Mapletree Commercial Trust – BT
Mapletree Commercial Trust gearing up for $1b IPO?
MAPLETREE Commercial Trust, the owner of properties including VivoCity, hired banks for a $1 billion initial share sale this quarter, said a person with knowledge of the matter.
The trust, a unit of Mapletree Investments Pte, hired CIMB Group Holdings Bhd, Citigroup Inc, DBS Group Holdings Ltd, Deutsche Bank AG, and Goldman Sachs Group Inc as advisers on the sale, the person said, asking not to be identified as details are private.
Mapletree Commercial Trust's listing would follow a similar sale by Mapletree's industrial property unit, Mapletree Industrial Trust Ltd, which raised $938.5 million in October.
Mapletree Industrial units, sold to investors at 93 Singapore cents, closed one cent down at $1.06 yesterday.
The chief financial officer of Mapletree Investments, Wong Mun Hoong, said in October that Mapletree Commercial Trusts' initial public offering (IPO) would be ready by the first half of 2011.
The Wall Street Journal reported the IPO yesterday, citing people it didn't identify.
Mapletree Investments is the real estate unit of investment company Temasek Holdings Pte. — Bloomberg
ART – DBSV
Poised for bigger things
• Enhanced earnings stability via European portfolio purchase
• Organic growth drivers present, +9% DPU boost to forecast in FY11
• Pursuing further growth through acquisitions in Pan Asia region
• BUY, TP S$1.38 offers a total return of 16%
Earnings stability from European assets. After the acquisition of the European portfolio from its sponsor, Ascott REIT will enjoy greater earnings stability and visibility, with average length of stay increasing to 2 years. Going forward, we estimate that 40% of its EBITDA will be backed by master leases/income guarantee structures.
9% growth in DPU in 2011, one of the strongest amongst SREIT peers. Growth from (i) rebounding travel demand across its Pan Asia portfolio (contributing 60%of FY11F EBITDA) with Singapore as the strongest performer given its robust outlook post opening of the 2 IRs, boosted by the opening of its newly refurbished rooms and newly acquired Citadines Mount Sophia, (ii) London (contributing 11% of FY11F EBITDA) to show sustained growth in RevPAU upon the phased completion of its refurbishment exercise at Citadines South Kensington & Holborn-Covent Garden properties, coupled with improving operating environment.
Pursuing acquisitions. After consolidating the European acquisitions, the focus will be on opportunities in the Pan Asia region to grow its exposure in “growth” economies, where the serviced residences concept thrives. The sponsor, Ascott Limited continues to offer a source of acquisition possibilities, estimated at over S$1.5bn in assets (over 6,000 units), which we believe could be injected opportunistically in the medium term.
BUY call maintained, TP S$1.38 offers total return of 16% We believe Ascott REIT has emerged stronger after its recent acquisitions and continues to offer good exposure to the robust travel market in Asia. FY11F-13F yields of 6.1-6.8% remain attractive, with further upside from potential execution of accretive acquisitions, which we have not factored in our forecasts.
FirstREIT – OCBC
Leveraging on strong healthcare fundamentals
Good quality assets. First REIT (FREIT) owns ten healthcarerelated properties across Indonesia and Singapore. It derives some 86.4% of its gross revenues from Indonesia, with the remainder coming from Singapore. We believe that FREIT is well-positioned to capitalise on the growing demand for higher quality healthcare from the middle-class in Indonesia as well as increasing eldercare needs in Singapore. With a well-defined acquisition strategy, FREIT has managed to complete the acquisitions of two Indonesian hospitals recently which we view as yield-accretive in nature.
Strong and committed sponsor. We believe that FREIT would benefit largely from the support of its sponsor PT Lippo Karawaci Tbk (Lippo), which is the largest listed property company in Indonesia by total assets, revenue, net profit and market capitalisation. Lippo accounts for 86.4% of FREIT’s FY09 gross rental income, and we see this as a level of income reliability for FREIT. Given Lippo’s increasing commitment towards healthcare, we opine that this augurs well for FREIT. This is because FREIT has a right of first refusal on any assets sold by Lippo, which signifies the potential of quality hospital acquisitions out of Lippo’s pipeline.
Steady and sustainable income. FREIT has delivered consistent and stable distribution per unit (DPU) to its unitholders since its SGX-listing. We attribute this largely to the favourable master lease terms of its assets. All the master leases have a long tenure, 100% committed occupancy and are on a triple net basis, which has allowed FREIT to enjoy net property income (NPI) margins of 99.0% and above. Its leases are subjected to a yearly rental revision, which provides downside protection for its rental income. Moreover, FREIT has fixed the SGD-IDR exchange rate for its rental income, thus eliminating any forex risk.
Potential upside ahead; initiate with BUY. We believe that FREIT represents a compelling investment story at current valuations. This is driven by its income stability as well as the positive prospects of Indonesia and Singapore’s healthcare sector. We are sanguine about the committed support which Lippo provides and the potential assets in FREIT’s pipeline. We also like management’s strong execution capabilities and FREIT’s attractive distribution yield, which is well above the S-REIT average. Our RNAV-derived fair value estimate of S$0.84 yields a potential upside of 13.7% and a total return of 22.6%. As such, we initiate coverage on FREIT with a BUY rating.
SREITs – DMG
Low interest environment supportive of SREITs
Low interest rate environment will support SREITs prices in 2011. Interest in SREITs have stemmed from the above average yield spreads, a result of 10-yr government bond yields dipping to as low as 1.9% in Aug 2010. (Although yields have since risen to 2.7% at end 2010, current yield spreads are wider than pre-crisis). The low interest rate environment is expected to persist, going into 2011, and hence we expect prices to be supported as investors continue to pursue yields. Investors are also likely to be attracted to assets that offer an inflation hedge by allowing for continuous re-pricing of cash flows with a dynamic earnings model.
Tourism to be pillar of economic growth in 2011. Casino revenues are expected to almost double to reach US$5.5b in 2011, their first full year of operations. Tourist arrivals are expected to chalk up another 10% increase in 2011, with the continuing draw of the casinos as well as the reopening of the Battlestar Galatica ride at Universal Studios Singapore and launch of other key attractions. Corporate travel and meetings are also expected to ramp up, in view of improved economic conditions. MICE events are expected to become increasingly Asia-centric and Singapore is well positioned to become a regional MICE hub. MICE players including the integrated resorts have reported 20% increase in event sales in 2010 and a strong pipeline of events till 2012. We thus expect hospitality counters, such as CDLHT (BUY/TP: S$2.39) to benefit from the influx of visitors, given its portfolio of hotels are well-located near the CBD and IRs.
Strong recovery in prime office rents. Office rents are chalking up increasing rates of growth, since turning the corner in 2Q2010. Prime rents are reported to have hit S$9.35 in 4Q, a 7.5% increase QoQ. Concerns about large volumes of shadow space coming on-stream when tenants vacate to move into new schemes have dissipated, on the back of brisk leasing activities. Suntec (BUY/TP:S$1.71) has reported strong increases in its Suntec City office occupancy, reaching 98.1% in 3Q2010 while CCT (NEUTRAL) is confident that take up would come from both existing tenants expanding and newcomers. With economic growth expected to continue going into 2011 and Singapore’s raised profile as a financial centre and gateway to the rest of Asia, office rents are expected to be on a strong uptrend and Suntec is well poised to benefit from the acquisition of MBFC Phase 1.
Retail and Industrial rents will see marginal increase. Outlook for both retail and industrial sector has improved in tandem with the economy, though reined in by the potential huge supply. We expect Orchard Road rents to start making marginal increases in 2011, as demand catches up with the large supply added in 2009 and 2010, while Suburban mall rents will continue to be supported by strong wage growth, albeit tempered by 2.1m sq ft new supply coming on-line. In 2011, 16.4m sq ft of industrial space is expected to come on-stream, compare to the pre-crisis demand of 16m sq ft, implying marginal rent increases at best.
Suntec – OCBC
One of the Highest-Leveraged S-REITs; Maintain HOLD
Performance in 2010. Suntec REIT has made a total distribution of 9.266 S-cents1 , for the period from 1 Jan 2010 to 8 Dec 2010, with an average DPU yield of 7.1%2 . It share price has also appreciated 11.9% YoY, from a low of S$1.23 on 25 May to a high of S$1.56 on 29 Oct. It has recently completed its acquisition of a one-third interest in MBFC1, which is financed 72% by a loan facility (S$1,105 m) and 25% by private placement of new units (S$428.2m). Its private placement was 3.1x oversubscribed on 29 Nov at an issue price of S$1.37, bearing testimony to investor’s confidence in its latest “Premium Grade A” assets acquisition.
Moody’s downgrade. Nonetheless, Moody downgraded Suntec’s corporate family-rating from Baa1 to Baa2 and its senior unsecured ratings from Baa2 to Baa3 on 15 Dec. The downgrade reflected the substantially debt-funded acquisition of the one-third stake in MBFC1, which will weaken Suntec’s financial profile, by increasing its aggregate leverage ratio from 33% to 41.5%3 . At the same time, Moody’s also expects Debt/EBITDA to increase to 9-10x, up from 8.3x, with EBITDA/Interest around 3-3.5x (from 4.3x) over the next two years
Retail slide looming. On the portfolio end, the completion of the Circle Line MRT asset enhancement works at Suntec City was less favorable than expected. We noticed that retail crowds have thinned considerably, especially in the evenings and weekends (when there are no major shows at Suntec Convention). It appears that the ‘rejuvenation of Orchard Road’ has stolen much of the traffic, and Suntec City Mall now relies heavily on its office-catchment during weekdays. If the trend persists, this may impact rental income, considering that Suntec derives some 53% of its total gross revenue from retail rentals and 47% from office leases. We think that the MBFC1 acquisition will help to boost the proportion of office to retail mix for Suntec, and help mitigate some of the topline effects of thinning traffic at Suntec City Mall, but this is, nonetheless, still a temporary fix.
Maintain HOLD. We recognize that the MBFC1 transaction has long-term strategic benefits, and provides Suntec with exposure to “Premium Grade A” properties in Singapore. The acquisition will also enable greater income diversification, with NPI contribution from Suntec City estimated to reduce from 75.9% to 58.9%. However, the initial NPI yield of 4% in FY11 provides little upside in comparison with its average distribution yield of 7.1%, in our opinion. At 41.5% gearing, it is also one of the highest leveraged S-REITs among the 25 listed on SGX, with little debt headroom for further acquisitions in 2011. Maintain HOLD with a revised fair value of S$1.55.
1 Computed based on summing the quarterly DPUs and Advanced DPU.
2 Computed based on Total DPU (Annualized) divided by Average Closing Price from 4 Jan to 8 Dec 2010.
3 Assuming that proceeds are not used for repaying the One Raffles Quay Pte Ltd (ORQPL) shareholder’s loan.