Category: ESR
REITs – CIMB
Ripe for the picking
• Looking cheaper than ever. YTD, the Singapore REIT index has fallen 56% (vs. the STI’s 48% decline), driven by fears of REITs’ inability to secure refinancing, and falling rents and occupancy in an economic downturn. Average P/BV for the S-REIT sector has fallen to 0.51 while average yields have doubled to 14% in the last two months.
• REITs with strong credit and risk metrics get gold. Despite the credit crunch, there are still REITs that exhibit strong credit and diversified risk metrics. The presence of strong sponsors and government-linked sponsors is advantageous at this juncture. To these, banks are not only willing to lend but lend on more favourable terms. Some REITs have even managed to move away from borrowings that require pledges on their assets or rental income, thereby retaining financial flexibility.
• Asset devaluation risks small, financing ability not impaired yet. Most of the REITS are still within safe gearing levels. This implies a low risk of breaching impairment levels and could mean debt funding would still be available to them.
• Look for efficiency. In the midst of the credit crunch, acquisitions and asset enhancements requiring significant outlay would be difficult, particularly in 2009. More attention should be focused on the operational efficiency of the REIT manager in pushing every dollar of rent from the top down to the distribution level. CDLHT stands out as an efficient REIT manager with a remarkably close match between its revenue growth (222%) and DPU growth (211%), in our comparison.
• Overweight on S-REITs; top picks are PLife and CCT. With the strong selldown of REITs, we see an opportune time to accumulate positions. We maintain our Outperform ratings on A-REIT, CIT, FCT and PLIfe. We upgrade CCT and MLT to Outperform from Underperform and Neutral respectively. We maintain our Underperform on ART but downgrade CDLHT to Underperform from Neutral. While PLife remains our top pick for its limited earnings downside and strong financial flexibility, CCT emerges as a deep-value pick with the lowest P/BV of 0.28x among REITs under our coverage, and below the S-REIT average of 0.5x. We believe that all negatives have been priced in and forward yields at 12.2% (CY09) look attractive.
Link – Table
Cambridge – CIMB
Working on refinancing
• In line, management fees paid in cash. 3Q08 results were in line with consensus and our expectations. DPU of 1.49cts form 24% of our forecast of 6.14cts for FY08. Gross revenue of S$18.3m was up 35.8% yoy on full contribution of acquisitions completed earlier. YTD DPU of 4.6cts forms 75.2% of our full-year estimate, in line.
• 100% of management fees to be paid in cash. DPU for 3Q08 shrank 12.4% yoy from 1.7cts as the management had elected the full payout of management fees in cash, as opposed 65% in units and 35% in cash earlier. This was primarily to reduce dilutive effects to existing unit-holders.
• Expect FY09 cost of debt to rise. The management is working on refinancing of S$337m of debt due by Feb 09. Cost of funding is expected to increase significantly “with a corresponding reduction in distributions” although the quantum was not guided. Nonetheless, we expect CIT to be able to secure financing with significant stakeholder National Australia Bank possibly coming in as the lender of last resort.
• Changes to assumptions. As all of CIT’s leases are on long lease arrangements, we maintain our forward rental estimates. However we cut our FY08 acquisitions of S$95m to S$32m, as MOUs for the acquisitions of Natural Cool Lifestyle Hub and a private lot at Tuas South St 5 had lapsed. We also increase our cost of debt assumption from FY09 by an additional 300bps, in line with indicative market rates, and adjust for cash payment of management fees from 3Q08.
• Maintain Outperform at lower target price of S$0.52 (from S$0.90). Following our adjustments, our FY08-10 estimates decrease by 1-25%. We have a lower target price of S$0.52 (from S$0.90) based on DDM valuation at a higher discount of 9.6% (from 8%), which more accurately reflects industry and company specific risks vis-à-vis other REITs under our coverage. Despite our increase in cost of debt assumptions, forward dividend yield in FY09 remains attractive at 19.8% due to overselling of the stock. Yields for CIT remain the highest within the industrial REIT sector in FY08, and above average S-REIT yields at 15.2%. We remain positive on the relative resilience of the industrial sector anchored by its long weighted average remaining lease term of 5.9 years. Maintain Outperform.
Cambridge – BT
Cambridge Industrial Trust Management(CITM), the manager of Cambridge Industrial Trust (CIT), has announced a distribution of 1.490 cents per unit for the quarter July 1 2008 to Sept 30 2008.
Net property income exceeded forecast by 8.0 per cent while distributable income exceeded forecast by 8.2 per cent, it said. Its annualised DPU of 5.928 cents represents a 7.0 per cent increase over the forecast DPU for the same period.
Said Ang Poh Seong, CEO of the manager: ‘We are pleased to report another set of steady results for 3Q2008 despite the negative economic climate. These results underscore the defensive nature of the industrial sector in general and CIT in particular.’
At Sept 30 2008, CIT’s occupancy rate remains at 100 per cent and it is on track to complete its refinancing, it said.
Cambridge – CIMB
Steady income generator
• Assets have nearly doubled in size since listing. Listed on the SGX on 25 Jul 06, Cambridge Industrial Trust (CIT) is a real estate investment trust (REIT) that invests in income-producing industrial assets. Its assets have nearly doubled from S$519m at the time of listing to S$967m as at 30 Jun 08. Properties under management also increased from 27 to 43. All of CIT’s assets are located in Singapore. However, management has a mandate to acquire industrial properties in Asia.
• Visible earnings from long leases with built-in rent increases. Long lease tenures averaging 6.4 years, built-in rent increases, controlled property expenses as well as resilient demand from the manufacturing sector add visibility to CIT’s earnings in the medium term.
• Full shariah compliance positive for future funding. CIT is in the midst of conversion to full shariah compliance, which will enable it to cultivate a new investor pool when it raises capital or issues debt.
• Initiate with Outperform rating and target price of S$0.90. Using DDM valuation, we initiate coverage with a target price of S$0.90 (discount rate 8.0%, terminal growth 2%). This offers a total prospective return of 72% from potential price upside of 61% and a forward yield of 11%. Its current price of S$0.56 is at an all-time low since listing and a 29% discount to its NAV of S$0.79, representing an attractive entry point in view of its visible earnings and attractive dividend yields.
Link – Table
Cambridge – SGX
CIT COMMENCES EVICTION ACTION AGAINST OLIVINE MAGNETICS
Cambridge Industrial Trust Management (“CITM”), the manager of Cambridge Industrial Trust (“CIT”), on legal advice today commenced proceedings to evict Olivine Magnetics Pte Ltd (“Olivine”) from premises owned by CIT at 130 Joo Seng Road (“the Property”).
An on-demand bank guarantee held as a rental deposit in relation to the Property has already been called. CITM does not expect the eviction proceedings to have a material impact on the earnings of CIT. CIT intends to commence re-tenanting the property when eviction proceedings are complete; in particular CIT intends to commence negotiations with Olivine’s existing subtenants in the Property as soon as practicable.
On completion of the eviction proceedings, CIT’s occupancy across its portfolio will be 98.3%.