（吉隆坡9日訊）大馬產托表現超越新加坡同儕，回酬差距正逐步收窄，分析員看好谷中城產托潛在上市有望進一步提昇市場深度，加上2012年6.8%誘人淨回酬表現，產托領域前景看俏。
馬銀行金英研究認為，2011年大馬產業投資信托（REITs）表現超越新加坡同儕，特別是柏威年產業信托（PAVREIT，5212，主板產業投資信托組）上市後，拉近12月中旬兩國產托回酬差距至29個基本點。
谷中城上市
或提高市場深度
“據悉，怡保花園（IGB，1597，主板產業組）現已聘請投資銀行來進行谷中城產托計劃，有望在2012年首半年上路，我們相信隨著Kris Asset旗下總值28億令吉的谷中城和園中城（The Gardens）上市，可能進一步提高大馬產托的深度和廣度。”
馬銀行指出，多數大馬產托現有負債比低於0.4倍，其中AXIS產業信托（AXREIT，5106，主板產業投資信托組）和嘉德商托（CMMT，5180，主板產業投資信托組）在私下配售後，負債比更將降至0.24倍至0.3倍之間。
“更重要的是，大馬產托經歷2008年全球金融風暴考驗，現多採取積極的資本管理，促使其未來1年再融資風險不高，而強勁的資產負債表更可為擴展提供空間。”
不過，產托的成功關鍵在於維持租戶能力，馬銀行表示，桂嘉資產管理（QCAPITA，5123，主板產業投資信托組）和嘉德商托現有38%和32%租賃更新名列同儕最佳，儘管辦公市場持續受供應過盛影響，但桂嘉仍憑藉積極管理，以及維持與租戶的良好關係，每年仍取得2至3%的租金上調。
“嘉德商托32%租賃更新與綠野購物中心（The Mines）有關，但公司現已取得正面的合約更新進展。”
整體而論，馬銀行認為，在疲憊經濟環境時，工業和策略地點零售產托前景較辦公產托為好，主要是工業產業獲供應有限和長期租約利好扶持，而零售環節雖恐面對租金成長下跌、零售開銷減少等風險，但柏威年產業信托和雙威產業信托（SUNREIT，5176，主板產業投資信托組）等黃金地段購物中心仍是投資者首選。
“我們對辦公領域供過於求情況感到憂慮，數據顯示整體辦公出租率從91%下滑至84%，而租金更是自2010年第四季下滑0.2%，但我們仍看好整體產托市場前景，加上2012年6.8%淨回酬表現，維持領域‘加碼’評級，其中AXIS產業信托（AXREIT，5106，主板產業投資信托組）為投資首選。”（星洲日報／財經）
Showing posts with label REIT. Show all posts
Showing posts with label REIT. Show all posts
Wednesday, January 11, 2012
Monday, December 12, 2011
Rights issues by REITs a tough sell?
Written by Chua Sue-Ann
Monday, 12 December 2011 11:26
KUALA LUMPUR: It remains to see whether investors will warm up to recent proposals by Malaysian real estate investment trusts (REITs) to embark on rights issues for fundraising.
This comes as Hektar REIT and AmFirst REIT separately proposed rights issues in recent months. The former is doing so to fund new asset acquisition while the latter is seeking to reduce its bank borrowings. CapitaMalls Malaysia Trust (CMT) also recently told The Edge Financial Daily that it is considering a rights issue to raise fresh capital.
Analysts and market observers said it is generally undesirable for REITs to embark on rights issues as investors expect dividends from REITs instead of having to plough in more capital.
“Effectively, they are asking investors to spend more on their stock in these uncertain market conditions,” said a property analyst.
However, judging from the price performance of both Hektar REIT and AmFirst REIT, investors have not reacted negatively to the news. This, surprisingly, is in contrast to investors’ harsh treatment of Singapore-listed REITs that embarked on rights issues.
According to analysts, the reason why Malaysian REITs are now turning to rights issues to raise funds, instead of the usual way of borrowing or unit placement, could be because their gearing is already near the 50% threshold (of total asset value) permitted for a REIT to borrow, or that the capital they seek to raise is larger than what can be achieved with a placement exercise.
In Hektar REIT’s case, its gearing ratio is 43.4%, just below the 50% limit, based on its total debt of RM347 million and total assets of RM799.47 million as at Sept 30. AmFirst’s REIT’s gearing as at Sept 30 was 39.8% based on total borrowings of RM419.6 million and total assets of RM1.053 billion.
On Dec 8, Hektar REIT proposed a renounceable rights issue to raise gross proceeds of about RM98.4 million. Proceeds from the rights issue will be used to partially fund the acquisition of two shopping malls in Kedah for RM181 million cash.
Hektar REIT added that it would also obtain bank borrowings of up to RM87.1 million to purchase the assets. Note that it held cash and cash equivalents of RM21.3 million as at Sept 30.
The REIT has yet to finalise the actual number of rights units and entitlement basis will be determined later based on the final issue price of the rights unit.
Hektar REIT added that it will procure a written irrevocable undertaking from its substantial unitholders to fully subscribe for their entitlements, failing which underwriting arrangements would be made.
AmFirst REIT’s proposed rights issue, set on a three-for-five basis, is expected to raise gross proceeds of about RM218.8 million, based on an illustrative issue price of 85 sen per unit. The proceeds are to be used to pare down borrowings.
CapitalMalls Malaysia Trust, which also manages
The Mines shopping mall, recently said it is also
considering a rights issue to raise fresh capital.
AmFirst said the rights unit issue price is expected to be fixed at a discount of no more than 20% to the theoretical ex-rights price of the unit. “The discount on the issue price of the rights unit is intended to reward unitholders for their continuous support of the fund,” AmFirst said.
Thus far, investors have not reacted negatively to the REITs proposal to conduct rights issues. The unit prices of both Hektar REIT and AmFirst REIT are still traded near their peaks.
“It could be because the unit prices are currently near historical highs, and more interestingly, at the current high prices they still offer rather good yields as well [Hektar REIT at 7.6% and AmFirst at 8.6% historical yield], so unitholders are happy,” said a market observer.
Other than that, he explained that there is still strong demand for REITS in times of market volatility, especially among institutional shareholders.
“Pavilion REIT has gained 13.6% since last week’s IPO to RM1, and the yield is now only 5.7%. So, the management of REITs thought maybe a rights issue is a good idea,” he said.
The scenario is different in Singapore.
K-REIT Asia, a unit of the Keppel Land group, saw its unit priced plunge 9.7% to S$0.857 sen on Oct 18 after it announced plans to raise S$976.3 million (RM2.4 billion) through a 17-for-20 rights issue. Most of the funds raised by the REIT will be used to buy a 87.5% stake in Ocean Financial Centre (OFC) from its parent Keppel Land Ltd.
It was reported that investors didn’t like the pricing for the OFC deal, and the fact that it was a related party deal. It wasn’t entirely because K-REIT Asia had proposed to acquire it via rights issue funding.
“At the end of the day, REIT managements have to justify why they have to do a rights issue to ask for more money from the unitholders. While institutional shareholders are okay with a rights issue, it could be a turn-off for minority shareholders,” said a market observer.
Monday, 12 December 2011 11:26
KUALA LUMPUR: It remains to see whether investors will warm up to recent proposals by Malaysian real estate investment trusts (REITs) to embark on rights issues for fundraising.
This comes as Hektar REIT and AmFirst REIT separately proposed rights issues in recent months. The former is doing so to fund new asset acquisition while the latter is seeking to reduce its bank borrowings. CapitaMalls Malaysia Trust (CMT) also recently told The Edge Financial Daily that it is considering a rights issue to raise fresh capital.
Analysts and market observers said it is generally undesirable for REITs to embark on rights issues as investors expect dividends from REITs instead of having to plough in more capital.
“Effectively, they are asking investors to spend more on their stock in these uncertain market conditions,” said a property analyst.
However, judging from the price performance of both Hektar REIT and AmFirst REIT, investors have not reacted negatively to the news. This, surprisingly, is in contrast to investors’ harsh treatment of Singapore-listed REITs that embarked on rights issues.
According to analysts, the reason why Malaysian REITs are now turning to rights issues to raise funds, instead of the usual way of borrowing or unit placement, could be because their gearing is already near the 50% threshold (of total asset value) permitted for a REIT to borrow, or that the capital they seek to raise is larger than what can be achieved with a placement exercise.
In Hektar REIT’s case, its gearing ratio is 43.4%, just below the 50% limit, based on its total debt of RM347 million and total assets of RM799.47 million as at Sept 30. AmFirst’s REIT’s gearing as at Sept 30 was 39.8% based on total borrowings of RM419.6 million and total assets of RM1.053 billion.
On Dec 8, Hektar REIT proposed a renounceable rights issue to raise gross proceeds of about RM98.4 million. Proceeds from the rights issue will be used to partially fund the acquisition of two shopping malls in Kedah for RM181 million cash.
Hektar REIT added that it would also obtain bank borrowings of up to RM87.1 million to purchase the assets. Note that it held cash and cash equivalents of RM21.3 million as at Sept 30.
The REIT has yet to finalise the actual number of rights units and entitlement basis will be determined later based on the final issue price of the rights unit.
Hektar REIT added that it will procure a written irrevocable undertaking from its substantial unitholders to fully subscribe for their entitlements, failing which underwriting arrangements would be made.
AmFirst REIT’s proposed rights issue, set on a three-for-five basis, is expected to raise gross proceeds of about RM218.8 million, based on an illustrative issue price of 85 sen per unit. The proceeds are to be used to pare down borrowings.
CapitalMalls Malaysia Trust, which also manages
The Mines shopping mall, recently said it is also
considering a rights issue to raise fresh capital.
AmFirst said the rights unit issue price is expected to be fixed at a discount of no more than 20% to the theoretical ex-rights price of the unit. “The discount on the issue price of the rights unit is intended to reward unitholders for their continuous support of the fund,” AmFirst said.
Thus far, investors have not reacted negatively to the REITs proposal to conduct rights issues. The unit prices of both Hektar REIT and AmFirst REIT are still traded near their peaks.
“It could be because the unit prices are currently near historical highs, and more interestingly, at the current high prices they still offer rather good yields as well [Hektar REIT at 7.6% and AmFirst at 8.6% historical yield], so unitholders are happy,” said a market observer.
Other than that, he explained that there is still strong demand for REITS in times of market volatility, especially among institutional shareholders.
“Pavilion REIT has gained 13.6% since last week’s IPO to RM1, and the yield is now only 5.7%. So, the management of REITs thought maybe a rights issue is a good idea,” he said.
The scenario is different in Singapore.
K-REIT Asia, a unit of the Keppel Land group, saw its unit priced plunge 9.7% to S$0.857 sen on Oct 18 after it announced plans to raise S$976.3 million (RM2.4 billion) through a 17-for-20 rights issue. Most of the funds raised by the REIT will be used to buy a 87.5% stake in Ocean Financial Centre (OFC) from its parent Keppel Land Ltd.
It was reported that investors didn’t like the pricing for the OFC deal, and the fact that it was a related party deal. It wasn’t entirely because K-REIT Asia had proposed to acquire it via rights issue funding.
“At the end of the day, REIT managements have to justify why they have to do a rights issue to ask for more money from the unitholders. While institutional shareholders are okay with a rights issue, it could be a turn-off for minority shareholders,” said a market observer.
Monday, October 17, 2011
CMMT distributable income rises 41% in 3Q
Friday, 14 October 2011 12:17
KUALA LUMPUR: CapitaMalls Malaysia Trust’s (CMMT) distributable income in the third quarter ended Sept 30, 2011 (3QFY11), rose 40.6% to RM29.7 million from a year ago on higher property income and gross revenue.
Revenue increased 33.3% to RM57.84 million from RM43.39 million.
CMMT’s distributable income rose on net property income of RM41.1 million (35.6% higher than 3QFY10) and gross revenue of RM57.8 million (33.3% higher than 3QFY10), said CapitaMalls Malaysia REIT Management Sdn Bhd (CMRM), the manager of CMMT, in a press release yesterday.
For 3QFY11, CMMT distribution per unit (DPU) increased by 26.9% to 1.98 sen compared with 1.56 sen a year ago.
Based on CMMT’s closing price of RM1.28 per unit yesterday, its DPU of 1.98 sen translates to an annualised distribution yield of 6.1%, said CMRM.
CMRM chairman Kee Teck Koon said the stronger results were boosted by the Gurney Plaza extension in 3QFY11, the acquisition of which was completed on March 28.
“Since then, we have announced another acquisition of East Coast Mall in Kuantan, which is expected to be completed by year-end. We continue to actively look for acquisition opportunities as part of our growth strategy to enhance unit holder value,” he said.
Sharon Lim, CEO of CMRM, said East Coast Mall is expected to contribute over RM20 million in net property income per year to CMMT’s existing portfolio.
Lim said CMMT had a near full occupancy rate of 98.7% across its portfolio and rental renewal increases of 6.7%.
“Our asset enhancement works at Gurney Plaza are progressing well and on track to be completed by year-end, and will start contributing to our income from next year onwards,” Lim said.
A “pure-play” shopping mall REIT, CMMT’s portfolio comprises Gurney Plaza in Penang, The Mines in Selangor, and an interest in Sungei Wang Plaza in Kuala Lumpur. The portfolio has a total net lettable area of over two million sq ft.
For the cumulative nine-month period, CMMT’s distributable income quadrupled to RM85.4 million from RM21.1million a year ago while revenue more than tripled to RM167.7 million from RM43.4 million.
Shares in CMMT closed unchanged at RM1.28 yesterday.
This article appeared in The Edge Financial Daily, Ocotber 14, 2011.
KUALA LUMPUR: CapitaMalls Malaysia Trust’s (CMMT) distributable income in the third quarter ended Sept 30, 2011 (3QFY11), rose 40.6% to RM29.7 million from a year ago on higher property income and gross revenue.
Revenue increased 33.3% to RM57.84 million from RM43.39 million.
CMMT’s distributable income rose on net property income of RM41.1 million (35.6% higher than 3QFY10) and gross revenue of RM57.8 million (33.3% higher than 3QFY10), said CapitaMalls Malaysia REIT Management Sdn Bhd (CMRM), the manager of CMMT, in a press release yesterday.
For 3QFY11, CMMT distribution per unit (DPU) increased by 26.9% to 1.98 sen compared with 1.56 sen a year ago.
Based on CMMT’s closing price of RM1.28 per unit yesterday, its DPU of 1.98 sen translates to an annualised distribution yield of 6.1%, said CMRM.
CMRM chairman Kee Teck Koon said the stronger results were boosted by the Gurney Plaza extension in 3QFY11, the acquisition of which was completed on March 28.
“Since then, we have announced another acquisition of East Coast Mall in Kuantan, which is expected to be completed by year-end. We continue to actively look for acquisition opportunities as part of our growth strategy to enhance unit holder value,” he said.
Sharon Lim, CEO of CMRM, said East Coast Mall is expected to contribute over RM20 million in net property income per year to CMMT’s existing portfolio.
Lim said CMMT had a near full occupancy rate of 98.7% across its portfolio and rental renewal increases of 6.7%.
“Our asset enhancement works at Gurney Plaza are progressing well and on track to be completed by year-end, and will start contributing to our income from next year onwards,” Lim said.
A “pure-play” shopping mall REIT, CMMT’s portfolio comprises Gurney Plaza in Penang, The Mines in Selangor, and an interest in Sungei Wang Plaza in Kuala Lumpur. The portfolio has a total net lettable area of over two million sq ft.
For the cumulative nine-month period, CMMT’s distributable income quadrupled to RM85.4 million from RM21.1million a year ago while revenue more than tripled to RM167.7 million from RM43.4 million.
Shares in CMMT closed unchanged at RM1.28 yesterday.
This article appeared in The Edge Financial Daily, Ocotber 14, 2011.
Friday, August 5, 2011
CMMT gains on good earnings
CapitaMalls Malaysia Trust (CMMT) has been keeping busy. Since the real estate investment trust — a “pure play” shopping mall REIT — was listed in mid-July 2010, it has acquired one property and is in the process of adding another to its portfolio.
The REIT completed the acquisition of Gurney Plaza Extension in Penang at end-March 2011. This enlarged its portfolio of net lettable area (NLA) under management to just over two million sq ft. Total investment properties increased to RM2.43 billion as at end-June 2011 — including RM54.2 million in property fair value gains this year — up by more than 14% from RM2.13 billion when it was listed just over a year ago.
CMMT is in the process of acquiring the East Coast Mall in Kuantan, Pahang, for a total cost of about RM330 million. The purchase will further expand the NLA under management to 2.46 million sq ft and total investment properties to RM2.76 billion. To finance the purchase, CMMT will issue up to 299 million new units.
This latest move will reaffirm the trust’s strategic positioning in the retail mall segment, extending its presence to four key urban centres — Kuala Lumpur, Penang, Selangor and Kuantan. The acquisition is slated for completion by 4Q11 and will start to contribute to earnings in 2012.
For the first six months of 2011, CMMT reported distributable income totalling RM55.9 million — excluding some RM51.3 million in unrealised fair value gains on investment properties and adjustments for manager’s management fee payable in units — on the back of total revenue of RM109.9 million.
Distributable income in 2Q11 totalled RM29.9 million, boosted by maiden contributions from the newly acquired Gurney Plaza Extension. Both shopper and vehicular traffic at its shopping malls recorded positive year-on-year (y-o-y) growth during the quarter.
Perhaps more importantly, all three of CMMT’s shopping malls — the enlarged Gurney Plaza, Sungei Wang Plaza in Kuala Lumpur and The Mines in Selangor — enjoyed positive rent reversion on leases renewed so far this year. Rental increases for the first year under the new leases range from 5.1% to 8%, with an average of 6.6% for its portfolio of assets. Occupancy also inched higher to an average of 99.1% as at end-June 2011, up from 98.7% at end-March 2011.
A second interim income distribution of 2.16 sen per unit raised the total distribution for 1H11 to 3.9 sen. At this pace, the trust is well on track to meet its forecast income distribution of 7.46 sen per unit for 2011.
In fact, based on its 100% payout commitment, total income distribution for the year may well be higher. This is likely, at least in part, the reason its unit price has spiked over the past two months from RM1.16 in early June to the current RM1.32. As a result of the recent price gains, yield (based on CMMT’s forecast 7.46 sen unit distribution) has narrowed to just 5.7%.
Quill Capita keeping existing portfolio intact
Quill Capita Trust, on the other hand, has not been as active in terms of expanding its portfolio of assets.
The real estate investment trust’s last acquisition was made way back in late-2008. Since then, the total number of properties has remained at 10, up from four at the listing date in January 2007, with some 1.29 million sq ft of NLA under management. While the manager is on the lookout for potential yield accretive acquisition opportunities, no imminent new purchases have been announced so far.
Nevertheless, Quill Capita does offer investors comparatively good yields on fairly low risks. Gearing has declined slightly to 36% as at end-June 2011, compared with just over 37% from a year ago, while its cost of debt has been steady at roughly 4.45% over the past four quarters. Almost all of the trust’s borrowings carry fixed interest rates.
Quill Capita reported a good set of earnings results for 2Q11. Net income rose 10.5% y-o-y to RM9.17 million on the back of a 1.5% increase in revenue to RM17.61 million. The better margin was attributed to lower property operating expenses.
For the first six months of the year, revenue was up 1.7% to RM35.1 million from the previous corresponding period, thanks to higher rental for some properties. Net income expanded by 6.8% y-o-y to RM16.9 million over the same period. As a result, the trust has raised its income distribution at the interim period to four sen per unit, from 3.85 sen per unit in 1H10.
On the back of the relatively good 1H11 earnings, we forecast higher income for distribution for the full year, estimated at 8.22 sen per unit, up from 8.03 sen per unit last year. This would translate into a fairly attractive yield of 7.5% at the current price.
It should also be noted that Quill Capita is one of the few REITs currently trading well below net asset value (NAV), which stood at RM1.28 at end-June. By comparison, CMMT is trading at 1.24 times its NAV of RM1.06 per unit.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
This article appeared in The Edge Financial Daily, August 5, 2011.
The REIT completed the acquisition of Gurney Plaza Extension in Penang at end-March 2011. This enlarged its portfolio of net lettable area (NLA) under management to just over two million sq ft. Total investment properties increased to RM2.43 billion as at end-June 2011 — including RM54.2 million in property fair value gains this year — up by more than 14% from RM2.13 billion when it was listed just over a year ago.
CMMT is in the process of acquiring the East Coast Mall in Kuantan, Pahang, for a total cost of about RM330 million. The purchase will further expand the NLA under management to 2.46 million sq ft and total investment properties to RM2.76 billion. To finance the purchase, CMMT will issue up to 299 million new units.
This latest move will reaffirm the trust’s strategic positioning in the retail mall segment, extending its presence to four key urban centres — Kuala Lumpur, Penang, Selangor and Kuantan. The acquisition is slated for completion by 4Q11 and will start to contribute to earnings in 2012.
For the first six months of 2011, CMMT reported distributable income totalling RM55.9 million — excluding some RM51.3 million in unrealised fair value gains on investment properties and adjustments for manager’s management fee payable in units — on the back of total revenue of RM109.9 million.
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Perhaps more importantly, all three of CMMT’s shopping malls — the enlarged Gurney Plaza, Sungei Wang Plaza in Kuala Lumpur and The Mines in Selangor — enjoyed positive rent reversion on leases renewed so far this year. Rental increases for the first year under the new leases range from 5.1% to 8%, with an average of 6.6% for its portfolio of assets. Occupancy also inched higher to an average of 99.1% as at end-June 2011, up from 98.7% at end-March 2011.
A second interim income distribution of 2.16 sen per unit raised the total distribution for 1H11 to 3.9 sen. At this pace, the trust is well on track to meet its forecast income distribution of 7.46 sen per unit for 2011.
In fact, based on its 100% payout commitment, total income distribution for the year may well be higher. This is likely, at least in part, the reason its unit price has spiked over the past two months from RM1.16 in early June to the current RM1.32. As a result of the recent price gains, yield (based on CMMT’s forecast 7.46 sen unit distribution) has narrowed to just 5.7%.
Quill Capita keeping existing portfolio intact
Quill Capita Trust, on the other hand, has not been as active in terms of expanding its portfolio of assets.
The real estate investment trust’s last acquisition was made way back in late-2008. Since then, the total number of properties has remained at 10, up from four at the listing date in January 2007, with some 1.29 million sq ft of NLA under management. While the manager is on the lookout for potential yield accretive acquisition opportunities, no imminent new purchases have been announced so far.
Nevertheless, Quill Capita does offer investors comparatively good yields on fairly low risks. Gearing has declined slightly to 36% as at end-June 2011, compared with just over 37% from a year ago, while its cost of debt has been steady at roughly 4.45% over the past four quarters. Almost all of the trust’s borrowings carry fixed interest rates.
Quill Capita reported a good set of earnings results for 2Q11. Net income rose 10.5% y-o-y to RM9.17 million on the back of a 1.5% increase in revenue to RM17.61 million. The better margin was attributed to lower property operating expenses.
For the first six months of the year, revenue was up 1.7% to RM35.1 million from the previous corresponding period, thanks to higher rental for some properties. Net income expanded by 6.8% y-o-y to RM16.9 million over the same period. As a result, the trust has raised its income distribution at the interim period to four sen per unit, from 3.85 sen per unit in 1H10.
On the back of the relatively good 1H11 earnings, we forecast higher income for distribution for the full year, estimated at 8.22 sen per unit, up from 8.03 sen per unit last year. This would translate into a fairly attractive yield of 7.5% at the current price.
It should also be noted that Quill Capita is one of the few REITs currently trading well below net asset value (NAV), which stood at RM1.28 at end-June. By comparison, CMMT is trading at 1.24 times its NAV of RM1.06 per unit.
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Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
This article appeared in The Edge Financial Daily, August 5, 2011.
Friday, July 15, 2011
Better dividend returns from REITs this year
Written by Sheikh Al-Zaquan & Haziq Hamid
Wednesday, 13 July 2011 12:13
KUALA LUMPUR: Investors of real estate investment trusts (REITs) may see better returns this year in terms of dividends.
Last year, most local REITs saw lower or flattish dividend payouts, which had resulted in the decline in yields. This was despite capital gains registered from property revaluations reflected in the share prices and positive movements in the REITs’ net asset values.
In a media briefing yesterday on Asia Pacific REITs, AmInvestment Bank Group director of retail funds, Ng Chze How, said REIT players are expected to cope with investors’ higher expectation on dividends amid soaring property prices by increasing rental rates. He expects yields from REITs to recover to 7% to 8% this year.
Despite REITs’ generally lower yields in 2010, Ng emphasised that REITs still performed better next to the region’s equity indices. Based on AmInvestment’s portfolio of 32 Asia-based REITs, the sector registered an annual dividend yield of 6.3% as at their prices on May 4. In comparison, market indices in Malaysia, Singapore and Indonesia registered yields of 3.5%, 3.2% and 2.3%, respectively.
“Not withstanding the global crisis, prices of Asia-Pacific REITs have also picked up and appreciated by 46% and this is clearly a better performance compared to global REITs’ 14.4%,” said Ng.
He added that the Asian real estate sector has more room to grow, as it has yet to reach its peak achieved before the global financial crisis in 2007.
“From our perspective, it is very timely to invest in REITs as we are only in the third year and an early stage of business recovery,” said Ng.
REITs are also expected to benefit from rise in rental and occupancy rates as demand for commercial and retail properties takes on an uptrend. “With growing population and economic activity, the average occupancy rate for office and retail space in the Asia-Pacific region has reached 90%,” said Ng, citing that an additional boost may come from the increased interests from foreign investors.
“We continue to see an influx of foreign money flowing into the local property market,” he added.
Axis REIT CEO Stewart LaBrooy maintains that REITs will continue to pay consistent dividends even during the economic downturn. “If the market improves, so do the dividend payouts,” he said.
This article appeared in The Edge Financial Daily, July 13, 2011.
Wednesday, 13 July 2011 12:13
KUALA LUMPUR: Investors of real estate investment trusts (REITs) may see better returns this year in terms of dividends.
Last year, most local REITs saw lower or flattish dividend payouts, which had resulted in the decline in yields. This was despite capital gains registered from property revaluations reflected in the share prices and positive movements in the REITs’ net asset values.
In a media briefing yesterday on Asia Pacific REITs, AmInvestment Bank Group director of retail funds, Ng Chze How, said REIT players are expected to cope with investors’ higher expectation on dividends amid soaring property prices by increasing rental rates. He expects yields from REITs to recover to 7% to 8% this year.
Despite REITs’ generally lower yields in 2010, Ng emphasised that REITs still performed better next to the region’s equity indices. Based on AmInvestment’s portfolio of 32 Asia-based REITs, the sector registered an annual dividend yield of 6.3% as at their prices on May 4. In comparison, market indices in Malaysia, Singapore and Indonesia registered yields of 3.5%, 3.2% and 2.3%, respectively.
“Not withstanding the global crisis, prices of Asia-Pacific REITs have also picked up and appreciated by 46% and this is clearly a better performance compared to global REITs’ 14.4%,” said Ng.
He added that the Asian real estate sector has more room to grow, as it has yet to reach its peak achieved before the global financial crisis in 2007.
“From our perspective, it is very timely to invest in REITs as we are only in the third year and an early stage of business recovery,” said Ng.
REITs are also expected to benefit from rise in rental and occupancy rates as demand for commercial and retail properties takes on an uptrend. “With growing population and economic activity, the average occupancy rate for office and retail space in the Asia-Pacific region has reached 90%,” said Ng, citing that an additional boost may come from the increased interests from foreign investors.
“We continue to see an influx of foreign money flowing into the local property market,” he added.
Axis REIT CEO Stewart LaBrooy maintains that REITs will continue to pay consistent dividends even during the economic downturn. “If the market improves, so do the dividend payouts,” he said.
This article appeared in The Edge Financial Daily, July 13, 2011.
CMMT’s 2Q distribution exceeds forecast
Written by Max Koh
Wednesday, 13 July 2011 12:16
KUALA LUMPUR: CapitaMalls Malaysia Trust (CMMT) recorded a distribution per unit (DPU) of two sen for its 2Q ended June 30, 2011, higher than its forecast distribution, owing mainly to savings in financing costs.
In a statement yesterday, CMMT manager CapitaMalls Malaysia REIT Management Sdn Bhd (CMRM) said the higher DPU — some 8.1% above the forecast of 7.42 sen for the full year when annualised — was achieved on the back of RM57.2 million in gross revenue in 2Q. Distributable income was RM29.8 million while net property income came in at RM40.8 million for the quarter.
CMMT yesterday also announced an income distribution of 2.16 sen per unit for the period from March 25 to June 30, bringing total distribution for the first half of 2011 to 3.9 sen per unit. Book closure for the second distribution is July 27 and payout is intended on Aug 23.
For the six months, CMMT’s distributable income was RM29.79 million, achieved on the back of RM40.77 million in net property income and RM109.9 million in revenue.
Looking ahead, CMRM chairman Kee Teck Koon said the company was optimistic on the retail sales outlook, underpinned by steady domestic population and tourist arrival growths. “Malaysia’s population is expected to increase by 7.2% from 27.6 million last year to 29.6 million by 2014, and the annual tourist arrival target has been raised to 25 million and more for 2011 and beyond,” Kee said in a statement.
Since listing of CMMT in July last year, the REIT (real estate investment trust) has completed the acquisition of Gurney Plaza Extension, and had recently proposed to acquire East Coast Mall in Kuantan. “When completed, CMMT will have a portfolio of four well-performing malls in Penang, Kuala Lumpur, Selangor and Kuantan,” said Kee, adding that CMMT is well-positioned to ride on the projected growth in retail sales.
CMRM CEO Sharon Lim continues to see strong demand for retail space in its malls, with occupancy rate at 99.1%. Its performance in 2Q had proven that its management strategies were effective with the repositioning of The Mines, upgrading of Sungei Wang Plaza and the acquisition of Gurney Plaza Extension, she said.
“Our existing portfolio of three malls has been revalued higher from RM2.37 billion to RM2.43 billion by independent valuers. This reflects the success of our continuing asset enhancement initiatives,” she said in the statement.
She added that its tenants had posted higher sales, which enabled CMMT to increase its rental income. “Given the positive outlook and our proactive management, CMMT is well on track to achieve our forecast of 7.46 sen DPU this year,” she said.
CMMT closed one sen lower at RM1.29 yesterday with 209,800 units done.
This article appeared in The Edge Financial Daily, July 13, 2011.
Wednesday, 13 July 2011 12:16
KUALA LUMPUR: CapitaMalls Malaysia Trust (CMMT) recorded a distribution per unit (DPU) of two sen for its 2Q ended June 30, 2011, higher than its forecast distribution, owing mainly to savings in financing costs.
In a statement yesterday, CMMT manager CapitaMalls Malaysia REIT Management Sdn Bhd (CMRM) said the higher DPU — some 8.1% above the forecast of 7.42 sen for the full year when annualised — was achieved on the back of RM57.2 million in gross revenue in 2Q. Distributable income was RM29.8 million while net property income came in at RM40.8 million for the quarter.
CMMT yesterday also announced an income distribution of 2.16 sen per unit for the period from March 25 to June 30, bringing total distribution for the first half of 2011 to 3.9 sen per unit. Book closure for the second distribution is July 27 and payout is intended on Aug 23.
For the six months, CMMT’s distributable income was RM29.79 million, achieved on the back of RM40.77 million in net property income and RM109.9 million in revenue.
Looking ahead, CMRM chairman Kee Teck Koon said the company was optimistic on the retail sales outlook, underpinned by steady domestic population and tourist arrival growths. “Malaysia’s population is expected to increase by 7.2% from 27.6 million last year to 29.6 million by 2014, and the annual tourist arrival target has been raised to 25 million and more for 2011 and beyond,” Kee said in a statement.
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| The Sungei Wang Plaza in Bukit Bintang, KL. |
CMRM CEO Sharon Lim continues to see strong demand for retail space in its malls, with occupancy rate at 99.1%. Its performance in 2Q had proven that its management strategies were effective with the repositioning of The Mines, upgrading of Sungei Wang Plaza and the acquisition of Gurney Plaza Extension, she said.
“Our existing portfolio of three malls has been revalued higher from RM2.37 billion to RM2.43 billion by independent valuers. This reflects the success of our continuing asset enhancement initiatives,” she said in the statement.
She added that its tenants had posted higher sales, which enabled CMMT to increase its rental income. “Given the positive outlook and our proactive management, CMMT is well on track to achieve our forecast of 7.46 sen DPU this year,” she said.
CMMT closed one sen lower at RM1.29 yesterday with 209,800 units done.
This article appeared in The Edge Financial Daily, July 13, 2011.
Wednesday, May 11, 2011
No surprises from two largest REIT
Written by Insider Asia
Wednesday, 11 May 2011 11:25
Underscoring their defensive characteristics, earnings results for 1Q2011 for the two largest real estate investment trusts (REIT) on the local bourse were broadly in line with market expectations. No major surprises.
CMMT cmpletes first post-listing acquisition
CapitaMalls Malaysia Trust (CMMT) — the second largest REIT on the local bourse by market capitalisation — has just completed its first property acquisition since its debut on Bursa Malaysia in July 2010. The purchase of Gurney Plaza Extension was finalised at end-March 2011 — and its contributions will be reflected in the current quarter’s results and beyond.
To recap, the new acquisition is a nine-storey retail extension block adjoining the Gurney Plaza mall in Penang with a RM215 million price tag and added almost 140,000 sq ft of net lettable area (NLA) to CMMT’s portfolio of assets under management. That is equivalent to an area expansion of roughly 7.5% and raised its total NLA to just over two million sq ft.
To part finance the acquisition, some 144.9 million new units were issued — at RM1.06 per unit — enlarging the total units in circulation to 1,494.9 million. At the prevailing unit price of RM1.16, CMMT has a market capitalisation of more than RM1.73 billion. The REIT has a relatively large free float of about 58%.
As of end-March, CMMT has investment properties valued at a combined RM2.37 billion and total assets of almost RM2.5 billion. Its book value stood at RM1.03 per unit.
CMMT’s 1Q11 earnings results were broadly in line with expectations. Revenue totalled some RM52.7 million while net profit was reported at RM31.4 million, including fair value gain of RM5.7 million for the revaluation of Gurney Plaza Extension. Revenue contribution was more or less evenly distributed among the three properties in its portfolio, Gurney Plaza, Sungei Wang Plaza and The Mines.
As mentioned above, earnings in the upcoming quarters will be boosted by the latest acquisition — as well as better rental rates. Lease renewals in 1Q11 for all three properties saw upward rental revisions, averaging some 7.6%. Meanwhile, occupancy rates stayed high across the board, at an average of about 98.7% in 1Q11.
CMMT is on track to meeting its forecast income distribution of 7.46 sen per unit for the current year. As stated in the prospectus, the trust intends to distribute all of its income this year and at least 90% of income going forward. The first distribution of 1.74 sen per unit has already been made just prior to the completion of acquisition of Gurney Plaza Extension and the issuance of the new units.
Assuming total income distribution of 7.46 sen per unit, investors will earn a yield of 6.4% at the current price. That is a fairly attractive return given its low-risk profile and it is well above prevailing bank deposit rates.
Sunway REIT yield estimated at 6.1%
Similarly, Sunway REIT is confident of hitting its earnings forecast for the current financial year ending June 2011. At the unit price of RM1.10, it is currently the largest listed real estate investment trust on the local bourse, with a market capitalisation of more than RM2.95 billion. Its free float is estimated at roughly 62%, which gives investors pretty good liquidity.
The trust reported revenue and income available for distribution totalling RM240.1 million and RM133.2 million in the first nine months of FY11, respectively, including surplus cash from 50% of manager’s fees paid in units. Net assets per unit stood at 97 sen as at end-March 2011.
Its retail assets fared slightly better than forecast on the back of continued growth in mall visitorship, near full occupancy and upward revision in rental rates. The flagship Sunway Pyramid Shopping Mall, which contributed to more than 61% of total net property income, has an average occupancy of 98.5% for 9MFY11. It achieved a 16.5% (for a three-year term) growth in rental for leases renewed so far this financial year, which accounted for nearly 69% of the mall’s total NLA.
On the other hand, contributions from the hospitality arm, including the Sunway Resort Hotel & Spa and Pyramid Tower Hotel, were below expectations in the latest 3QFY11. This was attributed to lower tourist arrivals due, in part, to cancellations from Japanese corporates following the earthquake and resulting tsunami disasters in the country. Nonetheless, earnings for the nine-month period remain on track to meeting management’s forecast for the year.
Elsewhere, earnings from office properties were resilient. Occupancy at Sunway Tower averaged a high 97% in the financial year to date while the Menara Sunway is fully occupied.
For the full year, total income distribution is estimated at 6.74 sen per unit, which will earn investors a yield of 6.1% at the prevailing price of RM1.10.
The trust intends to distribute to unit holders 100% of net earnings in the first two years of listing and a minimum of 90% annual profits thereafter.
Some RM87.4 million of the available income for distribution, or about 3.26 sen per unit, has already been paid. Sunway REIT will trade ex-entitlement for the third round of distribution, of 1.7 sen per unit, on 16th May.
As with CMMT, Sunway REIT too has just completed its first acquisition post-listing. The purchase of Putra Place for RM514 million was finalised in April 2011, after its winning bid at a public auction. The acquisition will boost the combined value of its investment properties to over RM4.2 billion. (Note that there is currently a legal dispute involving the purchase with Metroplex, but the trust believes that the former’s claims are unlikely to be successful).
The newly acquired property comprises The Mall (an 8-level shopping complex), 100 Putra Place (office tower), and 5-star hotel, The Legend, including its serviced apartments, penthouses and parking bays.
With strong sponsors, we expect both REITs will continue to expand their portfolios of assets going forward.
Sunway REIT has been granted a right of first refusal on Sunway City’s properties. The latter is the single largest unit holder in the trust and is one of the largest property developers in the country.
Meanwhile, CMMT has a right of first refusal for CapitaMalls Asia’s retail properties in Malaysia. The latter is its biggest stakeholder and a subsidiary of Singapore-listed CapitaLand. It is also a leading integrated shopping mall owner, developer and manager in the region, with some 91 retail properties worth a collective S$23.7 billion (RM57.5 billion) in Singapore, China, Japan, Malaysia and India.
Wednesday, 11 May 2011 11:25
Underscoring their defensive characteristics, earnings results for 1Q2011 for the two largest real estate investment trusts (REIT) on the local bourse were broadly in line with market expectations. No major surprises.
CMMT cmpletes first post-listing acquisition
CapitaMalls Malaysia Trust (CMMT) — the second largest REIT on the local bourse by market capitalisation — has just completed its first property acquisition since its debut on Bursa Malaysia in July 2010. The purchase of Gurney Plaza Extension was finalised at end-March 2011 — and its contributions will be reflected in the current quarter’s results and beyond.
To recap, the new acquisition is a nine-storey retail extension block adjoining the Gurney Plaza mall in Penang with a RM215 million price tag and added almost 140,000 sq ft of net lettable area (NLA) to CMMT’s portfolio of assets under management. That is equivalent to an area expansion of roughly 7.5% and raised its total NLA to just over two million sq ft.
To part finance the acquisition, some 144.9 million new units were issued — at RM1.06 per unit — enlarging the total units in circulation to 1,494.9 million. At the prevailing unit price of RM1.16, CMMT has a market capitalisation of more than RM1.73 billion. The REIT has a relatively large free float of about 58%.
As of end-March, CMMT has investment properties valued at a combined RM2.37 billion and total assets of almost RM2.5 billion. Its book value stood at RM1.03 per unit.
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As mentioned above, earnings in the upcoming quarters will be boosted by the latest acquisition — as well as better rental rates. Lease renewals in 1Q11 for all three properties saw upward rental revisions, averaging some 7.6%. Meanwhile, occupancy rates stayed high across the board, at an average of about 98.7% in 1Q11.
CMMT is on track to meeting its forecast income distribution of 7.46 sen per unit for the current year. As stated in the prospectus, the trust intends to distribute all of its income this year and at least 90% of income going forward. The first distribution of 1.74 sen per unit has already been made just prior to the completion of acquisition of Gurney Plaza Extension and the issuance of the new units.
Assuming total income distribution of 7.46 sen per unit, investors will earn a yield of 6.4% at the current price. That is a fairly attractive return given its low-risk profile and it is well above prevailing bank deposit rates.
Sunway REIT yield estimated at 6.1%
Similarly, Sunway REIT is confident of hitting its earnings forecast for the current financial year ending June 2011. At the unit price of RM1.10, it is currently the largest listed real estate investment trust on the local bourse, with a market capitalisation of more than RM2.95 billion. Its free float is estimated at roughly 62%, which gives investors pretty good liquidity.
The trust reported revenue and income available for distribution totalling RM240.1 million and RM133.2 million in the first nine months of FY11, respectively, including surplus cash from 50% of manager’s fees paid in units. Net assets per unit stood at 97 sen as at end-March 2011.
Its retail assets fared slightly better than forecast on the back of continued growth in mall visitorship, near full occupancy and upward revision in rental rates. The flagship Sunway Pyramid Shopping Mall, which contributed to more than 61% of total net property income, has an average occupancy of 98.5% for 9MFY11. It achieved a 16.5% (for a three-year term) growth in rental for leases renewed so far this financial year, which accounted for nearly 69% of the mall’s total NLA.
On the other hand, contributions from the hospitality arm, including the Sunway Resort Hotel & Spa and Pyramid Tower Hotel, were below expectations in the latest 3QFY11. This was attributed to lower tourist arrivals due, in part, to cancellations from Japanese corporates following the earthquake and resulting tsunami disasters in the country. Nonetheless, earnings for the nine-month period remain on track to meeting management’s forecast for the year.
Elsewhere, earnings from office properties were resilient. Occupancy at Sunway Tower averaged a high 97% in the financial year to date while the Menara Sunway is fully occupied.
For the full year, total income distribution is estimated at 6.74 sen per unit, which will earn investors a yield of 6.1% at the prevailing price of RM1.10.
The trust intends to distribute to unit holders 100% of net earnings in the first two years of listing and a minimum of 90% annual profits thereafter.
Some RM87.4 million of the available income for distribution, or about 3.26 sen per unit, has already been paid. Sunway REIT will trade ex-entitlement for the third round of distribution, of 1.7 sen per unit, on 16th May.
As with CMMT, Sunway REIT too has just completed its first acquisition post-listing. The purchase of Putra Place for RM514 million was finalised in April 2011, after its winning bid at a public auction. The acquisition will boost the combined value of its investment properties to over RM4.2 billion. (Note that there is currently a legal dispute involving the purchase with Metroplex, but the trust believes that the former’s claims are unlikely to be successful).
The newly acquired property comprises The Mall (an 8-level shopping complex), 100 Putra Place (office tower), and 5-star hotel, The Legend, including its serviced apartments, penthouses and parking bays.
With strong sponsors, we expect both REITs will continue to expand their portfolios of assets going forward.
Sunway REIT has been granted a right of first refusal on Sunway City’s properties. The latter is the single largest unit holder in the trust and is one of the largest property developers in the country.
Meanwhile, CMMT has a right of first refusal for CapitaMalls Asia’s retail properties in Malaysia. The latter is its biggest stakeholder and a subsidiary of Singapore-listed CapitaLand. It is also a leading integrated shopping mall owner, developer and manager in the region, with some 91 retail properties worth a collective S$23.7 billion (RM57.5 billion) in Singapore, China, Japan, Malaysia and India.
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| One of three properties in CapitaMalls Malaysia Trust's portfolio, Sungei Wang is a popular shopping destination. | Sunway Pyramid Shopping Mall contributes over 60% of Sunway REIT's total net property income. |
Thursday, March 17, 2011
Hektar REIT: No new assets and pressure within Subang
Written by The Edge Financial Daily
Thursday, 17 March 2011 11:52
Hektar REIT
(March 16, RM1.28)
Downgrade to hold at RM1.30 with fair value RM1.32: We downgrade our rating on Hektar from “buy” to “hold” with our fair value revised to RM1.32 (from RM1.23 previously), based on a 30% discount to our revised discounted cash flow valuation of RM1.89, as we roll out our valuations to FY11F. At our fair value, this translates to a yield of 8.6% and 451 basis points spread over the 10-year Malaysian Government Securities (MGS) yield of 4.09%.
While the REIT is fundamentally sound, our “hold” rating is mainly premised on the lack of news flow on the asset acquisition front. Hektar has identified a few assets to be injected into the REIT but no deal has been concluded. Management has indicated that most of the vendors are not willing to part with their assets at this juncture.
We are cautious about the competition faced by its main asset, Subang Parade — which provided 51% of the portfolio’s net operating income (NOI) last year. Recall that Subang Parade suffered a 3% year-on-year drop to 7.5 million in visitor traffic in FY10 as it was affected by the opening of a new mall within the vicinity, Empire Shopping Gallery (ESG).
Although these two malls ought to complement each other, and while ESG is going through a honeymoon period — new malls tend to see strong visitor traffic in the first few months — we still believe ESG is more appealing to households within the area due to the changing lifestyle and rising disposable income.
Nonetheless, we expect visitor traffic in Subang Parade to improve with the scheduled opening of an eight-screen cinema in June this year — in time for the summer blockbusters — given that it will be the only cinema in Subang Jaya. The cinema will be taking over the space vacated by Toys ‘R’ Us last year.
On the flip side, we expect the performance of Mahkota and Wetex Parade to remain decent given that asset enhancements at both malls have been completed. We expect Mahkota and Wetex Parade to contribute 37% and 18%, respectively to its NOI for FY11F/FY13F, respectively.
The REIT remains sound with a healthy diversification within the portfolio. Parkson remains the largest contributor to the portfolio, contributing 11% while no other tenant contributes more than 3% to the REIT. In addition, 63% of FY11F’s rental income is already secured.
We slash our earnings estimates by 9% to 11% to RM40 million to RM41 million for FY11F/FY12F and we introduce FY13F earnings at RM45 million. We have taken into account the expected inclusion of the cinema, accounting for a six-month contribution in FY11F. Our earnings for FY11F/FY12F will also be underpinned by a 4% to 8% increase in NOI for the whole portfolio. — AmResearch, March 16
Thursday, 17 March 2011 11:52
Hektar REIT
(March 16, RM1.28)
Downgrade to hold at RM1.30 with fair value RM1.32: We downgrade our rating on Hektar from “buy” to “hold” with our fair value revised to RM1.32 (from RM1.23 previously), based on a 30% discount to our revised discounted cash flow valuation of RM1.89, as we roll out our valuations to FY11F. At our fair value, this translates to a yield of 8.6% and 451 basis points spread over the 10-year Malaysian Government Securities (MGS) yield of 4.09%.
While the REIT is fundamentally sound, our “hold” rating is mainly premised on the lack of news flow on the asset acquisition front. Hektar has identified a few assets to be injected into the REIT but no deal has been concluded. Management has indicated that most of the vendors are not willing to part with their assets at this juncture.
We are cautious about the competition faced by its main asset, Subang Parade — which provided 51% of the portfolio’s net operating income (NOI) last year. Recall that Subang Parade suffered a 3% year-on-year drop to 7.5 million in visitor traffic in FY10 as it was affected by the opening of a new mall within the vicinity, Empire Shopping Gallery (ESG).
Although these two malls ought to complement each other, and while ESG is going through a honeymoon period — new malls tend to see strong visitor traffic in the first few months — we still believe ESG is more appealing to households within the area due to the changing lifestyle and rising disposable income.
Nonetheless, we expect visitor traffic in Subang Parade to improve with the scheduled opening of an eight-screen cinema in June this year — in time for the summer blockbusters — given that it will be the only cinema in Subang Jaya. The cinema will be taking over the space vacated by Toys ‘R’ Us last year.
On the flip side, we expect the performance of Mahkota and Wetex Parade to remain decent given that asset enhancements at both malls have been completed. We expect Mahkota and Wetex Parade to contribute 37% and 18%, respectively to its NOI for FY11F/FY13F, respectively.
The REIT remains sound with a healthy diversification within the portfolio. Parkson remains the largest contributor to the portfolio, contributing 11% while no other tenant contributes more than 3% to the REIT. In addition, 63% of FY11F’s rental income is already secured.
We slash our earnings estimates by 9% to 11% to RM40 million to RM41 million for FY11F/FY12F and we introduce FY13F earnings at RM45 million. We have taken into account the expected inclusion of the cinema, accounting for a six-month contribution in FY11F. Our earnings for FY11F/FY12F will also be underpinned by a 4% to 8% increase in NOI for the whole portfolio. — AmResearch, March 16
Thursday, March 3, 2011
Hektar REIT looks to expand portfolio
| By Yong Min Wei of theedgemalaysia.com Thursday, 03 March 2011 15:18 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| KUALA LUMPUR: Hektar Real Estate Investment Trust (Hektar REIT), the owner of three shopping malls, is anticipating to increase its portfolio this year riding on its confidence in financing yield-accretive acquisitions. Hektar REIT chairman and CEO Datuk Jaafar Abdul Hamid said its financing ability had improved in the past year and that its management team would continue to look for potential acquisitions of shopping centres in Malaysia. "While there were no new acquisitions in 2010, we did identify some good candidates and conducted negotiations. Ultimately, we believe that improving market sentiment has prompted asset owners to hold on to their properties for now. We still remain in contact with them," he said in a letter to unitholders enclosed with Hektar REIT's 2010 annual report. According to Jaafar, Hektar REIT is confident in its ability to finance net asset yield-accretive acquisitions as its current trading price range remained above net asset value coupled with access to affordable banking financing. He added that any proposed acquisition would require additional issuance of Hektar REIT units. For FY10 ended Dec 31, Hektar REIT's net profit rose 5.5% to RM39.18 million from RM37.13 million in FY09. Revenue grew 3.6% to RM90.87 million from RM87.71 million mainly due to improvement in rentals and car park income in 2010. It posted basic earnings per share of 12.24 sen in FY10 while net assets per share stood at RM1.32 as at Dec 31. Hektar REIT on Wednesday, Mar 2 shed three sen to close at RM1.29 with turnover of 94,700 units. The counter had traded to a 52-week high of RM1.35 on Dec 30, 2010 and a 52-week low of RM1.14 on Mar 2, 2010. When contacted on Wednesday, Hektar Asset Management Sdn Bhd general manager, strategy, Lim Ye Jhen, declined comment on whether Hektar REIT would soon be acquiring a shopping centre but stressed the REIT was always open to negotiations. An analyst familiar with REITs said a shopping mall in Petaling Jaya with a net lettable area (NLA) of about 400,000 sq ft which opened in recent years, has drawn the attention of several players lately. The mall is said to have easy access to several highways and a stone's throw from an affluent neighbourhood in the city. "Several REITs have indicated they are in some negotiations to acquire medium-sized shopping centres and office buildings in the Klang Valley. However, they are tight-lipped on the location and didn't give much details other than the NLA," said the analyst, adding that there were malls with negative revisions as well. As Malaysia's first "retail focused REIT", Hektar REIT's current portfolio consists of Subang Parade in Subang Jaya, Mahkota Parade in Melaka and Wetex Parade in Muar. Listed since December 2006, Hektar REIT is managed by Hektar Asset Management, which in turn is a subsidiary of Hektar Group. According to its 2010 annual report, Hektar REIT's portfolio of shopping centres has a combined value of RM752 million as at Dec 31, 2010, a total NLA of 1.1 million sq ft and 95.5% occupancy rate. On Hektar REIT's borrowings in 2011, Jaafar said it had secured an Al-Murabahah overdraft facility with two tranches worth RM184 million and RM150 million expiring in 2011 and 2013 respectively. Collectively, Hektar REIT's gearing ratio was 42.7% of gross asset value and the weighted average cost of financing as at end FY10 was 3.71%. "The first tranche of debt at RM184 million expires in December 2011. We are confident of renewing the facilities based on our long-standing relationships with our bankers, who have supported Hektar from day one. Depending on market conditions, we have factored in a 40-basis point increase in financing rates for 2011," he pointed out. On its strategy and outlook, Jaafar said the key in maintaining a shopping centre's strategic advantage was by offering a compelling tenant mix, stressing that the optimal tenant mix depended on a variety of factors including demographics, psychographics and level of competition. "We continually conduct surveys on shopper demographics and receive informal feedback on a regular basis to fine-tune our understanding of market needs. Each market may have cultural differences with unique shopper demands," he said, adding it was important to refine the tenant strategy of each shopping centre to local market conditions. |
Thursday, February 17, 2011
Hektar upbeat on mall ops
By Zurinna Raja Adam
HEKTAR Real Estate Investment Trust (REIT) (5121), owner of Subang Parade mall, is unperturbed by the newly-opened rival Empire Shopping Gallery as each mall goes for a different segment of the market.
Instead, it views Empire Gallery as complementary to the business of Subang Parade and the existing retail mix in Subang Jaya.
Hektar REIT chairman and chief executive officer Datuk Jaafar Abdul Hamid said Subang Parade will continuously invest in advertising and promotional activities like Chinese New Year, Valentine's Day and Shop for School campaign to remain competitive.
"Subang Parade has enjoyed occupancy of more than 99.8 per cent since 2007. This means, for three consecutive years, very few new retailers could enter a prime mall in the Subang Jaya market as there was no space available," Jaafar said in an interview in Subang Jaya yesterday.
Subang Parade has lost a tenant, Toys R Us, which has moved to Empire Gallery, a boutique mall with 180 stores offering a choice of international and local brands.
However, this creates a new opportunity for Hektar REIT as it will be bringing in an eight-screen cinema offering a total of 1,400 seating, by May this year.
"In one stroke, we found a solution which will improve traffic and maintain Subang Jaya's uniqueness as it is the only cinema in a mall in Subang Jaya," Jaafar said.
Hektar REIT owns two
The group is aiming to breach the RM1 billion mark and is continuously on the lookout to buy either a neighbourhood or regional mall.
"We are always looking for new acquisitions to improve our portfolio. Our business is in retail management and we have over 300 retailers in our property. This is our competitive advantage where we can offer new retail property acquisition in future," Jaafar said.
Among its criteria for acquisition are purpose-built shopping centres with anchors starting from 150,000 sq ft of net lettable area and location in established or emerging neighbourhood with target market segments.
"It is important that we can acquire shopping centres with minimal sold lots. Our benchmark is not more than 10 per cent, as we would like to have control over the property we acquire," said Jaafar.
For its financial year ended December 31 2010, Hektar REIT posted a net income of RM39.2 million, or 12.24 sen per unit, up 5.5 per cent from the previous year. Revenue grew by 3.6 per cent to RM90.9 million against RM87.7 million previously.
Subang Parade remains the group's flagship property, contributing 48.7 per cent to its total gross revenue and some 50.9 per cent to its net property income.
HEKTAR Real Estate Investment Trust (REIT) (5121), owner of Subang Parade mall, is unperturbed by the newly-opened rival Empire Shopping Gallery as each mall goes for a different segment of the market.
Instead, it views Empire Gallery as complementary to the business of Subang Parade and the existing retail mix in Subang Jaya.
Hektar REIT chairman and chief executive officer Datuk Jaafar Abdul Hamid said Subang Parade will continuously invest in advertising and promotional activities like Chinese New Year, Valentine's Day and Shop for School campaign to remain competitive.
"Subang Parade has enjoyed occupancy of more than 99.8 per cent since 2007. This means, for three consecutive years, very few new retailers could enter a prime mall in the Subang Jaya market as there was no space available," Jaafar said in an interview in Subang Jaya yesterday.
Subang Parade has lost a tenant, Toys R Us, which has moved to Empire Gallery, a boutique mall with 180 stores offering a choice of international and local brands.
However, this creates a new opportunity for Hektar REIT as it will be bringing in an eight-screen cinema offering a total of 1,400 seating, by May this year.
"In one stroke, we found a solution which will improve traffic and maintain Subang Jaya's uniqueness as it is the only cinema in a mall in Subang Jaya," Jaafar said.
Hektar REIT owns two
The group is aiming to breach the RM1 billion mark and is continuously on the lookout to buy either a neighbourhood or regional mall.
"We are always looking for new acquisitions to improve our portfolio. Our business is in retail management and we have over 300 retailers in our property. This is our competitive advantage where we can offer new retail property acquisition in future," Jaafar said.
Among its criteria for acquisition are purpose-built shopping centres with anchors starting from 150,000 sq ft of net lettable area and location in established or emerging neighbourhood with target market segments.
"It is important that we can acquire shopping centres with minimal sold lots. Our benchmark is not more than 10 per cent, as we would like to have control over the property we acquire," said Jaafar.
For its financial year ended December 31 2010, Hektar REIT posted a net income of RM39.2 million, or 12.24 sen per unit, up 5.5 per cent from the previous year. Revenue grew by 3.6 per cent to RM90.9 million against RM87.7 million previously.
Subang Parade remains the group's flagship property, contributing 48.7 per cent to its total gross revenue and some 50.9 per cent to its net property income.
Friday, January 28, 2011
Higher income distribution for Axis REIT
Axis REIT has done quite well in terms of expanding its assets portfolio over the past few years and, as a result, has been gradually raising its income distribution to unitholders. We expect this trend to continue in the current year. Based on the estimated distribution of 17.5 sen per unit for 2011, investors will earn a fairly attractive gross yield of 7.4% at the prevailing price of RM2.36.
Expanding assets portfolio
It was the first real estate investment trust (REIT) to be listed on the Bursa Malaysia in August 2005 and was reclassified as an Islamic REIT in December 2008. The trust focuses primarily on assets within the office and industrial sectors. Its properties are located in Petaling Jaya, Shah Alam, Klang, Prai, Johor and Kedah.
From the initial five properties on listing, Axis REIT now owns and manages 26 properties worth over RM1.16 billion. Five properties were acquired last year, including two logistics warehouses in Seberang Prai that were completed in 1Q10. The latest acquisitions — Tesco Hypermarket in Johor, Axis PDI Centre and Axis Technology Centre — were completed in 4Q10.
The trust’s earnings have been expanding in tandem. Income before tax (excluding fair value adjustments for assets) has grown steadily, from RM26.4 million in 2006 to RM52.6 million last year. In 2010, Axis REIT successfully renegotiated an average rental increase of 8.9% for leases due during the year, which accounted for some 18.5% of the total net lettable area under its management.
The value of its portfolio of properties too has been trending higher. For instance, in 2009 the trust recognised revaluation gains of some RM19.1
million. The valuation for its stable of properties rose by another RM45.6 million last year.
Investors made smart gains
REITs are typically viewed as low risk investments with relatively slow capital appreciation. Their main attraction is steady, higher than market average yields. Nonetheless, unitholders for Axis REIT have not done too shabbily relative to the benchmark index, the FBM KLCI, over the past year.
Indeed, investors in the REIT would have made a capital gain of 22% since the start of 2010. Over the same period, the FBM KLCI was up 19%. Including the income distributed totalling 16 sen per unit for 2010, unitholders would have made returns totalling 30%.
More yield accretive acquisitions in the pipeline
Axis REIT intends to stick to its strategy of acquiring yield accretive properties whilst promoting rental growth for existing assets through enhancements.
For the current year, there are three transactions pending completion including its first asset disposal. The trust is in the midst of completing the sale of North Port Logistic Centre for RM14.5 million on expectations that the property has limited upside to future rental growth. The sale will net gains totalling RM760,000. The trust intends to re-deploy the proceeds towards more yield accretive properties.
The two acquisitions pending completion are for a warehouse-office (D8, Port of Tanjung Pelepas) in Johor and an office building (Axis Eureka) in Cyberjaya for a combined RM81.2 million.
Furthermore, the trust is planning to add five more logistics warehouses in Johor and the Klang Valley as well as two more office blocks in Cyberjaya — estimated to be worth some RM365 million in the current year. It is also looking at the acquisition of Axis Technology Centre 2, consisting of a 6-storey office block, single-storey warehouse and car parks.
Some of the asset enhancements currently underway are the upgrade/facelift for Crystal Plaza, Fuji Xerox and Infinite Centre as well as the expansion of some 7,000 sq ft of net lettable area for a new penthouse level in Menara Axis. Other enhancements on the drawing board for the current year include that for the Cycle & Carriage complex and Kayangan Depot.
Income distribution expected to rise further in 2011
As such, we expect its earnings will continue to trend higher in 2011, lifted by full-year contributions from the five properties acquired last year as well as partial contributions from proposed new asset purchases this year.
Distribution per unit in the current year is estimated at roughly 17.5 sen per unit. That would earn unitholders a relatively attractive yield of 7.4%. Axis REIT is currently trading at roughly 1.2 times its net asset value of RM2.01 per unit.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
This article appeared in The Edge Financial Daily, January 28, 2011.
Expanding assets portfolio
It was the first real estate investment trust (REIT) to be listed on the Bursa Malaysia in August 2005 and was reclassified as an Islamic REIT in December 2008. The trust focuses primarily on assets within the office and industrial sectors. Its properties are located in Petaling Jaya, Shah Alam, Klang, Prai, Johor and Kedah.
From the initial five properties on listing, Axis REIT now owns and manages 26 properties worth over RM1.16 billion. Five properties were acquired last year, including two logistics warehouses in Seberang Prai that were completed in 1Q10. The latest acquisitions — Tesco Hypermarket in Johor, Axis PDI Centre and Axis Technology Centre — were completed in 4Q10.
The trust’s earnings have been expanding in tandem. Income before tax (excluding fair value adjustments for assets) has grown steadily, from RM26.4 million in 2006 to RM52.6 million last year. In 2010, Axis REIT successfully renegotiated an average rental increase of 8.9% for leases due during the year, which accounted for some 18.5% of the total net lettable area under its management.
The value of its portfolio of properties too has been trending higher. For instance, in 2009 the trust recognised revaluation gains of some RM19.1
 |
 |
Investors made smart gains
REITs are typically viewed as low risk investments with relatively slow capital appreciation. Their main attraction is steady, higher than market average yields. Nonetheless, unitholders for Axis REIT have not done too shabbily relative to the benchmark index, the FBM KLCI, over the past year.
Indeed, investors in the REIT would have made a capital gain of 22% since the start of 2010. Over the same period, the FBM KLCI was up 19%. Including the income distributed totalling 16 sen per unit for 2010, unitholders would have made returns totalling 30%.
More yield accretive acquisitions in the pipeline
Axis REIT intends to stick to its strategy of acquiring yield accretive properties whilst promoting rental growth for existing assets through enhancements.
For the current year, there are three transactions pending completion including its first asset disposal. The trust is in the midst of completing the sale of North Port Logistic Centre for RM14.5 million on expectations that the property has limited upside to future rental growth. The sale will net gains totalling RM760,000. The trust intends to re-deploy the proceeds towards more yield accretive properties.
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 |
 |
The two acquisitions pending completion are for a warehouse-office (D8, Port of Tanjung Pelepas) in Johor and an office building (Axis Eureka) in Cyberjaya for a combined RM81.2 million.
Furthermore, the trust is planning to add five more logistics warehouses in Johor and the Klang Valley as well as two more office blocks in Cyberjaya — estimated to be worth some RM365 million in the current year. It is also looking at the acquisition of Axis Technology Centre 2, consisting of a 6-storey office block, single-storey warehouse and car parks.
Some of the asset enhancements currently underway are the upgrade/facelift for Crystal Plaza, Fuji Xerox and Infinite Centre as well as the expansion of some 7,000 sq ft of net lettable area for a new penthouse level in Menara Axis. Other enhancements on the drawing board for the current year include that for the Cycle & Carriage complex and Kayangan Depot.
Income distribution expected to rise further in 2011
As such, we expect its earnings will continue to trend higher in 2011, lifted by full-year contributions from the five properties acquired last year as well as partial contributions from proposed new asset purchases this year.
Distribution per unit in the current year is estimated at roughly 17.5 sen per unit. That would earn unitholders a relatively attractive yield of 7.4%. Axis REIT is currently trading at roughly 1.2 times its net asset value of RM2.01 per unit.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
This article appeared in The Edge Financial Daily, January 28, 2011.
Tuesday, January 11, 2011
For REITs, retail is still on shopping list for 2011
Written by Chua Sue-Ann Monday, 10 January 2011 13:23
KUALA LUMPUR: Moving into the New Year, analysts are still bullish on the two retail property-backed real estate investment trusts (REIT) — Sunway REIT and CapitaMalls Malaysia Trust (CMMT), which were listed in July 2010.
Both remain analysts’ top REIT picks driven by expectation that rental income from retail space will continue to grow on the back of strong domestic consumer spending and lifestyle trends. Sunway REIT also stands out for its size — it is Malaysia’s largest REIT — and gives foreign investors a more liquid exposure to the sector.
Sunway REIT was listed on July 8, 2010 with an initial fund size of RM2.4 billion and a portfolio of eight assets in the retail, hospitality and the office space sectors valued at RM3.73 billion, and a total net lettable area of 2.3 million sq ft.
The nine properties in Sunway REIT’s portfolio are Sunway Pyramid Shopping Mall, Sunway Carnival Shopping Mall, Suncity Ipoh Hypermarket, Sunway Resort Hotel and Spa, Pyramid Tower Hotel, Sunway Hotel Seberang Jaya, Menara Sunway and Sunway Tower.
CMMT, the smaller of the two retail REITs listed last year, made its debut on July 16 with three strategic properties in its portfolio valued at RM2.13 billion. The three properties — Gurney Plaza, the Sungei Wang Plaza property and The Mines — have a combined net lettable area of 1.88 million sq ft.
Sunway REIT shares closed at 88.5 sen on its first day of listing — slightly above its retail offer price of 88 sen and two sen below its institutional price of 90 sen.
The REIT’s price has been climbing steadily since mid-September, reaching an all-time high of RM1.05 on Jan 3, 2011. It closed last Friday at RM1.02, which was at a 4.6% premium to its net asset value (NAV) per unit that stood at 97.53 sen as at Sept 30.
Sunway REIT had declared income distribution per unit of 1.51 sen from distributable income for the July-September 2010 period, or the first quarter of its financial year ending June 2011 (1QFY11). It said it was confident of achieving its profit forecast and full-year income distribution as disclosed in its prospectus.
For 1QFY11, income before taxation amounted to RM310.6 million, comprising realised net income of RM38.4 million and unrealised income of RM272.2 million arising mainly from fair value gain on investment properties. Earnings per unit totalled 11.59 sen for the quarter.
Including 1Q’s unit distribution, shareholders would have made a total gain of 17.6% compared with the initial public offering price.
According to Sunway REIT’s prospectus, it had forecast distribution of 6.5 sen per unit for FY11. At the current price, the yield works out to 6.4%.
For 2011, Sunway REIT is upbeat that the retail market will perform better driven by strong economic fundamentals, increasing tourist arrivals, urbanisation and a young population base.
“The retail market sentiment improved in 2010 in tandem with the recovery in the domestic and global economies with an estimated 5% to 15% growth depending on retail format, location and size,” Sunway REIT said in the notes accompanying its financial results.
Sunway REIT said its retail properties would continue to shine having recorded increased visitorship and strong occupancy with Sunway Pyramid achieving an occupancy rate of 99%, Sunway Carnival 93% and Suncity Ipoh Hypermarket at 100%.
Some 278 tenancies in Sunway Pyramid, with a net lettable area of approximately 924,000 sq ft or 87% of its total net lettable area, are due for renewal in FY11, Sunway REIT said. Sunway REIT is also expecting a total rent increase of 15.8% for the three-year term.
Additionally, Sunway REIT said its hotel properties are expected to continue performing satisfactorily in line with the tourism industry’s positive outlook while its office space is expected to maintain occupancy levels with a moderate increase.
A softer office market is expected for Kuala Lumpur in the coming year due to increasing supply of office space coming on-stream. But Sunway REIT noted that there were no new supplies of office space in the vicinity of its flagship Bandar Sunway area.
The REIT said Menara Sunway and Sunway Tower have 99% and 95% occupancy rates respectively. Tenancy renewal is due for Menara Sunway but for Sunway Tower, the next renewal is only due in the middle of 2012.
Sunway REIT Management Sdn Bhd CEO Datuk Jeffrey Ng said Sunway REIT’s performance on the local bourse was in line with the company’s expectations given its market dominance of having the largest free float, total asset size and market capitalisation compared with its peers.
Ng said he expects higher trading volume this year, particularly among institutional investors, due to expected better financial performance of Malaysian REITs.
“So long as growth in revenue and net property income moves faster than any increase in interest rates, it would still be attractive to invest in REITs. We are not expecting a significant increase in interest rates,” Ng said in an email interview with The Edge Financial Daily.
Ng is, however, expecting more REIT players to enter the market, which will boost competition for quality real estate assets.
“On the acquisition front, we are actively scouting for yield-accretive acquisition opportunities and we have appetite to acquire large quality asset size of between RM500 million and RM1 billion in 2011,” Ng said.
Meanwhile, CMMT’s share price performance has also closely mirrored Sunway REIT’s.
Upon debut on July 16, CMMT shares had closed unchanged at its revised retail offer price at 98 sen, which was two sen lower than its institutional offer price of RM1.
CMMT’s shares have since moved up, hitting a high of RM1.14 on Jan 3. It closed at RM1.08 last Friday, above its NAV per unit of RM1.03 as at Sept 30.
According to CMMT’s prospectus, it had forecast a distribution per unit of 7.16 sen for the eight-month period from May 1 to Dec 31, based on the previous indicative price of RM1.08 per unit.
CMMT has also forecast a 4.1% growth in distribution to 7.45 sen for its financial year ending December 2011. Based on its last closing price, this corresponds to a yield of 6.9% in FY11, from 6.6% in FY10.
In its 3QFY10 ended Sept 30, CMMT posted net profit of RM81.29 million or 6.02 sen per unit, which comprised net property income of RM30.31 million and RM76 million from a change in fair value of its investment properties.
This was on the back of gross revenue of RM43.39 million, of which gross rental income was RM36.94 million, car park income RM2.91 million and other revenue RM3.54 million.
CMMT has yet to declare dividends. Its policy is to distribute 100% of its distributable income to unit holders for FY10 and FY11.
Subsequently, it aims to distribute at least 90% of its income to unit holders on a semi-annual basis.
Barring any unforeseen circumstances, CMMT said it expected to achieve the projected annualised distribution per unit of 7.16 sen, as stated in its prospectus.
The REIT said it was well-positioned to capitalise on the expected growth in retail consumption in Malaysia as its portfolio comprised quality shopping malls with a large and diverse tenant base.
Of the two REITs, analysts are more positive on Sunway REIT due to its size, high-quality assets and the strong Sunway branding.
However, REITs in general offer limited upside in terms of capital appreciation but high dividend yields and appeal to more defensive investors.
OSK Research had said in a report in November 2010 that Sunway REIT was likely to offer limited price upside to its unit holders, at least in the medium-term. It added that the REIT was likely to only appeal to certain classes of investors, particularly those with a defensive investment strategy.
However, the research house said the unique mix of properties in Bandar Sunway would continue to enhance the attractiveness of each of Sunway REIT’s properties and generate upside earnings potential through higher rentals and occupancy rates than if each property were on its own.
OSK Research also noted that Sunway REIT had the right of first refusal with respect to any properties to be disposed of by its sponsor, Sunway City Bhd, which has a large and diversified portfolio of properties and many projects in the pipeline.
This year, market observers are expected to keep an eye on how the two REITs intend to grow and add more value.
These can be in the form of new assets, which are value-accretive, injected into the REITs, or opportunities to increase their income base through lease renewals at higher rental rates.
CMMT has also forecast a 4.1% growth in distribution to 7.45 sen for its financial year ending December 2011. Based on its last closing price, this corresponds to a yield of 6.9% in FY11, from 6.6% in FY10.
In its 3QFY10 ended Sept 30, CMMT posted net profit of RM81.29 million or 6.02 sen per unit, which comprised net property income of RM30.31 million and RM76 million from a change in fair value of its investment properties.
This was on the back of gross revenue of RM43.39 million, of which gross rental income was RM36.94 million, car park income RM2.91 million and other revenue RM3.54 million.
CMMT has yet to declare dividends. Its policy is to distribute 100% of its distributable income to unit holders for FY10 and FY11.
Subsequently, it aims to distribute at least 90% of its income to unit holders on a semi-annual basis.
Barring any unforeseen circumstances, CMMT said it expected to achieve the projected annualised distribution per unit of 7.16 sen, as stated in its prospectus.
The REIT said it was well-positioned to capitalise on the expected growth in retail consumption in Malaysia as its portfolio comprised quality shopping malls with a large and diverse tenant base.
Of the two REITs, analysts are more positive on Sunway REIT due to its size, high-quality assets and the strong Sunway branding.
However, REITs in general offer limited upside in terms of capital appreciation but high dividend yields and appeal to more defensive investors.
OSK Research had said in a report in November 2010 that Sunway REIT was likely to offer limited price upside to its unit holders, at least in the medium-term. It added that the REIT was likely to only appeal to certain classes of investors, particularly those with a defensive investment strategy.
However, the research house said the unique mix of properties in Bandar Sunway would continue to enhance the attractiveness of each of Sunway REIT’s properties and generate upside earnings potential through higher rentals and occupancy rates than if each property were on its own.
OSK Research also noted that Sunway REIT had the right of first refusal to any properties to be disposed of by its sponsor, Sunway City Bhd, which has a large and diversified portfolio of properties and many projects in the pipeline.
This year, market observers are expected to keep an eye on how the two REITs intend to grow and add more value.
These can be in the form of new assets, which are value-accretive, injected into the REITs, or opportunities to increase their income base through lease renewals at higher rental rates.
KUALA LUMPUR: Moving into the New Year, analysts are still bullish on the two retail property-backed real estate investment trusts (REIT) — Sunway REIT and CapitaMalls Malaysia Trust (CMMT), which were listed in July 2010.
Both remain analysts’ top REIT picks driven by expectation that rental income from retail space will continue to grow on the back of strong domestic consumer spending and lifestyle trends. Sunway REIT also stands out for its size — it is Malaysia’s largest REIT — and gives foreign investors a more liquid exposure to the sector.
Sunway REIT was listed on July 8, 2010 with an initial fund size of RM2.4 billion and a portfolio of eight assets in the retail, hospitality and the office space sectors valued at RM3.73 billion, and a total net lettable area of 2.3 million sq ft.
The nine properties in Sunway REIT’s portfolio are Sunway Pyramid Shopping Mall, Sunway Carnival Shopping Mall, Suncity Ipoh Hypermarket, Sunway Resort Hotel and Spa, Pyramid Tower Hotel, Sunway Hotel Seberang Jaya, Menara Sunway and Sunway Tower.
CMMT, the smaller of the two retail REITs listed last year, made its debut on July 16 with three strategic properties in its portfolio valued at RM2.13 billion. The three properties — Gurney Plaza, the Sungei Wang Plaza property and The Mines — have a combined net lettable area of 1.88 million sq ft.
Sunway REIT says retail properties would continue to shine with strong capacity at Sunway Pyramid.
Sunway REIT shares closed at 88.5 sen on its first day of listing — slightly above its retail offer price of 88 sen and two sen below its institutional price of 90 sen.
The REIT’s price has been climbing steadily since mid-September, reaching an all-time high of RM1.05 on Jan 3, 2011. It closed last Friday at RM1.02, which was at a 4.6% premium to its net asset value (NAV) per unit that stood at 97.53 sen as at Sept 30.
Sunway REIT had declared income distribution per unit of 1.51 sen from distributable income for the July-September 2010 period, or the first quarter of its financial year ending June 2011 (1QFY11). It said it was confident of achieving its profit forecast and full-year income distribution as disclosed in its prospectus.
For 1QFY11, income before taxation amounted to RM310.6 million, comprising realised net income of RM38.4 million and unrealised income of RM272.2 million arising mainly from fair value gain on investment properties. Earnings per unit totalled 11.59 sen for the quarter.
Including 1Q’s unit distribution, shareholders would have made a total gain of 17.6% compared with the initial public offering price.
According to Sunway REIT’s prospectus, it had forecast distribution of 6.5 sen per unit for FY11. At the current price, the yield works out to 6.4%.
For 2011, Sunway REIT is upbeat that the retail market will perform better driven by strong economic fundamentals, increasing tourist arrivals, urbanisation and a young population base.
“The retail market sentiment improved in 2010 in tandem with the recovery in the domestic and global economies with an estimated 5% to 15% growth depending on retail format, location and size,” Sunway REIT said in the notes accompanying its financial results.
Sunway REIT said its retail properties would continue to shine having recorded increased visitorship and strong occupancy with Sunway Pyramid achieving an occupancy rate of 99%, Sunway Carnival 93% and Suncity Ipoh Hypermarket at 100%.
Some 278 tenancies in Sunway Pyramid, with a net lettable area of approximately 924,000 sq ft or 87% of its total net lettable area, are due for renewal in FY11, Sunway REIT said. Sunway REIT is also expecting a total rent increase of 15.8% for the three-year term.
Additionally, Sunway REIT said its hotel properties are expected to continue performing satisfactorily in line with the tourism industry’s positive outlook while its office space is expected to maintain occupancy levels with a moderate increase.
A softer office market is expected for Kuala Lumpur in the coming year due to increasing supply of office space coming on-stream. But Sunway REIT noted that there were no new supplies of office space in the vicinity of its flagship Bandar Sunway area.
The REIT said Menara Sunway and Sunway Tower have 99% and 95% occupancy rates respectively. Tenancy renewal is due for Menara Sunway but for Sunway Tower, the next renewal is only due in the middle of 2012.
Sunway REIT Management Sdn Bhd CEO Datuk Jeffrey Ng said Sunway REIT’s performance on the local bourse was in line with the company’s expectations given its market dominance of having the largest free float, total asset size and market capitalisation compared with its peers.
Ng said he expects higher trading volume this year, particularly among institutional investors, due to expected better financial performance of Malaysian REITs.
“So long as growth in revenue and net property income moves faster than any increase in interest rates, it would still be attractive to invest in REITs. We are not expecting a significant increase in interest rates,” Ng said in an email interview with The Edge Financial Daily.
Ng is, however, expecting more REIT players to enter the market, which will boost competition for quality real estate assets.
“On the acquisition front, we are actively scouting for yield-accretive acquisition opportunities and we have appetite to acquire large quality asset size of between RM500 million and RM1 billion in 2011,” Ng said.
Meanwhile, CMMT’s share price performance has also closely mirrored Sunway REIT’s.
Upon debut on July 16, CMMT shares had closed unchanged at its revised retail offer price at 98 sen, which was two sen lower than its institutional offer price of RM1.
CMMT’s shares have since moved up, hitting a high of RM1.14 on Jan 3. It closed at RM1.08 last Friday, above its NAV per unit of RM1.03 as at Sept 30.
According to CMMT’s prospectus, it had forecast a distribution per unit of 7.16 sen for the eight-month period from May 1 to Dec 31, based on the previous indicative price of RM1.08 per unit.
CMMT has also forecast a 4.1% growth in distribution to 7.45 sen for its financial year ending December 2011. Based on its last closing price, this corresponds to a yield of 6.9% in FY11, from 6.6% in FY10.
In its 3QFY10 ended Sept 30, CMMT posted net profit of RM81.29 million or 6.02 sen per unit, which comprised net property income of RM30.31 million and RM76 million from a change in fair value of its investment properties.
This was on the back of gross revenue of RM43.39 million, of which gross rental income was RM36.94 million, car park income RM2.91 million and other revenue RM3.54 million.
CMMT has yet to declare dividends. Its policy is to distribute 100% of its distributable income to unit holders for FY10 and FY11.
Subsequently, it aims to distribute at least 90% of its income to unit holders on a semi-annual basis.
Barring any unforeseen circumstances, CMMT said it expected to achieve the projected annualised distribution per unit of 7.16 sen, as stated in its prospectus.
The REIT said it was well-positioned to capitalise on the expected growth in retail consumption in Malaysia as its portfolio comprised quality shopping malls with a large and diverse tenant base.
Of the two REITs, analysts are more positive on Sunway REIT due to its size, high-quality assets and the strong Sunway branding.
However, REITs in general offer limited upside in terms of capital appreciation but high dividend yields and appeal to more defensive investors.
OSK Research had said in a report in November 2010 that Sunway REIT was likely to offer limited price upside to its unit holders, at least in the medium-term. It added that the REIT was likely to only appeal to certain classes of investors, particularly those with a defensive investment strategy.
However, the research house said the unique mix of properties in Bandar Sunway would continue to enhance the attractiveness of each of Sunway REIT’s properties and generate upside earnings potential through higher rentals and occupancy rates than if each property were on its own.
OSK Research also noted that Sunway REIT had the right of first refusal with respect to any properties to be disposed of by its sponsor, Sunway City Bhd, which has a large and diversified portfolio of properties and many projects in the pipeline.
This year, market observers are expected to keep an eye on how the two REITs intend to grow and add more value.
These can be in the form of new assets, which are value-accretive, injected into the REITs, or opportunities to increase their income base through lease renewals at higher rental rates.
CMMT has also forecast a 4.1% growth in distribution to 7.45 sen for its financial year ending December 2011. Based on its last closing price, this corresponds to a yield of 6.9% in FY11, from 6.6% in FY10.
In its 3QFY10 ended Sept 30, CMMT posted net profit of RM81.29 million or 6.02 sen per unit, which comprised net property income of RM30.31 million and RM76 million from a change in fair value of its investment properties.
This was on the back of gross revenue of RM43.39 million, of which gross rental income was RM36.94 million, car park income RM2.91 million and other revenue RM3.54 million.
CMMT has yet to declare dividends. Its policy is to distribute 100% of its distributable income to unit holders for FY10 and FY11.
Subsequently, it aims to distribute at least 90% of its income to unit holders on a semi-annual basis.
Barring any unforeseen circumstances, CMMT said it expected to achieve the projected annualised distribution per unit of 7.16 sen, as stated in its prospectus.
The REIT said it was well-positioned to capitalise on the expected growth in retail consumption in Malaysia as its portfolio comprised quality shopping malls with a large and diverse tenant base.
Of the two REITs, analysts are more positive on Sunway REIT due to its size, high-quality assets and the strong Sunway branding.
However, REITs in general offer limited upside in terms of capital appreciation but high dividend yields and appeal to more defensive investors.
OSK Research had said in a report in November 2010 that Sunway REIT was likely to offer limited price upside to its unit holders, at least in the medium-term. It added that the REIT was likely to only appeal to certain classes of investors, particularly those with a defensive investment strategy.
However, the research house said the unique mix of properties in Bandar Sunway would continue to enhance the attractiveness of each of Sunway REIT’s properties and generate upside earnings potential through higher rentals and occupancy rates than if each property were on its own.
OSK Research also noted that Sunway REIT had the right of first refusal to any properties to be disposed of by its sponsor, Sunway City Bhd, which has a large and diversified portfolio of properties and many projects in the pipeline.
This year, market observers are expected to keep an eye on how the two REITs intend to grow and add more value.
These can be in the form of new assets, which are value-accretive, injected into the REITs, or opportunities to increase their income base through lease renewals at higher rental rates.
REIT time
Written by Goola Warden Tuesday, 11 January 2011 11:03
The market rally since the darkest days of the global financial crisis has gone on for much longer than many investors expected. At 3,229 now, the Straits Times Index (STI) is fast closing in on its all-time high of 3,831, set in October 2007. One way to ratchet down the risk profile of your investment portfolio is to hunt for promising real estate investment trusts (REITs).
Offering a risk-return balance between bonds and equities, these high-dividend-yielding instruments have proven to be reliable investments. In the past 12 months, the FTSE REIT Index rose 11.6%, almost matching the STI’s 11.7% gain. But that’s before dividends. Including their substantial distributions per unit (DPUs), REITs actually returned an average of 18% over the last 12 months, pipping the STI’s with-dividend return of 14%.
More importantly, there was apparently very little downside with the REITs. The two worst-performing REITs in the past year, Ascendas India Trust and CapitaRetail China Trust, still managed to return 7.2% and 3.6% respectively, including dividends. Meanwhile, CapitaCommercial Trust (CCT) and Parkway Life REIT, the two best performers, returned 41% and 37% respectively, easily matching many of the best STI stocks.
Then, there is the low interest rate environment. Not only is that spurring investors to hunt for yield with instruments such as REITs, it has also enabled the REITs to cut their financing costs. “Given the current low interest rate environment, S-REITs have taken the opportunity to refinance, lengthen their debt-maturity profile as well as widen their sources of debt, hence enjoying savings in interest,” brokerage firm DBS Vickers said in a recent report.
Yet, the risks are slowly mounting for the REIT sector too. Notably, the 10-year Singapore government bond yield, the benchmark for REIT yields, has been rising steadily. It is now hovering at 2.7% versus 1.9% in November. The five-year Singapore government bond yield has climbed even more sharply, to 1.36% from 0.86% in November and just 0.63% in October.
Christopher Gee, head of equity research at JP Morgan Singapore, says that makes this a potentially perilous time for REIT investors. “The danger is there,” he said. “Interest rates will go up at some stage. All REITs are interest-rate sensitive. Generally, REITs don’t respond well to an interest-rate rise.” In fact, Gee isn’t that keen on most of the property sector at the moment. “The big macro picture is too hard to call,” he said. “We are not in favour of developers and I’m not that keen on REITs either.”
Indeed, much like stocks, REITs aren’t particularly cheap at this stage. “REITs are trading slightly above their historical mean price-to-book value (P/BV),” said CIMB Research in a recent note. The key for investors now is to evaluate REITs carefully and be mindful of the risks.
One risk analysts see is acquisitions. While it is a means for REITs to expand their portfolios and cash flows, much depends on whether the deals are priced at terms that enable them to immediately increase their DPUs. But that is sometimes only achieved with a degree of financial engineering. For instance, the acquisition of one-third stakes in Marina Bay Financial Centre (MBFC) Phase 1 by K-REIT Asia and Suntec REIT were yield-accretive only because of “income support” from their parents for five years.
What happens when the “income support” period expires? Much depends on whether MBFC Phase 1 will be able to generate sufficiently high rentals by then. CIMB fears that more of such deals for REITs could be in the offing. “Although low interest rates are positive for the sector, the new negative is potential non-accretive acquisitions,” the brokerage firm said.
While REITs are still less risky than stocks, investors ought to take a bottom-up approach in making their picks now, analysts said. JP Morgan’s Gee said performance in the property sector in 2011 is likely to be driven by specific micro-level dynamics more than anything else. In the REIT space, his preferences for this year are the smaller REITs that are able to generate growth and give a decent yield.
Sizing up the REITs
There are currently 24 REITs listed in the Singapore market. Their assets are spread across shopping malls, offices, hotels, factories and warehouses. There are even two that own healthcare-related properties such as hospitals. Their yields range from 4.9% for CapitaMall Trust (CMT) to more than 9% for some of the smaller industrial property trusts. The size of their portfolios varies too, from S$8.1 billion (RM19.2 billion) for CMT to just S$359 million for First REIT.
Besides acquisitions, the key method by which REITs improve their cash flows and DPUs is through asset enhancement. That includes the refurbishment of their properties to garner higher rentals as well as the expansion of the lettable area of their buildings. Reflecting the scale of its portfolio perhaps, CMT has a string of asset enhancement programmes underway.
For instance, its Jurong Entertainment Centre has essentially been torn down and is being rebuilt into a new mall called JCube, which will include an Olympic-sized ice-skating rink. It is scheduled for completion in early 2012. CMT will also begin enhancement works on its Atrium@Orchard in 1Q2011, which will see the expansion of its gross floor area and a significant enlargement of its retail space. Among CMT’s other key assets is a major stake in Raffles City, atop the City Hall MRT station. Its most recent acquisition was Clarke Quay, a clutch of touristy bars and food joints on the banks of the Singapore River.
CMT is among the REITs that analysts see benefiting from surging tourist arrivals in Singapore. “Tourism numbers are at record levels of nearly 12 million for 2010,” noted a CLSA strategy report dated Jan 3. “The expected continued increase in tourist arrivals in 2011 and beyond makes this the most significant, yet underappreciated, theme, in our view.” Based on CLSA estimates, tourism receipts hit a new high of S$18 billion last year. The tourism sector will be one of the key drivers for the Singapore economy in the next five years, according to the report.
“We forecast tourism receipts to realise a 20% [compound annual growth rate] over the next five years to reach S$37 billion by 2015, with the sector contributing 5.4% to our 2015 GDP estimate, well above the current 2.7%,” CLSA stated. It also believes that the official forecast for tourist arrivals of 17 million by 2015 and tourist receipt target of S$30 million will be surpassed. CLSA forecasts visitor arrivals of 18.5 million and tourism receipts of S$37 billion by 2015.
The biggest beneficiaries are likely to include the local retail sector and retail property owners such as CMT, according to CLSA. The REIT has a reasonable debt-to-asset gearing of 36%, and CLSA sees its book value gradually rising through revaluation gains. CLSA has a “buy” recommendation on CMT, with a price target of S$2.25.
JP Morgan’s Gee also has an “outperform” call on CMT, but he prefers Frasers Centrepoint Trust (FCT), which is linked to the Fraser & Neave group. “The basic non-discretionary consumer spending story will continue to do well,” he said. “FCT is lower-risk, and has been left behind by the larger-caps. The REIT’s four malls are located in suburban neighbourhoods. It is currently trading at a yield of 5.4% versus CMT’s 4.6%.
Perhaps the most direct tourism play in the REIT sector is CDL Hospitality Trusts, which owns 12 hotels and a shopping arcade. “We are only starting to see improvement in revpar (revenue per available room) and room rates. These have not been fully reflected in the stock,” Gee said. “Occupancy rates have been very good and hoteliers have significant pricing power.” OSK-DMG says CDL Hospitality Trusts is “well-positioned to ride the multi-year tourism boom”. Its debt-to-asset ratio is particularly low at 21% currently. If it were prepared to take that gearing level up to 45%, it would have room to raise its debt level from S$250 million currently to some S$800 million. It is currently trading at a forecast yield of 5.2%.
Upturn in office sector
OSK-DMG also likes Suntec REIT for its “foothold in the iconic Marina Bay corridor and favourable valuations”. After the MBFC acquisition, 30% of its net property income (NPI) will be from Grade A space through its one-third stakes in One Raffles Quay and MBFC Phase 1. A further 59% of its NPI comes from Suntec City, which includes retail space and Grade A offices.
According to DTZ Research, the pace of office rental growth gathered momentum in 4Q2010. Average gross rents in prime Raffles Place offices rose 7.1% quarter-on-quarter (q-o-q) to S$9 per sq foot a month. In 3Q2010, rental values rose 6.3% q-o-q. For 2010, average prime gross rents in Raffles Place increased 13.9%, said DTZ. “Despite earlier concerns of the hollowing-out effect when occupiers upgrade to new buildings, we notice that the vacated space is being taken up readily by existing tenants wanting to expand or occupiers from other buildings,” said DTZ in a report.
Now, available office space is expanding, with about three million sq ft of new supply likely to be completed in 2011. DTZ estimates that 8.2 million sq ft of net lettable space will be available between 2011 and 2015. OSK-DMG said it is likely to be absorbed by demand.
In the latest Global Financial Centres Index, a twice-yearly index ranking of 75 international financial centres produced by London think-tank Z/Yen, Singapore was identified as one of the financial centres that will become more significant in future, and survey respondents also picked the city-state as one of the financial centres where their companies are most likely to set up an office.
“We expect Suntec REIT to be a major beneficiary of the strong growth outlook in the prime office sector, with its Suntec City office occupancy having chalked up five straight quarters of growth to reach 98.1% in 3Q2010,” OSK-DMG said in its report. The REIT also provides an attractive prospective yield of 6.5% for FY2011, compared with its office peers’ average of 5.6% as well as a yield spread of 400 basis points, the report added. With a debt-to-asset ratio of 40%, however, it has higher gearing than its peers CCT and K-REIT.
Industrial REITs in vogue
Industrial property REITs tend to trade at higher yields and lower P/BVs than the other sectors. One reason is that the leasehold tenure for industrial property is often shorter than that of other asset classes. Industrial property land tenure is usually 30 years+30 years. Usage of industrial space is also more strictly regulated than commercial and retail.
On the other hand, rents for industrial properties tend to be more stable than offices, for example. In its strategy for 2011, CIMB has one REIT among its top picks, Cache Logistics Trust, citing its defensive, low-beta qualities. “Despite recent attention on industrial REITs, Cache has lagged peers, likely owing to its much smaller market cap,” CIMB said in its report.
Since its initial public offering last April at 88 cents, it has climbed 10% and is now trading at a forward yield of 8.8%. “Acquisition announcements could catalyse this stock, particularly when P/B valuations are less demanding than its peers’,” CIMB says in its report. It reckons that S$220 million worth of acquisitions over 2010/11 could boost DPU materially, in view of Cache’s small portfolio and significant debt headroom.
As the stock market moves into perhaps a tougher year in 2011, the right REITs might still help investors achieve a good balance of risk and return.
The market rally since the darkest days of the global financial crisis has gone on for much longer than many investors expected. At 3,229 now, the Straits Times Index (STI) is fast closing in on its all-time high of 3,831, set in October 2007. One way to ratchet down the risk profile of your investment portfolio is to hunt for promising real estate investment trusts (REITs).
Offering a risk-return balance between bonds and equities, these high-dividend-yielding instruments have proven to be reliable investments. In the past 12 months, the FTSE REIT Index rose 11.6%, almost matching the STI’s 11.7% gain. But that’s before dividends. Including their substantial distributions per unit (DPUs), REITs actually returned an average of 18% over the last 12 months, pipping the STI’s with-dividend return of 14%.
More importantly, there was apparently very little downside with the REITs. The two worst-performing REITs in the past year, Ascendas India Trust and CapitaRetail China Trust, still managed to return 7.2% and 3.6% respectively, including dividends. Meanwhile, CapitaCommercial Trust (CCT) and Parkway Life REIT, the two best performers, returned 41% and 37% respectively, easily matching many of the best STI stocks.
Then, there is the low interest rate environment. Not only is that spurring investors to hunt for yield with instruments such as REITs, it has also enabled the REITs to cut their financing costs. “Given the current low interest rate environment, S-REITs have taken the opportunity to refinance, lengthen their debt-maturity profile as well as widen their sources of debt, hence enjoying savings in interest,” brokerage firm DBS Vickers said in a recent report.
Yet, the risks are slowly mounting for the REIT sector too. Notably, the 10-year Singapore government bond yield, the benchmark for REIT yields, has been rising steadily. It is now hovering at 2.7% versus 1.9% in November. The five-year Singapore government bond yield has climbed even more sharply, to 1.36% from 0.86% in November and just 0.63% in October.
Christopher Gee, head of equity research at JP Morgan Singapore, says that makes this a potentially perilous time for REIT investors. “The danger is there,” he said. “Interest rates will go up at some stage. All REITs are interest-rate sensitive. Generally, REITs don’t respond well to an interest-rate rise.” In fact, Gee isn’t that keen on most of the property sector at the moment. “The big macro picture is too hard to call,” he said. “We are not in favour of developers and I’m not that keen on REITs either.”
Indeed, much like stocks, REITs aren’t particularly cheap at this stage. “REITs are trading slightly above their historical mean price-to-book value (P/BV),” said CIMB Research in a recent note. The key for investors now is to evaluate REITs carefully and be mindful of the risks.
One risk analysts see is acquisitions. While it is a means for REITs to expand their portfolios and cash flows, much depends on whether the deals are priced at terms that enable them to immediately increase their DPUs. But that is sometimes only achieved with a degree of financial engineering. For instance, the acquisition of one-third stakes in Marina Bay Financial Centre (MBFC) Phase 1 by K-REIT Asia and Suntec REIT were yield-accretive only because of “income support” from their parents for five years.
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While REITs are still less risky than stocks, investors ought to take a bottom-up approach in making their picks now, analysts said. JP Morgan’s Gee said performance in the property sector in 2011 is likely to be driven by specific micro-level dynamics more than anything else. In the REIT space, his preferences for this year are the smaller REITs that are able to generate growth and give a decent yield.
Sizing up the REITs
There are currently 24 REITs listed in the Singapore market. Their assets are spread across shopping malls, offices, hotels, factories and warehouses. There are even two that own healthcare-related properties such as hospitals. Their yields range from 4.9% for CapitaMall Trust (CMT) to more than 9% for some of the smaller industrial property trusts. The size of their portfolios varies too, from S$8.1 billion (RM19.2 billion) for CMT to just S$359 million for First REIT.
Besides acquisitions, the key method by which REITs improve their cash flows and DPUs is through asset enhancement. That includes the refurbishment of their properties to garner higher rentals as well as the expansion of the lettable area of their buildings. Reflecting the scale of its portfolio perhaps, CMT has a string of asset enhancement programmes underway.
For instance, its Jurong Entertainment Centre has essentially been torn down and is being rebuilt into a new mall called JCube, which will include an Olympic-sized ice-skating rink. It is scheduled for completion in early 2012. CMT will also begin enhancement works on its Atrium@Orchard in 1Q2011, which will see the expansion of its gross floor area and a significant enlargement of its retail space. Among CMT’s other key assets is a major stake in Raffles City, atop the City Hall MRT station. Its most recent acquisition was Clarke Quay, a clutch of touristy bars and food joints on the banks of the Singapore River.
CMT is among the REITs that analysts see benefiting from surging tourist arrivals in Singapore. “Tourism numbers are at record levels of nearly 12 million for 2010,” noted a CLSA strategy report dated Jan 3. “The expected continued increase in tourist arrivals in 2011 and beyond makes this the most significant, yet underappreciated, theme, in our view.” Based on CLSA estimates, tourism receipts hit a new high of S$18 billion last year. The tourism sector will be one of the key drivers for the Singapore economy in the next five years, according to the report.
“We forecast tourism receipts to realise a 20% [compound annual growth rate] over the next five years to reach S$37 billion by 2015, with the sector contributing 5.4% to our 2015 GDP estimate, well above the current 2.7%,” CLSA stated. It also believes that the official forecast for tourist arrivals of 17 million by 2015 and tourist receipt target of S$30 million will be surpassed. CLSA forecasts visitor arrivals of 18.5 million and tourism receipts of S$37 billion by 2015.
The biggest beneficiaries are likely to include the local retail sector and retail property owners such as CMT, according to CLSA. The REIT has a reasonable debt-to-asset gearing of 36%, and CLSA sees its book value gradually rising through revaluation gains. CLSA has a “buy” recommendation on CMT, with a price target of S$2.25.
JP Morgan’s Gee also has an “outperform” call on CMT, but he prefers Frasers Centrepoint Trust (FCT), which is linked to the Fraser & Neave group. “The basic non-discretionary consumer spending story will continue to do well,” he said. “FCT is lower-risk, and has been left behind by the larger-caps. The REIT’s four malls are located in suburban neighbourhoods. It is currently trading at a yield of 5.4% versus CMT’s 4.6%.
Perhaps the most direct tourism play in the REIT sector is CDL Hospitality Trusts, which owns 12 hotels and a shopping arcade. “We are only starting to see improvement in revpar (revenue per available room) and room rates. These have not been fully reflected in the stock,” Gee said. “Occupancy rates have been very good and hoteliers have significant pricing power.” OSK-DMG says CDL Hospitality Trusts is “well-positioned to ride the multi-year tourism boom”. Its debt-to-asset ratio is particularly low at 21% currently. If it were prepared to take that gearing level up to 45%, it would have room to raise its debt level from S$250 million currently to some S$800 million. It is currently trading at a forecast yield of 5.2%.
Upturn in office sector
OSK-DMG also likes Suntec REIT for its “foothold in the iconic Marina Bay corridor and favourable valuations”. After the MBFC acquisition, 30% of its net property income (NPI) will be from Grade A space through its one-third stakes in One Raffles Quay and MBFC Phase 1. A further 59% of its NPI comes from Suntec City, which includes retail space and Grade A offices.
According to DTZ Research, the pace of office rental growth gathered momentum in 4Q2010. Average gross rents in prime Raffles Place offices rose 7.1% quarter-on-quarter (q-o-q) to S$9 per sq foot a month. In 3Q2010, rental values rose 6.3% q-o-q. For 2010, average prime gross rents in Raffles Place increased 13.9%, said DTZ. “Despite earlier concerns of the hollowing-out effect when occupiers upgrade to new buildings, we notice that the vacated space is being taken up readily by existing tenants wanting to expand or occupiers from other buildings,” said DTZ in a report.
Now, available office space is expanding, with about three million sq ft of new supply likely to be completed in 2011. DTZ estimates that 8.2 million sq ft of net lettable space will be available between 2011 and 2015. OSK-DMG said it is likely to be absorbed by demand.
In the latest Global Financial Centres Index, a twice-yearly index ranking of 75 international financial centres produced by London think-tank Z/Yen, Singapore was identified as one of the financial centres that will become more significant in future, and survey respondents also picked the city-state as one of the financial centres where their companies are most likely to set up an office.
“We expect Suntec REIT to be a major beneficiary of the strong growth outlook in the prime office sector, with its Suntec City office occupancy having chalked up five straight quarters of growth to reach 98.1% in 3Q2010,” OSK-DMG said in its report. The REIT also provides an attractive prospective yield of 6.5% for FY2011, compared with its office peers’ average of 5.6% as well as a yield spread of 400 basis points, the report added. With a debt-to-asset ratio of 40%, however, it has higher gearing than its peers CCT and K-REIT.
Industrial REITs in vogue
Industrial property REITs tend to trade at higher yields and lower P/BVs than the other sectors. One reason is that the leasehold tenure for industrial property is often shorter than that of other asset classes. Industrial property land tenure is usually 30 years+30 years. Usage of industrial space is also more strictly regulated than commercial and retail.
On the other hand, rents for industrial properties tend to be more stable than offices, for example. In its strategy for 2011, CIMB has one REIT among its top picks, Cache Logistics Trust, citing its defensive, low-beta qualities. “Despite recent attention on industrial REITs, Cache has lagged peers, likely owing to its much smaller market cap,” CIMB said in its report.
Since its initial public offering last April at 88 cents, it has climbed 10% and is now trading at a forward yield of 8.8%. “Acquisition announcements could catalyse this stock, particularly when P/B valuations are less demanding than its peers’,” CIMB says in its report. It reckons that S$220 million worth of acquisitions over 2010/11 could boost DPU materially, in view of Cache’s small portfolio and significant debt headroom.
As the stock market moves into perhaps a tougher year in 2011, the right REITs might still help investors achieve a good balance of risk and return.
Friday, December 10, 2010
REIT Research from The Edge
CapitaMalls Malaysia Trust (CMMT) announced its maiden earnings results for the period from July 14 to Sept 30 — reporting net profit of RM21 million, which was just marginally ahead of the forecast made in its prospectus.
Its three properties — Gurney Plaza in Penang, The Mines in Selangor and Sungei Wang Plaza in the heart of Kuala Lumpur — have a combined net lettable area of almost 1.88 million sq ft and maintained almost full occupancy, averaging at roughly 98.3% as at end-September.
Leases up for renewal in the year-to-date — which accounted for about 16.9% of total net lettable area under its management — too have registered positive rental increases, ranging from 2.5% for Sungei Wang and 6.6% for Gurney Plaza.
CMMT’s maiden profits distribution expected in 1Q2011
CMMT has committed to distributing 100% of earnings in the first two years of listing and at least 90% of annual profits thereafter.
We expect its first dividend payment for the eight months to December will be paid sometime 1Q2011.
[Image] [Image] [Image] Based on the trust’s earnings forecast, distribution will total 4.78 sen for this year and 7.44 sen for 2011. That would earn unit holders a yield of 4.2% and 6.6%, respectively at the current price of RM1.13.
CMMT is a pure play shopping mall REIT sponsored by CapitaMalls Asia, a member of Singapore-based CapitaLand group of companies. It was one of the two REITS listed on the local bourse this year and is currently the second largest in terms of market capitalisation.
Similarly, Quill Capita Trust’s earnings results for 3Q2010 were broadly in line with expectations. Net profit (excluding unrealised gains/losses) was up a decent 7% year-on-year (y-o-y) during the quarter and 4% for the nine months to date. It is on track to meet our earnings estimate of some RM34 million for the full year.
Assuming the same level of profit payout as last year — just over 92% — distributions would total 7.91 sen per unit, which would give unit holders a fairly attractive yield of 7.3% at the current price of RM1.08. The trust made an interim distribution of 3.85 sen per unit back in August.
Quill Capita is trading below NAV of RM1.22
Quill Capita made no new acquisition in the past two years but is believed to be looking at two properties within the Klang Valley worth some RM400 million.
At present, the trust has 10 properties in its portfolio — with net lettable area totalling more than 1.29 million sq ft — worth RM788 million. Its assets, primarily commercial-industrial properties are located in Cyberjaya, Kuala Lumpur, Selangor and Penang.
In addition to attractive yields, Quill Capita is currently trading below its net asset value of RM1.22 per share. That suggests room for capital gains for investors.
On the other hand, AmFirst REIT’s underlying earnings for 2QFY2011 were a little disappointing.
Revenue fell 10% y-o-y and 12% quarter-on-quarter (q-o-q) to RM22.1 million due, primarily, to a drop in the average occupancy rate for Kelana Brem Towers — to 63.8% as at end-September — and rental rebates as compensation for the disruption during refurbishment works at Summit Hotel.
More positively, occupancy at its flagship properties, Bangunan Ambank Group and Menara Ambank remains high at 95% to 100%.
One-off gains boost AmFirst’s profits distribution in FY10
However, thanks to some RM1.89 million in compensation for the compulsory acquisition of land fronting The Summit Subang USJ recognised during the quarter, net profit improved to RM10.6 million.
A further RM3.78 million will be recognised evenly in the next two quarters, which should boost total distribution for the current financial year — we estimate at 10 sen per unit assuming 100% payout. That will earn unit holders yields totalling 8.5% at the current price of RM1.18.
Nevertheless, earnings in the following year are likely to be lower in the absence of further one-off gains. As such, we forecast distribution could fall to around nine sen per unit in FY12, which would, nevertheless, still give investors an attractive 7.6% yield.
Although the trust registered positive rental revisions for several of its properties this year, the anticipated supply of office space coming onstream over the next few years would likely keep a lid on the quantum for future hikes.
AmFirst is currently in the midst of acquiring an additional retail lot in The Summit for RM6.8 million but has aborted plans to buy a five-storey building in Cyberjaya. The acquisition is targeted for completion by end-2010.
Written by Insider Asia Tuesday, 07 December 2010 17:50
http://www.theedgemalaysia.com/in-the-financial-daily/178185-reits-few-earnings-surprises-.html
Its three properties — Gurney Plaza in Penang, The Mines in Selangor and Sungei Wang Plaza in the heart of Kuala Lumpur — have a combined net lettable area of almost 1.88 million sq ft and maintained almost full occupancy, averaging at roughly 98.3% as at end-September.
Leases up for renewal in the year-to-date — which accounted for about 16.9% of total net lettable area under its management — too have registered positive rental increases, ranging from 2.5% for Sungei Wang and 6.6% for Gurney Plaza.
CMMT’s maiden profits distribution expected in 1Q2011
CMMT has committed to distributing 100% of earnings in the first two years of listing and at least 90% of annual profits thereafter.
We expect its first dividend payment for the eight months to December will be paid sometime 1Q2011.[Image] [Image] [Image] Based on the trust’s earnings forecast, distribution will total 4.78 sen for this year and 7.44 sen for 2011. That would earn unit holders a yield of 4.2% and 6.6%, respectively at the current price of RM1.13.
CMMT is a pure play shopping mall REIT sponsored by CapitaMalls Asia, a member of Singapore-based CapitaLand group of companies. It was one of the two REITS listed on the local bourse this year and is currently the second largest in terms of market capitalisation.
Similarly, Quill Capita Trust’s earnings results for 3Q2010 were broadly in line with expectations. Net profit (excluding unrealised gains/losses) was up a decent 7% year-on-year (y-o-y) during the quarter and 4% for the nine months to date. It is on track to meet our earnings estimate of some RM34 million for the full year.
Assuming the same level of profit payout as last year — just over 92% — distributions would total 7.91 sen per unit, which would give unit holders a fairly attractive yield of 7.3% at the current price of RM1.08. The trust made an interim distribution of 3.85 sen per unit back in August.
Quill Capita is trading below NAV of RM1.22
Quill Capita made no new acquisition in the past two years but is believed to be looking at two properties within the Klang Valley worth some RM400 million.
At present, the trust has 10 properties in its portfolio — with net lettable area totalling more than 1.29 million sq ft — worth RM788 million. Its assets, primarily commercial-industrial properties are located in Cyberjaya, Kuala Lumpur, Selangor and Penang.
In addition to attractive yields, Quill Capita is currently trading below its net asset value of RM1.22 per share. That suggests room for capital gains for investors.
On the other hand, AmFirst REIT’s underlying earnings for 2QFY2011 were a little disappointing.
Revenue fell 10% y-o-y and 12% quarter-on-quarter (q-o-q) to RM22.1 million due, primarily, to a drop in the average occupancy rate for Kelana Brem Towers — to 63.8% as at end-September — and rental rebates as compensation for the disruption during refurbishment works at Summit Hotel.
More positively, occupancy at its flagship properties, Bangunan Ambank Group and Menara Ambank remains high at 95% to 100%.
One-off gains boost AmFirst’s profits distribution in FY10
However, thanks to some RM1.89 million in compensation for the compulsory acquisition of land fronting The Summit Subang USJ recognised during the quarter, net profit improved to RM10.6 million.
A further RM3.78 million will be recognised evenly in the next two quarters, which should boost total distribution for the current financial year — we estimate at 10 sen per unit assuming 100% payout. That will earn unit holders yields totalling 8.5% at the current price of RM1.18.
Nevertheless, earnings in the following year are likely to be lower in the absence of further one-off gains. As such, we forecast distribution could fall to around nine sen per unit in FY12, which would, nevertheless, still give investors an attractive 7.6% yield.
Although the trust registered positive rental revisions for several of its properties this year, the anticipated supply of office space coming onstream over the next few years would likely keep a lid on the quantum for future hikes.
AmFirst is currently in the midst of acquiring an additional retail lot in The Summit for RM6.8 million but has aborted plans to buy a five-storey building in Cyberjaya. The acquisition is targeted for completion by end-2010.
Written by Insider Asia Tuesday, 07 December 2010 17:50
http://www.theedgemalaysia.com/in-the-financial-daily/178185-reits-few-earnings-surprises-.html
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