FCOT – DBSV
Key to unlock value
• Approval granted to redevelop KeyPoint into a commercial and residential development
• Possible divestment could reap profit of up to c$68m
• Maintain Buy and S$1.05 TP
Keypoint secures approval for residential/commercial development. FCOT announced that the URA has granted an outline planning permission (OPP) for the redevelopment of KeyPoint subject to key terms and conditions including a minimum 60% of GFA allocated for residential use and a commercial portion of not more than 40% but not less than 20% of GFA. The application for the OPP was carried out as part of FCOT’s regular asset management review to identify assets that could potentially be enhanced and optimised.
More options on the cards, possible profit of up to S$68m if a sale materialises. While we acknowledge that any plans for the property is rather preliminary, we see this development as positive as OPP provides flexibility in restructuring and sharpening its portfolio and asset planning including the possible hotel development component at China Square Central. We believe that an option for potential divestment of the property, apart from selling the residential redevelopment component, could unlock value for the trust. Our report highlights two scenarios assuming sale of the property for redevelopment into residential/commercial based on configurations of 60/40 and 80/20. Our estimates show that the trust could potentially unlock up to S$39-68m of our forecast under these two scenarios. This is 14-24% higher than the latest valuation of S$283m for Keypoint.
Maintain Buy, TP unchanged at S$1.05. We continue to like FCOT for its undemanding valuation of 0.6x P/Bk with FY11-12F yields of 7.6-8.1%, 180-240 bps above peers’ average of 5.7%-5.8%. More importantly, we think that the manager has been stepping up to reshape the portfolio in the last 6 to 12 months including the divestment of nonperforming assets. Going forward, we see opportunities for the group to enhance its DPU including the imminent refinancing exercise, which would lead to interest savings.
HPH Trust – DBSV
COSCO Pacific July 2011 operating data – implications for HPH Trust
Operating statistics for ports co-owned by Cosco Pacific and HPH Trust indicate that Yantian throughput volumes fell 2.9% y-o-y in July 2011. This is in line with our expectations as we have already highlighted that y-o-y growth rates in July and August will not make for good reading, owing to the early onset of the peak shipping season in 2010. We expect the 2011 peak season to arrive later, end later and also be weaker than previously estimated, and have already reduced our full year FY11 volume growth projections for Yantian to 4% and HK to 5% from 6-7% previously, in our last report.
A look at the chart below illustrates the point about how we feel volumes will play out at Yantian Port in 2011, compared to 2010. As highlighted earlier, the peak in 2011 will be more traditional months of August to October, rather than the July-August peak we saw last year. July is already a much better month than June 2011, with volumes up 11% m-o-m.
The operating numbers also indicate that volumes at HPH Trust’s HK JV (COSCO-HIT) grew an impressive 8.7% y-o-y, and YTD performance at COSCO-HIT is above expectations (YTD throughput growth of 7.6%). As to data from Hong Kong port, we note that throughput growth at Kwai Tsing terminals came in at 2.8% for July 2011, and YTD growth stands at 2.9%. Given that competitor MTL has seen Maersk volumes shift partly to Nansha, we estimate HIT throughput growth to be comfortably tracking our 5% growth rate assumption for FY11.
Thus, we would prefer to look beyond the near term weakness in Yantian Port’s operating numbers and advise investors to accumulate the Trust at current bombed-out valuations (8.0% FY11 and 8.7% FY12 dividend yield). Current valuations seem to be implying negative trade growth and negative EBITDA growth of almost 20% in FY12, which we don’t think is a realistic possibility even if the world goes into similar levels of recession as in 2008-09. All we are expecting at this point of time is potentially slower-than-previously estimated economic growth and trade growth in the near-to-medium term, which does not justify the sharp selldown in HPH Trust’s shares.
Maintain BUY with TP of S$1.05.
Suntec – DBSV
Raises stake in Suntec Convention
• Takes effective 60.8% stake in Suntec Convention
• Accretive deal but impact depends on extent of AEI
• Maintain Buy and S$1.69 TP
Takes an effective 60.8% stake in Suntec Convention Centre. Suntec has announced it is buying a 51% stake in Harmony Partners Investments Ltd, which owns 80% of Suntec Spore International Convention Exhibition Centre for S$114.75m. Including its earlier 20% interest in the development, the deal will give the group an effective 60.8% stake in the convention centre. The vendors include Bright Assets Enterprise, Crescendo Investments, KCY Investments and Clavon Capital. The acquisition value is based on the latest valuation (by Colliers International) of S$400m for the property (vs the purchase valuation of $235m in Aug 2009). Suntec Convention comprises about 1msf of floor space spread over 6 levels.
Deal seems fair but accretion quantum depends on extent of AEI. We see the deal as accretive to Suntec given that the S$400m translates to an implied value of S$400psf for the prime floor space. Gaining majority ownership of the property would also enable the group to conduct AEI activities to improve the usage and efficiency of the property together with adjoining Suntec Mall more easily. However, the extent of the accretion would depend on further details on the potential AEI initiatives and capex required during this period. Suntec intends to fund the acquisition through debt, which will raise their see-through gearing to 41.6%, slightly ahead to the Sreit sector gearing level. In terms of immediate impact, there will be a boost to its book NAV from S$1.804 to S$1.87 given the higher value of its initial 20% stake, post revaluation. In addition, the greater ownership and contributions would increase its DPU by 1.2%.
Maintain Buy. We are retaining our Buy call on the stock. Suntec offers FY11 and FY12 DPU yield of 6.6% and is trading at undemanding 0.77x P/Bk NAV. Maintain Buy with TP of S$1.69.
PLife – Phillip
2QFY11 Results
•2Q11 revenue 21.4million, NPI $19.6m, distributable income $14.3m
•DPU for 2Q11 at 2.37 cents
•Revised annual pro-forma DPU up by 4.0-6.9% primarily due to interest cost saving
•Maintain hold recommendation with revised target price of $1.91
2Q11 results
PLife REIT reported revenue of $21.4 million (-0.5% q-q, +14.1% y-y), net property income (NPI) of $19.6 million (-0.6% q-q, +13.3% y-y), distributable income of $14.3 million (+0.1% qq, +13.4% y-y). DPU for the quarter was 2.37 cents (+0.1% q-q, +13.4% y-y). Gross revenue for 1H11 was broadly in line with our expectations, forming 48.9% of our full year estimates. The y-y increase in revenue was primarily due to the acquisitions made from last year to January 2011 and higher rent contributions from the existing properties. DPU has stabilized over the past three quarters since 4Q 2010, sustaining in the region of 2.36 to 2.38 cents. DPU improved slightly compared to 1Q11. This was partially due to lower trust expenses.
Minimum guaranteed rents for Singapore hospitals to escalate by 5.3%
5Th year minimum guaranteed rent is set to escalate by 5.3% for the period between 23 August 2011 and 22 August 2012. Singapore hospital properties contribute c.63% of total revenue and thus the rental escalation is a considerable increase to the overall portfolio revenue. On the other hand, high inflation in Singapore does not translate to lower net property income as the rising property expenses will be incurred by the head tenant thanks to the triple net lease arrangement.
Interest cost saving enhanced DPU growth
PLife REIT extended interest rate swap hedges with notional amount of S$208.6m (c.45% of its loan portfolio) for an average 3.5 years to capitalize on the low interest rate environment. This will bring about a reduction of effective all-in cost of debt from 1.96% to 1.65% with effect from August 2011. The interest cost saving will improve on the DPU.
Well-positioned to sail through the choppy wave
Long-term master lease structure, ample debt funding from diversified sources and downside revenue protection will serve as the defensive lines to ride through the global turmoils.
Valuation
We revised our model by taking into consideration of finance cost reduction and potential higher rental review for Singapore hospital properties for 2012 in relation to our previous estimates. The revision raised our annual pro-forma DPU across the board by 4.0 to 6.9%. Our target price is therefore lifted to $1.91. Maintain hold recommendation.
LMIR – BT
LMIR Trust’s Q2 DPU rises 4.9%
LIPPO-MAPLETREE Indonesia Retail Trust (LMIR Trust) has announced a distribution per unit (DPU) of 1.09 cents for the second quarter ended June 30, 2011, up 4.9 per cent from 1.04 cents a year ago.
Distributable income for the period totalled $11.86 million, a 5.5 per cent increase over $11.24 million in Q2 2010.
This represents an annualised DPU yield of about 7.1 per cent based on its Aug 4 closing price of 63.5 cents per unit.
Gross revenue in Q2 dropped 17.5 per cent from $40.15 million a year earlier to $33.11 million.
LMIR Trust cited two main reasons: the depreciation of the Indonesian rupiah as seen in foreign exchange rates used for translating revenues denominated in rupiah into Singapore dollars; and the fact that six months of service and charges receipt and utilities cost recovery income were recognised in Q2 2010, versus only three months in Q2 2011. This was because of a delay in transition of the malls’ operations from third-party operators in early 2010.
Net property income rose 4.3 per cent from $21.64 million in Q2 2010, to $22.57 million in Q2 2011.
First-half net property income increased 7 per cent from $41.98 million in H1 2010 to $44.92 million in H1 2011.
Said Vivien G Sitiabudi, chief executive officer of Lippo-Mapletree Indonesia Retail Trust Management: ‘LMIR Trust continues to benefit from the robust Indonesian economic environment which has resulted in rapid growth in income and consumption for the expanding middle class segment.’
Ms Sitiabudi also said that she expects demand for space in LMIR Trust’s malls to remain high.
‘Encouraged by the healthy 6.8 per cent growth forecast for Indonesia in 2011 and the rise in consumer confidence, local and international brands have continued to expand their business in strategic locations across Indonesia,’ she said.
LMIR Trust’s property portfolio comprises seven retail spaces and eight retail malls in Indonesia. The properties have a total net lettable area of 398,069 sq m, and a total valuation of $1.08 billion.
LMIR Trust closed 3.5 cents lower yesterday at 60 cents per unit on a day when Asian bourses took a severe beating following a sharp drop on Wall Street.