Author: kktan
KGT – AmFraser
K‐GREEN TRUST SEEKS WIDER INVESTMENT MANDATE
Keppel Infrastructure Fund Management Pte Ltd (KIFM), as trusteemanagerof K‐Green Trust (KGT), has proposed an expansion of its investment mandate to cover a wider range of infrastructure assets. It is also proposing a change in sponsor to Keppel Infrastructure (KI) following a group reorganisation last year.
Currently, KGT owns Senoko Waste‐to‐Energy Plant, Keppel Seghers Tuas Waste‐to‐Energy Plant and Keppel Seghers Ulu Pandan NEWater Plant.
Yesterday, KIFM explained that when the trust was listed in 2010, it had focused on “green” infrastructure assets, which reflected the business focus of its sponsor, Keppel Integrated Engineering (KIE), at the time of listing.
However, in May 2013, KIE was reorganised under KI. KI has three core business platforms in Gas‐to‐Power, Waste‐to‐Energy and X‐to‐Energy, the la
MIT – CIMB
Biggest BTS project to date
MINT has just announced its largest BTS project to date. With an estimated NPI yield of 9%, we believe that this project will greatly improve its long-term outlook. We lower our FY15-16 DPS by 2-3% as a result of higher interest payment and slight dip in earnings but maintain our Add rating, with a higher DDM-based (discount rate: 8.1%) Tp of S$1.64, after incorporating the benefits brought about from this project.
What Happened
MINT announced that it will be developing its largest build-to-suit (BTS) project to date, a S$250m project at its existing Telok Blangah Cluster for Hewlett-Packard (HP) Singapore. The property currently comprises two 7-storey flatted factories and a canteen, with GFA of 437,300 sf and a land lease of 60 years (from Jul 08). The project is expected to be developed in two phases, yielding a total GFA of 824,500 sf. HP has committed to leasing the BTS facility fully, with a c.2% annual rental escalation for 10.5 years (six months of rent-free period) and an option to renew for two 5-year terms. MINT will offer preferential packages and incentives to its current tenants to encourage them to move into its other properties.
What We Think
We view the proposed BTS project positively as MINT’s GFA will be raised by more than 89%, assuming a maximum allowable plot ratio of 2.5x. This property accounted for 1.9% of MINT’s 9MFY14 gross revenue. Upon completion, it is expected to account for 9%, representing a considerable boost. Including land cost, incentive packages and building costs, we expect this project to provide an attractive NPI yield of more than 9%. On the other hand, loss of income is expected to be marginal (estimated at 0.6% of gross revenue) as MINT has offered attractive packages and incentives to encourage its current tenants to move into its other properties. With Phases 1-2 of the project scheduled for completion in 2H16 and 1H17 respectively, partial income contributions are expected in FY17, with full contributions in FY18. Upon completion, MINT’s gearing is expected to rise by 4.7% to 42%, assuming the project is fully funded by progressively-paid debt.
What You Should Do
Although near term DPU is expected to dip slightly as a result of loss in income and higher interest payment, this is outweigh by the positivity brought about by the project. Maintain Add rating with a higher target price of S$1.64.
AscottREIT – CIMB
Good but not great
ART recently announced its acquisition of Infini Garden in Fukuoka, Japan for JPY6.3bn (c.S$78.4m). With an expected yield of 6.6%, we view this acquisition positively. However, given the limited impact on earnings from this acquisition, we maintain our Hold rating on the stock with a slightly higher DDM-based (discount rate: 8.5%) target price of S$1.23 as we await more acquisitions.
What Happened
Ascott Residence Trust (ART) recently announced an acquisition of a rental housing property in Fukuoka, named Infini Garden, for JPY6.3bn (c.S$78.4m) from The Ascott Limited and ArcResidential Japan Investments Limited. Theproperty, ART’s second asset in Fukuoka, is a freehold property with 389 apartments, 5 retail units and 389 carpark lots with a NLA of 33,520sqm. Infini Garden is centrally located in Island City, which has become an increasingly popular area after it underwent a major infrastructure development in recent years. The property is located near the upcoming Fukuoka Children’s hospital and a 25 minute drive to the central business district, offering 2, 3 and 4 bedroom apartments.
What We Think
At a 6.6% yield and fully-funded by debt costing c.1.8%, we expect the acquisition to be yield-accretive and raise FY14-16 EPS by 0.7-1.5%. We estimate currency occupancy to be over 80%, but the master lease due to expire in June 2018 is expected to provide income stability. Post the acquisition, master lease contribution to overall portfolio gross profit is expected to grow from 32% to 34%. Additionally, exposure to Japan will grow to 14% (+2%), while gearing is expected to grow from 34% to c.36%. Although this acquisition will provide some positive impetus to the share price, its impact is relatively small, in our view. To date, the value of the Dalian and Japan acquisitions post the rights issue form 77.7% of the S$253.7m raised in December, while our FY14-15 DPU estimates remain c.7.7% below our pre-rights issue estimates.
What You Should Do
ART is currently trading at 7.3%/7.6% FY14/FY15 dividend yield, slightly below 7.6%/7.8% of the hospitality REITs sector. As such, we have maintained our Hold rating on ART with a slightly higher target price of S$1.23 while we await more yield-accretive acquisitions going forward.
AscottREIT – OCBC
Acquires rental housing in Fukuoka
- EBITDA yield of 6.6%
- 2nd property after Dec rights issue
- Maintain BUY
Another Japan rental housing property
ART has acquired a rental housing property in Fukuoka named Infini Garden for JPY6.3b (~S$78.4m) and with an EBITDA yield of 6.6%. On a pro forma basis, the accretive acquisition is expected to have increased FY13 DPU by 2.1% from 8.40 S cents to 8.58 S cents. ART acquired the 389-unit Infini Garden from The Ascott Limited (Ascott) and ArcResidential Japan Investments Limited. The master leasee is a third-party and with this acquisition, master lease contribution to total portfolio’s gross profit will grow increase from 32% to 34%. The remaining tenure of master lease is ~4.3 years.
Dalian property agreement announced in Feb
Recall also that in Feb ART entered into a conditional agreement with a third party to acquire its first serviced residence in Dalian for RMB571m (~S$118.6m) with an EBITDA yield of 5.5%. On a pro forma basis, that accretive acquisition was expected to increase FY13 DPU by 1.5% from 8.40 S cents to 8.53 S cents. This was the first acquisition announced after ART’s rights issue in Dec 2013 which raised S$253.7m. The 195-unit international serviced residence, which commenced operations in 2009, has an average occupancy of about 80%. ART will refurbish the property and it will be managed by Ascott as Somerset Grand Central Dalian when the acquisition is completed, which is expected to be by mid-2014.
Anticipate S$153m more in acquisitions
Before the announcements about the Dalian and Fukuoka properties, we had assume that around S$350m worth of property yielding ~5.5% will be acquired at the start of 2Q14; ART’s leverage will go back up to around 40%. We assume that any remaining acquisition or acquisitions to be announced in 1H14 will total S$153m with a 5.5% EBITDA yield.
Maintain BUY
Incorporating the Fukuoka and Dalian acquisitions, we maintain our FV of S$1.33 and BUY rating on ART.
FE-HTrust – CIMB
Pure Singapore hotel play
With a portfolio diversified across Singapore and about 25% of it (by asset value) made up of serviced residences, FEHT is well-positioned to tap the visitor market in Singapore, in our view. In addition, fixed and commercial rents offer an estimated 60% (based on FY13 earnings) of gross income protection, which makes FEHT one of the more defensive hospitality REITs in Singapore.
We initiate coverage with a Hold rating and DDM-based (discount rate 9.0%) target price of S$0.82. Although earnings are expected to be resilient, we believe FEHT is fairly valued given the lack of strong near-term drivers, a lower NPI yield than peers and a higher valuation for its portfolio. Re-rating, however, could come from any positive surprises in tourist arrivals or corporate spending.
Diversified hotel player
FEHT‟s investment mandate is to invest locally, where the hospitality outlook is stable. As such, risks from foreign exchange and tax leakage from overseas expansion are minimised. Although only five of its 12 assets are located in the prime districts of Singapore, others are located nearer tourist districts and hospitals, enabling FEHT to tap the various visitor market segments of Singapore. At end-Dec 13, hotels (including commercial space/rentals) in its portfolio made up 75.4% of its asset value and 85.2% of FY13 gross revenue, with the rest coming from serviced residences.
In line with peers
FEHT is trading at 7.4-7.5% FY14-15 dividend yields, in line with its peers. At 0.8x FY14 P/BV vs. 1.0x for its closest peer, CDLHT, we believe its current price captures the differential in their book valuations (estimated value per room key of S$854k for FEHT vs. S$586k for CDLHT‟s local assets). In addition, NPI yield (estimated at 5.5%) for its hotels is also slightly lower than the c.6% for the other hotel REITs.
Initiate with Hold
FY14 RevPAR is expected to be flat as potential upside from sturdier corporate spending is likely to be offset by strong competition, a result of high supply of hotel rooms. Our target price of S$0.82 implies a dividend yield of 7.0% and potential stock upside of 5.6%.