Author: tfwee
AREIT – Kim Eng
Ascendas REIT – Company update (Anni KUM, DID: 6432 1470)
Previous Day Closing price: $1.92
Recommendation: HOLD (maintained)
Target price: $2.03 (upgraded from $2.02)
A-REIT is acquiring two properties for S$131m, which could contribute to revenue from FY11 (starting Apr-10). We estimate the impact on DPU to be marginal. A-REIT also plans to acquire a property under development in Jurong for $97.5m in 2011/2012. Overall, the scale of the transactions is not surprising, though we are quite positive on the quality of the deals. Gearing will still be at a comfortable 33.6%. We maintain Hold due to limited upside to price target of $2.03. Forward yield of 6.6% provides support.
Marginal impact on DPU
A-REIT has proposed to acquire two properties for S$131m. The acquisition is expected to be completed by Apr-10. Separately, it signed a MOU to purchase a property under development in Jurong that is expected to be completed in 2011/2012, for S$97.5m. The total value accounts for
4.7% of A-REIT’s entire portfolio value. The near-term impact on DPU is marginal, with accretion of 0.01-0.05 cts for FY11-12F.
Adding two blue-chip tenants into its stable
The most significant of these properties is DBS Asia Hub at Changi Business Park, to be acquired from its sponsor, Ascendas, for S$116m. Completed in Sep-09, it is 100%-leased to DBS for 10 years with annual escalation and renewal options. The second property, 31 Joo Koon Circle, (Light Industrial segment) will be leased by Flextronics in a sale-and-leaseback arrangement for 5 years.
Room for growth
Though it was announced that the acquisitions will be funded by proceeds from the private placements in Aug-09, we have assumed 100% debt-financing, as there is ample room to gear up. As such, gearing could increase from 31.2% to 33.6%. Our revenue forecast has been raised marginally by 2.2% for FY11. Revenue contribution would increase due to the built-in annual rental escalation.
Near-term upside capped by rich valuations
The scale of the acquisition is in line with previous guidance and we are quite positive about the quality of the target assets. With the additions, A-REIT’s properties will increase to 93 (total GFA 3m sqf). A-REIT offers a forward yield of 6.6%. With limited price upside, we maintain Hold with price target of $2.03 (prev. $2.02).
A-Reit – DMG
Scoop of the Day: A-REIT announced that it has signed an S&P to acquire two properties (DBS Asia Hub and 31 Joo Koon Building) for S$131m; and an MOU to acquire a property-under-development in Jurong for S$97.5m (expected acquisition completion in 2011/12). DBS Asia Hub is leased to DBS for 10 years while Joo Koon Building is leased to Flextronics Manufacturing for 5 years, both of which with annual rental escalation agreements. The acquisition of these two properties will grow A-REIT’s AUM by 2.8%. The acquisitions are expected to have a DPU accretion effect of 0.054¢ (+0.4%). The acquisitions will be funded entirely with net proceeds from its August 2009 placement. Maintain NEUTRAL with target price of S$2.11, pegged at 6.5% FY10 yield. We believe further retracement in stock price may present A-REIT as an attractive buying opportunity. At current share price, A-REIT offers investors an FY10 yield of 7.2%.
CCT – OCBC
Firm support established. CapitaCommercial Trust could see more upside potential, after recently staging a rebound off its $1.00 key resistance-turned-support and the lower boundary of its 9- month uptrend channel on increasing volume.
Indicators more upside biased. With the RSI trending higher after a rebound at the 30% oversold region and the MACD indicator on the verge of a bullish crossover inside the negative region, they suggest that the momentum is starting to turn bullish. Initial resistance at $1.14. On the upside, we peg the initial resistance at $1.14 (support-turned resistance and gap zone in Jan ‘10), breaking which, we see the subsequent resistance at $1.21 (support-turned-resistance).
Immediate support at $1.00. In the near term, $1.00 remains a firm support. Below this, the subsequent support is pegged at $0.91 (resistance-turned-support), ahead of $0.77 (key resistance- turned-support).
Note: We currently have a fundamental HOLD rating on CapitaCommercial Trust with $1.16 fair value.
FCOT – Phillip
Things Picking Up
• 1Q10 revenue of $29.6 million, net property income of $23.5 million, distributable income available to unitholders of $7.4 million.
• 1Q10 DPU of 0.24 cents.
• Total asset value of $1.9 billion.
• Fair value raised slightly from $0.17 to $0.18, upgrade to Buy
Steady showing
(Note: Financial year-end changed to 30 Sep) FCOT recorded 1Q10 revenue of $29.6 million (+19.1% y-y, +15.5% q-q), net property income of $23.5 million (+26.6% y-y, +17.7% q-q) and distributable income available to unitholders of $7.4 million (-20.2% y-y, +20.3% q-q). 1Q10 DPU was 0.24 cents (-80.9% y-y, +20.0% q-q). Underlying rental income streams were steady, the increase over prior quarters were mostly due to new acquisition and favorable exchange rates. 1Q10 revenue was boosted by the contribution from Alexandra Technopark, which was added to the portfolio in August 2009. The revenue contribution from Australia benefited from the strengthening AUD, while the Japan properties performance were largely flat. Percentage of revenue breakdown is 51% from Singapore, 35% from Australia and 14% from Japan. DPU was 0.24 cents, a big drop from a year ago, due to higher borrowing cost as well as dilution from the rights issue in 2009. However 1Q10 DPU was 20% higher than 3Q09. We believe things are already on the mend as seen from the improving numbers.
FCOT registered a slight decrease of 0.2% in its asset value. Revaluation was carried out on central Park and Cosmo Plaza. The decrease comes from Cosmo Plaza, which is being earmarked for divestment. Total asset value is $1,914.2 million.
Capital management
FCOT completed all recapitalization and refinancing activities in 2009. As at 31 Dec 2009, it has total debt of $823.8 million, of which 60% is SGD loan, 19% is AUD loan and the rest is JPY loan. The constitution of the loan is a deliberate effort by management so as to form a natural hedge on the foreign cash flows. Gearing is 40.4% and the loans are due only in 2012. We believe in the event that FCOT managed to divest Cosmo Plaza and the AWPF wholesale fund, proceeds will be used to pare down debt.
Forecasts
We are slowly gaining confidence in management execution to turn FCOT around from the time when the new management team took over in late 2008. We have seen strong support from the sponsor, Frasers Centrepoint Limited, through the injection of Alexandra Technopark. We also believed that the relationship enabled FCOT to secure credit facilities from the lenders. We did mention in previous reports that repositioning the REIT takes time and management has shown that they are delivering what they have promised. Again we like to echo our view that the transformation is not yet complete and investors have to take a long-term view. We are forecasting a FY10E DPU of 1.26 cents on the back of improving market fundamentals. We are raising our fair value from $0.17 to 0.18 derived from our DCF valuation on a WACC of 7.04%. Upgrade to Buy.
K-REIT – DBS
Venturing Down Under
• Maiden foray into Australia, with purchase of a 50% stake in commercial building for A$166m
• DPUs raised by 12% in FY10 and 15% in FY11, taking into account contributions from this purchase
• Maintain Fully Valued with slightly higher TP of $1.13
Maiden overseas acquisition. K-reit has ventured overseas with the purchase of a 50% stake in a commercial property in Brisbane for A$166m (S$208m). 275 George St is a Grade A building with 40317sm of office and 1431sm of retail space. Average occupancy is 99.4% with the office tower fully occupied. Quality tenants include Telstra Corp and Queensland Gas Co. The weighted average lease to
expiry is 9.4 years underpinned by 10-year lease commitments from these 2 major tenants.
Diversifying income source. In terms of financial impact, the deal will be fully funded by the recent rights proceeds (post acquisition gross gearing at 25.2%) and is DPU enhancing, based on an annualized net profit yield of 5.9% (net profit of A$9.7m) compared to its implied yield of c4%. The vendor would provide an income support of A$1.8m over the income guarantee period till Jun 2012. We note the yield accretion and diversification merits of this deal. However, as Singapore would remain the key earnings contributor, accounting for three quarters of total income, the additional contribution is unlikely to fully offset the
expected negative rental reversion impact from its Singapore properties kicking in from FY10.
Risk-adjusted TP raised to $1.13. We are lifting our FY10 and FY11 DPU estimates by 12% and 15% respectively to take into account the latest contributions. Recent share price had brought valuations back in line with its sector peers, at FY10 and FY11 DPU yield of 6.5-6.4% respectively. Our risk-adjusted TP is adjusted up slightly to $1.13.