Author: tfwee
ART – DBS
Equity Raising
Equity fund raising. ART has proposed to raise gross proceeds of S$199m to part finance a target acquisition of five properties. Certain part of the proceeds will also be used to re-finance loans drawn for the acquisition of a 26.8% effective interest in the Vietnam Target Property, which was completed in Jan 2007 as well as other general corporate and working capital purposes. With the completion of the equity fund raising, the trust’s annualised 2007 forecast DPU will rise from 6.53 cents to 7.14 cents, an increase of 9.4%.
Maintain Buy with target price of S$2.20. As ART is the only pan-Asian serviced apartment trust, there’s little competition in acquiring properties to enhance their portfolio. We have revised our 2007 DPU estimates upwards from 5.2 cents to 6.7 cents due to lower provision of income tax from 18% to 15%. Projected MI is also reduced following management’s guidance in the latest circular. We expect earnings to continue to grow given the management’s plan to achieve property portfolio of S$2b by 2008. We maintain our fair value of S$2.20, backed by our DCF calculations. Maintain Buy.
MMP – BT
Macquarie Reit in talks to buy assets worth US$1b
SINGAPORE – Singapore’s Macquarie MEAG Prime Real Estate Investment Trust (Reit) said on Monday that it is in talks to buy assets worth over US$1 billion in total, and expects to make the first deal since its 2005 listing by June.
The trust — controlled by Australia’s Macquarie Bank and MEAG, the asset management arm of German reinsurer Munich Re ERGG.DE — is also in talks to take a stake in a non-Singaporean property trust.
The deals would be the first acquisitions for Macquarie MEAG which listed two years ago with just two office-mall complexes in its portfolio. These two properties are now valued at $1.5 billion (US$78.5 million).
‘We are confident we can announce something by the first half,’ Franklin Heng, chief executive officer of Macquarie Pacific Star Prime Reit Management told Reuters in an interview. Mr Heng said the trust was in talks to buy properties in Malaysia, Japan and China, ranging in value from US$10 million to US$1 billion. ‘I’ve got different balls in the air for each country. But (our first acquisition) is very unlikely to be in Singapore,’ he said.
The trust has a current gearing of about 26 per cent but this could be raised to 45 per cent as the trust plans to borrow about $530 million from banks to fund its acquisitions. ‘Our long-term optimal gearing ratio is between 40-45 per cent but there’s no stopping us to leverage us to 50-55 per cent if we find the right deal. But if that happens, I will put in a bridging loan and issue new equity to bring the gearing back down,’ he said.
He added that the trust would focus on growth outside of Singapore because competition for commercial assets in the city-state was intense. — REUTERS
CDL H-Trust : DBS
Comment on Results
In line with our expectations, CDL HT’s annualised DPU of 6.35 cents was above our forecast. Annualised gross revenue and net property income were comparable with our expectation. The net income levels were above our expectation due to extra income from initial recognition of non- current rental deposits. Average occupancy rate was 86% with the average daily rate of S$166, a 7.1% increase from forecast and RevPAR of S$143, an increase of 10.9% from forecast. Current gearing level for the trusts is at 34.7%
Outlook
Going forward, we expect strong growth in their Singapore portfolio with an expected 15% increase in room rates in 2007. The recent acquisition of Auckland property will start to contribute to the revenue. The trust is keen to expand both locally as well as overseas with focus on countries with high growth for acquisitions, including China, India, Vietnam, and the United Arab Emirates. Potentially, they may have 40% of their portfolio overseas, up from 10% currently.
Recommendation
With the strong fundamentals in both Singapore and New Zealand markets, continued increase in revenue with various asset enhancement and plans to double their portfolio in three years, we see the Trusts as one of the S-REITs that will continue to perform well in 2007. We roll forward our DCF to 2007 and revised our TP to S$2.05 backed by our DCF calculations. Maintain BUY
Suntec – BT
CityDev, Suntec Reit settle $788m dispute
CITY Developments (CityDev) and Suntec Reit have settled their dispute over an aborted $788 million property deal.
In 2005, CityDev rejected Suntec Reit’s move to terminate the deal under which Suntec Reit was to have bought 11 properties from CityDev for $788 million. Suntec Reit called off the deal on grounds that it could not obtain regulatory approvals in time to convene an extraordinary general meeting of unit-holders.
Yesterday, Suntec Reit trustee HSBC Institutional Trust Services (HSBCIT), Suntec Reit manager ARA Trust Management and CityDev and its subsidiaries entered into a settlement agreement under which HSBCIT will get a refund of $5 million, being the total of various deposits it made. CityDev will be paid all the interest earned on each deposit. The payments are expected to be made to HSBCIT and CityDev by tomorrow.
The parties said that the terms of the settlement agreement constitute full and final settlement of the matter without admission of any liability by the parties.
Suntec – OCBC
Valuation not compelling
Results are in line. Suntec REIT reported its 1Q07 revenue at S$45.9m; +16.5% YoY and +2% QoQ. Distributable income was equally strong at S$27.0m; +21.7% YoY and +9% QoQ. DPU came in at 1.963 cents; +14.5% YoY and +8.5% QoQ. Growth in earnings was mainly attributed to the acquisition of 12,045sf in Suntec strata office space. This was supplemented by higher rentals from increased office occupancy at Suntec City, higher passing rents of retail space as well as additional incomes from more intensive use of space. Suntec also managed its cost well with cost to income ratio at 24%, as compared to 28% in 1Q06 and 25% in 4Q06. The results are in line with our estimates.
Outlook remains positive. Suntec continues to benefit from the buoyant office/retail market. Going forward, a substantial portion of its space is coming up for renewal. Suntec’s office portfolio will see about 16% of space up for renewal in 2007, and a further 32% leases up for renewal in 2008. For the retail side, about 16% of space is up for renewal in 2007 and a further 34% of space is up for renewal in 2008. All these renewals are likely to be the key drivers to earnings over the next 2 years.
Continues to acquire strata space. Last year Suntec revealed its intention to acquire all the strata office space that it does not own in Suntec City. To date, it has bought about 26,426 sf of the strata space at about $1,335psf, which has a total value of S$35.5m at property yield of about 4.4% (assuming no gearing). We believe there is no financing issue, as Suntec had earlier placed out about 120m new units at S$1.50. It potentially has a war-chest of about S$300m, assuming that it gears up to 40% for the new acquisitions. Assuming that it manages to buy more space at the same value (i.e. S$1,335psf), we estimate it can acquire about 197,752 sf of space. The issue is whether strata owners are willing to sell out. We estimate there to be over 1.0 m sf of strata space not owned by Suntec.
Raised fair value to S$1.82. In light of the recent high valuation achieved for office and retail space, we have revised up our fair value for Suntec from S$1.57 to S$1.82. At current trading range, the investment case for Suntec is not compelling; its price to book ratio is 1.33 times, and DPU yield is just above 4%. Thus, we maintain our HOLD rating on Suntec.