Month: October 2012
Dynasty – Phillip
China Play
Company Overview
Dynasty REIT is Singapore's first RMB-denominated real estate investment trust established with the investment strategy of principally investing in income-producing commercial real estate located in the PRC.
The Offering
ARA Trust Management (Dynasty) Pte Ltd, as manager of Dynasty REIT is offering 893,162,000 to 900,832,000 units for subscription at offer price of RMB 4.40 – RMB 4.70 (S$0.855 – S$0.915) per unit.
Total gross proceeds of between RMB 5,050 mn and RMB 5,394.3 mn are expected to be raised from the offering. ARA will subscribe to S$100 mn (RMB 514.6 mn) worth of shares as show of support and confidence in Dynasty REIT.
Dual Currency
Dynasty will be the first listed REIT on SGX to be traded under a dual currency regime. Units will be quoted and traded in Renminbi (RMB) and Singapore dollars (SGD). Units will rank pari passu and be fully fungible, hence prices will be kept at parity through market forces. The market value of the Units will be computed based on the last done price traded on the RMB counter, which will be the primary counter for the Units.
Use of proceeds
Dynasty will use 61% of the funding to acquire the initial three properties for the portfolio. 34% will be used to pay down existing debt, 4% for transaction costs and the remaining 0.25% as working capital.
Property Portfolio
Dynasty REIT will have an initial portfolio comprising of 3 properties, (i) Nanjing International Finance Center (ii) Dalian Tianxing Roosevelt and (iii) Shanghai International Capital Plaza. The total GFA is 350,475 sqm with lettable area of 243,657 sqm. Average independent valuation is RMB 7,681.5 mn and if without DPU support, RMB 7,190.5 mn. Purchase consideration is RMB 7,406 mn.
Two unique terms are in place to ensure dividend yields will be elevated and adequate to attract investors.
a. DPU Support
Under this scheme, Dynasty will use RMB 491 mn raised from the offering to form the DPU support. That is, the amount will later be redistributed back to investors as dividend payouts.
No less than RMB 73.1 mn and RMB 137.5 mn from this DPU support will be paid in year 2012 and 2013 respectively. The support amount is expected to be fully utilized by 31st December 2017 and any balance will be returned to unitholders. In the event that more than 20% of the support amount is used for purposes other than distributions, consent from the Trustee would have to be obtained.
b. Waiver Period
The sponsor has agreed to waive entitlements from 2012 until the financial year ending 31st December 2017. Entitlements between RMB 6.9 mn to 7.2 mn for the forecast period 2012 will be waived; thereafter, between RMB 16.7 mn to RMB 17.3 mn for every financial year until the financial year ending 31st December 2017. The amount to be waived is fixed and will be distributed to the unit holders.
The DPU support and the waiver of entitlements are structured to boost dividend yields in the initial years of the IPO, hence attracting investors interested in high yields. For the forecast period of 2012, distribution yield is expected to be between 6.8% and 7.1% and in 2013, between 7% and 7.3%.
Without the DPU support and the waiver entitlements, the distribution yield is expected to be about 3.2% in the Year 2012 and c.4.1% in Year 2013.
Dynasty REIT will distribute 100% of income from listing date to 31st December 2013. The manager has also agreed to receive new units in lieu of fees until 2013.
Investors are advised to refer to pages 78 to 83 of the Prospectus for further details and information on DPU support and waiver entitlements.
A-REIT – DMG
Industrial properties continue to remain resilient
2QFY13 DPU in line with expectations. Ascendas REIT (AREIT) reported 2QFY13 DPU of 3.53S¢ (+0.4% YoY), equivalent to 25.2% of our FY13 DPU estimate. Revenue and net property income came in at S$143.3m and S$102.9m respectively. The rise in NPI by 13.6% YoY was mainly due to additional contribution of newly acquired properties since September 2011. Going forward, we expect AREIT to register continual growth in DPU, mainly from 1) additional contribution from the new properties acquired and 2) positive rental reversion contributed by low rates due for renewal in the coming quarters. Although the global economical climate continues to remain positive for the REITs sector as a whole, we believe AREIT which is trading at 1.33x P/B and a FY13 forecasted dividend yield of 5.6%, is fairly priced at the moment. In the face of these valuations, we downgrade our call on AREIT to NEUTRAL with a revised DDM based (COE: 7.8%; TGR: 2.0%) TP of S$2.67.
Consolidation of portfolio in the near term. As highlighted by management, given a relatively tight industrial property market in Singapore at the moment, acquisition of good quality industrial properties is becoming more challenging. Going forward, apart from the acquisition of a business park in Jinqiao, Shanghai and the two development projects (Unilever Four Acres and Nexus) in Singapore, AREIT aims to consolidate its portfolio and grow through asset enhancements. Properties in the portfolio to undergo AEIs in the subsequent quarters include 9 Changi South Street 3, Xilin Districentre Building D, Tech Block II, 1 Changi Business Park Ave 1 and 31 Ubi Road 1.
Investors gaining more interest in industrial space. Since the beginning of the year, as the government of Singapore implemented various measures to curb upward pressure on residential properties, interests in industrial properties have gained significantly. Since then, cap rates of this group of properties have been compressed from 6.5-7.3% in 1Q12 to the current 6.0-6.5%. Going forward, we expect industrial properties to remain stable despite a slowdown in Singapore's economy.
Fairly valued at this moment. Going forward, although we believe REITs as a sector would continue to benefit on the back of high liquidity, prolonged low interest rate environment and a strong Singapore currency; we believe AREIT is currently fair valued at the moment as it trades at 1.33x P/B with a forecasted FY13 dividend yield of 5.6%. At this juncture, we downgrade our call on AREIT to NEUTRAL with a revised TP of S$2.67.
MLT – CIMB
Positives priced in
2Q displayed sustained stability, a hallmark of MLT's long-tenured logistics portfolio. But we believe the current environment of elevated asset values could throw a spanner in the works for MLT's asset hunt, a key source of growth and share price outperformance.
2Q/1HFY13 DPU met street and our estimates at 24%/48% of our FY13 forecast. We had factored in S$150m in acquisitions. We lower DPUs on reduced acquisition yields and timing. But our DDM target price is raised on a lower discount rate of 7.3% (prev. 8.6%). Downgrade to Neutral from Outperform on valuations.
Sustained stability
2Q displayed the sustained stability characteristics of MLT's long-tenured portfolio. 2Q DPU was up 1.2% yoy (3.0% excluding 2Q12's one-off gain) as a 15% NPI increase (from acquisitions and developments) was partially offset by higher funding costs. Leasing remained stable: Occupancy rose to 99.2% from 99.0%. Rental reversion remained positive at 8%, though it could have been a stronger 16% if not for distortion from the conversion of a hybrid lease in Singapore to triple-net basis.
But getting harder to find growth
Acquisitions and developments are the key sources of growth for MLT's portfolio. But we think that the current environment of elevated capital values could make this difficult. Excluding our assumed S$150m in acquisitions, FY14 DPU growth would have been a more muted <2% vs. our current 5%. Management has proactively engaged in advanced negotiations with a major Japanese third-party logistics service provider for a BTS development at Iwatsuki Centre, which was destroyed by a fire in 2011, though this is unlikely to be a major game-changer, in our view.
Downgrade to Neutral
MLT has outperformed the STI by 28% in the past year. We believe that current valuation at 1.3x P/BV and forward yields of 6.0-6.4% have priced in its portfolio stability. While acquisitions will likely be accretive against cheap funding costs, competition and elevated asset values should make attractive finds difficult.
A-REIT – DBSV
Commanding a premium for safety
• 1HFYMar13 results in line; forms 51% of our full year forecast
• New asset enhancement initiatives; further commitment of S$235m to bring gearing to 35%
• Premium valuations, HOLD, TP S$2.24
Highlights
2Q13 results in line with our expectations. Ascendas REIT (AREIT) reported 18% and 14% y-o-y growth in topline and net property income to S$143.3m and S$102.9m respectively. The strong performance was due to additional rental income from its recently completed acquisitions and development projects, supported by positive underlying organic growth (c+5% yoy). Distributable income came in at S$79.1m (+16% y-o-y), translating to a DPU of 3.53 Scts (+6% y-o-y). Sequential performance was relatively stable. At half-time, A-REIT delivered a DPU of 7.06 Scts, forming 51% of our full year forecast.
Our View
Portfolio continues to deliver steadily. Operationally, average occupancy levels continue to remain stable at 96.6% while rental reversions remained healthy at 12.8% (vs 11.6% in 1Q13) compared to previously contracted rates. We expect A-REIT’s operational performance in the coming quarters to remain steady, cushioned by expiring rental rates that are 18-52% below current market levels.
New asset enhancements unveiled, a further S$235.2m to be funded. A-REIT unveiled a further 2 asset enhancement works at Ultro Building (retrofitting and upgrading premises as a Business Park) and Aztech Building (Conversion to a high tech industrial), costing S$19m. These 2 AEI works are expected to deliver strong returns given current low passing rents that are c40-100% below market levels. While earnings impact is unlikely to be significant, this together with its other investments totaling S$450m (S$235.2m yet to be funded), are expected to deliver a steady growth profile of 2-3% p.a. as these projects progressively complete over 2HFY13-FY14.
Collaterized securities are now “in the money”. A-REIT had issued S$300m worth of collaterized securities in 2010, with a conversion price of cS$2.27 and is currently in the money. We understand that the manager has not received any conversion notice and we have not factored this in our estimates. However, we estimate a c5% dilution to our forecasts (cFY14F yield will decline to 5.4%) if 100% conversion is assumed.
Recommendation
HOLD Call maintained, TP S$2.24. A-REIT has been a prime beneficiary for yield-hungry capital markets in recent times. In our view, valuations appear rich at prospective FY13-14F yields of 5.6-5.7% and P/BV ratio of1.3x. Implied cap rate of 5.0% in our view, appears to be pricing in too much growth than we believe it can achieve given its sizeable and mature portfolio. HOLD call maintained, TP S$2.24 based on DCF.
A-REIT – CIMB
Steady but limited upside
The fervent chase for yields has compressed AREIT’s yields to 5.6%, way below its long-term average and physical property yields. With elevated capital values inhibiting attractive acquisitions, we see a lack of compelling fundamental catalysts for further outperformance.
2Q13/1H13 DPU was broadly in line with consensus and our estimates, at 26/51% of our FY3/13 forecast. We tweak our DPU forecasts for slower take-ups on AEIs and developments on completion. But our DDM target price is higher due to a cut in disc. rate from 8.1% to 6.7%. Maintain Neutral on valuation grounds.
Stable quarter
Despite dilution from a 7.5% expansion of units after its placement, AREIT’s 2Q DPU rose 4.4% yoy due to contributions from development projects and acquisitions. This is a commendable showing given newsflow on a slowing industrial and manufacturing environment. Same-store portfolio occupancy inched up to 96.6% from 96.4%, thanks to pick-ups in light industrial and logistics as business parks and hi-tech industrial saw marginal qoq slippage. Rental reversions remained strong at 9.5-13.3% and should remain positive, with market rents 16-35% above rental due for renewal.
More renewals in FY14-5
With only 5.8% due for renewal for the rest of FY13, lease expiries will be more substantial in FY14 (25.5%) and FY15 (21.9%). Of these, 70-73% will come from single-tenanted buildings. While this could provide rental upside due to the potential conversion of single-tenanted buildings to multi-tenanted ones, risks could come from downtime due to slower leasing of returned space on lease expiry.
Maintain Neutral
AREIT has been a choice hiding ground in the current chase for yields. But there are no compelling fundamental catalysts for further outperformance as elevated capital values hinder attractive acquisitions and there could be downtime from slower leasing when leases expire. Forward yields are among the highest for large-cap S-REITs but way below industrial property yields and the long-term average.