Author: tfwee
Suntec – BNP
1QFY08 preview and outlook
We expect 1QFY08 net property income of SGD44.8m, up 29% y-y, arising from positive rental renewals and maiden contributions from ORQ. The acquisition of ORQ is mildly yield accretive given its fixed-lease structure until FY11. The stock now trades at an FY08E yield of 6.2%, 390bp above 10-year government bond yields. Maintain BUY; TP of SGD2.39.
Expect robust 1QFY08 earnings growth
Suntec is scheduled to report 1QFY08 results on 30 January. We expect revenue and net property income of SGD60.5m (up 31.7% y-y, 18.5% q-q) and SGD44.8m (up 29.0% y-y, 22.4% q-q). The strong performance is likely to be driven by good organic growth arising from positive rental renewals from Suntec City and maiden contributions from One Raffles Quay (ORQ).
Considerable yield accretion for ORQ beyond FY11
Based on our estimated SGD8.80/sqft assumption, ORQ is forecast to offer a net property income (NPI) yield of 4.2%, in turn contributing 14% of the group’s rental income. Due to its fixed-lease structure, ORQ should be mildly yield accretive between FY08 and FY11. Assuming calling rents remain at the current SGD15-18/sqft, we expect considerable rental reversionary growth when leases for ORQ are due for renewal in FY11.
Strata buyback programme gaining some traction
The acquisition programme to buy back more Suntec strata office units has started gaining traction. Last month, Suntec REIT acquired about 28,000 sqft of Suntec City office space at an NPI yield of 5%. Nevertheless, we continue to foresee elevated headwinds in its acquisition programme as there is an increasing number of Suntec strata proprietors seeking prices above the SGD2,500/sqft level. This comes in the shadow of their lock-in of gross rents below the SGD12.50/sqft per month level, which otherwise offers the REIT an NPI yield of 5%.
Ample debt capacity to expand portfolio by 26%
With the acquisition of ORQ, Suntec REIT has a gearing of 32%. This gives it a debt capacity of SGD1.45b, assuming a target gearing of 45%. We have factored in an annual buyback of 50,000 sqft of strata office space between FY08 and FY12 at an NPI yield of 5%. Exhibit 3 illustrates the different share-placement levels at varying yields, which is required for Suntec REIT to achieve accretion to its DPU.
BUY, with TP of SGD2.39
We maintain our BUY rating and a target price of SGD2.39. Prospects for Suntec REIT to expand organically remain strong considering 70% of its office portfolio leases are due for expiry in FY08-09. The stock now trades at an FY08E yield of 6.2%, 380bp above government bond yields.
AREIT – BT
A-Reit buys Acer Building for $75m
It also bags warehouse in CBP, announces completion of HansaPoint
ASCENDAS Real Estate Investment Trust (A-Reit) has bought the Acer Building at International Business Park in Jurong East for $75 million or $344 per square foot of lettable area.
Market sources say the price reflects an initial yield of 6.5-6.8 per cent.
A-Reit yesterday also announced the purchase of Sim Siang Choon Building, on the fringe of Changi Business Park (CBP), from Sim Siang Choon Hardware for $31.89 million.
This is a four-storey warehouse with a first-storey showroom and a separate single-storey warehouse.
In addition, A-Reit said HansaPoint@CBP received a Temporary Occupation Permit on Jan 22 and has achieved full occupancy.
The $28.6 million project’s major tenants include Rohde & Schwarz Systems & Communications Asia, Credit Suisse and Citco Fund Services (Singapore).
The completion of HansaPoint@CBP and acquisition of the Acer and Sim Siang Choon buildings will have a positive effect on A-Reit’s distribution per unit (DPU).
A-Reit is buying Acer Building from Acer Computer International.
The deal involves Acer’s local subsidiaries Acer Computer (Singapore) and Logistron Services leasing back 23 per cent of the current net lettable area for five years with an option to renew for a further 3+2 years.
The building’s current occupancy is 97 per cent.
Acer Building’s sale was handled by DTZ through an expression of interest exercise that drew five offers.
The other bidders are believed to have been two other Singapore Reits, Frasers Centrepoint and a private fund managed by Mapletree.
The property, a high- tech business park development, was completed in May 1996 on a site leased from JTC Corp for 30 years with an option to renew for a further 30 years. It has a total lettable area of 20,231 sq metres.
A-Reit’s manager says there is potential to create a further 1,200 sq metres of lettable space.
According to a report last year, Acer is paying JTC an annual land rent of $715,469 with escalation of 4 per cent a year as of Q3 2007.
The new owner is expected to pay JTC a slightly higher land rent each year, according to the report.
BT understands that A-Reit should enjoy considerable upside from positive rental reversion, as a number of leases in the building are up for renewal in the next one to two years.
Some of these tenants are paying monthly rent of $2 to $2.60 psf, whereas current rents for similar properties in International Business Park are $3.20 to $3.60 psf.
Besides Acer, other tenants in the building include Jacobs Engineering, Converge Asia and Nortrans Shipping.
CRCT – BT
CRCT placement snapped up
Institutional investors take up 136m new units in CapitaRetail China Trust in 30 mins
A PRIVATE placement by CapitaRetail China Trust (CRCT) was snapped up by institutional investors within half-an-hour after its launch yesterday.
Approximately 136 million new units in CRCT were fully subscribed by investors under the private placement at an issue price of $1.36 per unit, the trust’s manager, CapitaRetail China Trust Management Ltd (CRCTML) said.
The total gross proceeds from the private placement amount to $185 million. The issue price was set at a discount of approximately 10 per cent to CRCT’s volume-weighted average price of existing units on the Singapore Exchange on Thursday.
CapitaLand Retail Ltd, on behalf of CapitaLand Ltd and its subsidiaries, and CapitaMall Trust subscribed for approximately $74 million worth of new units so as to maintain their proportionate unit- holdings in CRCT at their pre-placement levels. The joint lead managers, bookrunners and underwriters for the private placement were Citigroup Global Markets Singapore, DBS Bank and JPMorgan.
Lim Beng Chee, CEO of CRCTML, said: ‘Despite the soft and volatile market conditions, CRCT was able to raise capital and garner strong participation from investors, who had quickly subscribed for the new units within 30 minutes after the launch of the private placement. This demonstrates the resilient qualities of CRCT and the highly accretive benefits of this quality acquisition.
‘We remain positive in achieving our target asset size of $3 billion by the end of 2009.’
Following the equity fund-raising for the acquisition of Xizhimen Mall and the issue price of $1.36 per new unit, unitholders can expect a distribution per unit (DPU) of 6.67 cents for FY2008, the trust manager said. This is an accretion of 4.1 per cent to the forecast DPU of 6.41 cents for CRCT’s existing portfolio.
CRCT is also making a public ATM offering, in which approximately 2.2 million new units will be made available through the ATMs of DBS (including POSB) on a first-come, first-served basis at the issue price of $1.36 per new unit. The maximum number of new units per application under the ATM offering is 250,000.
The ATM offering will open at 10.30am today and close two hours later, subject to early closure if all the units under the ATM offering are fully taken up before that.
The expected date of listing of the new units is Feb 5.
a-iTrust – DBS
Growing Strongly
Comment on Results
A-iTrust reported a strong set of 3Q08 results. Gross revenue was up 60% yoy and 7% qoq to S$27.0m. The strong performance was attributable to strong rental renewals at 91% above preceding rates and completion of 2 buildings, Vega at V and Crest at ITPC which added 1.1m sf to portfolio. Net profit was up >100% to S$33.2m mainly due to revaluation gain of S$28.1m (net of deferred tax) on its Vega property.
Revaluation gain. More revaluation gains are expected in the pipeline in 4Q08 when the Crest obtains the necessary certification. Gearing at a low 4%, giving the trust ample borrowing capacity of S$550m for acquisitions up to management’s imposed limit of 60% gearing.
Recommendation
We are positive that A-iTrust is poised to benefit from India’s growth in the IT/ITES sector through having assets locations at key IT-related industry clusters in Hyderabad, Chennai and Bangalore. Therefore, A-itrust provides the opportunity for investors to ride the real estate up-cycle in India.
Strong sponsor support in terms of future acquisitions that will potentially grow A-iTrust’s portfolio by 85% through its 2 ROFR agreements with Ascendas Land International and Ascendas India Development Trust. We maintain BUY with TP S$1.84 based on DCF valuation.
CCT – BT
CCT posts 14.5% rise in Q4 distributable income
CapitaCommercial Trust (CCT) posted distributable income of $32.3 million in last year’s final quarter, an increase of 14.5 per cent from a year previously.
Full-year 2007 distributable income rose 52.7 per cent to $120.4 million on the back of a 54.2 per cent jump in gross revenue to $240.1 million – due mainly to the consolidation of CCT’s 60 per cent interest in the Raffles City complex which was acquired in September 2006. Higher rental income, car park income and other income from the trust’s properties also boosted the bottom line for the year.
The trust reported $1.3 billion fair value gain on revaluation of its investment properties, boosting its total asset size to $5.3 billion as at the end of December.
Currently less than 5 per cent of CCT’s assets are overseas, but in the medium term the overseas share could grow to 20-30 per cent, CapitaCommercial Trust Management Ltd (CCTML) chief executive Lynette Leong said yesterday.
Vietnam is among the promising markets where CCT sees a lot of growth, Ms Leong said.
The trust said that its interest-rate exposure is small, as 86 per cent of total borrowings are on fixed rates and no major refinancing is required until March 2009.
In addition, its low gearing of 23.9 per cent gives it sizeable debt headroom to support any new asset growth strategy.
Assuming the trust decides to gear up to 40 per cent, it could take additional debt of about $800 million, analysts observed. This should come in handy for CCT when competing for acquisitions with some other Reits with much less room for taking further debt.
The stock market slump has raised the distribution yields at which Singapore Reits are trading. That means equity cost has gone up and Reits will need to acquire assets at much higher property yields if they are going to finance them by issuing new equity rather than using debt.
Riding on the spike in office rents, CCT achieved significantly higher rent reversions for offices leases that were renewed as well as new leases signed during 2007. Rents committed for renewals were on average 36.8 per cent higher than preceding rents, while new leases were committed at 130.8 per cent above preceding rents.
And with about 57 per cent of CCT’s office portfolio (by gross rental income) up for renewal and rent review in 2008 or 2009, the trust can look forward to further positive rent reversion given the shortage of offices.
This factor, coupled with limited exposure to interest rate risk, led CCTML to say it expects to perform better than its forecast distribution per unit (DPU) of 10.04 cents for the current financial year. The forecast was made in a circular in November last year.
CCT unitholders will receive a DPU of 4.47 cents for the July 1 to Dec 31, 2007 period.
This works out to 8.87 cents on an annualised basis, reflecting a distribution yield of 4.6 per cent based on CCT’s closing price of $1.91 yesterday. The counter ended four cents lower yesterday.
CCT’s adjusted net asset value (excluding distributable income to unitholders) rose from $1.86 as at Dec 31, 2006 to $2.80 as at Dec 31, 2007.
The trust has secured commitments for more than half of the 9,600-sq-m office space at Wilkie Edge in the Selegie area, ahead of the development’s completion expected in Q4 this year.