A-Reit – BT
Ascendas Real Estate Investment Trust (A-Reit) on Monday reported a distributable income of S$61.6 million for the second quarter ended Sept 30. This is a 15.4 per cent increase from a year ago.
However, distribution per unit dropped 13.2 per cent year-on-year, from 4.01 cents in Q2 last year to 3.48 in Q2 this year.
CMT, CRCT – BT
CapitaMalls IPO set for year-end
FRESH details have emerged on CapitaLand’s plans to list its malls unit, CapitaLand Retail, which were first made public earlier this month.
South-east Asia’s biggest developer will list a stake of 25-30 per cent in its malls unit, to be renamed CapitaMalls Asia, by the year-end, chief executive Liew Mun Leong said yesterday.
Mr Liew, speaking on the sidelines of a conference, said that the listing would follow an extraordinary general meeting (EGM) of CapitaLand shareholders at the end of this month, who need to approve the flotation.
When CapitaLand first announced its plans for the listing, sources said that it could raise at least US$1 billion.
Rising consumer spending and increased presence of malls in countries such as China should mean ‘shopping malls will be the darling of real estate investing’ in Asia, Mr Liew said.
He said that the EGM would be followed by an investor roadshow. — Reuters
Suntec – DMG
Great connectivity, value not fully appreciated
Raising our target price to S$1.45 from S$1.24. Our DDM-backed target price reflects a lower cost-of-equity assumption of 9.1% (9.6% previously). We raised our FY09 DPU estimates to 10.52¢ from 9.91¢, as we assume 5% rental growth for Suntec City mall (-5% previously). Suntec will be reporting 3Q09 results on 27 Oct and we expect annualised DPU of 10.52¢, a marginal increase over FY08. Maintain BUY.
Healthy leasing activity. For 1H09, Suntec renewed and signed 375,000 sqft of office space. With this, the remaining office leases expiring in FY09 amounts to approximately 84,000 sq ft or 4.5% of the total office NLA. Suntec has seen healthy leasing activity, with eBay/PayPal taking a 28,000 sqft lease in Tower 5 (UBS’s former space). COSL Drilling, Interoil Singapore (oil & gas), Asia Green Capital (investment bank), Dan Bunkering (bunker trader) are among the new tenants at Suntec City.
Still under-rented but positive rental reversion unlikely to transpire. Passing rents for Suntec City office average about S$6/sqft, marginally below spot transactions of between S$6-7/sqft. Management acknowledged that it is clearly still a tenants’ market and the focus on tenant retention remains paramount. In our view, management will likely shift their focus to occupancy optimisation at the expense of rental rates, capping the likelihood of positive rental reversion in the coming quarters.
Retail reprieve on overall earnings. With retail contributing to 53% of overall income, we expect earnings prospects to remain favourable compared to CCT. We believe the spectre of higher retail footfall at Suntec City is likely to transpire when the Circle Line becomes fully operational in 2010. The opening of Esplanade and Promenade stations will materially enhance Suntec’s traffic footfall, a case that is currently seen in ION Orchard mall, given its connectivity with Orchard MRT. At current prices, Suntec offers investors an attractive dividend yield of 8.6% for FY10. Stock traded at 4.6% yield between 2005 and 2007. At our TP of S$1.45, stock still offers attractive yield of 6.5%.
FCT – DMG
Hunt for accretive acquisitions
Maintain BUY for its defensive strengths. FCT will be reporting 4QFY09 results on 22 Oct and we expect annualised DPU of 7.07¢, a 3.1% decline over FY08. Since July, FCT has been one of the best S-REIT performers with yields compressing by 100bps. We believe the major reason is that FCT is one of the most defensive plays among other REITs. Apart from its low stock beta (0.7x), FCT’s well-positioned portfolio of suburban retail assets offer a high degree of stability in terms of occupancies and cash flows. Its anchors are primarily dominated by non-discretionary retailers with an eclectic mix concentrated towards F&B and mass-market merchandising. Maintain BUY, TP: S$1.53.
New asset injection will raise AUM by 28%. We believe FCT is actively looking for acquisition opportunities and we expect Northpoint 2 and YewTee Point to be acquired within the next 12 months. We value both assets at ~S$300m, with NPI yields between 5.7-6.1%, above its WACC cost of 5.2%. With the acquisitions, FCT’s AUM will grow by 28% to S$1.4b by end-2010.
FCT has a robust balance sheet with no debt due for refinancing until Jul 2011 when its S$260m CMBS matures. Its S$58m RCF will be paid down using its MTN proceeds, bringing overall gearing to 29.5%. With a current equity cost of 6.2%, we believe acquisitions will likely be funded using both debt and equity. We understand that secured debt has an interest cost of ~3.8%. We estimate a 50:50 equity/debt combination will improve DPU yield by 40-60bp, whilst lifting gearing to only 32.4%.
Expanded AUM may address liquidity and compress yields further. The acquisition of these malls is expected to be accretive and will strengthen FCT’s retail oligopoly status in the northern region of Singapore. With an expanded AUM and equity base, concerns over FCT’s poor stock liquidity will be addressed. We expect a further re-rating on the stock as yields could compress closer to its 5% heyday levels seen in 2006-08. Our TP accounts for the two acquisitions based on the above assumptions. At our TP, FCT trades at 5% FY10 yield, a reasonable peg, in our view. Stock traded at 4.6% during heydays of 2006 and 2007.
A-REIT – DMG
Laggard to A-REIT
Attractive yields and valuations despite strong rally. We raise our TP to S$0.64 from S$0.61 on the back of lower cost-of-equity assumption. CREIT will be reporting 3Q09 results on 27 Oct and we expect annualised DPU of 5.09¢, a 15.5% decline over FY08. The fall in DPU is due to the higher refinancing cost that was concluded at end-2008. Whilst stock price has doubled since March underpinned by its successful refinancing, CREIT still trades at attractive FY10 yields of 11.4%. Maintain BUY.
Defensive business structure is a relative strength. CREIT remains our top pick within the small cap S-REIT space. We favour it for its bondlike characteristics anchored by: 1) long tenant leases of 5.1 years; 2) high levels of bank-guaranteed security deposits of 16 months; 3) built-in portfolio rental escalation of 2% pa; 4) high occupancy and diversified tenant mix; and 5) 51% of portfolio sublet providing second layer of income support. Besides, its existing interest costs are hedged for the next three years, minimising interest rate fluctuation risks. CREIT does not have any debt expiring until Feb 2012.
Further devaluation – an unlikely event! CREIT’s portfolio was written down by 9% to S$880m following a 50bps increase in cap rate used by property valuers. This resulted in its gearing rising to 44% in 2Q09 from 40% in 1Q09, and a lower book value of S$0.62/share (S$0.74/share previously). CREIT’s portfolio was valued based on a cap rate of 6.75-7.75%. We believe the vulnerability of further rises in cap rate is low, backed by its built-in step-up rental leasing arrangements and low risk free instrument yields.
A laggard to A-REIT – room for further yield compression. CREIT’s dividends are well supported by rental guarantees and step-up rental agreements. Prior to the credit crisis, CREIT traded at 140bp yield premium over A-REIT. That gap now stands at 440bp, suggesting that it is very much a laggard play. At our TP of S$0.64, CREIT offers an attractive FY10 yield of 8%, a reasonable peg in our view. Recall: A-REIT offers a recursive yield of 6.5% at our TP estimate of S$2.05.