier cities. We believe the vicinity of the four Beijing malls will see limited increase in retail supply space over the next few years. Occupancy in CRCT’s portfolio is good at 97.1%, the highest among the overseas retail S-REITs; we note Lippo Malls Indonesia Retail Trust’s occupancy is at 94.7% while Fortune REIT’s occupancy is at 96.5%.
Attractive dividend yield
Given the recent run-up in REIT share prices across the board and general yield compressions, we believe that CRCT’s FY12F dividend yield of 6.4% is fairly attractive. For example, local retail REITs are trading at Bloomberg consensus dividend yields of 5.0%-5.9%. Among the overseas retail REITs, although CRCT’s forward yield is lower than LMIRT’s 7.4%, it is higher than FRT’s 5.9%.
Maintain BUY
We lower the cost of equity assumption in the DDM model for CRCT from 9.5% to 8.6% to better reflect the prevailing lower interest rate environment. We raise our fair value from S$1.50 to S$1.70 and maintain our BUY rating on CRCT.
Fortune – OCBC
DOWNGRADE TO HOLD
- Jun retail sales could signal turnaround
- Resilient non-discretionary purchases
- Downgrade to HOLD on valuation Grounds
HK Jun retail sales beat expectations
In Jun, the value of HK retail sales climbed 11.0% YoY due to resilient local demand and an increase in the number of tourists. The rise was greater than the comparatively low 8.7% YoY increase seen in May, and was above the 8.2% median forecast from a Dow Jones Newswires poll. Given that the indexes for private retail rents and prices for May were up 2.4% and 3.8% MoM, we are mildly optimistic that there could be further increases in the months ahead.
Non-discretionary purchases
FRT is arguably exposed to one of the more resilient sectors in the HK real estate market – suburban retail. We note that 57.5% of the gross rental income is in the non-discretionary categories (Services & Education, F&B, Supermarkets, Homewares, Wet Markets and Community Services). We have just visited Fortune City One, Ma On Shan Plaza, Fortune Metropolis and Provident Square, which was recently acquired in Feb 2012, and observed that a substantial component of FRT’s tenant sales were resilient in nature, e.g. F&B outlets were quite full during weekday lunch and dinner periods.
Attractive yield compared to The Link
FRT’s closest peer is The Link REIT. FRT is the purer HK retail play since The Link has about a fifth of its revenue from carparks. The Link is offering a consensus FY13 (end Mar 2013) DPU yield of 4.2%. In comparison, FRT’s estimated FY12 yield is reasonably attractive at 5.9%.
Downgrade to HOLD
Fortune is trading at a P/B of 0.66x (NAV per unit of HK$8.34) and an estimated FY12 dividend yield of 5.9%. We last wrote about FRT on 23 Jul following its excellent 2Q12 results. The share price has since jumped 10.2% to HK$5.49. We maintain our fair value of HK$5.33 but downgrade FRT to HOLD on valuation grounds.