Sabana – Phillip
Global largest listed Shari’ah compliant REIT
Trust profile
Sabana Shari’ah Compliant Industrial Real Estate Investment Trust (Sabana REIT) is a Singapore-based REIT with a mandate to invest in income-producing industrial real estate and real estate-related assets in Singapore and Asia with compliance to Shari’ah investment principles. Sabana REIT is the first fully certified shari’ah-compliant REIT to adopt Gulf Cooperation Council (GCC) Shari’ah Compliant standards, and provide access to Islamic equity markets and diverse investor base.
Investment merits
• Revaluation surplus offers potential upside to net asset value per share (NAVPS) and may act as a re-rating catalyst to share price.
• Freight Link’s expertise in chemical warehouse & logistics give them an edge over its peers.
• Triple net master lease structures provide some form of security as the rental income is locked-in and likely to be stable and visible for the next three years.
• The adoption of GCC standards Shari’ah compliance provides additional access to Islamic equity market that is untapped by Shari’ah compliant REITs listed in Malaysia.
• Ample debt headroom leaves Sabana REIT in good position to take advantage of acquisition growth.
Potential risks
• Renewal of master leases in 2013 may pose a challenge to the management as 60% of the master leases based on the gross revenue will be expired in 2013.
• Listing of more Islamic REITs may compete with Sabana REIT. This may turn on the battle for the flow of funds from the Islamic equity market.
• Uncertainties in global economies could moderate Singapore economic growth. Manufacturing sector may experience a tepid expansion compared to last year.
Valuation
In view of the short land tenure for industrial properties, we ascribe a 9.5% discount rate to Sabana REIT. We initiate coverage on Sabana REIT with a fair value of $1.11, representing a potential upside of ~29% with the inclusion of FY11 dividend yield of 10%. The revaluation of properties this year is expected to increase owing to the buoyant industrial property market. We therefore opine that an increase in book value may act as a re-rating catalyst to the share price. With Sabana REIT set forth to cross $1 billion portfolio by the year end, further upsides are expected in the 2H 2011 to drive up the share price. Future acquisition is not priced into the model.
CRCT – DBSV
Strong SGD mute performance
• Robust revenue growth from strong rental reversions, but net impact eroded by strong SGD
• Healthy leasing market backed by AEI efforts and strong consumption
• Maintain Hold, S$1.29 TP
2Q11 in line. Gross revenue (in RMB) grew 10.9% yoy and NPI 11.3%. But a 7% stronger SGD led to smaller 3.8% and 4.1% reported numbers, respectively. The trust also recorded a 4.8% revaluation gain from Dec 2010. Excluding that, 2Q11 DPU increased by 3.9% to 2.15cts. Result was relatively flat qoq.
Reaping asset enhancement benefits. CRCT’s malls saw stronger 17% rental reversions for 104 new and renewal leases in Q2. Occupancy was stable at 98.1%. Tenant sales jumped 29.9% yoy (+2.1% qoq) on improving shopper traffic (+14% yoy, +2.5% qoq), supported by China’s robust consumption trend and growing urbanisation. The trust has another 320 leases, or 11.5% of gross income up for renewal in 2H11. With Saihan Mall in its 1st rental reversion cycle, and Wuhu and Xizhimen malls enjoying the benefits of earlier asset enhancement efforts, CRCT should continue to see positive rental reversions. The purchase of New Minzhong Leyuan Mall is completed and will see maiden contribution in 3Q11. Meanwhile, the trust has also successfully refinanced its RMB onshore term loan with an unsecured 3-year onshore term loan at a slight premium to PBOC rate.
Maintain HOLD, $1.29 TP. Balance sheet remains robust with 29.7% gearing post-placement. We nudged down DPU by <1% after imputing the enlarged unit base, which lowered our DCF value by 1ct to S$1.29. We are pleased with the result of the trust’s efforts to revamp its malls into multi-tenanted properties for better leverage to rising rents and retail sales, but its near term performance is likely to continue to be affected by the strong SGD.
New Reit – Kim Eng
New REIT in the making – Another property stock enters the spotlight. A news report today revealed that private developer Far East Organization (FEO) is said to be planning to raise at least $500m through the listing of its hotel and serviced residence assets in a REIT as early as next year. What is interesting is that one of the assets to be spun off into the REIT is Orchard Parade Hotel, owned by FEO’s listed entity, Orchard Parade Holdings (OPH). In fact, in a statement last evening, OPH confirmed that it is in preliminary discussion with FEO over the injection of assets into the REIT. Other assets owned by OPH include Albert Court Village Hotel near the upcoming Rochor MRT Station, and Central Square Village Residences along Havelock Road. Both would fit the REIT’s profile well. A possible scenario is the privatisation of OPH before the formation of the REIT next year. This is because the hospitality assets are worth an estimated $500m collectively, and that already makes up 90% of OPH’s current market capitalisation. We had earlier identified Orchard Parade as a potential privatisation target on the premise that the stock trades at a large discount to book and has substantial shareholders with deep pockets.
CRCT – BT
CRCT’s Q2 DPU rises 3.9%; gross revenue up 10.9%
Trust observing market, doesn’t rule out pursuing a yuan-denominated dual listing
CONSUMERS in China are spending and CapitaRetail China Trust (CRCT) has ridden on that trend to post strong results for the second quarter ended June 30.
As more property groups eye yuan-denominated real estate investment trust (Reit) listings, CRCT does not rule out pursuing a yuan-denominated dual listing itself, although it is only watching the market for now, said chief executive officer of the trust’s manager Tony Tan.
Mr Tan was speaking at a briefing yesterday.
In Q2, CRCT posted a 10.9 per cent increase in gross revenue over the year to 161 million yuan (S$30.4 million), as occupancies and tenant sales at its malls rose.
Net property income went up by 11.3 per cent to 108.1 million yuan. Income for distribution – converted to Singapore dollars – was $13.5 million, up 11.5 per cent from the previous year.
Distribution per unit (DPU) for the quarter rose 3.9 per cent to 2.15 Singapore cents, and the annualised DPU also climbed 3.9 per cent to 8.62 Singapore cents.
The annualised distribution yield, based on CRCT’s closing unit price of $1.22 on June 30, was 7.1 per cent.
For the first half, CRCT’s income for distribution rose 2.7 per cent over the year to $26.9 million.
DPU for the period increased by 2.1 per cent to 4.3 Singapore cents.
CRCT is positive about China’s retail sector, notwithstanding talk of a hard landing in the country earlier.
It drew confidence from the rental reversion it has seen – of the 104 leases it renewed in Q2, the average rental increase over preceding rents was 17 per cent.
‘It takes a while to get the tenant and the shopper to understand our malls. Once you get that traction – you always have this inflection point – then a lot of people would be interested,’ Mr Tan said.
‘I think we are just beginning to reach that point for some of the malls,’ he added.
Of late, yuan-denominated Reit listings in Hong Kong have come under the spotlight.
Asked if CRCT would pursue a yuan-denominated dual listing, Mr Tan said that it is observing the market and has not ruled out this option.
Such a listing would make sense for CRCT because its cash flows are in yuan, he said.
But he added that careful consideration was needed.
One thing he noted: The performance of Hui Xian Reit – Hong Kong’s first yuan-denominated IPO – has not matched the initial hype surrounding the listing.
CRCT closed unchanged on the stock market yesterday at $1.23.
CCT – DBSV
A “sweetener” in place
• 2Q results inline with expectations, on better operational performance
• Market Street CP redevelopment plans firmed up, call option to purchase remaining stake granted
• Maintain BUY, TP S$1.59
Results in line with expectation. On a yoy basis, 2Q gross revenue and NPI declined by 9.6% and 5.9% to S$91m and S$69.8m respectively. However, performance remained relatively stable on a qoq basis. Meanwhile, portfolio occupancy dropped marginally to 97.7% affected by 6 Battery Road AEI. The trust also recorded a revaluation gain of S$153.4m (+2.8% yo-y). Stripping that off, 2Q DPU was at 1.92cents, making up 56% of our FY11 numbers or 52% of street estimates.
Operations gaining traction. The trust has another 7.5% of its office leases (in terms of gross revenue) up for renewals for 2H11. With the recovery in office rents, the spread between current and expiring leases is narrowing, indicating lower downside risk from negative rental reversion. Meanwhile, precommitments for 6 Battery Road AEI had risen with 74,400sf or 79% of the total upgraded space (93,700sf) taken up.
MSCP redevelopment to commence in Sept. Tenants in the carpark had vacated the building since June 2011. A Grade ‘A’ office building will be jointly developed by MSO Trust, which is held by CapitaLand (50%), CCT (40%) and Mitsubishi Estate Asia (10%). Total development cost is expected to be S$1.4 b. The site, currently held by CCT, will be acquired by MSO at S$56m which is 5.1% above its latest valuation. CCT is also granted a call option to buy the completed asset within 3 years after the TOP date at the prevailing market value or not lower than 6.3% pa CAGR on the estimated cost of return.
Maintain our buy call with an unchanged TP at $1.59. Balance sheet is strong with a gearing of 26.9%. The group has also just completed its refinancing exercise for the year and should be in a good financial position to undertake the MSCP project, which will start in Sept. Our TP at $1.59 offers 14% total return.