Author: tfwee
A-REIT – DMG
Delivers another steady quarter
3QFY10 results in-line with expectations. A-REIT reported a 13.5% YoY gain (-6.0% QoQ) in 3QFY10 DPU to 3.27¢. Annualised 9MFY10 DPU came in at 13.6¢, marginally above our FY10 forecast of 13.3¢ (Street’s forecast 13.2¢). Net property income was up 9.7% due to positive rental reversion and contributions from new acquired properties and development projects. A-REIT will trade ex-3Q10 distribution on 22 Jan 2010. We fine-tune our FY10 DPU estimate to 13.62¢ from 13.26¢ to account for marginally higher occupancies. We correspondingly raise our TP to S$2.11 from S$2.05. At our TP, A-REIT offers a yield of 6.5%, a reasonable peg in our view. Maintain NEUTRAL.
Occupancy fell marginally; tenancy default risk low. Reflecting the stabilisation in global demand, A-REIT’s portfolio occupancy declined marginally to 96.5% from 96.8% in 2QFY10. For its multi-tenanted properties, occupancy moderated to 93.1% from 93.3%. According to management, AREIT has about 12,098 sqm of its 2m sqm of NLA (0.4% of gross monthly rental income) which could run the risk of default. Of this, 2,416 sqm had since been repossessed and re-let with no negative financial impact. In the current quarter, A-REIT has taken legal actions against a tenant occupying 8,843 sqm (0.5% of portfolio NLA) of space and contributing 0.2% of monthly gross revenue.
Focus on built-to-suit and other acquisition opportunities. Following its S$296m equity fund raising exercise, A-REIT has a sturdier balance sheet with gearing of about 31%. Management has indicated that they will continue to scout for opportunistic acquisitions and/or built-to-suit development projects for high-credit quality tenants.
Stock almost fully valued; trading near peak valuations. At its current price, A-REIT offers investors a stable dividend yield of 6.8% for FY10 and FY11 – with dividends well supported by the long-term leases on single-tenanted buildings which accounts for 50% of revenue. Between 2005 and 2007, A-REIT traded at heyday yields of 6%, implying minimal upside from current valuations. Should we factor a more bullish yield peg of 6%, A-REIT’s recursive fair value would be S$2.27, an upside of only 13%. Maintain NEUTRAL. Buy on dips.
CCT – BT
CapitaCommercial Trust selling Robinson Point
The buyer is said to be US property fund manager AEW
CapitaCommercial Trust (CCT) is close to selling Robinson Point for some $200 million, or about $1,500 per square foot of net lettable area, BT understands.
The buyer of the 21-storey freehold office property is said to be US property fund manager AEW. AEW bought the former Apollo Centre in late 2007 for $205 million, and has since revamped it through a major retrofitting exercise that was completed last year.
Robinson Point has a net lettable area of 133,139 sq ft and is said to have about 90 per cent occupancy.
The building generated $7.3 million net property income (NPI) for the financial year ended Dec 31, 2008. For the third quarter ended Sept 30, 2009, Robinson Point’s NPI was $2.62 million.
Some market watchers recall the property was in the market a few years ago, with a potential buyer even doing due diligence on it. However, the deterioration in office capital values put CCT’s target price at the time out of sight.
Robinson Point was completed in 1997 by DBS Land – which had merged with Pidemco Land in 2000 to form CapitaLand. In merger documents, the property was valued at $193 million as at June 15, 2000. It was part of CapitaLand’s office portfolio that was spun off to CCT when the trust was listed on the Singapore Exchange in 2004.
Market watchers wonder whether AEW will spruce up the property, just as it has done for the former Apollo Centre.
Under the revamp, the seven-storey building’s net floor area has increased from some 148,000 sq ft to 170,000 sq ft. The property is now known as 2 Havelock Road.
Market watchers note that Robinson Point’s impending sale reflects foreign investors’ growing appetite in the Singapore office market again.
The office blocks that had changed hands last year were mostly smallish deals of under $100 million apiece and bought mostly by local players.
For example, Parakou Building at the Robinson Road/McCallum Street junction was bought by a unit of Choo Meileen’s Cathay Organisation, and VTB Building at Robinson Road, Aviva Building at Cecil Street and Cecil House next-door were purchased by interests linked to Fission Group and Yi Kai Group.
AEW, which is headquartered in Boston, and its affiliates manage more than US$45 billion of real estate assets and securities, as at Sept 30, 2009, on behalf of institutional and private investors. The group set up an office in Singapore in April 2007.
News – BT
ARA and CWT confirm talks to set up Reit
SHARES of ARA Asset Management and CWT rose yesterday, when both companies confirmed plans to launch a regional logistics real estate investment trust (Reit) together.
ARA, a real estate fund manager tied to Hong Kong tycoon Li Ka-shing’s Cheung Kong group, saw its shares hit a year high. They gained seven cents or 7.8 per cent to close at 97 cents.
Shares of logistics firm CWT put on two cents or 2.4 per cent to close at 84.5 cents. The counter has hovered above the 80-cent mark since late December.
Investors were probably cheered by news of the Reit venture between ARA and CWT. In a joint release, the firms said that they are ‘in advanced confidential discussions’ and have made a ‘confidential submission’ to the Singapore Exchange (SGX) to set up and list a logistics Reit here. They have also made submissions to other relevant regulatory authorities.
‘It should be noted that no definitive agreements whatsoever have been executed,’ they highlighted. They added that they have not obtained approvals from regulators, including SGX and the Monetary Authority of Singapore.
ARA and CWT were responding to a Reuters article, which said that the two plan to launch a Reit holding properties worth some $1 billion, and DBS would manage the listing. The information came from ‘a source involved in the transactions’.
While both companies confirmed that they were working together on a Reit, they did not verify the other details mentioned in the Reuters report.
In mid-December, CWT gave the market some clues on its plans. It received a query from SGX on an increase in its share price, and revealed that it was in talks to sell and lease back its logistics facilities for the potential creation of a logistics Reit.
FCT – CIMB
Growth strategy intact
• Maintain Outperform and target price of S$1.73. Elaboration of management’s plans following FCT’s acquisition announcement of Northpoint II and Yew Tee Point last week has added to our confidence that the outlook remains positive for FCT, with both organic and inorganic growth catalysts in place. We also like management’s steady execution and conservative capital management. We maintain our estimates and DDM-target price of S$1.73 (discount rate 7.9%).
• Significant diversification with new acquisitions. Asset-concentration risks should be substantially reduced with income contributions from Causeway Point dropping from 64% to 51%. Contributions from the top 10 tenants would be reduced from 32.7% to 25.7%.
• More in the acquisition pipeline. FCT is likely to venture into eastern Singapore with its sponsor’s assets, Bedok Mall, and the Changi Business Park mixed development completing over 2010-11.
• Causeway Point’s asset enhancement. Plans to enhance its largest asset, Causeway Point, continue, and would likely be announced this year. Asset enhancement will be carried out in phases so as to minimise disruptions to businesses and income contributions.