PLife – DBS
Best hedge against inflation
Story: With surging inflation on the back of rising energy, fuel and food prices, ParkwayLife REIT (PREIT) looks to be the best hedge against inflation.
Point: In the latest review in May, MTI and MAS has raised the CPI forecast for 2008 to 5.0 – 6.0%, from 4.5% – 5.5% previously. DBS Economics Research expects inflation pressure to remain high in the near term. CPI is expected to peak at 8.1% yoy in Jun 08, with full year inflation at 6.4%, up slightly from previous forecast of 6.0%. We re-looked into our gross revenue assumptions for PREIT and raised CPI assumption for 2008 to 6.4% and 2009 to 2.8% (from our previous assumptions of 4% and 1.5%, respectively) pegging it in line with our economists’ forecasts. This means that PREIT’s gross revenue for its Singapore Hospitals should grow by at least 7.4% (=1% + 6.4%) in FY09. Consequently, our FY09F DPU forecast is
raised marginally to 7.17 Scts, from 6.99 Scts. Based on a last traded price of S$1.19, this translates into a net dividend yield of 5.7% and 6.0% for FY08F and FY09F respectively.
Relevance: PREIT still remains a Buy as it offers investors potential upside from higher hospital revenue. In this inflationary environment, investors can rest assured that growth is supported by 1%+CPI rate. Furthermore, PREIT has low net gearing and there is no major debt refinancing risk in the near future. Catalysts should come from further yield accretive acquisitions, in addition to the last three investments in Japan.
Maintain Buy, TP adjusted slightly to S$1.47 (from S$1.51 previously) to account for a higher risk-free rate of 3.9%, from 3.0% previously.
MP REIT – BT
MP Reit raises rent by 19.75% at Ngee Ann City
Rent hike for 226,000 sq ft prompts DBS Vickers to raise DPU estimates
MACQUARIE Prime Real Estate Investment Trust (MP Reit) said yesterday that it has raised rent by 19.75 per cent for about 226,000 square feet of retail space in Ngee Ann City.
The Orchard Road space, of which Toshin Development is master lessee, is occupied by luxury retailers such as Louis Vuitton and Chanel, as well as brand name retailers.
MP Reit – formerly known as Macquarie MEAG Prime Reit (MMP Reit) – said that this is expected to push annualised DPU (distribution per unit) up by 7.2 per cent, based on an annualised DPU of 7.08 cents for the first quarter of 2008.
The rental increase for a period of three years starting on June 8 came after a review with Toshin, which is wholly owned by departmental store operator Takashimaya.
‘The announcement is above our estimates of 15 per cent and is largely positive for the Reit given its positive impact on earnings,’ DBS Vickers said in a research note.
The broking house raised its DPU estimates to 7.54 cents for the financial year 2008, translating to a DPU yield of about 6.7 per cent based on yesterday’s closing price of $1.13.
DBS Vickers also upped its DPU estimates for financial year 2009 to 7.81 cents.
The lease under Toshin contributed to a quarter of the Reit’s portfolio gross rent, as at end-March this year.
But the broking house lowered its target price to $1.61 from $1.63 to account for ‘a higher risk-free rate of 3.9 per cent against (its) previous estimate of 3 per cent’.
MP Reit holds a 27.23 per cent strata title interest in Ngee Ann City, comprising 256,000 sq ft in retail net lettable area and 141,000 sq ft in office net lettable space.
The 30,000 square feet of retail area that is not covered by the Toshin master lease is directly rented out and managed by the Reit.
MP Reit’s portfolio consists of 10 properties that are worth more than $2 billion.
MI-REIT – BT
Moody’s rates MI-Reit as ‘developing’
CREDIT rating agency, Moody’s Investors Service, yesterday changed Macarthurcook Industrial Reit’s (MI-Reit) Baa3 rating outlook to developing from stable.
The change came after the announcement that AMP Capital Investors made a proposal to acquire the entire capital of MacarthurCook for A$1.35 per share.
MacarthurCook owns 92.5 per cent of the manager of MI-Reit, MacarthurCook Investment Managers (Asia), and has direct and indirect interest of about 13 per cent in MI-Reit.
The conditions of the proposal have not been revealed.
AMP became a substantial shareholder in MacarthurCook through the entry into a pre-bid acceptance agreement with Ascalon Capital Managers in respect to their 18.4 per cent shareholding in Macarthurcook. AMP is one of the principal operating subsidiaries of AMP Group Holdings of Australia.
Moody’s said it expects a resolution of the developing outlook would occur once it becomes clear if the takeover is going to proceed and whether this will result in changes in respect of the strategic direction and medium-term operating and financial outlook for MI-Reit.
MI-Reit reported total assets of $569 million and revenues of $32 million for the fiscal year ending March 31, 2008.
SREIT – UOBKH
Accumulating bargains after steep correction
Correction was fast and furious. Share prices for Singapore REITs have corrected 6-7% over the past four days. Large cap REITs bear the brunt of selling with steep correction for CapitaCommercial Trust (-7.1%), CapitaMall Trust (-7.5%), Ascendas REIT (-4.1%) and CDL Hospitality REIT (-7.2%). Frasers Centrepoint Trust also fell 6.8%. MacQuarie Meag Prime REIT, KREIT Asia and Parkway Life REIT were relatively unchanged.
On average, the magnitude of correction was in line with the quantum in cut to our target prices. Average distribution yield for Singapore REITs is 5.5%, in line with five-year average. Average yield spread above 10-year government bond at 2.2% is below five-year average of 2.5%.
Lock in the yields. While markets will continue to be shaken by twin fears of inflation and higher interest rates, we are starting to see value in some of the REITs. We have selected a diversified basket of three REITs, Frasers Centrepoint for retail, CapitaCommercial Trust for office and Ascendas REIT for industrial.
Frasers Centrepoint Trust (BUY/S$1.24/Target: S$1.55)
• FCT focuses on suburban retail malls, which provide defensive qualities. Revenue contribution from its largest mall Causeway Point gained 11% yoy to S$14.6m in 2QFY08, benefitting from strong rental reversion and higher turnover rent. 20,816sf of retail space at Causeway Point representing 5% of total net lettable area (NLA) was renewed at 16% above preceding rental rates in 2QFY08.
• Ready pipeline of acquisitions. FCT has a ready pipeline of acquisitions that will double NLA to more than 1.2m sf when fully completed. It has entered into a put and call option agreement with sponsor Frasers Centrepoint Limited for the purchase of Northpoint 2 at between S$139.5m and S$170.5m. Northpoint 2 is expected to obtain temporary occupation permit (TOP) by Aug 08 and is on schedule to be injected into FCT in 1QFY09. We expect YewTee Point and Bedok Mall with net lettable area (NLA) of 80,000sf each to be injected in 3QFY09 and 2QFY11 respectively. We estimate the three new malls to contribute 28.6% of total revenue in FY12.
• FCT provides attractive FY08 distribution yield of 6.24%, a spread of 2.55% over 10-year government bond.
Ascendas REIT (BUY/S$2.34/Target: S$3.00)
• A-REIT has benefitted from strong demand for suburban office space as Business & Science Park accounted for 25% of its portfolio by property value. Renewal rate for Business & Science Park was S$3.76psf pm in 4QFY08, 68.8% higher on a yoy basis.
• A-REIT had a portfolio of 84 properties and total assets of S$4.2b as at Mar 08. The weighted average lease to expiry is 5.9 years. A-REIT has a well-diversified tenant base of over 790 international and local companies.
• A-REIT provides attractive FY08 distribution yield of 6.88%, a spread of 3.19% over 10-year government bond.
CapitaCommercial Trust (BUY/S$2.08/Target: S$2.63)
• CCT owns nine properties in Singapore with 2.3m sf of office space (excluding Wilkie Edge and One George Street), which accounts for 7% of private office stock within Downtown Core. CCT is well positioned to benefit from positive rental reversion as 29.4% of leases for office space are up for renewal in 2008 and 2009.
• Market Street Car Park and Golden Shoe Car Park is strategically located at the heart of Raffles Place and represents latent potential to be redeveloped into Grade A office towers.
• CCT trades at a 25.4% discount to book NAV of S$2.79/share.
Related Post – Table
LMIR – OCBC
Data points reiterate our investment case
Riding the global slump. Indonesia has received a lot of bad press lately but consensus real GDP growth estimates are still high, ranging between 5.5% and 6% for 2008. This is only marginally lower than the 6.32% growth recorded in 2007, and on par with the growth seen in 2005 and 2006. We believe the investment case for LMIR is still intact. Its portfolio of eight retail malls and seven retail strata spaces is strategically located across Indonesia and boasts strong tenancy profiles with large anchor tenants like hypermarkets. We note that retail sales have historically outperformed GDP growth, averaging a growth of 11% per year since 1998 (Jones Lang LaSalle).
Occupancy is up. LMIR posted S$29.3m in total revenue over 19 Nov 2007 to 31 Mar 2008, missing its IPO forecasts by 5.11%. The REIT had said in April that the variance was due to “reduced rentals” meant to attract traffic driving tenants at four of its retail malls post asset enhancement work. LMIR also said that the variance to prospectus forecasts would be “mitigated in the coming months”. Since then, LMIR has released the occupancy profile of the seven of its eight retail malls owned as of 31 March 2008. Portfolio occupancy had already improved to 95.6% at 31 March from 92.8% at December 2007, which should be reflected in 2Q results.
Focused on improving performance. LMIR continues to focus on improving tenancy mix and occupancy rates. The new Medan mall, which enjoyed 97% occupancy as at April 2008, will also begin contributing to revenue from this quarter onwards. LMIR has also rolled out asset enhancement initiatives worth S$3.3m at its Istana Plaza and Mal Lippo Cikarang malls that will increase the malls’ NLA by 1.7% and 17% respectively. We do expect macro-level uncertainties to slow down LMIR’s acquisition pace versus what was indicated at its IPO. In any case, our
valuation is based solely on the existing portfolio.
We reiterate our BUY rating on LMIR. We expect compelling distribution yields of 10.7% in 2008 and 11% in 2009. The continued volatility of the SGD-IDR exchange rate should be of limited concern to LMIR investors as the trust has hedged both its SGD-denominated distributions and interest expense. While SGD-IDR volatility will not threaten investor income, it could affect NAV as asset values would fall in SGD terms. Our fair value estimate of S$0.70 takes these factors into account.