Month: May 2013
Religare – CIMB
Ramping up at Gurgaon
Key positives include healthy occupancy and average revenue per bed, faster ramp-up at Gurgaon Hospital and capacity expansion plans. We expect growth from base fee step-ups, variable fee upside alongside higher underlying assets’ ARPOB and occupancy and acquisitions.
4QFY13 DPU broadly met street and our expectations, forming 24% of our FY13 forecast. We finetune DPUs incorporating 4Q, introduce FY16 numbers and raise our DDM-based target price on a lower discount rate of 11.7% (prev. 12.1%), in line with falling Indian bond yields. Maintain Outperform with catalysts from earnings delivery and acquisitions.
Faster ramp-up at Gurgaon
We expect stability to be anchored by fixed base fees, which make up ~70% of revenues, ex. straight-lining and upside from revenue-sharing via variable fees. RHT’s 4Q DPU came in marginally below forecast on higher opex from a quicker ramp-up at Gurgaon Hospital. This should however be mitigated by adjustment in base fees from FY14. Since its inauguration in May 13, Gurgaon’s operational beds have hit management’s targeted 450 for phase 1. Portfolio operating metrics remain healthy at 73% occupancy (after incorporating bed additions) vs. 3Q’s 75% while average revenue per operating bed (ARPOB) turned a stronger Rs. 0.9 Cr. vs Rs. 0.85 Cr. last quarter. RHT also announced that CEO and chairman Ravi Mehrotra will relinquish his CEO post to separate the roles of chairman and CEO. He will be succeeded by current COO, Gurpreet Dhillon.
Keeping an eye on growth
Management has announced four capacity expansion projects (totalling Rs. 246m or S$6m) to add c. 200 beds over 2013. Backed by its low asset leverage of ~7%, it is evaluating acquisitions for growth and is going through due diligence for some.
Maintain Outperform
Our Outperform call is supported by attractive headline yields and the catalysts of earnings delivery, execution and acquisitions. Yields of 8.3% remain among the highest within REITs/business trusts under coverage and could benefit
from the sustained search for yields.
KepREIT – OCBC
Keppel Corporation: Sells 6.7% of Keppel REIT at S$1.555/unit
Keppel Corporation (KEP) announced that its wholly owned subsidiary, Keppel Real Estate Investment Pte Ltd, has entered into a sale and purchase agreement with Goldman Sachs (the placement agent) for the sale of 180m units of Keppel REIT (6.7% of total issued units of KREIT) for S$1.555/unit. The aggregate cash consideration of S$279.9m took into account KREIT’s last transacted price of S$1.605/unit as at 20 May 2013 and the 30-day VWAP of S$1.5129. This is at a premium to the book value and NTA/share of S$1.31 and S$1.28, respectively, as at 31 Mar 2013. Upon completion of the sale (expected 27 May), KEP’s interest in KREIT remains substantial (from 58.2% to 51.5%). Recall that KEP earlier rewarded shareholders with dividend in specie of KREIT units; announced on 24 Jan 2013 when KREIT’s share price was S$1.37. Maintain BUY on KEP with S$12.68 fair value estimate.
A-REIT – DMG OSK
Limited Impact From 6 Pioneer Walk Sale
Ascendas REIT (AREIT) recently announced that it has entered into a conditional sale & purchase agreement with GKE Private Limited (GKE) for the sale of 6 Pioneer Walk (Goldin Logistics Hub) for SGD32m. We maintain our NEUTRAL view on AREIT, with an unchanged DDM-based (COE: 7.3%, TGR1.0%) TP of SGD2.76.
Attractive selling price. We viewed this sale positively as the selling price represented a 42.2% and 30.1% premium over the original purchase price and book value of SGD22.5m and SGD24.6m respectively. As of 31 March 2013, 6 Pioneer Walk is currently a two-storey ramp-up warehouse with an adjoining office and 40 car park lots, and has a remaining land tenure of 23 years .
Minimal impact on earnings. With the sale, AREIT’s gross revenue and net profit interest (NPI) are expected to be reduced by SGD1.9m and SGD1.6m respectively. In relation to the trust’s earnings, this translates to a mere drop of c.0.3% in its gross revenue and NPI.
Use of proceeds from divestment. According to Management, the deployment of proceeds from this divestment has not been finalized. They may be used to repay AREIT’s existing debt or for general corporate and working capital purposes, and/or to distribute to unit holders.
Retain NEUTRAL outlook. As this sale is expected to have minimal impact on AREIT’s earnings and outlook, we are maintaining our NEUTRAL rating on this counter, with an unchanged TP of SGD2.76 on the back of: i) the lack of new sizeable potential acquisition targets, ii) the stock’s near-term dilution of c.7% as a result of the recent capital-raising exercise, and iii) the demanding valuation it is currently trading at (1.34x P/B and FY14’s forecasted dividend yield of 5.2%) vs the market cap weighted industrial REITs yield of 5.5%.
Saizen – AmFraser
Current yield presents little room for comfort
YoY revenue up 9.2% in Q313. For the third quarter ending March 2013, Saizen reported a 9.2% and 12.5% increase in its revenue and net property income respectively. This performance was supported by its acquisitions of 8 properties between Mar 12 and Mar 13.
Bearing short‐term pain. Amid aggressive monetary easing measures by the Bank of Japan (BoJ) in a bid to jumpstart its stuttering economy and end deflation, the Japanese Yen has experienced substantial depreciatory pressures in recent months. The Japanese Yen has weakened from JPY/S$64.6 in May 2012 to JPY/S$80.3 currently. Due to a weakening yen, Saizen REIT will inevitably have to bear the near‐term pain of a declining NAV and distributions in S$ terms.
Fundamentals improving in the residential space. We have already witnessed improving rental rates and signs of recovery in the Japanese residential market prior to ‘Abenomics’, and recent monetary easing initiatives are likely to expedite the recovery progress. Given the increasingly favourable macro dynamics, we conservatively raise our rental reversions assumption from ‐1% to 0%
across Saizen REIT’s portfolio.
Going full throttle on acquisitions. Saizen REIT has successfully raised new borrowings of JPY3.8bil and presently has an aggregate debt‐to‐total‐assets ratio of 39%. Given that it has no remaining unencumbered properties, Saizen REIT has limited debt headroom at present and the focus for the REIT will be on acquisition growth in the near future. We have factored in JPY3bil of acquisitions in FY14. The acquisitions are assumed to be completed at 6.5% NPI yield.
We project forward FY13‐14 yields at 5.9‐6.3%. Saizen REIT’s FY13 yield is expected to take a slight dip due to its refinancing costs and acquisition‐related expenses as well as the impact of a weaker yen. However, as the full revenue contribution of recently‐acquired properties is being recognized in FY14 and with further acquisitional growth in the coming quarters, this will lift its yield to 6.4%, according to our projections.
Upgrade TP to S$0.220, Downgrade to HOLD. Despite our higher revised target price of S$0.220, we downgrade our call to HOLD given the limited scope for capital upside from current valuations. Based on our revised FV of S$0.220, this represents a potential capital upside of only 5.8%. Saizen REIT’s recent price appreciation and the impact of a weaker yen have also dampened its attractiveness as a high yield play. We project Saizen REIT’s FY13 yield at 5.9%. This translates to approx. 450 basis points over the risk‐free rate, leaving li
Saizen – Lim & Tan
- No wonder that Argyle Street Management, the single largest shareholder of Saizen REIT (with 8.97%) has been a persistent seller of the stock in the past few weeks.
- One off refinancing costs as well as the the rapid weakening of the Japanese Yen has caused 3Q to Mar ’13 operating income to plunge 55% yoy and 74% qoq to only S$1.94mln.
- And the weakening of the Yen against S$ caused the NAV to fall from 30 cents to 25 cents as at Mar ’13.
- With rental collection in Japanese Yen while dividend distributions in S$ as well as the big plunge in operating income, June ’13’s distribution per unit will be negatively impacted.
- This suggest down-side risks to its upcoming 6 months dividend distributions expected for half year to June ’13.