Author: tfwee
ALLCO – ML
MI-REIT – Phillip
Expansion Within Sight
We are initiating coverage on MacarthurCook Industrial REIT (MIREIT) with a BUY call and a 12 month fair value of $1.39/share. The counter is currently trading at a discount of 15% to our fair value. With a projected FY08 DPU of 7.43 cents, MI-REIT offers a yield of 6.35%. We expect the Manager to annouce further acquisitions in the coming months in anticipation of its target of $500 million of acquisitions a year.
Diverse Industrial Portfolio. The initial property portfolio consists of a diversified portfolio of 12 industrial properties located in Singapore. MIREIT’s investment objective is to pursue acquisition opportunities locally as well as across Asia. Recently MI-REIT annouces the acquisition of 2 additional properties. MI-REIT will add an office park, which is in increasing
demand to its portfolio. With the increased diversification, it reduces the reliance on any one sub-sector or tenant.
Lowest geared REIT. MI-REIT’s current gearing stands at 8.6% which is the lowest among the S-REIT. MI-REIT had obtained a corporate rating of Baa3 from Moody’s in June, which will increase its gearing limit to 60%. This provides substantial capability for future acquisitions. Currently MIREIT has an available $193 million of corporate debt facility to utilise.
Stable income. MI-REIT’s properties has a 100% occupancy rate with an average lease term of 6.3 years. The leases have a built-in rental escalation component which ensures rentals are up to market. 70.8% of tenants are SGX listed companies or subsidiaries of SGX listed companies. With a security deposit ranging from 3 months to 24 months, it reduces the risk of income variability in the event of any lease termination.
Valuation. Our DCF model gives us a fair value of $1.39. MI-REIT compares attractively in terms of yield and P/NAV to the other listed SREIT. With a forecasted distribution of 7.43 cents, MI-REIT offers an attractive yield of 6.35%, which is higher than the average S-REIT yield of 5.05% and a spread of 366bp over Singapore 10-yr bond yield of 2.69%(as at 14 Sep 2007). MI-REIT also trades at a lower P/NAV of 1.03 to the SREIT average of 1.23. We believed regional acquisitions would provide a near term catalyst to the share price.
PLife – UOBKH
An oasis in sea of turbulence
Parkway Life REIT invests in income-producing real estate assets in the Asia Pacific region. The assets, used primarily for healthcare and related purposes, include hospitals, ambulatory surgery centres, primary clinics, medical office building, step-down care facilities such as nursing homes, research & development facilities and pharmaceutical facilities. The initial portfolio comprises Mount Elizabeth Hospital, Gleneagles Hospital and East Shore Hospital in Singapore.
Riding on growth in healthcare focus. The annual rental payable by Mount Elizabeth Hospital, Gleneagles Hospital and East Shore Hospital comprises a base rent and a variable rent. The variable rent is equivalent to 3.8% of adjusted hospital revenue. This allows unitholders to ride on the growth of the healthcare industry due to an ageing population, medical tourism and growing affluence in Singapore and across the region.
Downside protection enhances defensive qualities. The minimum rent payable by each hospital is set at Consumer Price Index + 1% above rent payable in the preceding year. Where Consumer Price Index is negative for any given year, then it is deemed to be zero. This ensures that total rent payable is always increasing, which enhances the defensive quality of Parkway Life REIT.
Acquisition strategy drives growth in distribution yield. Parkway Life REIT has been granted the first right of refusal by Parkway Holdings over future sale of healthcare and related facilities. It will diversify its portfolio by acquiring medical offices, research & development facilities, storage and distribution facilities for pharmaceutical companies, and nursing homes.
Initiate coverage with BUY. We like Parkway Life REIT for its healthcare focus. Acquisitions in Singapore and in the region will provide catalysts for growth in distribution yield. Our target price is S$1.72 based on the discounted dividend model (WACC: 6.2%, terminal growth: 2%).
AllCo – BT
Allco’s new Japan buys to be yield- accretive straightaway
ALLCO Reit is buying three freehold properties in Japan for just over $153 million, which will be immediately yield-accretive to distribution per unit, it said yesterday.
The Galleria Otemae Building, ACO Azabu Aco Building and Ebara Techno-Service Headquarters Building are commercial developments in prominent locations in Osaka and Tokyo.
The buildings have a total net lettable area of 17,078 square metres and a weighted yield of 4.68 per cent for the first 12 months.
Allco said the purchase price is a 1.6 per cent discount to valuation and the deal is expected to be completed by Sept 26.
Allco will then own four commercial property assets in Japan, representing 16.4 per cent of its total property investments. The Reit’s portfolio will be worth more than $1.45 billion, with 42 per cent in Singapore properties and about 41 per cent in Australian properties.
The Galleria building in Osaka has 12 levels of office space and basement retail space. The Aco building in Tokyo has three levels of office space plus office/studio space. The Ebara building in Tokyo has five levels of office space.
The acquisitions will be funded by debt, with the weighted average cost of funding expected to be 2.09 per cent. Allco’s leverage will rise from 25.1 per cent to 33.5 per cent, which is well within its gearing limit of 60 per cent.