Month: May 2013
AIMSAMPReit – OSK DMG
T.O.P Way Ahead of Schedule
AAREIT announced that it received the Temporary Occupation Permit (TOP) for Phase Two of 20 Gul Way on 7 May. Although we had expected early completion for this phase, the announcement is a pleasant surprise as it beats our expected date by two months. We maintain our positive view on AAREIT as it is set to announce plans for Phase Three of 20 Gul Way in the near future.
Additional income due to earlier-than-expected completion. Phase Two of the 20 Gul Way development comprising c. 488,247 sq ft has been pre-leased to CWT Limited for up to five years, with an annual escalation of 2%. The TOP for this development was obtained approximately seven months ahead of schedule and within budget. Due to the early completion, rental payments will commence on 7 July, giving AAREIT two extra months of income (c. SGD1.1m above our previous forecast).
Unlock value by transforming its properties. With the completion of both phases of 20 Gul Way, the property management company’s annual rental income is expected to increase from SGD3.6m (as at 31 March 2011) to SGD16.3m, which will translates into an initial net property income yield of 8.1%. Such endeavours have successfully demonstrated the trust’s ability to reposition itself and unlock value by transforming 20 Gul Way into the largest and newest asset in its portfolio.
Awaiting plans for Phase Three. Recently, AAREIT announced that the Urban Redevelopment Authority (URA) has given approval in principle to the manager’s application to rezone the plot ratio at 20 Gul Way from the existing 1.4x to 2.0x. The approval allows it to develop a further 497,000 sq ft of gross floor area at the property. As Phase Two is now completed, we expect AAREIT to announce plans for Phase Three of the development in the near future.
Strong execution of development projects. Although the additional income will have a minimal impact (c.1.6%) on the trust’s FY14 net income, we view this piece of news positively as it demonstrates AAREIT’s capability in undertaking development projects. In view of this, we maintain our BUY rating on AAREIT, with an unchanged SGD1.90 TP, as we expect smooth execution of its development projects in the upcoming years.
PCRT – Phillip
Occupancy ramped up in line with expectation
Company Overview
Perennial China Retail Trust (“PCRT”) is Singapore’s first pureplay PRC retail development trust. Listed on the main board of SGX on 9 June 2011. PCRT’s key investment lies mainly in major 2nd tier cities of China, including Shenyang, Foshan and Chengdu. PCRT also holds 10% in predominantly retail Bejing Tongzhou integrated development.
- Reported 1Q13 JV net operating income (from Shenyang properties) at $0.55mn (-41.4%y-y), distributable amount at $10.9mn (+2.7%y-y), DPU at $0.95 (+1.1%y-y).
- Overall occupancy improved in operational Shenyang properties and preleasing activities in Foshan Jihua and Chengdu Qingyang malls are progressing well.
- Sponsor secured for PCRT right of first refusal to acquire block retail component in Beijing Tongzhou Integrated Development Phase2, adding to PCRT’s potential pipeline.
- Maintain Accumulate with unchanged target price at $0.67.
What is the news?
Operating profit from Shenyang Properties fell by 41.4% y-y to $0.553mn, mainly attributable to seasonally higher utilities expenses from additional heating during the harsh winter as well as increased marketing expenses to improve sales in Longemont Mall. The management has strategically negotiated another master lease agreement with an antique wholesaler for Red Star Macalline Mall, raising occupancy rate from 60% to 93%. Occupancy (including committed leases) for Longemont Offices rose from 16% to 32.0%. Occupancy in Longemont Mall stayed at 70%, the same as from 4q12, but shopper traffic improve significantly by 136% over the same period last year. Committed occupancy for Foshan Jihua and Chengdu Qingyang Malls rose to 77% and 63% respectively as compared to 60% and 33% in 4q12. Operation commencement of Foshan Jihua Mall is delayed to 3q13 from 2q13. Sponsor secured for PCRT the right of first refusal to acquire the block retail component of Beijing Tongzhou Integrated Development Phase2 (~70,000 to 100,000 GFA).
How do we view this?
The pace of ramping up occupancies is generally in line with our expectation. Temporary shortfall in earnings due to an effort to ramp up leases does not affect our valuation because any shortfall in the FY2013 and FY2014 would be fully covered by the negotiated earn-out amount, a source of income support. Nevertheless, the overall portfolio has to be stabilized by the end of FY2014 to avoid a major decline in distribution.
Investment Actions?
We maintain our ‘ACCUMULATE’ rating with FY2013 target price at S$0.67 (35% discount to RNAV), equivalent to an upside potential of 5.5% on top of an above 6% dividend yield.
PCRT – Lim & Tan
- Perennial China Retail Trust reported first quarter profit attributable to units of the trust of S$5.0 million, mainly due to the drawdown under the RMB226.5 million earn-out deed (“New Earn-out Deed”) for distribution to Unitholders.
- The available distribution per unit (DPU) for 1Q13 amounts to 0.95 cents, translating to an annualized dividend yield of 6.1%.
- Within its operational assets in Shenyang, the trust secured Guangcai Group, an antique wholesale, as a master-lease tenant in Shenyang Red Star Furniture Mall which would increase the mall’s occupancy to 93%. But the Shenyang Longemont Offices’ leasing commitments only stand at 32.0%.
- Perennial Jihua Mall is on track to open in 3Q 2013, whilst Perennial Qingyang Mall is on target to open in either 4Q 2013 or 1Q 2014.
- Looking ahead, the key catalyst for the stock would be how well the trust could execute its ramp-up strategy.
ART – DBSV
Meeting growth expectations
- Anticipated acquisitions to refocus its exposure into high growth Asia
- Accretive to earnings
- BUY, S$1.53 TP
Anticipated acquisitions to expand its Asian exposure. Ascott Residence Trust (ART) is proposing to acquire 3 serviced residences properties in China and 11 Rental Housing Properties in Japan for S$287.4m from its sponsor, Ascott Group. The properties will be acquired at a slight discount to valuers’ valuation and the purchase price implies an initial EBITDA yield of 5.4%.
Positioning to high growth Asia. The proposed acquisitions will increase its exposure in Asia to 63% of asset value. The China properties will form close to 60% of the total deal size and will strengthen its presence in Shanghai (Citadines Biyun Shanghai) while expand its footprint into new cities of Shenyang (Somerset Heping Shenyang) and Suzhou (Citadines Xinghai Suzhou). The manager expects its portfolio in China to deliver a RevPAU growth of c5% in FY13. The Japan rental housing properties on the other hand, offers stability as 5 out of the 11 properties are tied to master-leases with tenures of 5-8 years while the remainder are backed by rentals, with tenancies averaging 1-2 years.
Accretive to earnings, BUY with S$1.53 TP. With clarity on the use of its recent placement proceeds, we see an overhang on the stock being removed. Maintain BUY and TP S$1.53 on ART. Based on an EBITDA yield of 5.4%, which is higher than the implied funding cost of 4.9%, DPU is expected to be lifted by c2.9%. Gearing is expected to head up to 41% post acquisition.
HPH Trust – Lim & Tan
- Hutchison Port Holdings Trust’s 1Q ’13 normalized net income (exclusive of performance fee and acquisition related costs) came in at HK$697.7 million, up 2% y-o-y, whist normalized net profit after tax (NPAT) attributable to unitholders of HPH Trust was HK$436 million, down 3% y-o-y in the same period.
- The 2% uplift in normalized net income was mainly attributable to higher profit from Yantian International Container Terminals (YICT) but partially offset by lower contributions in Hongkong International Terminals (HIT). On the other hand, the normalized NPAT attributable to unitholders of HPH Trust was 3% lower than the same period last year, as the Trust has 100% in HIT but only has slightly more than 50% interest in YICT.
- 1Q ’13 throughput of HPH Trust was also in line with last year, despite slowing trans-shipment growth in Hong Kong and continued weakness in the EU.
- Likewise, capex for 1Q ’13 came in at HK$244 million up 8% y-o-y compared to the same period last year.
- Management highlighted that the recent disruptions to HIT’s terminal operations due to the port workers strike, is unlikely to have a material adverse impact on the performance of HPH Trust.