LMIR – OCBC
3Q10 in line; investment case still compelling
3Q10 in line. LMIR Trust (LMIR) reported 53% YoY gains in 3Q revenue to S$33.8m, thanks to the collection of additional income from services charges receipt / utilities cost recovery on seven retail malls with the 31 Dec expiry of an operating costs agreement in place at listing. This income was offset by the additional costs incurred relating to the maintenance and operation of the malls. Revenue fell 15.9% QoQ but recall that 2Q10 results had reflected the full six months effect for 1H10 due to a delay in the transfer of operations. Net property income of S$22.2m was up 14.5% YoY and 2.7% QoQ, boosted by the strong Indonesian Rupiah (IDR) against the Singapore Dollar (SGD).
DPU of 1.09 S cents. DPU fell 10.7% YoY but gained 4.8% QoQ to 1.09 S cents. The manager attributed this to the appreciation in the IDR, which has caused the gap between the hedged rate on distributions and the physical rate to reverse unfavorably in the last five quarters. LMIR booked a realized (cash) forex loss this quarter of S$2.9m versus a loss of S$2.4m in 2Q10 and a loss of S$0.4m in 3Q09. DPU was just 2.8% ahead of our 1.06 S cents estimate.
Portfolio performance stable. Occupancy at LMIR’s retail malls ticked up 70 basis points from 97.1% at 30 Jun to 98.1% at 30 Sep. This compares favorably to the Jakarta average occupancy of 84.5% (ex strata-title malls) as of Sep 20101 . We note that while some new supply is coming up in the region, the manager was unperturbed due to location and/or positioning factors. It also cited an environment of increasing confidence, with more retailers exploring expansion options. We understand LMIR is also exploring asset enhancement opportunities at some of its existing malls.
Valuation. LMIR is up 9.1% since our last report on 30 Jul. We have revised our earnings estimates upwards marginally. At the same time, we have relaxed our discount rate inputs to better reflect improved market conditions. These factors push our fair value estimate up from S$0.52 to S$0.60 (still at a 20% discount to our SOTP value for LMIR). The investment case for LMIR remains compelling, in our opinion, considering the Indonesia consumption story; LMIR’s defensive portfolio; and the potential for growth on the back of its strong balance sheet (10.8% leverage) and attractive sponsor / third-party pipelines. With 19% estimated total return, maintain BUY.
Industrial REITs – OCBC
Common themes of 3QCY10 results; OVERWEIGHT
Positive Outlook. At 3QCY10 results, we found a few common themes in the guidance given by the industrial REIT managers: positive outlook, strengthening rents, acquisitions and equity fund raising (EFR). The unifying motivation is to capitalise on the recovery cycle that will both strengthen the REITs and also grow distributable income.
Economic conditions remain favourable. Non-oil domestic exports (NODX) grew 23% YoY in Sep 10. Manufacturing output also increased 26.2% YoY. Going forward, the government remains committed to keep manufacturing as a key economic-driver in Singapore with new stimuli to raise the productivity and image of the different industries. These include a new branding campaign called the “We Can Movement” to attract talent to the logistics/SCM industry and the commitment to inject $16.1b over the next five years to support research, innovation and enterprise in the biomedicalsciences, electronics, info-communications, as well as other “white spaces”.
Industrial rents strengthening. The 3Q10 price and rental indices of industrial space continue to improve by 8.3% and 4.8% QoQ, respectively. Rental rates for business parks moderated slightly to S$3.65 psf pm while both light industrial and warehouse rental rates improved by 6.5% and 3.3% to S$1.65 psf pm and S$1.55 psf pm, respectively. With improved rail connectivity to the suburban regions, we also expect further upside to the industrial buildings situated near the upcoming MRT lines (Downtown, Thomson, Eastern Region).
Acquisitions are back on the table. Mapletree Logistics Trust (MLT) has acquired some 11 properties in Asia YTD on the back of a S$305m EFR launched in Sep 10. A-REIT has also completed the acquisition of 31 Joo Koon Circle and DBS Asia Hub for S$131m in Apr 10. Cambridge Industrial Trust is undergoing a S$50.4m EFR presently to fund the acquisition of 25 Tai-Seng Avenue, 511/513 Yishun Industrial Park A and two other potential sites for S$73.2m. In addition, the two newly-listed REITs this year, Cache Logistics Trust and Mapletree Industrial Trust may be silent for now, but we look forward to them contributing actively to the acquisition pot progressively.
Valuations. The industrial sector typically lags the office sector by a few quarters. With the upbeat momentum in the office space, Industrial REITs stand to capitalise on the spillovers to business parks, high-tech and light industrial buildings. In terms of forward yields, Industrial REITs also trade at a premium of 70 basis points to the broader sector. We are bullish on the industrial sector recovery and now have an OVERWEIGHT rating for the Industrial REITs subsector. Top of our pick is Mapletree Logistics Trust (MLT) with a fair value estimate of S$0.97.
AIMSAMPIREIT – SGX
Sale of 23 Changi South Avenue 2 Singapore 486443 above independently appraised value
- Sale price: S$16.7 million
- Book value as at 30 September 2010: S$16.2 million
- Sale expected to complete in January 2011
- Provides opportunity for future investment opportunities
- In the interim, net sale proceeds will be used to repay debt under the Trust’s newly established revolving credit facility, reducing aggregate leverage to approximately 33.4% from approximately 34.8%
- Continued execution of Manager’s strategy to maximise returns for unitholders
AIMS AMP Capital Industrial REIT Management Limited, the manager (the "Manager") of AIMS AMP Capital Industrial REIT (the "Trust") wishes to announce that HSBC Institutional Trust Services (Singapore) Limited, in its capacity as trustee of AIMSAMPIREIT (the "Trustee"), has today issued an option (the "Option") to Premier Land (East) Pte. Ltd. (the "Purchaser") for the sale (“Sale”) of 23 Changi South Avenue 2 486443 (“Property”) for a consideration of S$16.7 million (the "Sale
Consideration").
The book value of the Property is S$16.2 million based on an independent appraisal by CBRE as at 30 September 2010.
Principal terms of the Sale
The Purchaser has today paid to the Trust S$167,000, equivalent to 1.0% of the Sale Consideration, as a non refundable option fee. The Purchaser will pay S$1.5 million, equivalent to 9.0% of the Sale Consideration, on exercise of the Option on or before 16 November 2010. The balance of the Sale Consideration will be paid in cash on completion of the Sale, which is expected to take place in January 2011.The completion of the Sale is conditional upon, among others, the approval of JTC Corporation to the Sale.
Rationale for the Sale
The Sale is consistent with the Manager’s strategy of recycling the Trust’s capital to maximise returns for unitholders. The Manager adopts a proactive approach towards managing the Trust’s properties with a view to enhancing their quality and value. The approach includes identifying properties within the Trust’s portfolio which have reached the optimal stage of their life cycle for divestment. This allows the Manager to free up capital to provide the Trust with greater financial flexibility for future investment opportunities.
Use of Sale proceeds
The Sale proceeds, net of sale related costs, will be used to repay debt under the Trust’s newly established revolving credit facility, reducing aggregate leverage to approximately 33.4% from approximately 34.8%. This increased headroom will provide the Trust with greater financial flexibility for future investment opportunities.
CDLH-Trust – BT
CDLHT hotels enjoy strong demand
CDL Hospitality Trusts (CDLHT) achieved a record average occupancy rate of 91.6 per cent for its five Singapore hotels in the third quarter of this year, up 5.5 percentage points from the same year-ago period following strong visitor arrivals growth in Singapore.
Average daily rate rose 23.4 per cent over the same period, while room revenue per available room (RevPAR) for the Singapore properties rose 31.2 per cent year on year to $199 in Q3.
Helped by the improved performance of its Singapore hotels and a $4.3 million contribution from the Australian hotels acquired in Q1 this year, CDLHT’s gross revenue rose 38.4 per cent year on year to $31.6 million in Q3. Net property income swelled 40.9 per cent year on year to $30.16 million. Income available for distribution to stapled-security holders increased 44.6 per cent to $26.9 million but CDLHT is retaining $2.694 million for working capital (to fund refurbishment and other capital expenditure). Income available for distribution to stapled-security holders after deducting the retained sum increased 42.8 per cent to $24.2 million, reflecting distribution per unit of 2.54 cents for Q3. On an annualised basis, this works out to 10.08 cents, translating to an annualised distribution yield of 4.69 per cent based on CDLHT’s closing price of $2.15 as at Oct 28. The counter ended one cent lower at $2.14 yesterday.
CDLHT, which makes distributions semi-annually, will not be making a payout for Q3.
The trust owns five hotels in Singapore – Orchard, Grand Copthorne Waterfront, M, Copthorne King’s and Novotel Clarke Quay – and Orchard Hotel Shopping Arcade. It also owns Rendezvous Hotel Auckland and five hotels in Brisbane and Perth.
For the first nine months of 2010, gross revenue rose 35.6 per cent year-on-year to $88.95 million. Income available for distribution (less income retained for working capital) climbed 32.6 per cent to $65.4 million.
Standard Chartered Bank said in a report yesterday: ‘With gearing of 21 per cent and its entire portfolio of $1.74 billion of assets unencumbered, we think (CDLHT) can make any acquisition highly accretive. Potential acquisitions include Studio M at about $150 million from the sponsor (Millennium & Copthorne Hotels) within the next six months.’
Office REITs – OCBC
The Going gets Exciting as Competition Heats Up
Office rents strengthening. Office rents continued to strengthen in 3Q10 after turning around in the 2Q10. According to CRBE, Prime-Office rents averaged $7.40 psf/month, up from $6.90 psf/month in the previous quarter; Grade-A rents also rose 6.5% QoQ to average $9.00 psf/month. Major leasing deals were principally concentrated on new Grade-A developments. Financial institutions, legal firms, insurance and professional services remained the major source of occupier demand. Investment activity in the office market also warmed up. Improving visibility of the office recovery and rental cycle stand to benefit the four local Office REITs, namely Suntec REIT [BUY, FV: S$1.64], CapitaCommercial Trust (CMT) [HOLD, FV: S$1.52], K-REIT Asia [NOT RATED] and Frasers Commercial Trust (FCOT) [NOT RATED].
MBFC – the place to be at. K-REIT Asia and Suntec REIT intend to each acquire a one-third interest in Marina Bay Financial Centre (MBFC) Phase-One, constituting Towers 1 and 2, Marina Bay Link Mall and slightly less than 700 carpark lots. Excluding rental support, both are paying about $2400 psf for Singapore’s latest iconic development. MBFC is deemed a strategic acquisition on the back government’s commitment to pump more than S$1b into infrastructure works to support Marina Bay’s growth over the next 10-15 years and increasingly greater demand for Grade-A office space in Singapore. Noticeably, the acquisitions, if successful, will also propel Suntec’s investment properties to ~$5.8b, surpassing CCT’s S$5.2b (as reported in 3QFY10 results). K-REIT Asia’s investment properties, accounting for the divestment of both Keppel and GE Towers, will also levitate above S$2b from the current $1.38b. We view these two enlarged REITs as not only upping the stakes but also exerting pressure on CCT and FCOT, who have yet to announce any local acquisitions YTD.
Valuation. Office-REITs trade at an average forward yield of 5.6% and an average-price-to-book of 0.80x, which compares favourably to the broader S-REIT sector of 0.952x. We have a BUY rating on Suntec due to its wider exposure to the revitalizing Marina Bay area and improved quality of its office space (more Grade-A exposure) and we like K-REIT for similar reasons. We also noted that CCT is sitting on a cash pile of some S$731m following the sales of Robinson-Point and StarHub-Centre and certainly has the financial muscle for new acquisitions. In addition, we feel that market attitude towards Office REITs is turning due to increased leasing activity, better employment outlook and proactive lease management tactics taken by office landlords. We remain upbeat on the office sector recovery; and now have an OVERWEIGHT rating for the Office-REITs subsector.