Suntec – DBS
No surprises
Story: Suntec’s 20% yoy jump in topline to $61.4m was in line with street estimates, lifted by positive rental growth and contributions from ORQ. NPI grew by a stronger 25% thanks to a lower expense ratio of c26% during the quarter. As a result, distribution income surged to $43.9m (DPU: 2.85cts). The group revalued its properties up by 6.5%, translating to a book NAV of $2.26. Its 1/3 share in ORQ was also revised up to $2719psf.
Point: The group continued to enjoy positive rental reversions from its new and renewal office leases at Suntec and Park Mall as average passing rents are still significantly below current asking levels. Meanwhile, retail rents have also continued trending up on the back of AEIs and organic improvements. Going forward, the office leasing market has grown more challenging with moderating demand and slower economic growth. An estimated 30% and 24% of portfolio NLA is due to be renewed over FY09-10. While rents and occupancy are likely to come under pressure, the large gap between new and previous levels should partially offset the slack in income. With retail operations anticipated to be increasingly competitive and with c42% of retail leases up for renewal in FY09, we believe growth in retail revenue, which accounts for 57% of topline, is likely to decelerate. In tandem with the slower environment, plans to redevelop Park Mall are shelved in view of the dampened industry and credit environment, as is the move to acquire additional strata units at Suntec office. While gearing is not high at 32%, refinancing activities will be focused on with $825m of debt (44% of total) maturing next year, largely at Dec 2009.
Relevance: Suntec is offering FY09 and FY10 DPU yield of 14-16% and 0.3x P/bk NAV, in line with other office and retail S-reits. While valuations are compelling, given the lack of near term drivers, we maintain our Hold call with a target price of $0.88, based on a 20% discount to RNAV of $1.10.
MP REIT – BT
Reit sponsors and their lucrative exit strategies
MACQUARIE Group, which on Tuesday said it would sell its entire stake in Macquarie Prime Reit and the Reit’s manager to Malaysia’s YTL Corporation for $285 million, is certainly making a neat exit from its investment. However, the interests of minority shareholders, some of whom were waiting for a similar offer for their units, have not been as well served.
When the real estate investment trust (Reit) announced a strategic review in February, the management said it would sponsor the review with the specific objective of enhancing value for all unitholders. ‘The review will consider both corporate and asset-level strategies, including the potential to provide unitholders with a proposal to acquire 100 per cent of (the Reit’s) units,’ management said then.
On Tuesday, Macquarie qualified that, while the review considered the potential to provide unitholders with a proposal to acquire 100 per cent of units, ‘no firm offer was received in the current challenging capital markets environment’.
Having failed to find a buyer for all the units in the Reit, Macquarie decided to sell just its 26 per cent stake in the Reit as well as its 50 per cent interest in the Reit’s manager. The bank wants to redeploy capital in new growth areas. But the deal sells other unitholders – who could have been waiting for a general offer since the February announcement – short.
It is debatable whether Macquarie could have got an offer for all the units in the Reit if it had been willing to accept a much lower price. Some unitholders BT spoke to, at least, are convinced that the bank could have. YTL is paying 82 cents a unit for 247.1 million shares in the Reit. The price is a 52 per cent premium over the last traded price of 54 cents last Friday, the last day of trading before the deal was announced on Tuesday.
The sale has also resulted in a change of sponsor and a fundamental change in terms of strategy and expertise. This should also have been an incentive for management to obtain the same terms for all the unitholders.
YTL’s managing director Francis Yeoh has said that Macquarie Prime will be rebranded as Starhill Global Reit and will be YTL’s main vehicle for acquiring prime retail space in Asia and the West. The YTL group also controls Bursa Malaysia-listed Starhill Reit, the country’s largest Reit with four properties in Kuala Lumpur worth about US$430 million in all. Mr Yeoh has not ruled out the merger of the two Reits – which could change the profile of Macquarie Prime Reit, which currently owns $2.2 billion of retail and office properties in Singapore, China and Japan.
The deal is not the first such transaction this year. In July, Frasers Centrepoint purchased Allco Finance’s 17.7 per cent stake in the then-Allco Commercial Trust (now Frasers Commercial Trust) at a 17 per cent premium to the last traded price – also bringing about a change of sponsor. But the difference between that deal and the Macquarie- YTL deal is that in the case of the latter, there was an implication that a proposal to acquire 100 per cent of the Reit’s units could be forthcoming. A statement between February and October to the effect that no offer for 100 per cent of the units was likely and that Macquarie was now looking to sell its own stake could have avoided this mix-up.
Taking a wider view, there also appears to be a flaw in Singapore’s Reit structure, which allows sponsors to charge high management fees for running the Reit and then obtain superior terms should they decide to exit their investments. Unitholders, who could have bought into a Reit because of the sponsor’s brand name and pipeline, are then left holding a slightly different product. Perhaps there should be a moratorium of several years for sponsors before they can exit the Reit they promoted in the first place.
Suntec – BT
Refinancing tops Suntec Reit agenda
Q4 distribution income surges 44.5% to $43.9m
WITH credit concerns looming over the market, refinancing is now top of the agenda for Suntec Real Estate Investment Trust (Reit).
‘While we have no major financing needs in the next 12 months, we are keenly aware of the current global financing crisis and liquidity crunch,’ said Yeo See Kiat, CEO of Suntec Reit manager ARA Trust Management (Suntec).
‘Refinancing of our $700 million CMBS loan due in December 2009 is one of our key priorities.’
For FY2009, Suntec Reit has debts of $40 million, $85 million and $700 million maturing in April, May and December respectively. Its gearing ratio at Sept 30 was 31.9 per cent.
But refinancing should not pose a major problem, Mr Yeo said. ‘We have got a good partner in Cheung Kong. The financial institutions know who we are.’
ARA Trust Management (Suntec) is linked to Cheung Kong Group, a major Hong Kong conglomerate.
Mr Yeo was addressing financing concerns at a briefing on Suntec Reit’s results for its fourth quarter ended Sept 30.
It reported a 44.5 per cent year-on-year surge in distribution income to $43.9 million. This drove a 34.6 per cent jump in distribution per unit (DPU) to 2.854 cents.
With an annualised DPU of 11.353 cents, Suntec Reit’s distribution yield was 17.6 per cent based on the closing unit price of 64.5 cents on Oct 29.
According to Suntec Reit, its office portfolio continued to enjoy positive rental reversion during the quarter. The committed occupancy rate at Sept 30 was 99.3 per cent.
Suntec Reit has acquired about 61,500 sq ft of Suntec City strata-titled office space, but is likely to put such growth on hold given today’s business climate, Mr Yeo said.
Also shelved is the redevelopment of Park Mall, he added.
The project could be postponed for one to two years and reviewed when conditions change.
Suntec Reit’s retail portfolio enjoyed an occupancy rate of 99.6 per cent at Sept 30.
Suntec City Mall, Park Mall and Chijmes all saw higher committed passing rents compared with a year earlier.
Investors pushed Suntec Reit’s unit price up 4.5 cents yesterday to close at 69 cents.
a-iTrust – BT
a-iTrust reports $13.8m Q2 distributable income
BUSINESS space trust Ascendas India Trust (a-iTrust) yesterday reported distributable income of $13.8 million for the second quarter ended Sept 30, 2008 – 24 per cent higher than a year ago.
This translates to a distribution per unit (DPU) of 1.82 cents, 23 per cent more than for the corresponding period last year. The DPU for the first half of the year stands at 3.47 cents, and represents an annualised yield of 13.2 per cent when seen against a-iTrust’s closing unit price of 52.5 cents on Sept 30.
‘Our high-quality IT parks, serving our target market of largely multinational corporations which appreciate the quality of the environment, services and lifestyle within our parks, continue to enjoy rental growth, high occupancy and a stable income stream,’ said Jonathan Yap, CEO of a-iTrust trustee-manager Ascendas Property Fund Trustee.
a-iTrust’s portfolio of completed space across the Indian cities of Bangalore, Chennai and Hyderabad, amounting to 4.8 million square feet, was 98 per cent occupied as at Sept 30. Less than 18 per cent of space is due for renewal in the current financial year.
In the first half of the financial year, 0.6 million sq ft of space was leased or renewed at higher average rental rates.
With economic and financial headwinds sweeping across the world, Mr Yap believes that a-iTrust’s target tenants will continue to find India’s cost competitiveness and large market attractive. According to the trust, the economic slowdown could encourage the offshoring of operations to India. Tighter credit conditions could even work in its favour by reducing the new supply of space in the market.
As for financing, ‘I don’t see a very big concern on that front,’ Mr Yap told BT. a-iTrust raised around $550 million when it was listed in August last year. Its gearing as at Sept 30 was 5 per cent. It also had cash and cash equivalents of $42 million, exceeding the $20 million of borrowings payable within a year.
In fact, banks looking to diversify their loan books could consider a-iTrust, said Mr Yap. ‘If lenders want a bit of Indian exposure, we do believe that the trust represents a relatively safe way for them to do that, (because) it is regulated by Singapore law and the portfolio in India is very established.’
a-iTrust’s units ended trading 3.5 cents higher yesterday at 46 cents.
Cambridge – CIMB
Working on refinancing
• In line, management fees paid in cash. 3Q08 results were in line with consensus and our expectations. DPU of 1.49cts form 24% of our forecast of 6.14cts for FY08. Gross revenue of S$18.3m was up 35.8% yoy on full contribution of acquisitions completed earlier. YTD DPU of 4.6cts forms 75.2% of our full-year estimate, in line.
• 100% of management fees to be paid in cash. DPU for 3Q08 shrank 12.4% yoy from 1.7cts as the management had elected the full payout of management fees in cash, as opposed 65% in units and 35% in cash earlier. This was primarily to reduce dilutive effects to existing unit-holders.
• Expect FY09 cost of debt to rise. The management is working on refinancing of S$337m of debt due by Feb 09. Cost of funding is expected to increase significantly “with a corresponding reduction in distributions” although the quantum was not guided. Nonetheless, we expect CIT to be able to secure financing with significant stakeholder National Australia Bank possibly coming in as the lender of last resort.
• Changes to assumptions. As all of CIT’s leases are on long lease arrangements, we maintain our forward rental estimates. However we cut our FY08 acquisitions of S$95m to S$32m, as MOUs for the acquisitions of Natural Cool Lifestyle Hub and a private lot at Tuas South St 5 had lapsed. We also increase our cost of debt assumption from FY09 by an additional 300bps, in line with indicative market rates, and adjust for cash payment of management fees from 3Q08.
• Maintain Outperform at lower target price of S$0.52 (from S$0.90). Following our adjustments, our FY08-10 estimates decrease by 1-25%. We have a lower target price of S$0.52 (from S$0.90) based on DDM valuation at a higher discount of 9.6% (from 8%), which more accurately reflects industry and company specific risks vis-à-vis other REITs under our coverage. Despite our increase in cost of debt assumptions, forward dividend yield in FY09 remains attractive at 19.8% due to overselling of the stock. Yields for CIT remain the highest within the industrial REIT sector in FY08, and above average S-REIT yields at 15.2%. We remain positive on the relative resilience of the industrial sector anchored by its long weighted average remaining lease term of 5.9 years. Maintain Outperform.