FrasersCT – DBS
Steady first quarter
Comment on Results
FCT reported 1Q08 results in line with expectations. Gross revenues were relatively flat y-o-y at S$20.1m. Main contributions were from the increase in rentals of renewed leases with over 10.7% rental reversions from the preceding period. DPU for 1Q08 is up 5% y-o-y to 1.6 cts.
Occupancy levels were slightly higher at 99.3% as at 30 Dec 07 (94.5% in preceding quarter) mainly from improvement in occupancy rates in Anchorpoint mall.
Gearing at 31%. FCT’s gearing level of 31% is well within the potential 60% limit, giving it a potential S$280m worth of debt-funded acquisitions that we expect will be utilised for the purchase of Northpoint II in 4Q08.
Recommendation
With exposure to the buoyant suburban retail scene, FCT is poised to benefit from positive rental reversions (up to 60% of NLA expiring in FY08-FY09), asset enhancement initiatives, and a steady pipeline of sponsor assets. Collectively, these factors will drive DPU growth moving forward through 2010.
Target price maintained at S$1.71. Currently trading near its NAV, we see value emerging from recent price pull back and we look forward towards the pipeline injection of North Point II (expected 4Q08) for AUM growth, not discounting further upside surprise from potential 3rd party and overseas acquisitions.
MapleTree – CIMB
Asia’s logistics industry remains positive
• 4Q07 results above expectations. Revenue was up 49.9% yoy to S$40.3m while distributable profit was up 67.8% yoy to S$19.7m. Full-year revenue was S$141.7m with a distributable profit of S$71.8m and DPU of 6.57cts, which is 2% above our ‘s and consensus’ forecast. The strong performance in the last quarter was attributed to increased revenue from nine acquisitions completed in the quarter. 2007 operating expenses were significantly below expectations as a result of economies of scale. As at 31 Dec 07, MLT’s portfolio reached S$2.379bn, with revaluation gains of S$125.58m.
• Fund-raising postponed, gearing pushing towards regulatory limit. MLT is postponing a rights issue earlier expected to be carried out in the first quarter, due to volatile global capital markets. It remains confident of achieving acquisitions already announced but not yet completed, amounting to S$382m, without equityfunding. Further, management would be concentrating on organic growth, with some 180,000 sq m of logistics space due for renewal. Reversion rates are to be higher than the average of 9.3% in 2007.
• Maintain Outperform; DDM-derived target price lowered to S$1.36 from S$1.65. MLT is expected to gear up to its regulatory limit of 60% in 2008 as equity fund-raising would be difficult. As at 31 Dec 07, MLT’s leverage was 53.4%, and debt headroom of S$405m leaves limited room for our target acquisitions of S$800m this year. We have thus cut our acquisitions target to S$600m a year for 2008-10, with an asset leverage assumption of 60% for 2008. Cost of equity assumption is unchanged at 6.9%. As a result, our DPU estimates for FY08-09 have been reduced by 2-12%. Accordingly, our DDM-derived target price drops to S$1.36. Maintain Outperform as MLT’s underlying assets remain good and the outlook for Asia’s logistics industry remains positive.
KREIT – UOBKH
4Q07: Rights issue could dampen sentiments
Lacklustre earnings. Property income increased 21.2% yoy to S$11m in 4Q07. Average gross rent increased 35.9% qoq to S$6.02 due to acquisition of One Raffles Quay and associated income support. Total contribution from one-third interest in One Raffles Quay was S$2.8m.
There was huge increase in expenses. Manager’s management fees and trust expenses increased 99.5% and 456.5% yoy respectively due to the huge increase in portfolio of investment properties. Interest expense also doubled to S$3.8m. Net Income contracted 71% yoy to S$0.9m.
K-REIT has declared DPU of 2.8 cents for 4Q07. This will be paid on 29 Feb 08. K-REIT booked in revaluation surplus of S$295m. NAV/share is S$3.78 (last quarter: S$2.58).
Proposing rights issue. K-REIT Asia plans to propose a rights issue to raise up to S$700m. The rights shares are likely to be priced at a discount of up to 20% to prevailing market price. Proceeds from the rights issue will be utilised to repay bridging loan of S$942m from Keppel Corporation to finance the acquisition of one-third interest in One Raffles Quay. Keppel Corporation and sponsor Keppel Land, who already own 72% of K-REIT in aggregate, will take up their respective allocations for the rights issue.
Capitaland Indian Retail Mall – BT
CapitaLand plans to set up Reit for Indian retail malls
It unveils separate ventures with two partners for 15 projects worth $2.1b
CAPITALAND plans to create a Real Estate Investment Trust or listed vehicle holding Indian malls as an exit strategy for retail projects that it will develop jointly with two separate Indian partners.
The Singapore property giant yesterday announced separate joint ventures with Prestige Group and Advance India Projects Ltd (AIPL) to develop/invest in and manage an initial portfolio of 15 retail or predominantly retail projects worth over $2.12 billion. They will have a total lettable area of more than 11 million sq ft.
The tie-up with Prestige Group, the developer of The Forum in Bangalore, will be for malls in South India. The partnership with AIPL is for North India.
CapitaLand will participate in the develop- ment/investment of these various projects through the CapitaRetail India Development Fund, which has an equity fund size of about US$600 million (S$880 million). CapitaLand has 45 per cent stake in this fund, which was set up late last year.
The group’s 2006 tie-up with Indian retailer Pantaloon, which was to jointly manage about 50 malls throughout India, is moving on a slow track as these malls do not meet the rules for foreign direct investment in India, which means CapitaLand cannot take stakes in them. Foreigners are only allowed to invest in the development of properties in India with built-up areas of more than 50,000 sq metres.
However, CapitaLand Retail CEO Pua Seck Guan did not preclude Pantaloon – whose retail formats include Big Bazaar hypermarkets and Food Bazaar supermarkets – being a tenant at some of the 15 malls under the latest partnerships with Prestige and AIPL.
There may also be potential collaborations between CapitaLand and Prestige or AIPL to develop built-to- suit malls for Pantaloon, Mr Pua added.
Under the earlier deal, it has been reported that CapitaLand also made a US$75 million investment in the Pantaloon-sponsored Horizon Realty Fund, which is investing in predominantly retail real estate development assets in locations like Mumbai, Chennai, Bangalore and Kolkata.
CapitaLand Group president and CEO Liew Mun Leong said the latest joint ventures with Prestige and AIPL will further boost CapitaLand’s position as the leading retail real estate player in Asia and replicate its success in China. The group’s portfolio includes over 70 malls in China, seven in Japan, 17 in Singapore, and two in Malaysia. It has also started to look out for malls in Vietnam.
All 15 malls under yesterday’s announcements are under construction. When completed, the assets are likely to generate property yields (based on project cost), of 16 to 22 per cent – higher than the borrowing cost of 11-12 per cent in India, with a sufficient gap for a development profit.
Prestige Group chairman and managing director Irfan Razack pointed to abundant opportunities in India’s retail real estate market, with rapid urbanisation and growing affluence, and where ‘organised retail formats’, such as shopping centres and department stores, constitute only 3 per cent of the retail market.
AIPL executive director Daljeet Singh said CapitaLand’s strong real estate financial skills sets will add significant value to their joint venture, especially when the two parties share a common exit strategy for the retail assets, through a listed vehicle or Reit.
AIPL’s Udaipur Celebration mall in Rajasthan, one of India’s top tourist destinations, opens in Q1 2009. In all, the CapitaLand-AIPL joint venture has identified an initial batch of eight projects which will be completed between Q1 2009 and 2010 and worth about S$1 billion (26.5 billion rupees), based on 100 per cent ownership.
CapitaLand Retail will hold a majority stake (expected to be over 60 per cent) in both the development/investment and mall management entities covering the joint venture, with AIPL holding the rest.
CapitaLand’s tie-up with Prestige is for an initial slate of seven projects expected to be completed between Q1 2009 and 2011 and worth about S$1.12 billion (29 billion rupees), based on 100 per cent ownership. The two partners will hold 50:50 stakes in both the develop- ment/investment and mall management entities for their joint venture.
CapitaLand will also have right of first refusal for future mall or predominantly retail projects by Prestige and AIPL.
FirstREIT – BT
First Reit beats Q4 forecast with $4.8m distributable income
FIRST Reit, Singapore’s first healthcare real estate investment trust (Reit), has reported distributable income of $4.8 million and a distribution per unit (DPU) of 1.76 cents for the fourth quarter ended Dec 31, 2007.
This exceeds its forecasts by 9.1 and 9.3 per cent respectively.
On a full-year basis, distributable income was $18.3 million and DPU was 6.73 cents, exceeding its forecasts by 5.6 and 5.7 per cent respectively.
Based on the closing price of 75 cents per unit on Jan 18, the full-year DPU represented a distribution yield of 9 per cent, said First Reit.
Ronnie Tan, chief executive of First Reit’s manager Bowsprit Capital Corporation, said: ‘We believe that our yield of 9 per cent remains one of the highest among the Singapore Reits (S-Reits) and this, in our opinion, is an attractive proposition.’
For the quarter, net property income was $7.2 million, 18.6 per cent above its forecast.
First Reit, which is sponsored by Lippo Karawaci, has assets in Indonesia and Singapore. A recent independent valuation put its asset value at $325.6 million, representing an increase of $17.6 million over the book value as at Sept 30, 2007.
Dr Tan said: ‘We will continue to work with our sponsor, Lippo Karawaci, in Indonesia. In addition, China will also remain a key focus in our acquisition pipeline as we believe that the healthcare needs in the country will continue to grow exponentially as income rises.’
Of the four memoranda of understanding for Chinese asset acquisitions it previously announced, Dr Tan said that it expects to conclude at least one acquisition in the second quarter of this year.
Noting that regulations have opened the way for possible consolidation in the S-Reit market, Dr Tan also said: ‘We are all for consolidation.’
The target portfolio size for First Reit is $400 million in 2008 and $500 million in 2009.
In terms of asset enhancement, Dr Tan said that it had recently submitted for regulatory approval plans for the redevelopment of its Adam Road Hospital, which has a 1.4 plot ratio. He added that First Reit could also sell units of the redeveloped hospital.
First Reit closed trading yesterday at 72 cents per unit, down two cents.