Cambridge – Phillip
Still Attractive
CIT reported its FY07 results that were largely in-line with our projections, backed by properties acquired during the past year. Gross revenue came in at S$53 million and net property income is S$45.8 million. CIT achieved a full year DPU of 6.262 cents. Net asset value increased from $0.67 to $0.76.
Results in-line with our estimates. Revenue came in within 1.5% of our forecast of S$52.3 million, net property income of S$45.8 million versus our forecast of S$45.9 million. Full year DPU is higher by 4% than our forecast of 6.02 cents.
Revenue growth backed by accretive acquisitions. CIT expanded its portfolio from 27 properties with an asset value of S$531 million to 40 properties worth S$928 million at year-end with the acquisition of 13 properties during the year. In January this year, CIT managed to seal another 2 deals and has signed $125.6 million worth of MOU.
Capital management strategy. During the results briefing, management laid out their capital management plan for the year. Since the successful equity fund raising in October last year, CIT gearing has lowered to 36% and it has $131 million in undrawn facility available. Management intends to take advantage of the low interest rate environment so as to lock in the low rate whenever possible. In the longer term, management intends to refinance through CMBS issues.
Plans ahead. Management remains confident on growing via acquisition whether locally or venturing overseas and reiterates its target of S$500 million worth of acquisition p.a.
Valuation and recommendation. The current market conditions may prove difficult for REIT to pursue growth via acquisition as the cost of equity increases. On hindsight, CIT managed to raised S$193.9 million and completed 7 acquisitions just before market sentiment turns awry. With gearing at 36% and $131 million in available credit facility, CIT has no worries about funding in the short term. We maintain our favourable stance on CIT. Our optimism in CIT stems from the stable underlying cash flow and DPU growth from potential accretive acquisitions. Fair value is lowered from $1.07 to $0.89 as we raised our assumptions for beta and risk premium to reflect volatile market condition and factor in conservatism.
Fortune – BT
Fortune Reit distribution income up 3% in 2007
FORTUNE Real Estate Investment Trust has announced distribution income of HK$284.8 million (S$51.8 million) for 2007, up 3 per cent from 2006.
Distribution per unit for the year ended Dec 31 edged up 2.5 per cent to HK$0.3512.
‘We are pleased that Fortune Reit’s portfolio of 11 retail malls delivered stable and sustainable growth for FY07,’ said Stephen Chu, chief executive of the Hong Kong-based Reit’s manager, ARA Asset Management.
‘This was driven by strong rental reversions of about 15.6 per cent for the whole year on a portfolio basis. Our pro-active asset management strategies, coupled with exciting promotional events in the malls, have contributed to healthy demand from tenants and shoppers.’
Fortune said that as of end-2007 its tax-exempt yield was 6.7 per cent, up from 5.8 per cent a year earlier. Strong rental reversions were driven by its Waldorf Garden Property, which was enhanced in August.
The average rental rate of the entire portfolio was 6.3 per cent higher at HK$25.23 psf at Dec 31, 2007, versus HK$23.74 psf a year earlier. Approximately 45 per cent of leases in the portfolio expire this year, creating a good opportunity for organic growth in a strong retail market, Fortune said.
Cambridge – BT
CIT distributable income for Q4 surges 59%
Distributable income for full year 31.7% more than forecast
CAMBRIDGE Industrial Trust (CIT) has posted distributable income of $11.59 million – 59 per cent higher year on year – for its fourth quarter ended Dec 31, 2007.
The figure comprised $1.6 million distributed to unit holders for the period Oct 1-17, just ahead of an equity fund-raising exercise completed on Oct 18, and distributable income of almost $10 million for the rest of the quarter.
The $10 million reflects distribution per unit (DPU) of 1.258 cents, which works out to an annualised figure of 6.122 cents and a resulting distribution yield of 9.2 per cent based on CIT’s closing price of 66.5 cents yesterday. The counter ended the day half a cent lower.
Net property income for Q4 rose 46.3 per cent year on year to $13.9 million on a 49.1 per cent rise in gross revenue to $16.1 million.
For the year ended Dec 31, 2007, CIT posted distributable income of $35.7 million, which was 31.7 per cent higher than forecast by the trust’s manager, Cambridge Industrial Trust Management.
Net property income of $45.8 million was 28.3 per cent above forecast, while gross revenue of $53 million surpassed the forecast by 22.7 per cent.
CIT’s portfolio comprised 40 properties at end-December 2007, up from 27 assets a year earlier. The 40 properties, valued at $927.8 million at end-2007, were fully occupied as of that time.
The trust’s manager said it ‘believes the demand for quasi-offices will spill into demand for light industrial space resulting from current rental pressure on prime office space in the Central Business District’.
The latest DPU of 1.258 cents for the period Oct 18-Dec 31, 2007 will be paid on Feb 29.
Suntec – BNP
1QFY08 preview and outlook
We expect 1QFY08 net property income of SGD44.8m, up 29% y-y, arising from positive rental renewals and maiden contributions from ORQ. The acquisition of ORQ is mildly yield accretive given its fixed-lease structure until FY11. The stock now trades at an FY08E yield of 6.2%, 390bp above 10-year government bond yields. Maintain BUY; TP of SGD2.39.
Expect robust 1QFY08 earnings growth
Suntec is scheduled to report 1QFY08 results on 30 January. We expect revenue and net property income of SGD60.5m (up 31.7% y-y, 18.5% q-q) and SGD44.8m (up 29.0% y-y, 22.4% q-q). The strong performance is likely to be driven by good organic growth arising from positive rental renewals from Suntec City and maiden contributions from One Raffles Quay (ORQ).
Considerable yield accretion for ORQ beyond FY11
Based on our estimated SGD8.80/sqft assumption, ORQ is forecast to offer a net property income (NPI) yield of 4.2%, in turn contributing 14% of the group’s rental income. Due to its fixed-lease structure, ORQ should be mildly yield accretive between FY08 and FY11. Assuming calling rents remain at the current SGD15-18/sqft, we expect considerable rental reversionary growth when leases for ORQ are due for renewal in FY11.
Strata buyback programme gaining some traction
The acquisition programme to buy back more Suntec strata office units has started gaining traction. Last month, Suntec REIT acquired about 28,000 sqft of Suntec City office space at an NPI yield of 5%. Nevertheless, we continue to foresee elevated headwinds in its acquisition programme as there is an increasing number of Suntec strata proprietors seeking prices above the SGD2,500/sqft level. This comes in the shadow of their lock-in of gross rents below the SGD12.50/sqft per month level, which otherwise offers the REIT an NPI yield of 5%.
Ample debt capacity to expand portfolio by 26%
With the acquisition of ORQ, Suntec REIT has a gearing of 32%. This gives it a debt capacity of SGD1.45b, assuming a target gearing of 45%. We have factored in an annual buyback of 50,000 sqft of strata office space between FY08 and FY12 at an NPI yield of 5%. Exhibit 3 illustrates the different share-placement levels at varying yields, which is required for Suntec REIT to achieve accretion to its DPU.
BUY, with TP of SGD2.39
We maintain our BUY rating and a target price of SGD2.39. Prospects for Suntec REIT to expand organically remain strong considering 70% of its office portfolio leases are due for expiry in FY08-09. The stock now trades at an FY08E yield of 6.2%, 380bp above government bond yields.
AREIT – BT
A-Reit buys Acer Building for $75m
It also bags warehouse in CBP, announces completion of HansaPoint
ASCENDAS Real Estate Investment Trust (A-Reit) has bought the Acer Building at International Business Park in Jurong East for $75 million or $344 per square foot of lettable area.
Market sources say the price reflects an initial yield of 6.5-6.8 per cent.
A-Reit yesterday also announced the purchase of Sim Siang Choon Building, on the fringe of Changi Business Park (CBP), from Sim Siang Choon Hardware for $31.89 million.
This is a four-storey warehouse with a first-storey showroom and a separate single-storey warehouse.
In addition, A-Reit said HansaPoint@CBP received a Temporary Occupation Permit on Jan 22 and has achieved full occupancy.
The $28.6 million project’s major tenants include Rohde & Schwarz Systems & Communications Asia, Credit Suisse and Citco Fund Services (Singapore).
The completion of HansaPoint@CBP and acquisition of the Acer and Sim Siang Choon buildings will have a positive effect on A-Reit’s distribution per unit (DPU).
A-Reit is buying Acer Building from Acer Computer International.
The deal involves Acer’s local subsidiaries Acer Computer (Singapore) and Logistron Services leasing back 23 per cent of the current net lettable area for five years with an option to renew for a further 3+2 years.
The building’s current occupancy is 97 per cent.
Acer Building’s sale was handled by DTZ through an expression of interest exercise that drew five offers.
The other bidders are believed to have been two other Singapore Reits, Frasers Centrepoint and a private fund managed by Mapletree.
The property, a high- tech business park development, was completed in May 1996 on a site leased from JTC Corp for 30 years with an option to renew for a further 30 years. It has a total lettable area of 20,231 sq metres.
A-Reit’s manager says there is potential to create a further 1,200 sq metres of lettable space.
According to a report last year, Acer is paying JTC an annual land rent of $715,469 with escalation of 4 per cent a year as of Q3 2007.
The new owner is expected to pay JTC a slightly higher land rent each year, according to the report.
BT understands that A-Reit should enjoy considerable upside from positive rental reversion, as a number of leases in the building are up for renewal in the next one to two years.
Some of these tenants are paying monthly rent of $2 to $2.60 psf, whereas current rents for similar properties in International Business Park are $3.20 to $3.60 psf.
Besides Acer, other tenants in the building include Jacobs Engineering, Converge Asia and Nortrans Shipping.