SREITs – ML
S’pore REITs: High quality dividends and a strong currency
Singapore REITs have high single digit dividend yields that are relatively secure due to long lease tenure, conservative balance sheets and exposure to the property sector’s strong fundamentals.
We also expect the Singapore dollar to appreciate by as much as 5% this year.
In sum, this is a safe place to be.
CapitaCommercial Trust (CMIAF; S$2.12; B-1-7) Top pick for office sector, significantly undervalued. High organic growth from rental reversions.
We have a Buy rating on CCT and 12-month price objective to S$2.70/share. Our price objective is based on our DCF valuation derived from 10 years of forecasts. Key assumptions include a risk free rate of 3.0%, an equity risk premium of 5.7% and a beta of 1.0. Risks are a downturn in the economy, higher interest rates, lower than forecast rental and occupancy rates and the possibility that future acquisitions may provide lower-than-expected returns.
Macquaire Meag Prime REIT (MQPRF; S$1.25; B-1-7) Top pick for retail sector. M&A target with near term potential to trade to NAV.
We are setting our price objective with reference to current NAV of S$1.61/share.The NAV is derived from 4% cap rates for Singapore office exposure and 5% cap rates for Singapore retail exposure. Risks are a downturn in the economy, higher interest rates, lower-than-forecast rental and occupancy rates and the possibility that future acquisitions may provide lower than expected returns.
CDL REIT (CEHSF; S$2.33; B-1-7) Top pick for hotel sector. Singapore hotel room rates continue to rise, strong balance sheet.
We have a Buy rating on CDL Hospitality Trusts (CDLT) and a 12 month price objective of S$2.88/share. Our price objective is based on our DCF valuation derived from 10 years of forecasts. Key assumptions include a risk free rate of 3.4%, an equity risk premium of 5.7% and a beta of 1.2. Risks are a downturn in the economy, higher interest rates, lower than forecast rental and occupancy rates and the possibility that future acquisitions may provide lower-than-expected returns.
Cambridge Industrial (XCMBF; S$0.70; B-1-7) Top pick for industrial sector. Most defensive asset class. Long lease expiries support income security.
We have a Buy rating on CREIT and a 12-month price objective of S$0.88/share. Our price objective is based on our DCF valuation derived from 10 years of forecasts. Key assumptions include a risk free rate of 3.0%, an equity risk premium of 5.7% and a beta of 1.0. Risks are a downturn in the Singapore economy, higher interest rates, lower-than-forecast rental and occupancy rates and the possibility that future acquisitions may provide lower-than-expected returns.
First REIT (FESNF; S$0.74; B-1-7) Investors reluctant to take Indonesian risk, yet the Indonesian stock market itself is one of the best
We have a Buy rating on First REIT and a 12 month price objective of S$0.84/share. Our price objective is based on our DCF valuation derived from 10 years of forecasts. Key assumptions include a risk-free rate of 5.5%, an equity risk premium of 7.1%, and a leveraged beta of 0.90. Risks to our price objective are an increase in short-term interest rates which may result in higher interest costs on existing borrowings; increases in long-term interest rates which could impact our DCF valuation due to the assumption of risk-free rates; and a deterioration in economic activity that may impact occupancy and rental growth of assets held within the investment portfolio.
Suntec – UOBKH
Benefitting From Improved Connectivity To Suntec City
Suntec REIT invests in income-producing real estate used for retail and/or office purposes. Its initial portfolio comprises Suntec City Mall and Suntec City Office Towers, which are linked to the Suntec Singapore International Convention and Exhibition Centre. The two properties are within walking distance from the City Hall MRT station. Suntec REIT subsequently acquired Park Mall next to Dhoby Ghaut MRT station in Oct 05 and niche retail and dining establishment Chijmes in Dec 05. Suntec REIT’s family rating is Baa1 from Moody’s Investor Service.
Quality of portfolio enhanced by improved connectivity. Singapore Tourism Board has set up a S$170m incentive scheme to support business events and has embarked on a three-year global marketing campaign to showcase Singapore as a MICE (meetings, incentive travel, conventions and exhibitions) destination. Suntec City Mall will benefit from increased shopper traffic due to its proximity to Suntec Singapore International Convention and Exhibition Centre. Accessibility to Suntec City will also improve as Suntec City will be served by the Esplanade and Promenade MRT stations when the new Circle line is ready in 2010.
Benefitting from positive rental reversion for office space. Suntec City Office Towers and Park Mall recorded average passing rentals of S$5.30 and S$4.70psf pm in 1QFY08, affected by leases signed in FY05 and FY06. We expect average passing rentals to revert to S$10 and S$8 psf pm for Suntec City Office Towers and Park Mall respectively by FY10. Suntec REIT raised S$173.2m through a placement of 120m new shares at S$1.50 in Oct 06. It has acquired a total of 54,040sf of additional office space at Suntec City for S$102.3m by using proceeds from the placement.
Upgrade to BUY from HOLD. We like Suntec REIT for its balanced portfolio of quality retail and office properties. It provides FY08 distribution yield of 6.1%, an attractive spread of 3.7% over the 10-year Singapore government bond yield at 2.4%. Our target price is S$2.18 based on the two-stage dividend discount model (required rate of return: 7.85%, terminal growth: 2.5%).
Cambridge
OXLEY GROUP ACQUIRES STRATEGIC STAKE IN CAMBRIDGE INDUSTRIAL TRUST MANAGEMENT
Singapore, 20 February 2008 – Cambridge Industrial Trust Management Pte Ltd (“CITM”) wishes to announce that Oxley Group (“Oxley”) has acquired an effective 20 percent interest in CITM by acquiring 33 percent of the equity in Cambridge Real EstateInvestment Management (“CREIM”). CREIM holds a majority stake of 60 per cent ofCITM.
CITM is the manager of Cambridge Industrial Trust (“CIT”), which is the first independent industrial REIT to be listed on the Stock Exchange of Singapore with a market capitalization of approximately S$ 552 million and total assets of S$ 949.8 million.
Oxley’s interest was acquired from Mr Chan Wang Kin, who has sold his entire 28 percent stake in CREIM to Oxley. Oxley has acquired an additional 5 percent from Mr Ang Poh Seong, CEO of CITM. Mr Ang retains a 20 percent stake in CREIM.
With the sale of his interest in CREIM, Mr Chan Wang Kin will cease to be a director of CREIM and CITM Mr Ang welcomed Oxley as a strategic shareholder of CREIM adding, “We are excited
with this new development particularly in light of the regional networking and depth of experience that Oxley will bring to this partnership.”
“We are delighted with this transaction and look forward to working with the management of CITM to further develop CIT as a leading player in the Asian Industrial Property space.” said Michael Dwyer, Executive Chairman of Oxley.
PLife – BT
Parkway Life’s maiden results beat forecasts
It reports $13.6m distributable income for Aug23-Dec31, 2007 period
PARKWAY Life Reit has beaten forecasts in its maiden results.
It reported a distributable income of $13.64 million for the period between Aug 23, when it was listed, and Dec 31, 2007. This was 5.81 per cent better than its projection of $12.89 million. This led to a distribution per unit (DPU) of 2.27 cents, higher than the forecast 2.14 cents.
Riding on the momentum, the Reit’s manager expects to do better than its forecast for FY2008.
‘We’ve got a (yield) forecast in the IPO, which is 4.9 per cent,’ said Justine Wingrove, CEO of the Reit’s manager, Parkway Trust Management. ‘I think it’s fair to say we’re likely to go in excess of that, but I obviously can’t say too much.’
Parkway Life Reit holds the Mount Elizabeth, Gleneagles and East Shore hospitals under its asset portfolio. Independent valuer DTZ Debenham Tie Leung recently valued the portfolio, which includes 68 medical offices and retail units and 559 parking lots, at $831.5 million. This is 7.3 per cent higher than the appraised value of some $775 million in July last year.
Gross revenue was $16.9 million, 5 per cent higher than the forecast of $16.09 million. This was because the actual adjusted hospital revenue for the period was higher than the minimum rent assumed in the forecast. The increase in adjusted hospital revenue was largely driven by a rise in foreign patient revenue, higher consumption of diagnostic outpatient services and contribution from Parkway Cancer Centre.
The biggest rental contribution came from Mount Elizabeth Hospital, which accounted for $10.6 million. Gleneagles Hospital raked in $5.5 million, while the balance came from East Shore Hospital.
The Reit manager is targeting acquisitions in Singapore, China, India, Japan, Malaysia and Thailand to grow its portfolio. Some of the property types it is pursuing include warehousing facilities for pharmaceutical companies, nursing homes, hospitals and medical offices. It does not rule out development projects as well, but will cap them at 10 per cent of its asset base. Immediate acquisition targets are unlikely to come from Parkway Holdings, said Ms Wingrove.
‘I think with Parkway, it’s just there for us,’ she said. ‘And so, yes we are looking at it . . . but we need to take advantage of third-party acquisitions if there’s an opportunity, because we don’t have an automatic right for those.’
When asked by the media on what she thought of Parkway Holdings’ recent record bid for a hospital site at Novena, Ms Wingrove said she believes that Parkway Holdings did a lot of analysis before submitting the bid for $1,600 per square foot per plot ratio.
As a Reit manager, Parkway Trust would look at the Novena property at a later date before deciding on the appropriate course of action.
Net asset value per unit came to $1.36. Parkway Life Reit has also attained a ‘BBB+’ credit rating by Fitch Ratings. The counter last traded at $1.20.