Author: tfwee
MapleTree – CIMB
Keep the assets coming
• Full year below expectations. FY06 DPU of 5.1cts is 2% short of our forecast but in line with consensus estimate. A larger mix of multi-tenanted acquisitions compressed MLT’s NPI margin, which came in below expectations. Gross rental revenue surged 167% yoy to S$26.9m in 4Q06, on account of a larger portfolio of S$1.4bn at end-FY06 vs. S$462m a year ago. Jurong Logistics Hub, MLT’s largest property in Singapore to date, also began contributing in 4Q06. Overall occupancy was 99.6% while renewed rent rates were on average 7.1% higher than the rates in 4Q06. MLT’s gross gearing remained manageable at 55%.
• Portfolio to grow by another S$1bn this year. MLT has announced S$221m worth of acquisitions scheduled for completion by 1Q07. These acquisitions will bring MLT’s assets to S$1.6bn. MLT will have additional debt headroom following the latest round of equity fund-raising (assuming unitholders’ approval is secured today). As such, we believe MLT is financially equipped to meet our portfolio target of S$2.4bn by end-FY07.
• Overseas properties from sponsor. Two overseas properties that sponsor Mapletree is developing – Lingang Free Port (S$39m, GFA 46,500 sq m) in China and the Vietnam Singapore Industrial Park (VSIP 1, GFA 23,600 sq m), are near completion. Pre-leasing activities have begun for both properties, which could be injected into MLT as soon as this year.
• Introducing FY09 DPU forecast. Assuming MLT’s assets grow from S$3.4bn in FY08 to S$4.4bn by end-FY09, with the acquisitions financed by 45% debt and 55% equity, we initiate our FY09 DPU forecast of 7.1cts. Our FY07-08 DPU forecasts remain intact, translating into forward yields of 4.8-5.8%, which are attractive compared with the average 4.5-5% that S-Reits currently offer.
• Maintain Outperform. Our DDM-based target price of S$1.32 remains relevant. At our FY07 DPU forecast of 5.8cts, prospective dividend yield is 4.4%. This is in line with the FY06 dividend yield that MLT trades at. MLT has met its portfolio target in its first full year of operation. Its expansion pipeline remains solid and it remains one of the fastest-growing Reits in Singapore. Maintain Outperform.
MapleTree – OCBC
More of the same in FY07
Growth again due to acquisitions. Mapletree Logistics Trust (MLT) reported a good set of 4Q06 results. Revenue was up over 167% YoY to S$26.9m and distributable income improved 97% to S$11.8m. Distributable income per unit (DPU) was less robust, improving by 38% YoY to 1.45 cents and slightly better than market’s forecast of about 1.40 cents. The bulk of the growth came mainly from the acquisition of 23 properties over the last 12 months. At the end of 4Q06, MLT has a portfolio of 41 properties. This enlarged portfolio in turn led to MLT’s asset size increasing by over 3-fold from just above S$460m in FY05 to about S$1.4bn by end FY06.
All eyes on equity raising. Presently, MLT is in the processing of raising new equity from unit-holders. The fund to be raised is estimated at S$359m and will be used in multiple areas; to lower MLT’s high gearing (of about 55%), to finance previously announced acquisition of 15 properties with a total value of about S$221m and finally to provide debt headroom for future acquisitions. Post the equity fund raising, we estimate MLT’s gearing to fall to about 46% and this would position it well to continue its growth strategy via acquisition. The EFR is expected to complete no later than end Feb 2007 with an Extraordinary General Meeting to be held on 17 Jan 2007.
Expect more of the same in 2007. Including the recently announced purchases and when completed, MLT’s asset size will increase to about S$1.7bn. Going into 2007 and with the expected success of the EFR, MLT is well positioned to continue its growth strategy. We see an annual acquisition of S$1.0bn as not improbable with one or two cash calls per year.
Maintain BUY with higher fair value. MLT has done exceedingly well since our “A possible laggard play” report in Oct. The unit price has risen from S$0.97 to S$1.19 currently, up more than 22%. However, at the current pace of acquisition, our target asset size of S$2.1bn is likely to be breached fairly soon. We have thus revised up our target size to S$3.0bn, and this in turn has a positive impact on our fair value estimate. We have thus revised up our fair value from S$1.12 to S$1.34 and maintain our BUY recommendation.
A-REIT : DBS
3QFY07 results were in line
3QFY07 results were in line. Gross revenue and net income available for distribution grew 16% and 7% y-o-y to S$71.1m and S$41.0m respectively. This improvement was mainly due to the additional rental income from completed acquisitions. Property expenses grew 23% as a result of higher electricity costs from the aggregation of energy costs for nine properties in the portfolio and an increase in the number of properties in the portfolio. Interest expense grew 100% due to additional debt drawdown. Distribution per unit (“DPU”) grew 6% y-oy to 3.20 cents.
Update on acquisitions and developments. To date, A-REIT announced committed investments of S$425m in FY07 of which S$214m is still pending completion. Efforts have also been taken by A-REIT to enhance its existing assets (i.e. increase of 3,527 sqm space for The Alpha Building which is expected to complete by Sep 07 and the increase of GFA by around 352 sqm for Telepark Building), which in turn has created higher yields for the assets. Moving forward, A-REIT would continue to focus on built-to-suit development projects, which creates greater value to unitholders as acquisition costs will be lower if assets are acquired from the market. A-Reit still has an additional capacity of S$173.0m to utilise.
Maintain Hold. With the limited new supply of office space in the CBD area, there is potential of a positive spillover effect on demand for Business & Science Park and high-tech industrial sectors. We raised our target price to S$2.68 based on 10-year DCF valuation, which has assumed S$500.0m acquisitions pipeline per annum from 2007 to 2010. Maintain Hold as upside is limited at 5%.
A-REIT : CIMB
Still a distinct advantage
• 3Q07 results beat our expectations. 3Q07 DPU of 3.2cts represents 26% of our full-year forecast and 25% of consensus. Our FY07 DPU forecast is 77% fulfilled YTD. Gross rental revenue was up 16% yoy to S$71.1m in 3Q07, on account of a larger portfolio as well as improved occupancy of 96.1% vs. 94.7% a year ago. Renewal rentals for Hi-Tech Industrial and Business & Science Park properties, which make up 46% of Areit’s portfolio, also increased by about 14% from existing rates in 3Q07. Gearing remained manageable at 40% as at end-3Q07.
• Adds new business park property. Areit has acquired 27 International Business Park, a multi-tenanted property with an NLA of about 9,079 sq m, from Primefield for S$18.6m. Annualised proforma addition to FY06 DPU is 0.02ct, assuming the acquisition is funded by 40% debt and 60% equity. According to Jones Lang LaSalle, business park rentals rose for the sixth consecutive quarter in 3QCY06 to S$155/sq m p.a., up 16% from a year ago. As surging office rentals drive more tenants into housing their backroom operations in business parks, we expect Areit’s business park business to remain strong.
• Headroom for more development projects. Areit currently has five acquisitions worth S$214m, pending completion. About S$127m of these are built-to-suit projects, which translates into S$170m (S$236m, excluding the Cold Storage WRS property which would be ready in Mar 07) worth of potential development projects. As these development projects are typically high-yielding, we see more robust DPU growth for FY08 and beyond.
• Maintain Outperform; target price raised to S$2.82. Considering that 27 International Business Park (estimated yield of 6.7%) will be contributing this quarter and our FY07 DPU forecast is already 77%-met, we have raised our DPU forecast for this year by 3% to 12.8cts. FY08-09 DPU forecasts have also been raised by 2-5% to reflect the higher-yielding acquisitions that will be completed after FY07. Accordingly, our DDM-derived target price has been lifted from S$2.60 to S$2.82 (cost of equity still 6.2%). Forward yields of 5-5.6% remain attractive compared to the 4.5-5% yields that S-Reits currently trade at. Maintain Outperform.
MMP – DBS
Stable retail growth
Consistent distribution backed by resilient rents. MMP has been consistently delivering distributions of 1.44 cents per unit quarterly. Management has dispelled concerns of the tunnel closure on basement retail rents as basement space leases are still being transacted at above S$60 levels.
Competition not an issue. New malls such as Orchard Turn, Orchard Central and Somerset Central are coming up, bringing on additional 1.2m sf of retail supply by FY09, yet there is still room to grow for retail stock in Singapore. With retail space per capita of about 7 sf, Singapore trails behind HK’s 11 sf and Japan’s 12 sf, according to Knight Frank.
Revaluation expected on the back of strong physical market. Office space in Orchard Road is enjoying positive spillover demand from tight office vacancy in prime office space at about 2.7% currently. MMP is already looking at S$8 rentals for some of its office space. With about 16% of MMP’s assets exposed to office, upward revaluation is likely given that its office portfolio is currently only valued at 900 psf. Upward revaluation will potentially enhance debt capacity and NAV.
Is the wait finally over? MMP has been lagging behind other REITs in terms of acquisitions since listing in Sept 05. Management is targeting to deliver an acquisition by 1H07, after which a certain degree of yield compression may set in. Currently MMP is trading at 5% yield compared to retail S-REITs trading at 4%.
Maintain BUY, TP S$1.29. Forward yield of 5% is supported by limited downside from retail rents from the two prime retail assets in Orchard Road. With prime retail rents growing by 4.5% in FY06, we expect retail rents to continue rising for the next three years. We have raised our retail rental growth assumptions from 2% to 5% for FY07 to FY09 and DPU estimates in the range of 3.6%-4.6%. Therefore we have accordingly raised our DCF derived target price of S$1.29. Maintain Buy.