MLT – OCBC
Stellar 4Q10 results by our 2011 top S-REITs pick
Stellar 4Q10 results. Mapletree Logistics Trust (MLT) reported a set of stellar 4Q10 results last evening, with mostly double-digit growth figures. 4Q10 gross revenue of S$61m was up 20.1% YoY and 11.9% QoQ. Net property income of S$53.8m rose 19.8% YoY and 13.0% QoQ. Distributable income of S$36.8m was up 15.8% YoY and 16.9% QoQ. Its results were boosted by positive contributions from recent acquisitions, lower vacancy rates and further positive rental reversions across MLT’s portfolio. As at 31 Dec 2010, MLT recorded portfolio occupancy of 98%. 4Q 2010 also saw a further increase in the occupancy rate of Malaysia from approximately 95% to 99%.
Most prolific industrial REIT acquirer. For FY 2010, MapletreeLog continued to focus on acquiring yield accretive assets that complement its portfolio. During the year, MapletreeLog completed 14 acquisitions in Singapore, Japan, South Korea and Vietnam. It now has 96 properties, comprising 54 properties in Singapore, eight in Hong Kong, six in China, 11 in Malaysia, 14 in Japan, two in South Korea and one in Vietnam. The diversification in terms of geography and customer mix further adds stability and resilience to the portfolio. These acquisitions are yield accretive with NPI yields ranging from 7% to 10%. Singapore, Hong Kong and Japan remained the key contributors to the portfolio, contributing close to 90% of MLT’s NPI.
Still compelling. In line with our OVERWEIGHT rating for the Industrial REITs subsector, we think MLT will continue to ride on Asia’s recovery cycle and benefit from positive rental reversions in FY11-FY12. Asia is expected to lead the industrial recovery due to increasing trade flows and domestic consumption in China (+Hong Kong) and Vietnam, which constitute 25% of MLT’s NPI. MLT has a proven track record in executing a virtuous cycle of accretive acquisitions and competitive fund-raising. Going forward, MLT is seeking to capitalise on the growth potential of the Middle East, India and Indonesia through acquisitions and working with the Sponsor in greenfield developments. Mapletree Investments and Itochu also plan to develop logistics built-to-suit projects of approximately US$300-500m over the next 3-5 years, which will be offered to MLT on a right-of-first refusal basis, further providing MLT with a pipeline of potential assets for future acquisitions. The manager also believes that a significant portion of the future growth will come from its repeat customers; and will continue to invest in and expand customer relationship and cater to their real estate needs throughout Asia. Currently, repeat customers account for 25% MLT’s gross revenue. Maintain BUY with an increased RNAV-derived fair value of S$1.03 (prev: S$1.00; total return of 11.42%).
K-REIT – DBSV
Acquisition-led growth
• FY10 earnings lifted by new acquisitions
• Robust earnings visibility, addressing earnings growth
• Maintain Hold with TP of $1.24
Achieved 4Q10 DPU of 1.7cts. Kreit reported a marginal 2% qoq drop in revenue to S$21.4m in Q4 from sale of KTGE Towers. However, NPI remained flat at S$17.5m, inclusive of a small marginal impact from MBFC1 and 77 king St in Australia as these acquisitions were completed in the latter part of Dec. Contributions from these assets helped to offset the income vacuum from sale of KTGE Towers. Lower financing costs of 2.75% (vs 3.4% in Q3) helped boost distribution income by 2% to S$23.2m, translating to a DPU of 1.71Scts. The group also took in a revaluation surplus of S$32m, lifting book NAV to $1.48. Overall occupancy rate remained robust at 97%
Long WALE provides income visibility, addressing earnings growth via strategic acquisitions. Looking ahead, Kreit will continue to benefit from the improved office leasing market. Its weighted average lease to expiry of 7.65 years provides good income visibility. However, near term renewals of 7% of NLA this year, largely from Prudential Tower and Bugis Junction, with another 8% of leases due for rent review, could limit short-term organic rental growth. In addition, the anticipated expiry of income support from ORQ by end FY11/early FY12 could mean moderated earnings growth. As such, we expect the group to remain on the lookout for strategic accretive pan-Asian acquisition opportunities. Gearing as at end Dec 2010 stands at 37%.
Maintain Hold. Although we see limited earnings upside, the improving office rental market and capital value cycle is likely to benefit the group’s underlying asset value in the medium term. This will underpin Kreit’s valuation and share price. Maintain Hold with a DCF-backed TP of S$1.24.
PLife – DBSV
Still going strong
• Management shared updates and growth plans at our well-attended conference in Singapore last week
• Affirmed our beliefs that management will deliver growth through acquisitions and AEI
• Separately, we expect 4Q10 DPU to be at least 2.28 Scts (+11% yoy); results due on 24 Jan
• Raised FY11F/12F DPU by c.2%/3%; Maintain Buy, TP: S$1.90
Growth through acquisitions and AEI. PREIT’s investor meetings during our Pulse of Asia conference last week were very well attended by almost 40 fund managers/analysts. The meetings reaffirmed our views that PREIT’s growth will be from acquisitions in Japan and Malaysia, as well as higher rentals in Singapore amid higher CPI. Management has been evaluating possible entry into Australia but has yet to finalize any suitable deal. Asset enhancement will also be part of management initiatives going forward. With its active debt management, further lowering of their funding cost is possible. We believe many investors were pleased to hear from management that fund raising, if any, will be timed with acquisition, rather than pre-emptively to the market.
4Q results preview; we expect 2.28 Scts DPU. Separately, PREIT will announce their 4Q/FY10 results on 24 Jan. We do not expect any surprises. Based on our estimates, we are expecting 4Q DPU to be at least 2.28cts (+11% yoy, +3% qoq), totaling 8.7 cts for FY10 (FY09: 7.74cts).
Maintain Buy, TP: S$1.90. At current price, shares are trading at a premium c.1.3x P/NAV. This, in our view, arises from a scarcity of quality healthcare assets, as well as expectations on management to deliver on acquisitions. We are confident that management will meet market expectations. We raised our FY11F/ 12F DPU by 2%/ 3% on higher CPI assumption of 3.2% for 2011, lower all-in interest costs and lower potential dilution from equity raising due to the higher share price since our last report on 6 Oct’10. We are still assuming acquisition of S$200m around mid-2011, funded by 70%/30% equity/debt.
MLT – BT
MapletreeLog eyes Mid-East, India, Indonesia
MAPLETREE Logistics Trust (MapletreeLog) is keen to venture into new markets – the Middle East, India and Indonesia – after a busy year of acquisitions.
The industrial real estate investment trust shared these plans yesterday as it posted higher earnings for the fourth quarter ended Dec 31, 2010.
Gross revenue in Q4 was $61 million, rising 20 per cent year-on-year with the help of contributions from 14 properties purchased in the past year.
Net property income grew 20 per cent to $53.8 million, driving total amount distributable to unitholders up 16 per cent to $36.8 million.
Distribution per unit (DPU) in Q4 was 1.55 cents, down from 1.59 cents a year ago. The latter was boosted by a one-time consideration from Prima Limited to extend its leases at a property. Excluding this one-time payment, the DPU in Q4 2009 would have been 1.48 cents, translating to a year-on-year growth in Q4 2010.
MapletreeLog had 96 properties spread across Singapore, Hong Kong, Japan, China, Malaysia, South Korea and Vietnam as at Dec 31. The total book value was $3.5 billion.
Its portfolio has grown with asset purchases. The Reit started the financial year with 82 properties, carrying a book value of $2.9 billion.
MapletreeLog intends to ‘capitalise on the growth potential of the Middle East, India and Indonesia through acquisitions’, said Richard Lai, CEO of the Reit manager. It also has plans to work with its sponsor Mapletree Investments on greenfield developments.
For the full year ended Dec 31, MapletreeLog reported a net property income of $193 million, up 7 per cent from the previous year.
Total amount distributable to unitholders was $130.1 million, rising 10 per cent. DPU for the year was 6.09 cents, higher than the 6.02 cents a year ago.
MapletreeLog’s aggregate leverage as at Dec 31 was 37.7 per cent, dipping from 39.9 per cent a quarter ago. Its target leverage for the medium term is 40-50 per cent.
The weighted average occupancy rate across its portfolio at Dec 31 was about 98 per cent, unchanged from a quarter ago. Shares of MapletreeLog lost half a cent yesterday to close at 98 cents.
K-REIT – BT
K-Reit results in Q4 boosted by acquisitions
Distributable income surges 19% to $23.2 million
K-REIT Asia yesterday posted improved results for the fourth quarter ended Dec 31, 2010, as acquisitions boosted earnings.
Property income for the office real estate investment trust was $21.4 million in Q4, up 26 per cent from a year ago.
This was largely due to contributions from six strata floors at Prudential Tower which K-Reit bought in November 2009, as well as contributions from a 50 per cent stake in 275 George Street in Australia which the Reit purchased in March last year.
As a result, net property income rose 30 per cent over the same period to $17.5 million.
Distributable income to unitholders went up 19 per cent to $23.2 million. This translated to a distribution per unit of 1.71 cents, which is 18 per cent higher year-on-year.
For the full year ended Dec 31, K-Reit’s net property income was $67.3 million, rising 38 per cent from the previous year.
This pushed distributable income to unitholders up 21 per cent to $85.6 million. The DPU was 6.37 cents, up 21 per cent.
Based on K-Reit’s closing unit price of $1.41 at Dec 31, the distribution yield for the year would be 4.5 per cent.
The counter ended trading at $1.44 yesterday, unchanged from the previous day.
The commercial property market has picked up as the economy recovered. K-Reit, citing figures from CB Richard Ellis, noted that Grade A offices commanded an average monthly rent of $9.90 per square foot (psf) in December last year, up from $8.10 a year ago.
Nevertheless, office rents are still below the heights reached in the boom years before the financial crisis. This has led to concerns that office landlords could be hit by negative rental reversions when leases expire this year.
According to K-Reit, average monthly rents across its portfolio in Singapore range from $8 to $9.40 per square foot. It expects rental renewals this year to be within this range.
The office leasing market is vibrant, with tenants committing to leases more quickly and rents rising considerably, said Ng Hsueh Ling, CEO of K-Reit’s manager, at a briefing yesterday.
The occupancy rate for K-Reit’s entire portfolio was 97 per cent as at Dec 31, dropping from 99.2 per cent a quarter ago. The dip happened partly as the portfolio grew to include the office tower at 77 King Street, which was 76.7 per cent leased.
K-Reit’s aggregate leverage at Dec 31 was 37 per cent. The Reit is comfortable with this level, Ms Ng said.