Author: tfwee
CRCT – Goldman Sachs
Source of opportunity
We initiate coverage of CRCT with a DCF-based 12-month target price of S$2.18 and a Sell rating. Listed on Dec 8, 2006, CRCT is the first pureplay China Retail REIT in Singapore, a spin-off from parent CapitaLand. We like acquisition growth prospects of CRCT, supplemented by a secured and proprietary acquisition pipeline from three CapitaLand private funds, with about US$ 1.6bn in equity; CapitaRetail China Development Fund I and II; and CapitaRetail China Incubator fund, but believe that much of the potential is already priced in the shares. We believe investors are already factoring in about $2.2 bn in acquisition prospects (or 2-3 years of acquisition growth), presenting potential downside risk if execution disappoints.
Organic growth has been weighed down by large mall anchors, and we find the relatively few asset enhancement initiatives disappointing, with the company’s growth profile further hampered by potential difficulty in funding its aggressive acquisition plans given the competitive equity market environment. We think the risk is to the downside, and find little support from low yields. We favor sector leader CapitaMall Trust, which we believe has better organic growth prospects and should see a rise in DPU via its 20% strategic stake in CRCT.
Catalyst
CRCT operates in arguably one of the fastest-growing retail markets worldwide, with nominal retail sales growth over the last decade of 11.7% p.a, driven by a strong economy, increasing income and consumer spending power. We note that that CapitaLand’s recent cooperative agreement with China Vanke to acquire malls developed in Vanke’s residential townships will expand its retail pipeline in China. CapitaLand has a sizable pipeline of 65 malls (excluding the tie-up with Vanke) through its private funds. While we think its pipeline is good, we believe investors need to allow time for malls to be ready for injection into CRCT and for CRCT’s malls to perform. Post IPO, CRCT has announced a pending acquisition, Xizhimen in Beijing, which would enlarge its portfolio to S$1,185 mn from S$806 mn.
Valuation
We derive our 12-month target price of S$2.18 using a base-case DCF per share value of S$1.46 and acquisition premium of S$0.72. With the completion of Xizhimen acquisition later this year, CRCT will have an enlarged portfolio of eight retail malls: GFA of 527,363 sq. m, with Beijing contributing 76% of 08E NPI, Shanghai 5%, and the rest from second-tier cities. Post S$280mn raised to finance Xizhimen, CRCT’s debt/asset ratio is 0.30x (FY08), implying debt capacity of only about S$80mn to fund new acquisitions (no credit rating). We estimate dividend yields of 3.3% in FY07E and 3.8% in FY08E.
Key risks
Positive news flow on CapitaLand’s China retail platform presents potential upside risk; we see aggressive market expectations and failure to execute on acquisition potential as downside risks.
SREIT – Goldman Sachs
Strong Singapore; initiate coverage of 3 REITs, raise CDLHT to Buy
Looking beyond equity offering indigestion
We think a spate of equity offerings plus expectations of more to come in the Singapore REIT space has caused share prices to retreat. As it has become more expensive for REITs to issue equity, we are reducing our projections of contributions from potential acquisitions. But we note that rents across property segments remain strong and are raising our growth projections for hotels. We think SREITs still offer a compelling proposition of defensive characteristics overlaid with growth, organic and through acquisitions.
Focus on Singapore hotels and retail reits
While equity markets are choppy and sentiment in the Singapore residential market has been dampened by withdrawal of the deferred payment scheme, we believe the strong Singapore structural story remains intact. We like organic growth prospects for office, retail and hotel properties. We favor 1) hotels, given strong near- and longer-term prospects we see; and 2) retail, which we view as underappreciated and where rental growth could surprise on the upside. We like acquisition growth prospects of overseas REITs CRCT and AiTrust, but we think much is priced in and favor Singapore-centric REITs.
Initiating three new REITs, upgrading CDLHT to Buy
We initiate on CapitaRetail China Trust (Sell, TP S$2.18); Ascendas India Trust (Neutral, TP S$1.66); and Macquarie Prime REIT (Neutral, TP S$1.24). We upgrade CDLHT to Buy from Neutral on higher FY08/09 RevPAR yoy growth assumptions. We like CDLHT’s leverage to rising Singapore hotel room rates and potential for acquisition growth regionally and in Singapore, where sponsor City Developments has a pipeline of over 1,800 rooms. We are transferring coverage of AREIT, MLT, CDLHT, and ART from Leslie Yee to Paul Lian.
Adjusting target prices for REITs under coverage; focus on quality
We adjust 12-mo. TPs for 9 currently covered REITs by -8% and +20%. We reiterate our Buys on CMT, Suntec, and K-REIT. CMT and Suntec are exposed to Singapore retail and have size and liquidity, which we like in a flight-to-quality environment. Given the rising number of small-cap REITs of varying quality, we would focus on larger REITs with quality assets, good track records, and strong management. Risks: A fall in business and consumer confidence may impact rental reversions.
CMT – JPMorgan
Safer than houses, plus a better return
• Low-risk stock unfairly penalized: The stock has dropped 15% over the last month, and underperformed the STI by 5% over that timeframe. CapitaMall Trust’s (CMT) S$350million placement raised funds to pay down expensive debt, reducing its gearing to 35%. The placement should remove fears of a funding overhang.
• Asset enhancement value-add to become the most significant growth driver: CMT’s manager is undertaking asset enhancement works on 8 out of the 13 malls in the portfolio, and we anticipate the incremental returns should accelerate DPU growth to a three year CAGR of 9.5% to FY Dec 09E. We have adjusted our DPU estimates for the placement, and set a S$4.00 end Dec 08E target price (based on DDM), implying 25% upside from current levels.
• Market is mis-pricing CMT’s cost of capital: Our valuation sensitivity analysis indicates the market is imputing a cost of equity capital more than 100bps above our 5.96% estimate, as
well as a reduction in long-term growth assumption. The trust has the ability to pass through inflationary pressures having fixed almost all of its cost of debt whilst having the pricing power to raise rents through its asset enhancement and active leasing initiatives.
• Key risks to our price target and rating include management’s inability to execute on asset enhancement initiatives, an unexpected slowdown in retail rental growth, and a sudden change in interest rate expectations.
MI-REIT – SGX
– Increases FY2008 DPU by 0.27 cents per unit and FY2009 DPU by 0.27 cents per unit
Singapore, 29 November 2007 – MacarthurCook Investment Managers (Asia) Limited (“MCKIM Asia”), the Manager of MacarthurCook Industrial REIT ( “MI-REIT” ), is pleased to announce that MI-REIT, through its Trustee, HSBC Institutional Trust Services (Singapore) Limited ( the “Trustee” ), has signed a sale and purchase agreement to acquire an office and warehouse facility in the Tai Seng industrial precinct for a total consideration of S$25.0 million.
Under the agreement, Powermatic Data Systems Limited (“Powermatic”), a publicly company listed on the Singapore Exchange, will leaseback 135 Joo Seng Road for five years with the option to extend for another five years. The lease will commence upon completion of the acquisition, which is scheduled for February 2008.
Powermatic is a high end manufacturer and distributor of computer hardware and software products in Asia, Europe and the United States.
135 Joo Seng was transacted at the initial yield of 7.3%, and will be accretive to MI-REIT’s distribution per unit (“DPU”) following completion. The pro forma financial effect(1) of the acquisitions on DPU is:
– an additional 0.27 Singapore cents per unit, representing an increase of 3.64% from the forecast(2) FY2008 DPU of 7.41 Singapore cents per unit for the financial year ended 31 March 2008 (“FY2008”); and
– an additional 0.27 Singapore cents per unit, representing an increase of 3.56% from the forecast FY2009 DPU of 7.59 Singapore cents per unit for the financial year ended 31 March 2009 (“FY2009”).
(2) No comparisons against a corresponding period in the previous year can be made as no pro forma financials are available. SGX-ST had granted MI-REIT a waiver from the requirement to prepare historical pro forma statements of total return, cash flow statements and balance sheets for the purpose of its initial public offering.
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MapleTree – SGX
MAPLETREELOG ACQUIRES 8th PROPERTY IN JAPAN FOR S$18 MILLION
(1) Based on exchange rate of S$1.00 = JPY80.19
(2)Assuming MapletreeLog has purchased, held and operated the property for the financial year ended 31 December 2006 (based on 41 properties) and that the acquisition is 100% debt-funded.
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