Category: Uncategorized
Fortune – OCBC
RAISE FV TO HK$7.28
- Strong 9M12, stable outlook
- Yield compression vs. physical property and peers
- Raise FV to HK$7.28; maintain BUY
Impressive 9M12
To recap, 9M12 DPU grew 23.1% YoY, the highest rate of growth in the REIT’s nine-year history. The performance was due to a three-pronged growth strategy: active lease management, yield-accretive acquisitions (e.g. FRT acuired Provident Square and Belvedere Square in mid-Feb) and asset enhancement initiatives with ROIs of at least 15%. Given stable retail space supply in the vicinity of its malls, we believe FRT has a positive operational outlook.
Yield compression versus physical property
As first analysed in our report dated 8 Oct 2012, FRT can see further dividend yield compression from unit price increases. On average, for the period 2003-2011 (excluding 2008), FRT’s DPU yield has been at 1.4x relative to the yield for HK physical retail property. Based on 1.4x, and given that the 2012 average annualized yield for physical retail property in HK is 2.7% (based on 9M12), this implies a possible yield of ~3.8% for FRT’s FY12F. At FRT’s current unit price, FY12F DPU yield is 4.9%. As such, there is potential upside for FRT’s unit price.
Yield compression versus peers
We believe that FRT’s FY13F DPU yield is attractive at 5.0%, especially compared to that of its closest HK peer, The LINK REIT, which has a consensus FY13F DPU yield of 3.7% (Bloomberg). It should be noted that HK’s 10-year government bond yield is 0.56%, versus 1.33% for Singapore. This means that the average FY13F DPU yield of 5.5% for local retail REITs implies a spread of 4.2%, tighter than the 4.4% spread for FRT. At an NAV per unit of HK$8.32, FRT is trading at a P/B of 0.80x, at a good discount to the overall local retail S-REITs’ P/B of 1.15x and The LINK’s P/B of 1.52x. Gearing is low at 24.6%.
Raise FV to HK$7.28
Adjusting our DDM model assumptions, which were previously conservative, we raise our fair value from HK$6.63 to HK$7.28 and maintain our BUY call on FRT. FRT is one of our top two picks among the retail S-REITs.
CMT – OCBC
LOADING FIREPOWER FOR GROWTH
- Equity cash call at premium to NAV
- Enhanced financial position
- Limited dilution to unit base
Successful private placement
CapitaMall Trust (CMT) had received the approval in-principle for the offering of new units in CMT pursuant to the private placement. The retail landlord had initially proposed to carry out a placement of 100.5m new units to raise gross proceeds of no less than S$200m, but the placement was upsized to 125m units due to positive market demand. Issue price was fixed at S$2.00 apiece, within the indicated issue price range of between S$1.99 and S$2.07, and represented a 4.8% discount to the adjusted volume weighted average price of S$2.10 on 21 Nov.
Greater financial flexibility
According to management, around 90% of the net proceeds of ~S$245.8m is expected to be used to fund capex and asset enhancement initiatives (AEIs) of its portfolio properties and refinancing of existing debts, while the remainder will be used for general corporate and working capital purposes. We are positive on the cash call as 1) it was done at a 22% premium to its NAV as at 30 Sep; 2) there is limited dilution given that the new units would constitute only 3.8% of its units outstanding; and 3) the placement will provide CMT greater financial capacity and flexibility to pursue its growth plans. We understand from management that CMT’s aggregate leverage is likely to be improved from 37.7% to 35.1%, assuming all the proceeds is used to repay its existing debts. We believe this will not only remove any price overhang in relation to its relatively high debt level but also enhance its capital structure and debt headroom.
Maintain BUY
We are adjusting our forecasts to incorporate the enlarged unit base as the trading of the new units is expected to commence today. Our fair value eases slightly from S$2.38 to S$2.30. However, we continue to like CMT for its quality portfolio, strong execution and growth profile. The Westgate development, we note, has already been 50% pre-leased well ahead of its opening by Dec 2013. Maintain BUY.
Suntec – BT
MBFC whets Reit appetite again
Move by Suntec Reit comes in wake of foray by K-Reit Asia
Suntec Real Estate Investment Trust is buying a one-third interest in some properties in Phase One of Marina Bay Financial Centre (MBFC) for $1.4958 billion or $2,568 per sq ft of net lettable area.
The sellers are Cheung Kong Holdings and Hutchison Whampoa, flagship companies of Hong Kong billionaire Li Ka-shing. Suntec Reit’s manager is part of ARA Asset Management which is in turn, linked to Cheung Kong.
The deal – anticipated by some industry players – comes just weeks after K-Reit Asia said it would buy a stake in MBFC Phase One from its parent Keppel Land.
Suntec Reit will be holding an extraordinary general meeting to obtain unit holders’ nod for the acquisition. If it wins approval, it will be getting a stake in two Grade A office towers, Marina Bay Link Mall and 695 carpark lots.
MBFC Phase One was jointly developed by Keppel Land, Hongkong Land and Cheung Kong/Hutchison Whampoa.
The $1.4958 billion which Suntec Reit is paying for the Cheung Kong/Hutchison Whampoa stake includes an income support of $113.9 million.
Suntec Reit is forking out slightly less than what valuers thought the MBFC stake (including the income support) was worth as at Sept 30 – CB Richard Ellis valued it at $1.496 billion and Knight Frank at $1.497 billion.
Excluding the net present value of the income support, the price would have worked out to $1.3977 billion or $2,400 psf.
Suntec Reit yesterday shared a few details about how it would fund the acquisition and how the deal could affect its earnings.
It said that it is reviewing various financing options, which include the issuance of units or debt securities. It also expects the acquisition ‘to improve the earnings and distributions for unit holders’.
According to Yeo See Kiat, CEO of Suntec Reit’s manager, the purchase will further diversify Suntec Reit’s income stream and increase its presence in the Marina Bay area.
‘The high quality attributes of the MBFC property would offer a good long-term growth potential,’ he added.
Unit holders can expect more information when Suntec Reit releases a circular on the deal. This should happen in the next few weeks.
Suntec Reit counts Park Mall, Chijmes, a one-third stake in One Raffles Quay (ORQ) and properties in Suntec City as part of its portfolio. The net lettable area from office space is around 1.9 million sq ft. This could increase to around 2.4 million sq ft after the acquisition.
Some market watchers have been expecting Suntec Reit to purchase the MBFC stake from Cheung Kong/Hutchison Whampoa, after K-Reit said it would buy Keppel Land’s stake for $1.4268 billion or $2,450 psf (which includes a $29 million rental support).
Without the income support, the price of the MBFC stake in that deal works out to $2,400 psf.
These observers were guided by what happened in July 2007 – both Reits had announced on the same day that they would each buy a one-third stake in ORQ.
ORQ was also jointly developed by Cheung Kong, Keppel Land and Hongkong Land. Suntec Reit bought its share from Cheung Kong; K-Reit received its stake from Keppel Land.
Now that Suntec Reit has declared its intention to buy the MBFC stake, analysts will be shifting their focus on working out the financial impact of the acquisition.
With details lacking, it is hard to assess the impact of the deal now, said CIMB analyst Janice Ding. But looking at Suntec Reit’s annualised distribution yield of 6.6 per cent for the third quarter ended Sept 30, she concluded that it might not be easy for the deal ‘to be immediately accretive on the distribution per unit level’.
Suntec Reit gained two cents yesterday to close at $1.56.