| Company | Date Purchased | Purchased Price | Market Price | Gain/Loss |
| Ezion | 7-May-07 | 0.57 | 0.675 | 18.42% |
| Aims Amp | 29-Sep-10 | 0215 | 0.22 | 2.32% |
| Innotek | 01-Apr-10 | 0.555 | 0.515 | -7.2% |
| Cambridge | 14-Jul-10 | 0.505 | 0.545 | 7.9% |
| SP Austnet | 12-Aug-10 | 0.96 | 1.09 | 13.54% |
• Acquisition of Scorpio East Building for S$21.1m at initial 8% yield
• Positive acquisition with slight 2% accretion to DPU in FY11F, and terming out WALE.
• Rolling forward our numbers to FY11, TP is raised to S$0.54. Maintain HOLD.
Acquiring up to S$60m worth of properties to date. Cambridge REIT (“CIT”) announced the acquisition of Scorpio East Building, a recently completed light industrial building located in Paya Labar iPark, for S$21.1m (2% discount to valuation of S$21.5m). With this latest purchase, CIT will have acquired close to S$60m worth of properties to date. The Initial yield of the property is estimated to be c8.0% (based on Scorpio East’s annual rental of S$1.7-S$1.9m), which is in line with CIT current implied yield of 7.9%. The property will be leased back to the vendor for 5 years. The manager intends to fund the purchase through a combination of debt/equity.
Slight accretion to DPU and terming out the weighted average lease expiry (“WALE”) The manager has remained proactive in re-positioning its portfolio, replacing recent asset divestments with new asset purchases. Including this acquisition in our numbers, our FY11 DPU is raised by c2%. In addition, CIT will see its tenant expiry profile terming out further, reducing the concentration of expiry in FY13-14.
HOLD call maintained, TP adjusted to S$0.54. With our revised DPU estimates and rolling forward our numbers into FY11, our target price is raised to S$0.54. Maintain HOLD in view of limited upside. CIT currently offers FY10-11F yields of 9.1%.
A yield premium story. The FTSE REIT Index is up 11.3% year-to-date and 145.8% from its Mar 2009 low. Market attention is on low base rates and the high liquidity environment. As a result, S-REIT distribution yields have tightened to about 6.6% on average (on consensus estimates) and to sub-5% in some cases. At the same time, price-to-book ratios have trended up to 0.97x book on average, and up to 1.50x book in some cases.
But will the benchmark hold out in the L/T? We typically pit S-REIT yields against long-term government bond yields to understand the risk premium awarded to REIT investors. Bond yields are currently at historical lows – making REITs look very attractive. But this benchmark may not hold out in the long run, in our opinion. First, long-term investors have to keep in mind that base rates will go up eventually. Second, if base rates are low for a sustained period (a weak economic environment, for instance) – this may actually be a signal that the distribution yields currently being offered are not sustainable and yield premiums will trend downwards eventually. In both scenarios, our argument is that artificially-low yield premiums are a short-term play, not a long-term fundamental reason to invest in REITs.
Don't ignore price-to-book. The market seems to be focusing on relative yields, to the point of ignoring what price-to-book valuations are saying. The case for a significant premium-tobook is questionable, in our opinion. A premium-to-book value signals either: 1) existing assets are undervalued and will rerate (a 50% re-rating looks aggressive to us, though); 2) there is potential to enhance values through asset works (true in specific cases); and 3) there is potential for inorganic growth through acquisitions. But we note that REITs that are already at their medium-term leverage targets are typically able to offer yield accretion of less than 10% given strong capital values and the need to finance acquisitions via both debt and equity.
Focus on the forgotten. Our preference, from the perspective of long-term investors, is to avoid the first-tier, large-cap REITs that are natural liquidity plays (and thus, a magnet for those playing the yield-premium game). Instead, we advocate investing in the so-called "forgotten", but still credible, REITs that are offering high absolute yields and are trading at decent discounts to book value compared to their peers. Reflecting this strategy, our top picks are Ascott Residence Trust [BUY, FV: S$1.33] and Starhill Global REIT [BUY, FV: S$0.65]. Maintain NEUTRAL on the broader sector.
Recent newflow from marine logistics group generally positive, with latest announcement being A$70 million ($89 million) contract in August to service multinational oil company in Australia, where Ezion in midst of setting up 2 marine supply bases in bid to clinch orders from offshore oil & gas companies. |
SP AusNet is the defendant in legal proceedings. SP AusNet says it has also made several counterclaims against several parties: the Department of Sustainability and Environment, the State of Victoria (Victoria Police), the Country Fire Authority and a contracted inspector of electricity assets. |
| Amid current strong liquidity, best strategy for Singapore REIT investors is to accumulate names offering above-average DPU yield, positive DPU growth, says Daiwa, according to Dow Jones. Research house says Ascott (A68U.SG), Mapletree Logistics (M44U.SG) have highest yield, DPU growth; rates both at Outperform with respective $1.38, $1.00 targets. |
