Suntec – OCBC
ORQ to drive FY08 earnings
Results broadly in line. Suntec REIT (Suntec) reported 4Q07 revenue of S$51.1m; +14% YoY and +9% QoQ. Distributable income was equally strong at S$30.4m; +22% YoY and +1% QoQ. At the DPU level, growth was more moderate at +11% YoY and +1% QoQ to 2.12 cents. Growth was mainly due to the increase in office and retail revenue due to better rates and higher occupancy. However, higher property expenses specifically from higher property tax and property management fees eroded much of the better revenue. This led to NPI margin falling from to 71% from 73% in 3Q07 and 4Q06. The results were about 4.5% better than our estimates.
Revaluation gains of S$1.29bn. In the current quarter, Suntec re-valued its asset and has recognised a gain of S$1.29bn (or 40% YoY). Suntec attributed the bulk of the gains from its office assets. More importantly with the new valuation, Suntec’s gearing has dropped to 20% (from 24% at 3Q07). With a target gearing of 45%, based on its current asset value, Suntec could raise a further S$408m. As for its NTA, it now stands at S$2.20, which means that it is currently trading below book value.
Accretion from ORQ to kick-in in FY08. In a recent release, Suntec has revealed it will finance the ORQ acquisition with 10% equity (to the vendor, Cheung Kong), 48% convertible bond (CB) and the balance 42% straight debt. CB is a new innovative way of financing and one that could be viewed as a form of deferred payment. However, as Suntec has an option to redeem the CB, we consider it as debt. We estimate the average cost of funding of ORQ at about 3.2% and with ORQ NPI yield at 4.2%, we see strong accretion to Suntec in FY08. In light of this we have revised up our FY08F DPU from 8.8 cents to 10.4 cents and we are also introducing FY09F at 10.7 cents. Finally, we estimate the rental from ORQ to be about S$10.5psf/mth and with market rates at S$15psf/mth. So we see upside potential albeit in the middle term.
Maintain BUY and fair value of S$2.18. The investment case for Suntec is simple, strong rental reversions from under rented office space, earnings accretion from acquisitions and retail space to benefit from asset enhancement. More importantly, with a price to book of below 1.0x, we see the investment case for Suntec compelling. We maintain our BUY rating with a fair value of S$2.18.
Suntec – BT
Q4 distributable income for Suntec Reit up 22%
SUNTEC Reit has reported fourth-quarter income available for distribution of $30.4 million, an increase of 22.2 per cent from $24.8 million a year ago.
For the same July 1-Sept 30 period, Suntec Reit recorded gross revenue of $51.1 million, an increase of 13.7 per cent year-on-year. Net property income was up 12 per cent up at $36.6 million while distribution per unit (DPU) was 2.122 cents, up 11.3 per cent.
The Reit’s stake in Suntec City Mall and Office Towers contributes 87.4 per cent of its net property income (NPI) and it reported that Suntec office leases were secured at higher rental rates of between $11 and $13 per square foot (psf) per month, and the committed office occupancy at Suntec City is at 99.8 per cent.
Suntec Reit also reported that the committed retail passing rent at Suntec City Mall hit a new high of $10.46 psf per month.
The Reit, which also owns Park Mall and Chijmes, reported that the passing rents there rose to $6.60 psf per month and $10.68 psf per month respectively.
Suntec Reit also recognised a revaluation surplus of $677.5 million for the quarter after independent valuations of its porfolio was valued at $4.57 billion (as at Sept 30).
On a full-year basis (Oct 1, 2006 to Sept 30, 2007), income available for distribution was $115.4 million, up 21.6 per cent from $94.9 million in the corresponding period a year ago. Net property income was up 11.8 per cent at $140.6 million and DPU was up 11.8 per cent at 8.15 cents.
Based on the closing price of $1.84 on Oct 26, Suntec Reit’s distribution yield was 4.4 per cent, up 11.8 per cent compared to the previous year.
Yeo See Kiat, CEO of Reit manager ARA Trust Management said: ‘On the acquisition front, we have entered into an agreement to acquire one-third interest in One Raffles Quay which will be completed shortly.’
Suntec Reit’s other income revenue from A&P, pushcarts and kiosks for FY07 grew 10.2 per cent year-on-year, surpassing the $6 million mark.
For its current office portfolio, 26.8 per cent of leases are expected to expire next year, with 42.6 per cent expiring the following year.
For its retail portfolio, 30.4 per cent of the leases are expected to expire next year, with 23.4 per cent expiring the following year.
Suntec Reit ended the trading day yesterday at $1.84 per share, unchanged.
MI-REIT – SGX
MI-REIT ACQUIRES 15 TAI SENG DRIVE FOR S$28.9 MILLION
– Increases FY2008 DPU by 0.33 cents to 7.75 cents per unit and FY2009 DPU by 0.35 cents to 7.94 cents per unit
– MI-REIT’s total property investments increase to approximately S$529.8 million
Singapore, 29 October 2007 – MacarthurCook Investment Managers (Asia) Limited (“MCKIM Asia”), the Manager of MacarthurCook Industrial REIT ( “MI-REIT”), is pleased to announce that MI-REIT, through its Trustee, HSBC Institutional Trust Services (Singapore) Limited ( the “Trustee”), has signed a Sale and Purchase Agreement (the “Agreement”) to acquire a warehouse building from Ascendas Global Gateway Pte Ltd ( the “Vendor” ) for a total consideration of S$28.9 million.
The property at 15 Tai Seng Drive, also known as the Axis Industrial Building, (the “Property” ) will continue to be leased to its existing tenants, who are:
MapleTree – OCBC
Upgrade on recent correction
Growth again due to acquisitions. Mapletree Logistics Trust (MLT) reported another good set of results. 3Q07 revenue was up over 79% YoY and 11% QoQ at S$38.5m, and distributable income improved 79% YoY and 8% QoQ to S$19.1m. Distributable income per unit (DPU) was in line with sequential bottom-line growth, improving by 30% YoY and 8% QoQ to 1.72 cents. The result is better than OIR’s forecast of 1.50 cents. The bulk of the sequential growth came from the acquisition of 9 properties bought over the previous quarter. MLT management indicated that earnings from acquisitions generally lag by about a quarter. In 3Q, only 3 assets were completed so we cannot expect a robust growth in 4Q07. Finally MLT has about 13 properties pending completion worth about S$295m and when completed, its asset value should rise to about S$2.43b from S$2.13b at 3Q07.
Likely penetration of Vietnam and South Korea. Presently MLT’s income exposure continues to be Singapore biased. Singapore makes up about 52% (58% in 2Q07) of group NPI, followed by Hong Kong (30%), Japan (13%), Malaysia (3%) and China (2%). Going forward into 2008, we expect MLT to continue to diversify its income and to enter into more new markets. Vietnam is likely to be the next new market followed by South Korea, Vietnam and possibly even India.
Gearing limit to be reached soon. Since its 2Q07 results, MLT has announced 4 more acquisitions. These assets to be acquired will cost a total of S$129m. Together with previously announced acquisitions, MLT has or will be spending a total of S$295m. The implication is that its asset base will increase from S$2.13b (at 3Q07) to S$2.43b fairly soon. As all the recently announced acquisitions are likely to be debt funded, MLT’s gearing will rise to 62%. The implication is that an equity raising exercise is probably on the cards within the next 6 months.
Upgrade to buy on recent correction. Since our HOLD downgrade in May, MLT has corrected nicely from S$1.48 to the present S$1.19 or by about 20%. More importantly, its price to book ratio has also come down from over 1.74x in May to a more reasonable 1.42x now. Our previous downgrade was purely on the back of valuation, so in light of the recent correction we are seeing value in MLT. We thus upgrade our rating on MLT from a Hold to BUY and keep our fair value of S$1.50.
MapleTree – BT
MLT’s Q3 distributable income up 79%
The trust’s target is to have a portfolio worth at least $5b by 2010
MAPLETREE Logistics Trust (MLT) yesterday said its third quarter distributable income rose 78.9 per cent to $19.1 million – from $10.7 million a year ago – as revenue was boosted by contributions from 25 new properties the trust acquired during the year.
MLT’s distribution per unit (DPU) came to 1.72 cents, up 30.3 per cent from the DPU of 1.32 cents for the corresponding three months last year.
Net property income increased 76.1 per cent to $33.9 million from $19.2 million.
For the first nine months of the year, MLT’s distributable income rose 82 per cent to $52.1 million, while DPU climbed 32.7 per cent to 4.79 cents.
The trust’s asset base grew significantly over the last year, adding to its revenue, MLT said.
As at Sept 30, 2007, the trust’s portfolio had 61 properties, compared to 36 properties a year ago. These 61 properties have a book value of over $2.1 billion.
Another 13 property acquisitions worth some $295 million in all have also been announced and are pending completion.
‘For the current year-to-date, we have completed $687 million of acquisitions and have another $295 million of acquisitions that have been announced but are pending completion,’ said Chua Tiow Chye, chief executive of MLT’s manager.
‘This means that we have achieved 98 per cent of our $1 billion target for 2007.’
Once the pending acquisitions are completed, MLT’s portfolio would comprise 74 properties with a book value of about $2.4 billion. The trust’s target is to have a portfolio worth at least $5 billion by 2010.
Mr Chua added that MLT will probably buy the 254,000 sq ft Mapletree Logistics Centre in Vietnam from its sponsor Mapletree Investments by the end of this year.
The acquisition will mark the trust’s first foray into Vietnam. Right now, all of MLT’s properties are in Singapore, Malaysia, Japan, Hong Kong and China, but the trust has also identified Vietnam, India, South Korea, Taiwan and Thailand as attractive markets as it aims to have a more geographically diversified portfolio.
‘We hope that by this time next year, we will have some assets in Thailand and South Korea,’ said Richard Lai, deputy chief executive of MLT’s manager.
For the next financial year, more contributions from Japan, China and Malaysia are expected, MLT said.
MLT’s shares closed two cents up at $1.19 yesterday.