Industrial REITs – OCBC
4Q11 RESULTS ROUNDUP
•Results within expectations
•Performance likely to remain stable
•Sound fundamentals remain intact
Healthy quarterly results.
Industrial REITs continued to turn in encouraging sets of results for the financial quarter ended Dec 2011, in line with our expectations. Robust YoY growths of 4.3-14.4% in NPI and distributable income were registered across the REITs, driven by acquisitions, completion of development projects and positive rental reversions. On a QoQ basis, we observe that the REITs also delivered modest growth in their DPUs, as they continued to benefit from better operating performances and contributions from their recent acquisitions.
Expecting stable performance.
Going forward, we believe industrial REITs are likely to maintain their financial performances. While the uncertain global economic outlook and seventh consecutive monthly contraction in the manufacturing sector have likely caused industrial REITs to set more cautious tone on their outlook, we note that all the REITs have already been taking proactive measures to limit any negative impact from a potential market downturn.
Financial position still healthy.
A look at the industrial REITs’ operating performances also shows that their portfolios are still healthy thus far. As at 31 Dec 2011, the aggregate leverage for the industrial REIT subsector averaged at 34.6%, up by a slight 1.9ppt QoQ. However, industrial REITs are in a markedly better financial position now, in our view. Average subsector interest cover was maintained at a strong 6.3x, while borrowing cost of 3.1% was lower than the rates seen during the credit crunch.
Maintain OVERWEIGHT view.
For 2012, we note that only an estimated low S$276.6m (4.5%) of the industrial REIT subsector borrowings are due to expire. This translates to limited refinancing risks for the REITs. We are maintaining our OVERWEIGHT view on the industrial REIT subsector, as we believe fundamentals are still sound and financial performances are expected to stay resilient. CACHE remains our preferred pick, due to its relatively more robust portfolio, healthy aggregate leverage and attractive FY12F DPU yield of 8.9%.
FSL – BT
Defaulting lessees to impact NTA of FSL Trust
First Ship Lease Trust on Tuesday said that it has issued written notice to the three lessees of three chemical tankers who have defaulted on their lease payments under their respective lease agreements in February.
First Ship has demanded payment to be made no later than March 8.
The vessels, Pertiwi, Prita Dewi and Pujawati, were leased to wholly-owned subsidiaries of PT Berlian Laju Tanker Tbk (BLT).
Each lessee is obliged to pay the relevant charter hire due under the relevant lease agreement on the first day of each calendar month, and the obligations of the lessees under the lease agreements are guaranteed by BLT.
The lessees' contribution to FSL Trust's total revenue for FY2011 was 12.8 per cent and the default would have a material impact on the net tangible assets (NTA) per unit of FSL Trust.
Based on the financial statements announced for the year ended December 31, 2011, the NTA per unit is expected to decrease by US$0.03 from US$0.53 to US$0.50.
However, the default will not cause First Ship to be unable to continue to servie the debt obligations under its loan agreement.
Cambridge – DMG
Cambridge Industrial Trust 4Q11 Results Review
Full year results in-line with expectations. Cambridge Industrial Trust (CIT) released its FY11 results posting a gross revenue and distributable income of S$80.4m (+8.3% YoY) and S$50.4m (+12.7% YoY) respectively. NPI rose 6.2% to $69.1m on the back of higher rental income. DPU for the 4th quarter was reported to be 1.118 S¢ (+3.3% QoQ) bringing the entire year’s DPU to 4.237 S¢ (-13.4% YoY). The drop in DPU was mainly due to the enlargement of share base as a result of April 2011 rights issue. Separately, by completing the acquisition of 3C Toh Guan Road East, we expect the property to contribute c.0.15S¢ to FY12 DPU. Concurrently, by divesting 7 Ubi Close, CIT is able to put the acquired capital to better future investments. We maintain our BUY call with a DDM-based TP S$0.605, which posts a potential upside of c.20%.
Divestment of 7 Ubi Close. As part of the company’s efforts to recycle its capital for future investment opportunities, CIT has completed its divestment of 7 Ubi Close at S$18.7m. This price is a 2.2% premium to the latest valuation of S$18.3m as at 31st Dec 2011.We view this divestment positively as this is the only property in CIT’s portfolio which land lease is due to expire in less than 15 years.
Newly completed acquisition to begin contribution in 2Q12. CIT completed the acquisition of 3C Toh Guan Road East at S$35.5m on 30th Jan 2012. This industrial building adds another 192,864 sq ft of GFA to CIT’s portfolio and is currently leased to an anchor tenant for 3 years with an option to renew for a further 3 years. We expect this newly acquired property to contribute 0.15 S¢ to FY12 DPU.
Positive views on DPU growth in FY12. We view these results and new growth strategies positively and maintain our BUY call with a TP of S$0.605. Although CIT’s FY11 DPU has fallen by 13.4% YoY, the contribution from properties previously acquired together with these new strategies should allow CIT’s DPU to pick up in FY12.
PCRT – DBSV
Deepens exposure into Chengdu
• Seeks approval to buy 50% stake in Chengdu Longemont Mall
• Attractive pricing, financing flexibility minimises risk, strong total return potential
• Maintain Buy and S$0.83 TP
Acquiring Chengdu Longemont Mall at RMB10,000psm. In its latest circular issued to unitholders, PCRT is seeking unitholders’ approval for the acquisition of a 50% stake in Chengdu Longemont Mall (CLM) for RMB2.28bn. At the same time, it is also seeking approval for two other resolutions related to management fees and acquisition fees. To recap, in Nov 11, PCRT announced plans to buy a 50% share in CLM from the Summit Group for RMB2.28bn or a RMB10,000psm on a completed basis. In the latest circular, PCRT has also outlined the flexibility to upsize its stake in the mall to up to 80%, if transactional GFA falls 95% of the 455,260sm. In addition, the group has another option to buy a 50% share in another 544,740sm GFA in the Chengdu Longemont mixed-use project.
Attractive pricing with additional ‘Earn Out Support’ for better visibility on dividends. The deal will not only enable PCRT to expand its asset base at an attractive price but will also strengthen its retail presence and tenant network in Chengdu. Post acquisition, Chengdu will account for about 36% of its attributable GFA. It will be earnings and NAV accretive. We expect this transaction to generate a yield on cost of 8.4-10% when completed and fully occupied, an attractive level when compared to the market net cap rates of 6.5-7%. In addition, the flexible financing terms and fixed psm cost would enable the group to minimize risk of cost overruns during the construction period. Moreover, with an additional RMB226.5m from the new Earn Out Deed negotiated by the Trustee-Manager, this will boost Earn Out support to c90% of the anticipated distribution of the trust from FY11-1HFY13, thus providing unitholders with more stability and visibility on dividends. When
completed, we estimate CLM could add 10cts to RNAV to $0.93.
Strong total returns when malls become operational. PCRT offers investors a strong total return derived from NAV growth as well as yield when its malls are gradually developed and ramped up. The portfolio is currently 41% operational by GFA, rising to 54% and 63% by end FY12-FY13 and fully ramped up by end FY14. We have tweaked our distribution income to account for some changes in asset completion dates. At the current share price, the market is valuing PCRT’s existing portfolio at below replacement cost, at cRMB6,320psm. Maintain Buy with S$0.83 TP, based on a net present value of the existing portfolio value, assuming fully operational by FY14.
FCOT – AFR
Frasers wants all of Caroline Chisholm
Singapore-listed Frasers Commercial Trust is considering the purchase of the remaining half stake in the Caroline Chisholm Centre in Canberra, up for sale by Record Realty Group receiver KordaMentha.
The Singaporean trust, which owns the other half stake in the complex, could pick up the rest at a slight discount to the $95 million at which it holds its interest.
The trust initially picked up its stake in the tower at $108.75 million in mid- 2007, alongside Record Realty, when both were controlled by the now collapsed Alleo Finance Group.
The bulk of Record Realty’s Australian portfolio fell under the control of Bank of Scotland International. KordaMentha has already sold a series of towers out of the portfolio.
These include Melbourne’s St Kilda Road; one in Margaret Street, Brisbane, and global property manager RREEF Real Estate bought Sydney’s Exchange Centre for $186 million. The Singapore trust, known as Allco Commercial REIT (real estate investment trust) before Frasers took over management, emerged as the likely purchaser after talks with Sydney-based fund manager CorVal Partners ended.
CorVal, which is backed by property investor Andrew Roberts, best known as the former head of Multiplex Group, had been a contender to buy the stake.
CorVal has a good history with Canberra properties. It acquired Industry House in the city during the property crunch for $123 million. However, the Singapore trust is believed to have pursued the opportunity to take full control of the complex. It also owns a half stake in Central Park, a 47-level office tower on St George’s Terrace in Perth. But last year it sold its minority stake in the unlisted Wholesale Australian Property Fund.
The Caroline Chisholm Centre was designed as the headquarters for the federal Department of Human Services, formerly known as Centrelink.
The department has a lease for 18 years from July 2007 with 3 per cent annual reviews.
The premium-grade, five-storey, freestanding office building was completed in 2007 by Multiplex. The entire complex has a passing net income of $14.41 million and it has a net lettable area of about 40,244 square metres. John Marasco and Jim Shonk of Colliers International Property Consultants are marketing the property, but declined to comment as did Korda-Mentha and Frasers.
A sale would be the city’s largest this year as international groups appear set to dominate the early buying.
Property tycoon Lang Walker is advancing the sale of one his key Canberra holdings, the new 40,000 square metre headquarters of the Department of Education, Employment and Workplace Relations, to a Malaysian unit of CIMB-TrustCapital Advisors Singapore and pension fund Employees Provident Fund. The sale of the $230 million Canberra building, an A-grade complex at 50 Marcus Clarke Street, is likely to show a yield of 7.4 per cent. The department
has committed to a 15-year lease for the building.