Elite Commercial REIT
Price target:
CGS-CIMB “add” GBP0.781
Maintain ‘add’ on first milestone acquisition
CGS-CIMB’s Lock Mun Yee and Darren Ong have maintained their “add” call on Elite Commercial REIT with a target price of GBP0.781 ($1.38) after its acquisition of over 50 additional commercial properties, up from its previous target price of GBP0.761.
The REIT earlier announced that it has entered into a conditional share purchase agreement with Elite Bushel Holding to acquire 58 commercial properties located across the UK.
The new properties are 100% occupied with a WALE of 7.4 years and have a total NLA of about 1.3 million square feet.
An estimated 80% of the leases by gross rental income (GRI) have CPI-linked rental escalations capped and collared from 1% to 5%. The total acquisition outlay is estimated to be GBP218.5 million including fees, and is expected to be completed in December this year.
With this acquisition, 82% of the existing portfolio by both NLA and GRI will be occupied by the anchor tenant, the UK’s Department of Work and Pensions (DWP). Another 17% will be occupied by five other UK sovereign tenants, which include prominent agencies such as the Ministry of Defence.
Lock and Ong believe the introduction of five new sovereign-tenants “raises the diversification profile” of ECR’s occupier mix and extends the REIT’s exposure to high quality government tenants to bring total portfolio WALE to 7.5 years.
Additionally, 36% of the new properties’ portfolio are located in London, bring- ing ECR’s exposure in the area to 14% of its total assets AUM. According to Col- liers, London commercial properties have demonstrated strong capital growth of 7.7% to 8.1% versus the UK average of 5.4% over the past decade.
Given London’s strategic importance to the UK, they believe that having a sizeable portion of ECR’s assets there will allow the portfolio to enjoy long-term rental and capital growth potential as well as redevelopment opportunities.
The proposed acquisition is expected to be DPU accretive, with a proforma 3.2% increase to GBP0.202, assuming the deal is financed via the proposed issuance of consideration units to the vendors, equity fund raising and debt. Gearing is seen to increase from 32.6% to 37.7% as at end-June and total property portfolio valuation and market capitalisation are expected to expand 66.6% to GBP531.6 million and 57% to GBP334.8 million, respectively, raising the stability, liquidity and overall attractiveness of the REIT. — Lim Hui Jie
Mapletree Logistics Trust
Price target:
Maybank Kim Eng “buy” $2.40
CGS-CIMB “hold” $2.05
Positive on latest results and acquisition
Analysts are overall positive on Mapletree Logistics Trust’s (MLT) proposed acquisition of a portfolio of properties from its sponsor Mapletree Investments for $1.04 billion, which was announced on Oct 19. MLT is proposing to acquire a 100% interest in seven properties in China, with the remaining 50% interest in 15 properties in China that it already owns. The REIT is also proposing to acquire one property in Malaysia and one in Vietnam.
The acquisition, to be funded via a combination of debt and new equity, is expected to add 1.3% to DPU on a pro forma basis raising it to 8.25 cents, and 6.6% to NAV taking it to $1.28.
Along with its proposed acquisition announcement, MLT announced its 2QFY2021 results, which saw DPU increase by 1.5% y-o-y to 2.055 cents.
On the back of these announcements, Maybank Kim Eng is reiterating its “buy” recommendation on MLT with a target price of $2.40.
MLT is scaling up again on its higher-growth China, Malaysia and Vietnam portfolio, with its latest acquisition NLA should be raised by 24.2% and AUM by 11.5%, says analyst Chua Su Tye in a report dated Oct 20.
“We expect tight supply and positive demand-led fundamentals to drive medium-term rental growth, whilst strengthening MLT’s net-work connectivity, as post-deal, its multi-location tenants would rise to 42% of its gross revenue, from 25% in 2015,” says Chua.
“Beyond the 1.3% DPU and 6.6% NAV boost, rising ecommerce demand and pandemic-induced supply chain diversification plans should underpin the assets’ long term growth upside,” adds Chua.
CGS-CIMB Research is also positive on MLT, albeit keeping its “hold” call, but with a higher target price of $2.05 from $1.89 previously.
“Post-acquisition, MLT’s portfolio AUM would increase to $10 billion and enable the trust to further strengthen its connectivity across key logistics nodes and strengthen its supply chain resiliency as well as diversify its tenant base with an estimated 58% of its tenants involved in e-commerce,” says lead analyst Lock Mun Yee.
“Furthermore, management guided that it is continuing to explore third-party acquisition opportunities, particularly in Australia, Korea, Malaysia, Vietnam and Japan. We anticipate that the trust would be able to conclude more acquisitions in the short- to medium-term. In addition, with greater debt headroom capacity, we believe any further new purchases would likely be accretive,” she adds in the Oct 20 report, while commenting that she likes the stock for its pan-Asian logistics asset focus. — Samantha Chiew
SoilBuild Business Space REIT
Price target:
KGI Securities “neutral” 48 cents
Upside potential limited
KGI Securities’ Joel Ng is maintaining his “neutral’’ call and 48 cents target price on SoilBuild Business Space REIT (SBREIT).
“Since our last report in May, SBREIT’s unit price has recovered to its pre-Covid levels of 50 cents, and we think that upside potential is limited from here onwards as it has likely priced in a potential M&A,” says Ng.
For 3QFY2020, SBREIT grew distribution to unitholders by 20.8% y-o-y to $14 million.
Rental growth in Australia helped offset lower rents collected in Singapore. Overall portfolio occupancy increased 3.4% q-o-q to 92.9% and there was a 1.3% positive rental reversion to SBREIT’s new leases as well as a 1.2% increase in its lease renewals.
Ng believes that demand for industrial assets may diverge as the impact of the Covid-19 pandemic filters through the economy. “In addition to warehouse and logistics assets, we believe that business parks have the most potential to outperform as the economy recovers post-Covid-19,” notes Ng, who believes SBREIT’s performance will be stronger come 2022, when the redevelopment works at 2 Pioneer Sector 1 are completed.
Still, he expresses caution on the REIT’s leverage ratio.
“While SBREIT’s current 37% gearing is still a conservative level away from the Monetary Author- ity of Singapore’s new 50% limit, we note that its gearing is expected to increase from a double hit of falling property prices and higher debt due to the redevelopment of 2 Pioneer Sector 1”. —Amala Balakrishner
Singtel
Price target:
DBS Group Research “buy” $2.69
Latest asset divestment to support dividends
DBS Group Research is reiterating its “buy” call on Singtel with a target price of $2.69 following its 35%-owned joint venture company (JVCo) Telkomsel entering into a sale-and-leaseback agreement with PT Dayamitra Telekomunikasi (Mitratel).
Under the agreement, Mitratel will acquire 6,050 telecommunication towers from Telkomsel for INR10.3 trillion ($950 million) and then lease them back for a 10-year term.
In an Oct 19 report, analyst Sachin Mittal believes that Telkomsel, being a net cash company, can upstream dividends to its shareholders including Singtel, which can receive about $333 million in pre-tax contributions and help meet dividend obligations for FY2021.
“We project $2 billion to be paid in dividends by Singtel in FY2021 although half of this amount potentially could be paid in scrip to Singtel’s largest shareholder Temasek. Singtel’s management is expected to confirm FY2021 dividend with the upcoming 2QFY2021 result,” says Mittal.
If Temasek accepts scrip dividends, Singtel’s net debt-to-Ebitda might improve to between 1.8-2.0 times in FY2022 from 2.4 times currently, easing any pressure on its credit rating.
The analyst also believes that Singtel is currently undervalued as the market values its associates at $2.17 per share, which is the same as Singtel’s total share price. This means that the market is currently not assigning any value to Singtel’s core portfolio in Singapore and Australia.
“Our fair value for the core business of Singtel is 48 cents per share based on peer multiples. Our fair value of associates is $2.46 per share without any holding company discount,” says Mittal.
On the outlook, Singtel’s associates’ contribution is expect- ed to grow into FY2021 led by Bharti Airtel, leading to further rise in associate value.
Singtel could divest assets to unlocked trapped value. It could divest assets worth 35 cents per share, with Optus Tower being expected to be first to be sold, followed by its data centre and digital business in two to three years.— Samantha Chiew
Yangzijiang Shipbuilding
Price target:
CGS-CIMB “buy” $1.37
Encouraging outlook as ocean freight spot rates continue uptrend
CGS-CIMB analyst Lim Siew Khee has maintained her “buy” call on Yangzijiang Shipbuilding (YZJ) with an unchanged target price of $1.37.
In a report dated Oct 16, Lim said that there was a “strong uptrend for transpacific spot rates”, which suggests that demand is matching capacity deployment.
In September, riding on the traditional year-end peak season, the SCFI (Shanghai Containerised Freight Index) Shanghai to West Coast America rose about 170% y-o-y to an all-time high of US$3,831 ($5,202) per forty-foot equivalent unit (FEU), the highest since 2009.
The SCFI for Shanghai to East Coast America also went up about 87% y-o-y, reaching a high of US$4,590 per FEU since 2015.
Shipments to other regions were encouraging as well, with Shanghai to Europe reaching a modest high of US$1,085 per FEU, while Panamax grain bulk carriers staged a recovery to the pre-Covid-19 average of US$32.3 per tonne in September.
Lim also cited an encouraging rise in ocean rates and positive outlook by liners, which could spur new build orders.
YZJ’s orderbook of US$700 million year-to-date is on track to hit US$1.1 billion, up 33% y-o-y which is “defying the disruptions of Covid-19”, she noted.
From the 2020 orders, she sees that there are options for another 22 vessels, amounting to about US$1.29 billion to be exercised in 2020 and 2021, and improving earnings among shipowners could accelerate these options.
As YZJ’s yard operations remained unchanged q-o-q, she expects YZJ to deliver at least 15 vessels in 3QFY2020 and a steady q-o-q net profit of RMB700 million to RMB 750 million (between $141 million to $151 million), relatively stronger than its Singapore peers.
Shipbuilding gross margin also appears likely to normalise to about 16% to 18% in 3QFY2020, in the absence of vessel resale gains which were present in 2QFY2020.
Lim also noted its strong net cash of RMB4.4 billion (at 22 cents per share) as at end June should sustain an above market yield of 4.3%, and it is currently trading at a new trough and undemanding valuations of 0.56 times 2020 P/B. — Lim Hui Jie
Keppel REIT
Price target:
DBS Group Research “buy” $1.40
RHB Group Research “neutral” $1.14
Another stable quarter
DBS Group Research analysts Rachel Tan and Derek Tan have maintained their “buy” recommendation and target price of $1.40 on Keppel REIT following the REIT’s results.
On Oct 19, Keppel REIT posted a 4.6% growth y-o-y in its distributable income to $47.6 million for 3QFY2020 ended Sept 30.
While there was no dividend declared due to the REIT’s adoption of half-yearly distribution, the analysts say that Keppel REIT’s implied DPU for 3QFY2020 (excluding capital distributions) is equivalent to around 1.4 cents.
The REIT will announce its capital distribution with its 2HFY2020 results later in the year.
The analysts are also buoyant on Keppel REIT’s pure-of- fice portfolio, which is anchored by Singapore Grade A offices in prime CBD locations.
This, they say, positions the REIT well to benefit from a potential recovery, and to capture the expansion in the tech sector in a “very tight net supply market”.
“In addition, Keppel REIT is set for inorganic growth with more than $2 billion of potential sponsor pipeline which could be accelerated given Keppel Corporation’s plan to unlock asset value,” they say.
RHB analyst Vijay Natarajan, on the other hand, has also maintained his “neutral” call, with a higher target price of $1.14 from $1.10 previously.
In the release of its 3QFY2020 results, the manager of the REIT noted that its office leasing demand surpassed expectations with strong double-digit rent reversions at 15% for the quarter, despite Covid-19.
“Keppel REIT has been pivoting towards rental stability with recent Australian acquisitions offering long weighted average lease expiry. One concern, however, is the anticipated downsizing by financial institution tenants (36% of total) in the medium term,” notes Natarajan, who has also identified Keppel Bay Tower as a potential near-term acquisition target for the REIT, if its sponsor chooses to divest. — Felicia Tan
