Month: September 2012
CLT – OCBC
ON STRONG FOOTING
- Resilient portfolio
- Sturdy income streams
- Better 2H12 performance
Demand for portfolio assets to stay strong
We continue to favour Cache Logistics Trust (CACHE) for its resilient portfolio. The REIT currently owns 12 logistics warehouse properties, of which eight of them have ramp-up features. Such warehouse space is limited in Singapore as specialized planning and design specifications are required for the development. Based on our understanding, CACHE holds a sizeable 22.9% market share of rampup warehouses in Singapore. Hence, we expect the demand for its properties to remain robust.
Strong and predictable income streams
CACHE’s portfolio has retained 100% occupancy rate since its listing in Apr 2010. In addition, the bulk of its leases are based on triple-net master lease structures with built-in annual rental escalation of 1.5-2.5%. This arrangement provides CACHE not only with high NPI margins of 95.0%-97.4% over the past eight quarters but also stable income streams and a long weighted average lease to expiry of 4.4 years (with less than 2% of GFA due for renewal in 2013).
Improved performance for 2H12
For the rest of FY12, we expect CACHE to turn in a better set of results. While its 2Q12 DPU eased 5.0% YoY, we note that it was due to an enlarged unit base arising from private placement to fund the acquisition of Pandan Logistics Hub, even though the property has yet to contribute to its income. When rental income from Pandan Logistics Hub starts to kick in from 2H12 onwards, we believe CACHE will see a lift in its DPU going forward. This is in addition to a potential gain from interest savings following the recent refinancing of its outstanding debts with a new S$375.0m bank facility (all-in financing cost is expected to improve to 3.44% from 4.38%).
Maintain BUY
As CACHE is approaching the end of its 3Q, we now roll our valuations to FY13. This in turns raises our fair value estimate from S$1.18 to S$1.26. We reiterate our BUY rating on CACHE.
LMIR – OCBC
INTEREST EXPENSE LIKELY TO HIT DPU
- Interest expense drag
- 2012 new JKT supply manageable
- Downgrade to HOLD as px is close to FV
Incorporating acquisition assumptions
We have incorporated assumptions into our model about potential acquisitions that may be funded by the S$250m raised by LMIRT in early Jul under its S$750m MTN programme. The S$200m 3-year bonds were priced at 4.88% while the S$50m 5-year bonds were priced at 5.875%, giving a blended interest rate of ~5.1%. Before the acquisitions are completed, we should see a short-term drag on DPU due to the additional interest expense. We anticipate that the acquisitions will be yield-accretive with initial net property yields of ~8.5%. We assume an acquisition of S$100m will be completed on 1 Jan 2013 and an acquisition of S$150m will be completed on 1 Apr 2013.
Good pre-commitment level for 2012 JKT retail supply
According to DTZ, there was no new additional retail space supply for Jakarta in 1Q12. In 2Q12, the 21k sqm Ancol Beach City in North Jakarta brought the total supply to 1.94m sqm in NLA. The total supply growth expected for 2012 is 12.1% YoY, with Kota Kasablanka (82k sqm) and Ciputra World (130k sqm), both located in South Jakarta, forming the rest of the supply. The pre-commitment level for the 233k sqm is 88%, in line with the 2Q12 Jakarta retail market occupancy rate of 87.5%.
Significant supply coming onboard in 2013
LMIRT registers 58% of its portfolio NLA in Greater Jakarta. 16% of the portfolio NLA is located in North Jakarta (Pluit Village), and another 14% is located in South Jakarta (The Plaza Semanggi and Depok Town Square Units). It is worthwhile noting that some 391k sqm of retail space is expected to come to the market in 2013 (DTZ), implying substantial YoY growth of 18.2%, which will likely increase competition.
Downgrade to HOLD
We maintain our fair value of S$0.45 but downgrade LMIRT to a HOLD since the share price is close to our fair value.
Cambridge – DMG
Proposed new acquisitions in the pipeline
Acquisition of 30 Marsiling Industrial Estate Road 8 and 11 Woodlands Walk. The management of Cambridge Industrial Trust (CIT) just announced the proposed acquisition of the properties at 30 Marsiling Industrial Estate Road 8 and 11 Woodlands Walk for a purchase consideration of S$39.0m and S$17.3m respectively. 30 Marsiling is a light industrial building with a GFA of 20,249 sqm. Upon completion of the acquisition, the building will be leased back to BIPL for a period of three years. The second property 11 Woodlands Walk is also a light industrial building with a GFA of approximately 8,977 sqm. Upon completion, the property will be leased to HFB for a period of five years. Given a forecasted annual NPI of S$2.8m for the property at Marsiling and S$1.4m for 11 Woodlands Walk, the yields from these properties are estimated at 7.2% and 7.9% respectively. Maintain BUY on CIT with a DDM-based TP of S$0.660.
Decent land tenure on both properties. According to the announcements, Marsiling Industrial has a land tenure of 30 years commencing from 1st December 1989, with an option to renew for an additional 30 years, while 11 Woodlands Walk has a balance tenure of 43 years. The management further indicated that the acquisition of the Marsiling property will be funded solely via debt facilities. Although no announcements have been made with regards to the method of funding for the property at Woodlands Walk, given the size of this acquisition we speculate that it would similarly be funded via debt and cash.
Property acquired to replace the lost of income as a result of SLA acquisition. Previously, SLA has announced a compulsory acquisition of two of CIT’s properties located in Tuas. Given that these properties will be sold to SLA by January 2013, these new acquisitions are seen as partial replacements to those in Tuas.
More acquisitions to be expected going forward. Since the forecasted NPI from these new properties only accounts for c.5.0% of CIT’s total NPI; while the two properties to be taken over by SLA makes up 11% of total revenue, we believe there will be more acquisitions going forward as management strive to replace the lost in income from the compulsory acquisitions. We maintain BUY on CIT with an unchanged DDM-based (COE: 9.8%, terminal growth: 1.0%) TP of S$0.660.
CRCT – OCBC
CHINA AIMING FOR 15% P.A. RETAIL SALES GROWTH
- Targeting 15% p.a. growth in retail sales
- Strong demographic fundamentals
- CRCT is one-of-a-kind
Targeting 15% p.a. growth in retail sales
According to the 12th Five-year Development Plan for Domestic Trade released by the State Council recently, China aims to expand its retail sales of consumer goods to around RMB32tr (~US$5.05tr) by 2015, with an average annual growth rate of 15%. While the targeted growth rate is slightly lower than the 16.1% p.a. growth rate over the past decade that propelled retail sales to RMB18.4tr in 2011, 15% is still very good. China’s retail sales rose 13.2% YoY in Aug, 0.1 percentage points higher than the growth rate in Jul. To make a simple comparison with a developed country, we note that for the month of Jun (the latest month for which data is available), Singapore’s retail sales actually decreased by 0.9% YoY.
Positive demographics means increasing “firepower”
We see the MoM decline in consumer confidence to be short-term; the Bankcard Consumer Confidence Index fell 0.5 percentage points MoM to 86.21 points in Aug. Having gathered demographic data on the cities that CRCT operates in, we believe that long-term fundamentals remain good for the retail industry. Beijing, which accounted for 67% of CRCT’s 2Q12 gross property revenue, saw overall retail sales grow 13.0% YoY in 1H12. While Beijing’s 1H12 expenditure per capita only expanded by 3.6% YoY, disposable income climbed 6.4%, which means that consumers have growing amounts of unutilized “firepower”, especially given that the rate of inflation is historically low (consumer inflation grew at only 2.0% in Aug).
The only pure-play China retail REIT
We are confident that CRCT can achieve healthy double-digit positive rental reversions for 2012 for its multi-tenanted malls. For 2Q12, CRCT’s multi-tenanted malls achieved rental versions of 15.2%, excluding the gross turnover component. Most of the leases have rental escalation clauses. The only listed pure-play China retail REIT globally, CRCT is our top pick in the overseas retail REIT space.
Maintain BUY
We maintain our BUY rating on CRCT and our fair value of S$1.70.
A-REIT – OCBC
STRONG BUT NOT COMPELLING
- Another divestment of property
- Expecting stable performance
- Valuation not very compelling
Divestment of Block 5006 Techplace II
Ascendas REIT (A-REIT) has been actively involved in capital recycling activities YTD in a bid to optimize its portfolio yield. Following the proposed sale of 6 Pioneer Walk in Jun, we note that A-REIT had on 24 Aug announced the divestment of another property, Block 5006 Techplace II, for S$38m. According to management, the proforma impact on A-REIT’s FY12 NPI and DPU would be approximately S$1.46m and 0.01 S cents respectively, assuming the divestment was completed on 1 Apr 2011. However, based on our estimates, the proceeds are likely to relieve its interest burden and may potentially add 0.01 S cents to its FY14F DPU.
Maintain caution on business/science park segment
For the rest of FY13, we believe A-REIT will deliver a stable set of performance, supported by full-year contributions from its past investments. We are only cautious on its significant exposure (34% by valuation) to the business/science park segment. According to CBRE’s latest Real Estate Research Report, the occupancy rate for this segment had declined for three consecutive quarters to reach 91.7% in 2Q12, while its rents had declined four straight quarters to hit S$3.70 psf/month. For the rest of 2012, CBRE projects the downward pressure on occupancy and rents to continue, with a 6% correction in rents expected for 2H12. Hence, we are maintaining caution on AREIT’s business/science park space. On a positive note, we understand that the current market rents are 16-35% higher than the average passing rents for the areas due for renewal. As such, we believe A-REIT will still put in a stable set of results.
Maintain HOLD
We are tweaking our estimates for FY13-14 to reflect the divestment. Our fair value is now revised to S$2.28 from S$2.27 previously.However, at current price level, we believe A-REIT’s P/B ratio is not very compelling at 1.25x. Its FY13F DPU yield of 5.9% is also lower than the industrial REIT subsector average of 7.2%. Maintain HOLD.