LMIR – OCBC
A pure Indonesia retail play
Singapore-listed Indonesia-focused REIT. Lippo-Mapletree Indonesia Retail Trust (LMIR) is the first Singapore-listed REIT to provide exposure to Indonesia’s burgeoning retail sector. The trust’s investment focus is on income-generating retail malls and retail strata spaces that are strategically located within well-established population catchment areas.
Strong investment case for Indonesia. Indonesia, which enjoys inherent advantages such a wealth of natural resources and a young population, is currently enjoying economic growth and stability under a new political regime. This means growing prosperity among the population and a better quality of life. The emergence of a sizeable urban middle class and a lifestyle shift towards consumerism has made consumption – and the retail sector – the key beneficiary of the Indonesia growth story.
Plenty of growth opportunities, but pace may slow. We believe that LMIR has ample opportunities for inorganic growth thanks to a highly fragmented retail property sector. LMIR came to the market with a clear and ambitious acquisition pipeline from both third-party sellers and through a ROFR granted by its sponsor PT Lippo Karawaci Tbk. It made its maiden post-IPO acquisition worth S$147.4m last month, increasing its portfolio NLA by almost 20%. However, with the present uncertain environment, acquisitions may be made at a slower pace than previously planned.
Key risks. Exchange rate volatility is potentially a concern as both DPU income and interest expenses are SGD-denominated. However, LMIR has entered into forex hedges that should minimize IDR-SGD volatility and protect investor DPU. A steep depreciation in the Rupiah could still threaten NAV as asset values would fall in SGD terms. As LMIR is capitalizing on the low cost of SGD-denominated debt, this balance sheet mismatch could put further pressure on NAV. General country risks, such as political instability and high inflation, also exist.
Initiate coverage with BUY and S$0.70 fair value. LMIR is currently trading at a 30% discount to its S$0.80 IPO price. Our RNAV value of LMIR is S$0.87. In line with the S-REIT universe which is trading at deep discounts to NAVs, our fair value estimate of S$0.70 prices in a 20% discount to our RNAV value. Nevertheless, this offers a 24% upside from current levels. We are projecting FY08 DPU of 5.8 S cents and FY09 DPU of 6.0 S cents. The strong investment case for Indonesia and high distribution yields of more than 10% compel us to initiate coverage on the trust with a BUY rating.
KREIT – BT
K-Reit Q1 distributable income soars 165.9%
This was attributed mainly to income from its stake in One Raffles Quay
K-REIT Asia has reported distributable income of $11.4 million for the quarter ended March 31, a 165.9 per cent increase from the same period in 2007.
This was attributed mainly to income from its one-third interest in One Raffles Quay Pte Ltd, the acquisition of which was completed on Dec 10, 2007.
K-Reit said the contribution from One Raffles Quay was $10.9 million, comprising income support received from the vendor, interest income and dividend income.
Distribution per unit (DPU) for the quarter was 4.6 cents, or 1.3 percentage points more than forecast. K-Reit said this amount will be included in the advance distribution payout, estimated to be 6.45 to 6.5 cents per unit, for the period Jan 1 to May 7, 2008.
Net property income for the quarter was $9.1 million, or 41.5 per cent higher than $6.5 million in the corresponding quarter in 2007. This was underpinned by higher gross rental income from properties, K-Reit said. Gross rental income increased 30.2 per cent year on year to $11.2 million in Q1 2008.
Committed occupancy of K-Reit’s portfolio is 99.6 per cent. With the contribution of the one-third interest in One Raffles Quay, the average monthly gross rent of its portfolio grew 69.4 per cent year on year and 14 per cent from end-2007 to $6.86 per square foot in March 2008.
K-Reit is now engaged in a rights issue. The expected gross proceeds of $551.7 million will be used to partly repay a bridging loan of $942 million drawn down for the acquisition of the one-third stake in One Raffles Quay.
This will reduce K-Reit’s aggregate leverage from 53.9 per cent to 27.7 per cent and provide it with additional funding capacity to acquire further properties.
The rights units are expected to be issued on May 8.
K-Reit said it expects to benefit from positive rental revisions, given its current rents are below market rates and that 42.2 per cent and 20.2 per cent of its portfolio’s net lettable area is due for lease expiry and rent review respectively between 2008 and 2010.
K-Reit’s units closed one cent higher at $1.41 yesterday.
CMT – BT
SINGAPORE – CapitaMall Trust, Singapore’s largest property trust by market value, reported on Tuesday a 24 per cent rise in first-quarter distributable income, helped by stronger rentals at its shopping malls.
CapitaMall, 27 per cent owned by South-east Asia’s largest developer, CapitaLand, will pay $58 million (US$42.9 million) in distributable income for the January-to-March period, or 3.48 Singapore cents per unit.
That compares with $46.9 million in the year-earlier period.
CapitaMall competes with other Singapore-listed real estate investment trusts that own offices and retail malls, including Suntec Reit, Macquarie MEAG Prime and Frasers Centrepoint. — REUTERS
JTC – BT
JTC Corporation has announced that it is proceeding to divest $1.71 billion of assets to Temasek unit Mapletree Investments Pte Ltd.
However, JTC and Mapletree will not be proceeding with the proposed listing of the portfolio of properties through a Real Estate Investment Trust (Reit) ‘at the present time’, a release issued by JTC and Mapletree said.
‘This in light of the current volatile market conditions which are not conducive for a Reit IPO. Instead, JTC will divest the portfolio of properties to a private trust sponsored by Mapletree,’ the release said.
The properties to be divested comprise 39 blocks of flatted factories in various locations including Kaki Bukit, Kallang Way, Loyang, Serangoon North and Tanglin Halt, 12 amenity centres, six stack-up buildings, a ramp-up building, The Synergy and The Strategy at International Business Park in Jurong and The Signature at the Changi Business Park, plus one warehouse building at Clementi West. The transfer of properties to Mapletree is expected to be completed by July 1. — BT newsroom
KREIT – UOBKH
1QFY08: Positive rental reversion kicking in
K-REIT reported gross revenue of S$11.2m in 1QFY08, an increase of 29.8% yoy. Distributable income surged 165.9% yoy to S$11.4m. K-REIT announced DPU of 4.60 cents for 1QFY08, an increase of 159.9% yoy. The results were substantially better than our expectations as interest expense for bridging loan from Kephinance Investment (estimated at 2.4% compared to our assumption of 3.5%), a subsidiary of Keppel Corporation, was lower than expected.
Revenue contribution from existing properties Prudential Tower, Keppel Towers & GE Tower and Bugis Junction Towers increased 42.8%, 63.4% and 13.6% yoy respectively. The acquisition of One Raffles Quay (ORQ) was completed on 10 Dec 07. Average gross rent increased 14% qoq to S$6.86 due positive rental reversion from existing properties and full quarter contribution from ORQ. The one-third interest in ORQ provided total income of S$10.9m, including income support of S$6.1m. Committed occupancy was 99.6% at Mar 08.
Benefiting from positive rent reversions. K-REIT is well positioned to ride the upswing in office rentals with 24.2% of net lettable area (NLA) due for expiry and another 15.5% of NLA due for rent review in 2008 and 2009 when supply of office space in Central Business District is limited. Current asking price is S$15 to S$18psf pm for Prudential Tower and above S$10psf pm for Bugis Junction Towers, Keppel Towers and GE Tower. Average portfolio gross rental was only S$4.65psf pm (excluding contribution from ORQ) in 4Q07. There is significant room for leases to be renewed at higher rates. Rentals for Grade A office space within Raffles Pace gained a further 5.3% qoq to S$17.52psf pm in 1Q08.
Rights issue strengthen equity base. K-REIT Asia has proposed 8-for-5 renounceable rights issue at S$1.39 per unit. Keppel Corporation and sponsor Keppel Land, who own 72.7% of K-REIT in aggregate, have given irrevocable undertaking to take up their respective allocations of rights units. K-REIT will raise gross proceeds of S$551.7m, which will be utilised to repay bridging loan from Kephinance Investment. K-REIT will seek refinancing for the balance of bridging loan of S$391.3m due in Sep 08 with long-term debt. Gearing will be reduced from 53.9% to 27.7% after completion of the rights issue. Book NAV will be reduced from S$3.78 to S$2.26 per share.
K-REIT provides attractive FY08 distribution yield of 8.84%. We have assumed that the balance of bridging loan from Kephinance Investment is refinanced at steeper interest rate of 4.2%. Our target price is thus reduced to S$1.81, taking into account dilution from the rights issue.