A-REIT – MayBank Kim Eng
Buffered for downside
- 3QFY3/14 results in line with market expectations.
- AREIT still has SGD93.6m worth of development and asset enhancement works, which are scheduled for completion in 1Q14-2Q15, serving as buffers for downside risk.
- Capital value still at risk. We see AREIT’s success closely intertwined with Singapore’s economic restructuring efforts. We reiterate HOLD with unchanged TP of SGD2.30.
Results in line with expectations
AREIT’s 9M revenue grew 6% YoY to SGD154m, constituting 76% of our and 74% of consensus estimates. The rise was attributable to rental income earned from The Galen, which was acquired at the end of FY3/13, rental income from Nexus@one-north, A-REIT City@Jinqiao and finance lease interest income received from a tenant. 9M DPU stayed flattish at 10.69 cents, forming 73% of our and 75% of market forecasts. AREIT achieved positive rental reversion in 3QFY3/14, averaging 9.7% across all segments of the portfolio. AREIT also announced a SGD11.1m asset enhancement work, The Alpha, with expected completion by Mar 2014.
Remain negative on industrial REITs
We see industrial REITs facing major downside risks from the impending hike in interest rates and possible recalibration of over-inflated property prices – both of which can drag NAV down. Other challenges include a fragile global macroeconomic outlook and ample supply in the pipeline. Iskandar Malaysia will also pose competition in the medium term, especially for lower value-added industrial activities within Singapore. We maintain HOLD with an unchanged DDM-derived target price of SGD2.30.
MLT – CIMB
First acquisition of the year
Amid a tight acquisition market, MLTrecently announced its proposed acquisition of an industrial warehouse in Iskandar Malaysia –itsfourth property in this areaupon completion. Although we are positiveon the deal, the impact onearningsis expected to be limited. We maintain our Hold ratingandDDM-based (discount rate: 8.1%) target price.
What Happened
MLT recently announced itsproposed acquisition of an industrial warehouse in Iskandar Malaysia from Mapletree Industrial Fund for RM88.5m (S$34.3m). This property comprises seven blocks of single-and double-storey industrial warehouses and one office block with a total GFA of 63,750 sqm. At the moment, theproperty is leased to a subsidiary of LCTH Corporation Bhd on a 12-year triple net lease, expiring in May 2020. At RM88.5m, this acquisition is expected to generate an initialNPI yield of 8.4% and shall be MLT’s fourth asset in Iskandar. Management highlighted that this acquisition will be funded by debt and is expected to be completedby 3QFY14/15.
What We Think
In view of thetight acquisition marketin Singapore, we view this dealpositively as MLT continues to receive support from its sponsor. The acquisition price is lower than the valued price of RM91m-95.4m, while the initial yield of 8.4% is higher than the implied property yield of 7.1% for MLT’s existing Malaysianportfolio. Based onour estimates, debt-funding for this acquisitionis expected to bring about growth in dividend of 0.085Sct/share (+1.2% from FY13 DPU) on a pro-forma basis. Upon completion, MLT’s leverage is expected to rise to a manageable 34.9%.
What You Should Do
This acquisitionforms part of our estimated debt-funded acquisition target of S$150m for FY14.Given the size of thedeal, we expect limitedimpact onFY14/15 earnings. We continue to recommend aHold as we await for more meaningful catalysts.
MLT – OCBC
Acquires Iskandar warehouse
- Initial NPI yield of 8.4%
- Acquisition to be DPU-accretive
- Fully funded by debt
Acquisition of warehouse in Iskandar Malaysia
Mapletree Logistics Trust (MLT) proposed to acquire an industrial warehouse in Iskandar Malaysia last Friday. The property was put up on sale via a closed tender exercise by Mapletree Industrial Fund, a closed-end fund managed by MLT’s sponsor. Hence, the acquisition is considered an interested party transaction. We note that the purchase price of RM$88.5m (~S$34.3m) is below the valuations of RM$91.0m-RM$95.4m by the two independent valuers. Management guided that the property is likely to generate an initial NPI yield of ~8.4%, higher than the implied yield of 7.1% for MLT’s existing Malaysia portfolio. We estimate the income from the asset will add 0.1 S cents to MLT’s DPU on an annualised basis, thus making the deal DPU-accretive.
Details on warehouse
The warehouse, which is located within Johor Technology Park in Zone E of Iskandar Malaysia, will mark MLT’s fourth asset in this special economic region. The property comprises seven blocks of single and double-storey industrial warehouses and one office block, and has a GFA of ~63,750 sqm. In addition, the asset is designed with good building specifications and is easily accessible via the North-South Highway and Senai Highway. At present, the property is leased to a subsidiary of LCTH Corporation Bhd on a 12-year triple net lease expiring in 2020, which is in turn sub-leased to a subsidiary of Nasdaq-listed Flextronics. Due to the long lease in place, the weighted average lease to expiry post acquisition is expected to improve to 5.0 years from 4.9 years, thus enhancing MLT’s earnings visibility
Maintain HOLD
Management intends to fund the acquisition wholly by debt, which should see its aggregate leverage increase marginally by 0.5ppt to 34.9% upon completion. However, we do not expect any near-term impact to its DPU and gearing given that the transaction is projected to complete by 3QFY15 (Dec 2014). Nevertheless, as we switch our valuation method from RNAV to DDM due to uncertainty in cap rate movement, our fair value on MLT drops from S$1.11 to S$1.06. Maintain HOLD.
Charities and Cause – 2013
Attention to Readers of Singapore REITs
Thank you for your kind support of our website. Year 2013 is coming to an end and this is the third year of our annual tradition to contribute back to our society. We have decided to donate our proceeds to the Children’s Aid Society.
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Saizen – AmFraser
Acquisitions supporting revenue and NPI growth. For the quarter ending Sep 2013, Saizen reported a 6.2% and 5.3% YoY increase in its gross revenue and net property income respectively. This was supported by the acquisitions of 5 properties between Nov 2012 and June 2013. We note that Saizen REIT’s Q1FY14 results were broadly within our expectations, with actual revenue and net property income 0.7% and 2% higher than our forecasts respectively.
Stability remains the key element at play. We are continuing to witness improvements in rent reversions from new contracts inked at Saizen REIT. Overall rent reversions of new contracts entered into Q1FY14 was marginally lower by about 0.3% from previous contracted rates (Q1FY13 and Q4FY13: lower by about 1.3% and 0.4% respectively). More notably, rent reversions have improved to positive 0.04% and 0.7% in Aug 2013 and Sep 2013 respectively ‐ an improvement from a negative reversion of 1.9% in July 2013. Average occupancy rates have also held steady at 91.2% in Q1FY14, compared with 91.7% in Q1FY13.
Yen depreciation remains a key risk. As it seeks to minimize the impact of the volatility in the JPY/SGD rate on its upcoming distributions, Saizen REIT has entered into a hedge for its distribution payment ending 31 Dec 2013 at S$81.15/JPY. For the subsequent distribution for the period ending June 2014, it has also been hedged at a rate between a cap of JPY82/S$ and JPY76.18/S$. We currently expect Saizen REIT’s H1FY14 DPU to increase by 8.7% YoY in yen terms. However, this will be offset by a 8.2% increase in the hedged rate compared to the corresponding period in H1FY13. Hence, in S$ terms, we expect Saizen REIT’s H1FY14 DPU to be largely fla