Month: November 2012
CMT – CIMB
Opportunistic cash call?
Despite a fairly good placement price(at 1.3x P/BV) with only 4%dilution, we are disappointed that CMT has chosen to raise equity in the absence of major funding needs for acquisitions and AEI. Post-dilution yields are not compelling and we see selling pressure.
Factoring in the placement, we lower our FY13-14 DPU by up to 4%.Coupledwith more moderate growth prospects, we cut our DDM target price (discount rate 6.7%). We believe CY13 4.8% yields are no longer compelling vs. peers. Downgrade from Outperform to Underperform. We prefer MCT and FCT in the retail malls space.
What Happened
CMT has closed a private placement of 125m new units to raise gross proceeds ofS$250m. The issue price of S$2aunit represents a discount of 4.8% to its VWAP of S$2.10. The price translates into 1.3x P/BV. Management intends to use the money to refinance debt and pay for capex and AEI though no new plans have been spelt out.
What We Think
The placement is probably opportunistic given yield compression for the sector and CMT. Despite the good placement price and small dilution of 4% above, we believe its share price could be hit after the placement as the fund-raising was unexpected and not backed by major funding needs for acquisitions and AEI. We are slightly disappointed by management’s decision given that asset leverage is a lower 38% than last Nov’s 40% when it similarly placed out shares. We understand that asset leverage could dip to 35% if proceeds were used for debt repayment.
Management said the placement will provide CMT with greater financial flexibility for AEI. On past occasions, it had shared that it was on the lookout for acquisitions. But we understand that there are no concrete plans for now. Possible targets in the future include Star Vista and/or ION Orchard from CMA, we believe. There remains funding needs of about S$100m for WestGate.
What You Should Do
We revisit our estimates for CMT and relook the attractiveness of forward yields vs. peers. We believe yields are no longer compelling against peers and see some selling pressure.
MLT – DBSV
Tapping sponsor’s pipeline
Proposed accretive acquisition from sponsor’s development pipeline. Mapletree Logistics Trust (MLT) announced that it is proposing to acquire Wuxi International Logistics Park (WILP) from its sponsor Mapletree Investments Pte Ltd. The purchase price of Rmb 116m (S$22.8m) implies an initial yield of 8.0%, and is higher than the implied NPI yield of 6.0% for its China properties. We note that MLT has the financial capacity to
fund these acquisitions, and gearing is expected to stay relatively stable at 37.3% (assuming 100% debt funding). While accretive, impact on DPU is estimated to be minimal at <1%. Completion of this deal is expected in Mar’13, and will grow MLT’s portfolio to 111 properties with a total appraised value of S$4.2bn.
Quality tenants imply stable earnings. This acquisition highlights management’s emphasis on bringing the trust back on the growth track and in line with MLT’s investment strategy in expanding its presence in “growth markets” like China. The proposed acquisition of WILP will be the trust’s 3rd acquisition from its sponsor’s development pipeline, and is leased to a strong pool of tenants including Wuxi Hi-Tech, Kerry Logistics, Fiege International Freight Fowarder and Konoike Logistics.
BUY maintained, S$1.22 TP based on DCF. No change to our earnings estimates as we have previously forecasted close to S$200m worth of acquisitions in our numbers. Yields of close to 6.5% remain attractive in our view for its large cap, quality sponsor status. Further re-rating catalyst is likely to hinge on the manager’s continued ability to continue sourcing accretive acquisitions – either from its sponsor or from third party sources – to grow its portfolio and distributions meaningfully.
LMIR – OCBC
3Q12 RESULTS ABOVE EXPECTATIONS
- Operating company
- Above expectations performance
- Raise FV to S$0.52
Third party operating company
With effect from 1 May, LMIRT engaged a third party operating company to co-manage its individual retail malls. In the agreements entered into between the property manager PT Lippo Malls Indonesia and the operating company, the operating company is responsible for all costs directly related to the maintenance and operation of the individual retail malls, as well as pay for the rental of office and use of equipment. The operating company also has the right to collect a service charge and statutory income from the tenants. Due to the delay of finalisation of legal documentation and transition of operational responsibilities to the operating company, the service charge and utilities recovery income, and the corresponding expenses for 1 May to 30 Jun, which were taken up in the financial statements of 2Q12, were accounted for accordingly in 3Q12. The adjustment has been reflected in other gain/ (losses) (net).
3Q12 results better-than-expected
3Q12 results were better than what we expected, partly due to the above agreements. 9M12 total return for the period before tax and revaluation of S$78.5m equaled 82% of our prior FY12F estimate, which we now raise to S$103m. 3Q12 gross revenue fell 8.2% YoY to S$30.6m, mainly due to the effect of exchange rates and because 3Q11 gross revenue includes receipt of service charge and utilities recovery from the malls’ operational activities. The decrease in gross revenue was partly offset by the contributions from Pluit Village and Plaza Medan Fair, which were acquired in Dec 2011. Property operating expenses fell from S$10.8m to S$1.0m and net property income rose 31.3% YoY to S$29.5m. Financial expenses rose 186% to S$5.9m mainly due to additional interest expenses and amortisation of transaction costs as a result of the issuance of S$250m worth of notes in 3Q12. Total return for the period after tax rose 34.4% YoY to S$21.2m.
Upgrade to BUY
Rolling forward our model, we raise our fair value from S$0.47 to S$0.52 and upgrade LMIRT from Hold to
BUY.
PLife – Phillip
Slightly above our above expectation!
Company Overview
PLife REIT is one of the largest listed healthcare REITs in Asia by asset size. Its mandate is to invest in income producing real estate and/or healthcare-related assets primarily used for healthcare and/or healthcare-related
purposes in Singapore and Asia.
- 3Q12 revenue S$23.9mn, NPI S$22.1mn, distributable income S$15.6mn
- DPU for 3Q12 at 2.58 cents
- Raise FY12-16 DPU estimates by 0.9%
- Upgrade to Accumulate with revised target price of $2.330
What is the news?
PLife REIT reported another set of credible results for the third quarter. DPU was 2.58 cents, up 7.5% from a year ago. This was largely due to the acquisition of three Japan property assets, higher rent received from Singapore properties and cost-savings on financing.
How do we view this?
3Q12 DPU was slightly above our expectation. The DPU for the first three quarters formed 77% of our FY12 estimates. The shortfall in our estimates was partly because of higher trust expenses and lower payout ratio being assumed in our model.
Investment Actions?
We tweak our assumptions on the trust expenses and payout ratio to adjust accordingly to our earlier lower DPU estimates. On average, our DPU estimates are lifted up marginally by 0.9% over the period between FY12-16. In addition, we also lower our discount rate to 6.3% from 7.0%, to better reflect the present low risk-free rate. As a result, our price target is revised up to S$2.330. We believe PLife REIT’s defensive business model in terms of downside revenue protection and long weighted average lease term to expiry will be liked by investors who prefer sustainable and predictable distribution amid global economic uncertainties and slowdown. We upgrade to accumulate rating on the bases of potential upside in price and further yield compression.
PLife – CIMB
Delivering another good quarter
3Q12 was a strong quarter, backed by rent increases in CPI-pegged leases for Singapore hospitals. Persistent inflationary pressure will continue to underpin growth, with acquisitions to top it off. The stock has been accordingly rewarded with premium valuations.
3Q DPU was 26% of our and consensus FY12 estimates while 9M12 made up 76%, in line with expectations. We adjust DPUs for lower interest expense and raise our DDM-based target price after rolling over to FY13 and lowering our discount rate from 7% to 6.7%. Maintain Neutral on account of its premium valuations.
Strong quarter
3Q12 was stronger due to the commencement of new lease terms at Singapore hospitals as CPI-pegged leases meant stronger rental growth for Aug 2012-Aug 2013 (Aug 11: +5.3%; Aug 12: +6.31%). DPU of 2.58 Scts was up 7.1% yoy, after retaining S$0.75m to fund capex. NPI grew 9.5% yoy, led by rental contributions from three Japan properties acquired in Mar 2012, rent increase at Singapore hospitals and two months’ contributions from units at Gleneagles Medical Centre KL.
Going forward
Organic growth will continue to be driven by CPI-pegged leases for Singapore hospitals. Factoring in 2012 and 2013 house estimates for CPI growth (2012: 4.7%), we expect the next lease term to see another rent increase in the range of 5.0-5.5% and ~4% the year after. We maintain expectations of further acquisitions in Malaysia and stronger organic growth from Japan as management implements its asset-recycling initiative over the long run. We factor in CPI growth, S$150m of acquisitions and peg 2% growth to the Japan portfolio for new initiatives. Gearing of 36.4% leaves room to increase debt by S$229m to 45%.
Neutral on valuations
We like the stock as an inflation hedge given persistent inflationary pressure on the back of elevated core CPI and lofty asset prices but struggle to see further upside with yield compression to <5% and >40% premium over book.