PLife – DBSV
Acquires another 5 nursing homes in Japan
- Acquires a further 5 nursing homes in Japan
- Initial net yield of 7%, similar to existing Japan assets
- Acquisition price of JPY4.5bn (S$59.2m) funded fully via 6-year JPY debt
- Maintain HOLD, TP adjusted marginally to S$2.51
Expanding further into Japan. PREIT announced that it has entered into 2 conditional sales and purchase agreements to acquire a further five nursing homes in Japan for a total consideration of JPY4.5bn (S$59.2m). The average net property yield is 7%, and is roughly in line with its existing Japan assets. The purchase will be fully funded by a 6-year unsecured JPY loan at a cost of c.1.75%. With this acquisition, the REIT’s gearing will increase to about 34.8%, from 32% as of 31 July 2013.
Leveraging on an ageing population. The acquisition is expected to complete by end Oct 2013. With this latest acquisition, the PREIT’s Japan portfolio stands at 32.9% of the Group’s portfolio. The rationale for investing further in Japan is consistent with its past strategy and to leverage on Japan’s ageing population.
Fresh 20-year leases. Each of the nursing homes will enter into a fresh 20-year building lease with the operator. This will raise PREIT’s weighted lease expiry further to 11.14 years, from 10.69 years (as at July 2013), thus providing long term stability to the REIT’s lease structure.
SB REIT – AmFraser
We initiate coverage on Soilbuild Business Space REIT with a BUY recommendation and a target price of S$0.83. Soilbuild REIT is a Singapore real estate investment trust that comprises two business park assets and five light industrial properties. Distributions are on a quarterly basis and the first DPU is expected to be distributed on or before 27 Feb 2014.
A best‐in‐class business space portfolio. Characterized by an excellent connectivity to major transport nodes, longest weighted average leasehold term (WALE) for the underlying land of 50.6 years (versus industry average of 40 years) as well as its relatively young age, Soilbuild REIT clearly boasts a quality portfolio.
Defensiveness underpin yield sustainability. Soilbuild REIT is able to effectively capture rental upside at its multi‐tenanted properties while enjoying rent stability through its master leases, that comprises 30% of its IPO portfolio by NLA. The defensiveness of Soilbuild REIT is further enhanced by a diversified trade presence and lease expiry schedule. With built‐in rental step‐ups of 2‐3% per annum incorporated into its master leases, this provides Soilbuild REIT with greater income visibility and underpins the sustainability of its payouts.
Harnessing the increasing appeal of business parks. A key differentiating point of Soilbuild REIT from its industrial S‐REIT peers is its stronger exposure to the business park market, a compelling alternative to traditional office space. Business parks comprise 43.2% of Soilbuild REIT's portfolio valuation (versus peer average of 15.7%).
Initiate BUY with FV S$0.83. Our valuation is derived from a dividend discount model, that incorporates an assumed cost of equity of 7.8%. Current projected yield of 8.3% is highest among the industrial S‐REITs and represents an attractive yield spread of 570 basis points over the risk‐free rate.
FirstREIT – OCBC
Upgrade to BUY on valuation grounds
- Hospitals are well-equipped
- FY14F distribution yield of 8.3%
- Value has re-emerged
Indonesian properties visit
We visited five of First REIT’s (FREIT) properties (four hospitals and one hotel and country club) in Indonesia over a two-day period last week. This included its Siloam Hospitals TB Simatupang (SHTS), which is located in South Jakarta and acquired by FREIT only in May this year. The hospitals are operated by Siloam International Hospitals (subsidiary of Lippo Karawaci) and are generally well-maintained and equipped with modern medical equipment from international brands such as Siemens and Philips. For example, SHTS, Siloam Hospitals Lippo Village (SHLV) and Mochtar Riady Comprehensive Cancer Centre (MRCCC) all offer the 3-tesla magnetic resonance imaging (MRI) machines, which we consider as advanced in today’s medical field.
Floating rate exposure reduced following refinancing exercise
FREIT announced on 28 Aug 2013 that it had successfully refinanced S$92m of its floating rate debt to a 4-year fixed-rate secured Transferable Term Loan Facility (all-in cost of borrowing of ~3.7%). We estimate that this would lower FREIT’s floating rate exposure from 72% to 46% of its total debt. Following this successful refinancing exercise, FREIT’s next refinancing need will only come in 2016.
Share price correction overdone; upgrade to BUY
Concerns over Indonesia’s easing economic growth, high inflation and sharp depreciation in the IDR have adversely impacted stocks with large exposure to Indonesia, such as FREIT. Coupled with QE tapering fears, FREIT’s share price has dipped 28% since mid-May this year. However, FREIT has minimal exposure to the IDR volatility, in our view. This is because the base rental for its Indonesian properties is denominated in SGD, while the variable rental component is pegged to a fixed SGD/IDR rate throughout the entire lease tenure. We had also previously taken into account the spike in the Singapore government 10-year bond yield in our risk-free rate assumption (2.6% used in our model). We believe that the correction in FREIT’s share price is overdone. Hence we upgrade FREIT from Hold to BUY on valuation grounds, with an unchanged fair value estimate of S$1.20. FREIT also offers an attractive forecasted distribution yield of 7.6% in FY13 and 8.3% in FY14.
SPH REIT – DBSV
A class act
- Portfolio of landmark assets with resilient cashflows
- Backed by reputable sponsor, SPH with a visible acquisition pipeline
- Initiate with HOLD, TP S$0.97
Portfolio of landmark assets. SPH REIT offers investors a unique exposure to the retail and healthcare services industry in Singapore, backed by a portfolio of landmark high quality commercial assets. We believe that the REIT will provide a stable yield platform with growth potential from organic and inorganic means.
Strong resilient cashflow. Paragon, which enjoys a high degree of tenant retention, provides a strong resilient cashflow stream while Clementi Mall provides room for organic growth as it moves into its first rental reversion cycle in FY14. The latter, which enjoys very strong pedestrian footfalls and a lower-than-industry occupancy cost, is anticipated to renew its leases positively.
Backed by a reputable and strong Sponsor. The Sponsor of SPH REIT is Singapore Press Holdings, a leading media organisation. In addition, it has more than a decade-long track record in the property sector since acquiring Paragon in 1997. It has also provided a ROFR that includes The Seletar Mall, currently under construction, to the REIT. This has provided SPH REIT with a visible inorganic growth driver.
Initiate with HOLD, TP S$0.97. We initiate SPH REIT with a HOLD call, TP S$0.97 based on DCF. While FY13-14F Yields of 5.4-5.6% are attractive given its stability, the REIT is trading at a premium to other retail-focused SREITs, which currently offer yields in the range of 6.1%-6.5%. Upside risks to our forecasts will hinge on better than anticipated performance of Clementi Mall or acquisitions which we have not factored in.
HPH-Trust – OCBC
Safe harbour
- Strong cash flows from high quality ports
- Attractive distribution yield of 7%
- Initiate with BUY, US$0.76 target price
Market leader in the Pearl River Delta
Hutchison Port Holdings Trust (HPH Trust) is the biggest container port operator in China’s Pearl River Delta region by throughput, with market shares of around 70% at Hong Kong’s main Kwai Tsing Port and 47% in Shenzhen. The business trust enjoys the backing of sponsor Hutchison Port Holdings, one of the world’s biggest port operators and a subsidiary of HK-listed conglomerate Hutchison Whampoa, headed by billionaire Li Ka-shing.
Well-placed to ride rebound in world trade
HPH Trust owns interests in four deep-water container port assets – three at Hong Kong’s main Kwai Tsing Port and one in Shenzhen – with a combined throughput of some 22.9m TEU in 2012. We believe that its market dominance in the Pearl River Delta puts the trust in a strong position to capture the region’s trade flows of manufacturing exports and raw material imports, including intra-Asia cargo. HPH Trust is also likely to be a key beneficiary of the trend by shipping companies to deploy bigger vessels as they strive for greater economies of scale; its container terminals are situated in harbours with natural deep water approaches and are equipped with advanced equipment capable of serving even the world’s biggest vessels. Overall, we believe that HPH Trust is wellplaced to benefit from a rebound in international trade as the US and Europe economies recover, as well as continued growth in intra-Asia trade.
Recent price drop offers good entry point, decent upside
HPH Trust’s unit price has declined by 16% from its recent peak of US$0.86 on 2 Apr, hurt by concerns over the impact of strikes by port workers in Hong Kong in April and in Shenzhen earlier this week (both since resolved), and the weakness in the global economy. At the current price of US$0.725, we believe that the trust offers upside potential, including distributions, of more than 10% over the next 12 months as the recovery in the US and Europe gathers momentum. The main risk to our investment thesis in the short term is a renewed slowdown in these major economies. Still, we expect strong support for HPH Trust at its current price, given its attractive distribution yield of around 7%. Initiate with a BUY rating and US$0.76 target price.