Category: FCT
FCT – DBS
Stability and Growth
• Primed for growth from potential pipeline
• BUY for growth + stability, TP of S$0.97 offers 18% total return
have to be yield accretive to the portfolio and to unitholders. In addition, other than Northpoint 2, Yew Tee Point, another sub-urban mall, has recently been completed. If these 2 assets are injected into FCT, its portfolio NLA could potentially grow by up to c.23%.
FCT – CIMB
Suburban malls to stay resilient
• Maintain Outperform. Our site visits to FCT’s three properties show occupancy and traffic count remaining high. Only finishing touches to asset enhancement works for North Point are left, with most of the tenants in the fitting-out stage now. Retail space is 94% committed despite expectations of weak retail sales growth, while renewed rents and new leases in Northpoint were up 14% in 1H09.
• Outlook for FCT’s properties remains positive. Despite a negative macro environment, we believe that suburban retail malls such as FCT’s will be resilient with no significant new supply in the suburbs, limited lease expiries in 2009 and stepped-up rents incorporated in 86% of its leases.
• Changes in estimates. We increase our occupancy estimate for North Point to 85% from 70% in view of full occupancy from 2H09; and rental growth assumptions across the portfolio to 3% in FY11 from 2%, on expectations of improved economic conditions.
• DDM-derived target price of S$1.12 (from S$1.06). Our DPU estimates increase by 5-5.6% for FY09-11. We also use a lower discount rate of 9.2% from 9.4% earlier with the application of a lower risk-free rate of 4.8% across our REIT universe. Our DDM-derived target price rises accordingly to S$1.12.
REITs – JPM
More fund raisings to come?
• Starhill Global REIT (SGREIT SP; NR) to raise equity. SGREIT announced that it proposes to raise S$337million through 1-for-1 rights issue at S$0.35 per rights unit. The fund raising will be fully underwritten with YTL Corporation committing to up to 75% of the total number of rights unit. Proceeds from the rights issue, according to management, will be used to pare down some of its existing debt, and to capitalise on AEI and acquisition opportunities.
• S$5bn capital raised for the sector, how much more do we need? We estimate that S$5bn capital has been raised from the S-REIT sector with S$2.9bn from equity capital market and S$2.1bn from debt capital market (including debt extension) The sector is currently geared at 31% with interest coverage ratio comfortably at above 4.0x on our estimates, with no more debt refinancing for most of the S-REITs over the next 6 months. That said, we are still looking for about S$1bn equity capital to be raised in the space to convert some of the debt to permanent capital.
• Opportunistic capital raising to come? Despite the substantial amount of equities being raised YTD, J.P. Morgan S-REITs index has increased by 30% since its March low. Share prices for some of the S-MID cap REITs have more than doubled from the trough, which in our view could help to propel management’s decision on potential opportunistic equity capital raisings. In addition, the ever closing gap between the listed and public real estate could provide trust management with more reasons to further strengthen its balance sheet.
• Our top picks for large-cap S-REITs remain A-REIT and CMT, which we believe would generate more than 15% in total return at this level. Our picks amongst the SMID-cap S-REITs are FCT and AIT.
Link – Tables