Category: MP REIT
MMP – SGX
MMP REIT REPORTS DPU OF 1.50 CENTS FOR 2Q 2007
HIGHLIGHTS
• 2Q 2007 DPU of 1.50 cents exceeds 2Q 2006 DPU of 1.44 cents by 4.2%
• Significant NAV uplift of 9.8% from revaluation of Singapore properties
• Affirmed Moody’s corporate rating of Baa1 reflects high quality of assets and provides operational and acquisition funding flexibility
SINGAPORE, 26 July 2007 – Macquarie Pacific Star, the Manager of MMP REIT – the S-Reit with the biggest presence in Orchard Road – today announced MMP REIT’s second quarter (2Q 2007) Distribution Per Unit (DPU) of 1.50 cents. Meanwhile, a revaluation of its prime Orchard Road properties raised Net Asset Value (NAV) by 9.8%.
The DPU of 1.50 cents for the period 1 April to 30 June 2007 is 4.2% higher compared to the 1.44 cents achieved for the previous corresponding period. It also beats MMP REIT’s previous record of 1.47 cents achieved for the past two consecutive quarters of 4Q 2006 and 1Q 2007. On an annualised basis, the latest distribution represents a yield of 4.81%.1
Compared to 2Q 2006, gross revenue rose 5.5% to S$23.6 million, due mainly to higher-than-expected rents achieved for retail space in the basement of Wisma Atria, as well as for office space. Contributions from six newly acquired properties in Tokyo, Japan, were also booked for the first time. Net property income was higher at S$17.9 million, despitehigher year-on-year expenses mainly attributed to higher commission paid for new and renewal leases, increased tenancy costs arising from re-positioning of tenant mix, and continued depreciation charges on the escalators that were installed at Wisma Atria’s basement in end 2006.
NAV per unit was S$1.27 as at 30 June 2007, an increase of 9.5% from NAV per unit of S$1.16 as at 31 March 2007. The valuation of MMP REIT’s two prime Orchard Road properties increased by 7.3% from S$1.498 billion in December 2006 to S$1.608 billion as at 30 June 2007, resulting in a revaluation surplus of S$110 million.
Mr Franklin Heng, Chief Executive Officer of Macquarie Pacific Star, said, “Since listing in September 2005, MMP REIT has consistently outperformed IPO projections. For each of the past two quarters, we have paid out record DPU of 1.47 cents. We are pleased to continue to deliver increased returns to unitholders in 2Q 2007 with the DPU of 1.50 cents, a 4.2% increase from DPU of 1.44 cents in 2Q 2006. Total returns for unitholders who have held MMP REIT units since its listing stand at 38.1%.
“In the second quarter of 2007 occupancy for both our retail and office portfolio in Singapore remained high with higher turnover rent contributions from retail tenants during the start of the Great Singapore Sale. In addition, 58,100 sq ft of office renewals and new leases, contracted at an average 60% increase over previous rents, came into effect during the first half of 2007. Asset enhancement at Level 2 in Wisma Atria is now complete, offering shoppers better circulation and an enhanced shopping experience. On an annualised basis, we will achieve a 43% increase in gross revenue from the reconfigured space.”
Portfolio growth strategies
Commenting on organic growth prospects for MMP REIT’s Singapore portfolio, Mr Heng said, “We have started pre-marketing of some 16,781 sq ft of retail space at Level 5 of Ngee Ann City, which will be vacated by the National Library in end February 2008. The average monthly rent of this lease is below prevailing market rates. The space will be reconfigured with a compelling retail concept embracing fashion, beauty and wellness, complementing the existing offering at Ngee Ann City. We are very encouraged by the response from retailers thus far.
“Contributions from the six newly acquired properties in Tokyo commenced in the beginning of June. We expect to deliver greater value to unitholders when income from these properties is fully recognised in the subsequent months.
“Moody’s Investor Service’s affirmation of the Baa1 rating for MMP REIT in May 2007 reiterates the high quality of MMP REIT’s portfolio, which we are building up with acquisitions in the region. The positive rating endorses our proactive asset management and multipronged investment strategy.”
Mr Heng added, “Going forward, we will continue to actively source for more assets in our key target markets, with a view to further diversify MMP REIT’s asset base and earnings stream geographically.”
1 Based on last traded unit price of S$1.25 on 26 July 2007
Source : SGX
MMP – DBS
Looking forward to next year’s bonus
Potential bonus for MMP next year – Toshin lease renewal. We highlight a key point in terms of organic growth for MMP, with its master lease with Toshin up for renewal in June 08. The master lease is expiring in 2013 with an option to renew for another 12 years. Under the lease arrangement, rents are reviewed every three years with a maximum upward revision of 25%. With the master lease currently under-rented at around the S$11 psf level, we think there is a potential for the next rental review to edge towards the higher end of the 25% cap on positive rental revision.
Acquisitions momentum still at an early stage? To recap, MMP has recently begun its cross-border acquisition growth path with i) acquisition of a portfolio of seven properties in Japan for MMP’s debut deal; and ii) 50% of retail asset, Renhe Spring Department Store for RMB150m in Chengdu. Moving forward, MMP has also secured ROFR on vendor Renhe’s property ventures, which could imply an alternative acquisition pipeline for MMP gaining more momentum moving forward in terms of acquisitions in the absence of a developer sponsorship.
Enjoying office rental reversions. With the very tight office supply situation in the CBD, other alternative office locations are also enjoying positive spillovers. Asking rents for Wisma Atria and Ngee Ann City are already at S$13 and S$12 respectively and we expect closing rents to edge upwards.
Maintain Buy with raised TP of S$1.48. We are raising our target price on the premise of two factors: I) Assuming a base case scenario of bargaining power shared between landlord and tenant, we now impute a potential rise in retail rentals for the Toshin lease to 12.5% when the renewal is up; and ii) higher imputed office rents of S$11 and S$12 for Ngee Ann City and Wisma Atria respectively. This leads to our higher DCF-based target price of S$1.48 and maintain our Buy recommendation. Key risks to our recommendation include i) inability by the REIT manager to secure positive renewal rates for the Toshin lease and ii) acquisitions from third-party assets do not gather pace to imply growth justifying yield compression.
MMP – Nomura
MM PRIME, nomura remains STRONG BUY with target price $1.54 (from $1.52)
SREITS – OCBC
Surprise rule change on REIT M&A. In our 2007 strategy report dated 11 Dec 2006 “M&A theme a strong possibility in 2007/08”, we had articulated that M&A could be another avenue for growth. This scenario is now coming closer to reality with the Securities Industry Council’s (SIC) surprise announcement on Friday that it will extend the Singapore Code of Takeover & Mergers to REITs. This move is significant as it means that there is now clarity on M&A rules for S-REITs. Now anyone who acquires 30% or more of any REIT must make a general offer (GO) for the remaining units. Furthermore, anyone who owns 30%-50% of any REIT and acquires a further 1% of the units must also make a GO for the rest of the units.
Market getting more competitive. The key issue with the high-beta REITs such as CCT, MLT, CMT, ART, AREIT is the ability of the managers to meet market growth expectation. This is particularly so in a property up-cycle where fewer properties are available to be acquired. Some are venturing overseas, while others remain domestic focus (AREIT, Cambridge). Another avenue for asset size growth is via own development (AREIT, CMT), but this is a riskier strategy and is constrained by REIT guidelines. However with the SIC rule change on M&A, the REIT manager has another avenue to meet market’s growth expectations
A function of risk appetite. In our opinion, the market has segmented SREITs into two camps, i.e. REITs with high and low growth expectations. The key differentiating factor is the P/B ratio. We see potential for both camps, and the choice for investors for either is a function of their risk appetite. The high-beta REITs are those with high P/B ratio. As the market has already priced in growth, the risks are higher. On the other hand lowbeta REITs, we see minimal downside risks. In fact with them now being eyed as targets for acquisitions, we see a strong upside possibilities.
Potential winners in M&A. We see the likely winners in the new M&A rules to be those trading with higher yield and low price to book relative to their peers in the same sector. We see these REITs to be Allco, Cambridge, Macarthur, MM Prime and First REIT. (Winston Liew)
MMP
COMPLETION OF ACQUISITION OF PORTFOLIO OF SIX PROPERTIES IN TOKYO