Author: tfwee
MI-REIT – BT
Marginal fall in value of 5 MI-Reit properties here
Its only warehouse property in Japan revalued upwards by 13.4%
MACARTHURCOOK Industrial Reit (MI-Reit) has seen the valuations of five Singapore properties fall 1.3 per cent to $141.6 million from $143.4 million a year ago.
The properties are at Joo Seng Rd, Gul Way, Changi South Lane, Changi South Avenue and Tuas Avenue 20.
In a statement yesterday, MI-Reit said it recently obtained new independent valuations for eight properties – seven in Singapore and one in Japan.
The other two Singapore properties – at Tuas Avenue 2 and Admiralty Rd – in this revaluation exercise were unchanged in value at $23 million and $14.8 million respectively.
The Japanese property – Asahi Ohmiya Warehouse in Japan – was revalued 13.4 per cent higher at $33.1 million, up from $29.2 million a year ago.
MI-Reit has 21 properties – 20 in Singapore and one in Japan.
It said the valuation exercise increased its portfolio value to $559.9 million as at Nov 15. A year ago, when it had 13 income-producing properties, the portfolio was valued at $370.8 million.
In September, MI-Reit said it had obtained valuations for seven other Singapore properties. None of these had fallen in value, though four were unchanged. Collectively, the seven properties had a total value of $227.6 million at Sept 1, up from $226.3 million a year earlier. This was a 0.6 per cent increase.
According to a report by Colliers International, average capital values of prime freehold factory space and warehouse space in Q3 2008 remained largely unchanged.
Colliers estimated prime freehold factory space to have remained at $548 per sq ft (psf) and $437 psf for ground and upper-floor space respectively. Prime freehold ground and upper-floor warehouse space was estimated at $521 psf and $392 psf respectively.
MI-Reit – BT
MacarthurCook Investment Managers (Asia) Limited, the manager of MacarthurCook Industrial Reit (MI-Reit), said eight of its properties have been revalued at S$212.5 million on Nov 15, 2008, up 2.1 per cent from S$210.4 million a year ago.
The revaluations have increased MI-Reit’s total portfolio value to S$559.9 million on Nov 15, 2008.
REIT – Phillips
From the schedule above, there is approximately $x billion of debt refinancing due within the next year. With the credit crisis affecting all regions of the world, there is much concern over whether the REITS are able to roll over their debts. From our understanding, bank term loans usually have a tenor of 2 years or less so the debts that are maturing within the next year were contracted in either 2006 or 2007. Before the credit crisis manifested, borrowers were paying margins of double-digit bps spread above the reference rate. Most borrowers had also fixed a portion of their debt to a fixed rate through various derivative instruments, so an all-in interest cost would approximately be in the range of 2.5-3.5%. We believe REITS will be able to secure or extend their credit facility, the only drawback will be a substantially higher margin on the loans. The indication of the new margin will be in the range of 200- 250basis points. If we take the October 3-month SOR as the reference rate, new loans will cost 3.5-4.0%. And not ruling out fluctuations in the interest rate environment, if the borrowers did not hedge their reference cost, they may be subjected to even higher interest expense if the reference rate increases.
Conclusion. The SREIT sector is operating in a trying environment with no shortterm catalyst in sight. Falling rentals coupled with higher interest expense are going to impact distributions. We are of the view that DPU will be impacted, however there is a net-off effect from positive rental reversion with the softening market rates and higher interest expenses. Because of the unusual situation; refinancing requirement at a time of tight credit environment and worsening economy, the confluence of factors has resulted in very depressed share prices and historically high dividend yields. We do not think share price to rebound to the level at the beginning of the
year, and advise investing in REITs for the long term investor who is willing to sit out the recession to take advantage of the high dividend yield.
Link – Table
MI-REIT – Phillip
Latest 2QFY09 results were within expectations without much surprise. MacarthurCook Industrial REIT (MIREIT) reported gross rental revenue of S$12.4m (68.8% YoY, 0% QoQ), distributable income of S$6.9m (44.2% yoY, +5.6% QoQ) and DPU of 2.35 cents (26.3% YoY, 0% QoQ).
Since 1QFY09, MIREIT has paid out approximately 90.16% of the distributable income and had maintained the same quantum of 2.35 cents for both 1QFY09 and 2QFY09. The REIT Manager has indicated that it will pay out all retained amounts for the full year and therefore we do not expect much variant of the DPU amount for the second half of the year.
MIREIT has 91% of its debt due in April 2009. Negotiations are underway and our general view is refinancing will take place with a much higher margin. The remaining of its debt relate to the Japanese debt that is due in Dec 2009. MIREIT will also face significant financing requirement in Dec 2009 for the purchase of the business park development at Plot 4A, IBP.
The property portfolio maintains 100% occupancy and is fairly well diverse across the sub sectors. The biggest tenant contributes 20.3% of rental income and top ten tenants account for 66.6% of total income, contrasting with the 33.6% and 94.2% at the time of IPO. The portfolio registered an S$1.5m accretion in asset value from a property valuation done on 13 of the properties on 6 Nov 2008.
Valuation and recommendation. Our revenue projections remained intact because there is a built-in rental escalation component. We have however increased our borrowing cost assumptions and reduced our DPU projections from FY10F onwards. We adjusted our DCF parameters to factor in higher risk premium and our DCF derived fair value is lowered to S$0.60 from S$1.18 previously. Maintain Buy with a long-term view.
Cambridge – Phillip
There is no change to the story. Revenue growth comes from acquisitions and rental increases. There should not be any significant acquisitions in the near term given the faltering sources of capital from the dismay capital market and tight credit environment. CIT current gearing is 38% and it would be wise not to push the to make acquisitions.
3QFY08 results. CIT reported 3QFY08 results with gross revenue of S$18.3 million (+35.8% YoY), net property income of S$16.2 million (+40.4% YoY) and distributable income of S$11.8 million (+35.5% YoY). DPU however dropped from 1.70 cents to 1.49 cents (-12.4%).
Top concern is refinancing. CIT has S$337 million of debt (91%) that is due in Feb 2009. We are expecting borrowing terms to be a lot more critical and borrowing cost to escalate. We raise our interest cost assumption to an effective rate of 4.78%
Drop in DPU. The main reason for the fall in DPU in this quarter is because management fee was paid out entirely in cash. Although there isn’t a fixed policy on the payout method, this was in contrast to the approximately 63% of fees paid out of new issuance in units in the previous two quarters. On the flip side, management reasoned that new units are dilutive and even more so at depressed price level where a greater number of units have to be issued.
Valuation and recommendation. We do not foresee near term acquisition activities and our gross revenue assumptions remain intact for now, bolstered by built-in rent escalation. We reduce our DPU estimations by 5.2% and 17.6% for FY08F and FY09F respectively mainly due to higher borrowing expenses. Currently CIT trade at close to 65% discount to NAV, which we believe is a reflection of market’s perception to the inherent refinancing risk. Our DCF derived fair value is $0.48 ($0.92 previously). Maintain BUY on valuation basis. Risk to our projections would be falling occupancy level.