Author: tfwee
FrasersCT – UOBKH
Defensive strength from suburban malls
Growth from Causeway Point and Anchorpoint in 4QFY08. Revenue contribution from Causeway Point increased 7% yoy to S$13.8m in 3QFY08 and accounted for 66.3% of total revenue. 6,708sf or 1.6% of net lettable area (NLA) at Causeway Point was renewed in 3QFY08 at 17.3% above preceding rental rates. Revenue contribution from Anchorpoint more than tripled to S$1.7m after a 40% increase in rents and recovery to full occupancy after completion of asset enhancement initiative. Overall occupancy was 95.7% in 3QFY08 compared to 92.9% last year. This is despite lower occupancy of 82.9% at Jun 08 for Northpoint due to asset enhancement works. Distributable income increased 19.1% yoy to S$12.2m. FCT declared DPU of 1.88 cents for 3QFY08, up 12.6% yoy, and will be paid on 29 Aug 08.
Cushion from income retained. FCT has retained DPU of 0.18 cents in 1QFY08, 0.19 cents in 2QFY08 and 0.1 cents in 3QFY08, a total of 0.47 cents. FCT is committed to distributing 100% of distributable income and the retained income will be distributed in 4QFY08. This will mitigate negative impact from asset enhancement works at Northpoint, which will affect higher yielding space at Level 1 to level 4 in 4QFY08. The upgrade is scheduled for completion in Jun 09. Management expects average rent for Northpoint to increase 17.4% to S$12.91psf pm after the asset enhancement initiative is completed.
Northpoint 2: on track for injection by Mar 09. Construction for Northpoint 2 is on schedule to obtain temporary occupation permit (TOP) by Aug 08. 96% of NLA is already committed or in advance stage of negotiation. FCT has entered into a put and call option agreement with sponsor Frasers Centrepoint Limited for the purchase of Northpoint 2 at between S$139.5m to S$170.5m. The mall is targeted for injection into FCT in 1HFY09 (by Mar 09).
FCT has a ready pipeline of acquisitions that will double total NLA to more than 1.2m sf when fully completed. Besides Northpoint 2, we expect YewTee Point and Bedok Mall with NLA of 80,000sf each to be injected in 3QFY09 and 2QFY11 respectively. We estimate that the three new malls will contribute 29% of total revenue in FY12.
No refinancing risk. FCT has a conservative level of gearing at 29.5%. There is no requirement for refinancing till Jul 2011 when term loan of S$260m matures. Moody’s Investor Service has provided corporate rating of A3.
Maintain BUY. FCT focuses on suburban retail malls located in the HDB heartland, which provides defensive qualities. It provides distribution yield of 6.2% for FY08 and 6.7% for FY09, an attractive spread of 2.8% and 3.3% over 10-year Singapore government bond yield of 3.4%. Our target price for FCT is S$1.55 based on dividend discount model (required rate of return: 8.5%, terminal growth: 2.8%).
MP REIT – DBS
Prime Orchard Landlord
Story: MP Reit announced their 2Q08 in line with expectations. Gross revenues grew 27.8% yoy to S$30.2m while NPI increased 29.2% yoy to S$23.1m. Distributable income came in 18.7% higher yoy at $33.3m, resulting in a DPU of 1.78 cts.
Balance sheet remains strong with a gearing ratio of 28.9%as at 30 Jun 08 and interest cover of 4.8x. Interest costs remain relatively low at 2.76%. In the near term, MP Reit is in the process of renewing c$220m of expiring debt.
Point: Performance was largely organic in nature arising from higher rental reversions and contributions from its overseas properties despite some disruptions at their Chengdu asset resulting from the earthquake. Moving forward, DPU growth is likely to grow even stronger with (i) rental reversions from another 13% of portfolio NLA up for renewal in FY08, 15% in FY09, (ii) impact of 19.75% increase in rent from Toshin lease, and (iii) AEI activities done on Ngee Ann City will start contributing in 2H08. Key data points to look out for in the near term will be the outcome of the strategic review which management of MP Reit has yet to conclude.
Relevance: Maintain BUY, TP adjusted to $1.39 from $1.61. We have adjusted our DCF valuation downwards to take into account a higher risk free rate of 3.9% and a lower terminal growth of 1%. At current price, MP Reit is trading at an attractive 0.7x P/BV, backed by quality assets and offers a FY08-09 DPU yield of 7.0% and 7.2% respectively.
Allco – Nomura
First look
Allco’s 2Q08 results were in line, with the positive reversionary profile in Singapore over FY08-09F underpinning valuations. We see the acquisition of a 17.7% stake in the REIT by FNN as positive, enabling the REIT to leverage off a pipeline of assets (circa S$640mn), with DPU potentially seeing a fillip on lower funding costs consequent to a review of the REIT’s credit rating and a realised gain on a derivative financial instrument of S$3.9mn. Our STRONG BUY and FV stand.
2Q08: in line with expectations
LMIR – OCBC
Back on track in second quarter
Outperforms IPO guidance this time. Lippo-Mapletree Indonesia Retail Trust (LMIR) had a relatively smoother ride over 2Q08 – it posted S$24.5m in gross revenue, 15% higher than the trust had guided during its November 2007 IPO. This was a welcome change from the previous period, when it had missed its own guidance by 5.11%. The trust will pay out 1.5 S cents per unit for the quarter, 3% above guidance. On a normalized QoQ basis, DPU is almost unchanged as the trust had been able to cushion the last period’s revenue shortfall with some one-time gains.
Sun Plaza booster, rest on track. Earnings were primarily boosted by Sun Plaza, which was acquired on 31 March. The retail mall in Medan, LMIR’s first (partially) debt-funded buy, increased the trust’s total portfolio NLA by almost 20%. Management disclosed that the portfolio ex-Sun Plaza performed as per LMIR’s guidance – contributing about 1.46 S cents of the 1.50 S cents DPU. Management also told us that rent reversions have been in line with LMIR’s assumptions at its IPO – the trust is seeing reversionary growth of about 10% per annum. Occupancy rates are also increasing as expected except for dark horse Bandung Indah where occupancy shot up to 97.4% as of 30 June from 89.3% on 31 March.
Asset enhancement plans. Macro-level uncertainties have led LMIR to re-assess its acquisition plans and we continue to expect a more conservative pace than what was indicated at its IPO. In any case, our valuation has always been based on the existing portfolio alone. In the meantime, the trust plans to roll out asset enhancement initiatives worth about S$3m at the trust’s Istana Plaza and Mal Lippo Cikarang malls that will increase the malls’ NLA by 2.4% and 17.3%, respectively.
Revise up DPU estimate, maintain BUY. We have tweaked our occupancy and rent assumptions, increasing our DPU estimates by about 4%1. Meanwhile, LMIR has appreciated over 9% since our last report in June. Our view on the trust is unchanged – the oft-discussed macroeconomic risks are balanced by the opportunities inherent in Indonesia’s retail sector. And while market conditions have currently reined in the trust’s acquisition plans, its low 10.2% gearing and strong acquisition pipeline gives it headroom for growth as credit conditions improve. LMIR’s 10.1% FY08F distribution yield (annualized) is an attractive entry point for investors, in our view – maintain BUY and S$0.70 fair value estimate.
Fortune – BT
Fortune Reit Q2 distributable income up 13.5%
FORTUNE Real Estate Investment Trust, which owns 11 Hong Kong malls, has posted distributable income of HK$79.4 million (S$13.8 million) for the second quarter ended June 30, 2008, up 13.5 per cent from the corresponding year-ago period.
The latest Q2 bottomline included HK$21.9 million non tax-exempt income, which referred mainly to interest income from fixed deposits and structured swaps entered on June 28, 2006. ‘Included therein for the period 1 April 2008 to 30 June 2008 is a positive fair value of HK$16.6 million (1 April 2007 to 30 June 2007: Nil) as well as the value of HK$5.02 million for the unwinding of one of the structured swaps,’ the trust said in its results statement.
Total revenue rose 2.8 per cent year-on-year to HK$156.6 million in Q2, while net property income increased 2 per cent over the same period to almost HK$115 million.
For the six months ended June 30, 2008, Fortune Reit’s net property income was flat at around HK$229 million, while total revenue inched up 0.2 per cent to HK$308.9 million. Distributable income rose 5.3 per cent to HK$150.9 million.
Unitholders will receive a tax-exempt distribution per unit of 18.51 HK cents for the half-year ended June 30, 2008. That works out to an annualised distribution yield of 8.2 per cent based on Fortune Reit’s HK$4.54 closing price on June 30.
Fortune Reit was last traded on Monday (July 28), when it closed at HK$4.31, down five cents from the Friday closing.
Its net asset value per unit (excluding hedging reserves) slipped 2 HK cents to HK$9.02 as at June 30, 2008, from HK$9.04 as at Dec 31, 2007.
Fortune Reit currently has 11 malls – many of which are in the New Territories – worth about HK$9.7 billion, against five malls worth HK$3.3 billion when the trust was listed in 2003.
The trust’s manager, ARA Asset Management (Singapore) Ltd, said: ‘Asset enhancement initiatives to improve revenue and shopping experience are in progress with the major initiatives at City One Shatin Property, Household Center and Smartland, to refine the physical enhancements and tenant mix.’
It also noted that the trust’s low gearing of 23.4 per cent ‘provides management with debt flexibility of about HK$1.8 billion for opportunistic acquisitions, before a credit rating and before the statutory borrowing limit of 35 per cent is reached’.