Highlights

SGX Stocks and Warrants

Author: kimeng   |   Latest post: Fri, 6 Dec 2019, 4:05 PM

 

Mapletree North Asia Commercial Trust: Distribution Top-up and Growing Its Japan Presence

Author: kimeng   |  Publish date: Fri, 6 Dec 2019, 4:05 PM


  • Distribution top-up to mitigate income void
  • No visibility on timing of insurance claims
  • Diversifying income stream with proposed Japan acquisitions

Aiming to Reopen Festival Walk in 1QCY20

Mapletree North Asia Commercial Trust’s (MNACT) Festival Walk (FW) mall has been closed since 13 Nov, and there are major recovery and repair works to be carried out. Management is working towards having the mall reopen (partially or fully) in 1QCY20 (subject to approvals from the relevant authorities). For the office tower, it was also closed on 13 Nov but reopened on 26 Nov. Rental from FW’s retail tenants will not be collected over the duration when the mall is closed. However, as highlighted previously, FW has insurance coverage which includes property damage and loss of revenue due to business interruptions.

Rental Income Void to be Partially Covered by Distribution Top-up in 2HFY20 and 1QFY21

While assessment of the revenue loss amount and property damage is currently underway, there is no visibility yet on when MNACT will receive the insurance claims reimbursement. Given this income void, MNACT will be implementing a top-up to the distributable income for 2HFY20 and 1QFY21. This distribution top-up amounts to ~40% of FW’s retail revenue. Once the insurance claims proceeds are received, it will be used to repay the borrowings undertaken to fund the top-up.

Proposed Acquisitions of Two Properties in Greater Tokyo From Sponsor

Separately, MNACT also announced the proposed acquisition of a 98.47% stake in two freehold, multitenanted office properties (mBay Point Makuhari Building (MBP) in Chiba and Omori Prime Building (OPB) in Shinagawa) in Greater Tokyo, Japan, from its sponsor. The combined agreed property value is JPY38.1b (~S$485.1m), and translates into an NPI yield of 4.5%.

Occupancy rate is 85.9% (84.8% for MBP and 100% for OPB) and hence we see potential upside to the income yield if MNACT manages to ramp up MBP’s occupancy to 90-95%, which is the average occupancy for surrounding buildings. Given Japan’s negative 10-year government bond yield, this acquisition represents a healthy yield spread of 470 bps as compared to MNACT’s existing portfolio outside of Japan (~270 bps for FW and ~160 bps for its China properties), although this is lower than its existing Japan portfolio (~510 bps).

Funding would come in the form of i) issuance of transaction units to its sponsor (subject to whitewash waiver) and ii) debt financing. The funding mix is likely to be ~30/70% equity/debt. Pro forma aggregate leverage is expected to increase from 37.1% to 39.0% post completion, while pro forma FY19 DPU is expected to increase by 1.8% (assuming transaction units are issued at S$1.15 per unit).

FW’s contribution is expected to decline from 62% to 58% of overall portfolio NPI post completion of the acquisitions. Taking these developments into account and also lowering our rental assumptions for FW, we pare our FY20F and FY21F DPU forecasts by 4.8% and 2.4%, respectively. Correspondingly our fair value is reduced to S$1.36 from S$1.41.

Source: OCBC Research - 6 Dec 2019

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Mapletree North Asia Commercial Trust: Update on Festival Walk and Proposed Acquisitions in Greater Tokyo

Author: kimeng   |  Publish date: Thu, 5 Dec 2019, 11:10 AM


Mapletree North Asia Commercial Trust (MNACT) provided an update on Festival Walk (FW) mall. The mall has been closed since 13 Nov, and there are major recovery and repair works to be carried out. Management is working towards having the mall reopen in 1QCY20, although this is also subjected to approvals from the relevant authorities.

For the office tower, it was also closed on 13 Nov but reopened on 26 Nov.

As highlighted previously, FW has insurance coverage which includes property damage and loss of revenue due to business interruptions. Rental from FW’s retail tenants will not be collected over the duration when the mall is closed.

While assessment of the revenue loss amount and property damage is currently underway, there is no visibility yet on when MNACT will receive the insurance claims reimbursement. Given this income void, MNACT will be implementing a top-up to the distributable income for 2HFY20 and 1QFY21. This distribution top-up amounts to ~40% of FW’s retail revenue. Once the insurance claims proceeds are received, it will be used to repay the borrowings undertaken to fund the top-up.

Separately, MNACT also announced the proposed acquisition of a 98.47% stake in two freehold, multi-tenanted office properties in Greater Tokyo, Japan, from its sponsor. The agreed property value is JPY38.1b (~S$485.1m), and translates into an NPI yield of 4.5%. Occupancy rate is 85.9% and hence we see potential upside to the income yield if MNACT manages to ramp up its occupancy.

Given Japan’s negative 10-year government bond yield, this acquisition represents a healthy yield spread of 470 bps as compared to MNACT’s existing portfolio outside of Japan (~270 bps for FW and ~160 bps for its China properties). We will provide more details after the analyst conference call.

For now we have a BUY rating and S$1.41 fair value estimate on MNACT.

Source: OCBC Research - 5 Dec 2019

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Ascott Residence Trust: Unlocking Value

Author: kimeng   |  Publish date: Fri, 22 Nov 2019, 3:03 PM


  • Partial sale of 15,170 square metres GFA
  • New Somerset serviced residence with a hotel license
  • Expected to open in 2024

Joining the consortium to redevelop Liang Court Site

Ascott Residence Trust (ART) will join the consortium led by City Development (CDL) and CapitaLand (CL) to redevelop Liang Court Site with a partial sale of its 15,170 square metres gross floor area (GFA) for Somerset Liang Court Singapore for S$163.3m to CDL. The divestment price is 44% above the property’s book value as at 30 Sep 2019 and 138% above ART’s acquisition price in 2006. Total net gain from the sale and fair value gain from ART’s retained GFA in the land is estimated to be S$84.3m.

ART will redevelop the retained GFA of 13,034 square metres into a new Somerset serviced residence with a hotel license using the net proceeds from the partial sale of land. The consortium which includes City Development (CDL), CapitaLand (CL), CDL Hospitality Trusts (CDLHT) and Ascott Residence Trust (ART) intends to redevelop the Liang Court Site into an integrated development with a total gross floor area of more than 100,000 square metres, comprising the new Somerset serviced residence with a hotel licence (owned by ART), the New Hotel (owned by CDLHT), two residential towers expected to offer around

700 Apartment Units (owned by CDL-CL), and a Commercial Component (owned by CDL-CL).

Land lease is refreshed to 99 years The new Somerset serviced residence will offer 192 units, comprising 84 studio, and 108 units of 1 or 2 bedroom, with a flexibility to cater the needs of both short-stay and long-stay travellers. The property’s land lease is refreshed from 57 years to 99 years. Total expected development expenditure is approximately S$300m, with a target EBITDA yield of 4%.

The new serviced residence is expected to open in phases from 2H 2024. Management sees that it is an opportune time to recycle ART’s capital by redeveloping the aging Somerset Liang Court serviced residence which has been in operation for over 35 years and is likely to incur high AEI costs in the future.

Short-term Impact on DPU

Impact on ART’s gearing will be minimal as the redevelopment is mainly funded by the net divestment proceeds. As at 30 September 2019, ART’s gearing was 33% with a debt headroom of about S$1.1b, assuming gearing limit of 45%. However, we note that there will be an income shortfall due to the redevelopment period and DPU is estimated to drop 4.6% after the sale, on a pro forma FY2018 basis. That said, the net proceeds of the sale could be used for distributions to smoothen DPU volatility in the interim. Maintain HOLD.

Source: OCBC Research - 22 Nov 2019

Labels: Ascott Reit
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CDL Hospitality Trusts: Increasing Foothold in SG Hospitality Market

Author: kimeng   |  Publish date: Fri, 22 Nov 2019, 12:47 PM


  • Two proposed transactions
  • Unlock value of NCQ
  • Further penetration in Singapore’s lifestyle hotel market

Two Transactions: Redevelopment of NCQ + Acquisition of W Hotel

CDL Hospitality Trusts’ (CDLHT) announced a proposed redevelopment transaction which involves the (1) divestment of Novotel Singapore Clarke Quay (NCQ) at Liang Court Site to a consortium led by City Developments Limited (CDL) and CapitaLand Limited (CL); (2) forward purchase of a brand new, lifestyle hotel at redeveloped Liang Court Site from a subsidiary of CDL; and also the proposed acquisition of W Singapore – Sentosa Cove (W Hotel).

Increased Foothold in Singapore Hospitality Market

The primary objective of the proposed redevelopment transaction is to retain CDLHT’s presence in the Liang Court Sites due to the prime location at Clarke Quay. The divestment consideration of NCQ is S$375.9m, with total divestment and fair value gain of S$36.3m. Meanwhile, CDLHT will acquire the new hotel for the lower of the fixed price of S$475.0m or 110.0% of the new hotel’s development costs, with a fresh 99 years leasehold from acceptance of lease renewal, at an implied NPI yield of 5.6%.

The acquisition is currently intended to be funded through debt financing upon delivery in 2025, with the final funding structure to be determined closer to the completion date. Moreover, CDLH will acquire the W Hotel for S$324.0m, at an implied NPI yield of 3.1%. The acquisition will be funded through the use of internal resources, including the proceeds from the divestment of NCQ, and/or debt financing.

DPU Accretive Transactions

The divestment of NCQ is expected to complete in Apr 2020, while the new hotel and is expected to open in 2025, subject to security holders’ approval at EGM in Jan 2020. Both transactions are DPU accretive, with 2.7% DPU accretion as a whole, or 2.0% and 0.9% DPU accretion from the NCQ redevelopment transaction and the acquisition of W Hotel respectively, on a pro forma FY 2018 basis.

We see the transactions as largely positive for CDLH’s long-term growth but we are likely to see lower distributions and a slight drop in DPU in the short term due to the divestment of NCQ and the acquisition of W Hotel is not able to fully mitigate the divestment impact. However, the net sale proceeds from NCQ could be used to smoothen out DPU. Maintain HOLD.

Source: OCBC Research - 22 Nov 2019

Labels: CDL HTrust
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Yoma Strategic Holdings: Ceasing Coverage

Author: kimeng   |  Publish date: Wed, 20 Nov 2019, 5:50 PM


  • 2QFY20 revenue fell 24.6% YoY
  • Disposal of investment in Grand Central Shopping Mall
  • Cease coverage

Net Loss of US$43.3m in 2QFY20

Yoma’s 2QFY20 revenue fell 24.6% YoY to US$22.3m, dragged by Real estate development and Automotive & heavy equipment, and partially offset by Financial Services and Consumer. Net income, however, turned red from US$29.9m in 2QFY19 to a loss of US$43.3m this quarter, mainly due to lower revenue contribution and other income loss, as well as higher finance expenses as a result of higher borrowings, rising interest rates and the adoption of new accounting standard SFRS 16.

Financial Services and Consumer Drove the Growth

On a segment basis, Real Estate Development’s 2QFY20 revenue decreased by 68% YoY to US$5.26m due to low percentage of completion (~7-24%) from City Loft@StarCity. As Yoma recognises revenue based on the percentage of completion method, unrecognized revenue from the sales of City Loft amounted to more than US$16.0m. For Automotive & Heavy Equipment, the decline in 2QFY20’s revenue (-12.5% YoY) was due to lower tractor and implements sold under the New Holland business, partially offset by revenue from Volkswagen vehicle sales.

Separately, Yoma’s Financial Services and Consumer segment continued to grow, which reported 6.7% and 148.5% YoY revenue growth to US$1.6m and US$8.2m, respectively. The Consumer segment also saw additional revenue contribution from new subsidiaries such as YKKO and KOSPA this quarter. Moving forward, Yoma is actively looking to recycle capital from its non-core assets. One potential target is the Grand Central Shopping Mall. Management noted that discussion on the disposal of its investment in the Grand Central Shopping Mall in Dalian, China is on-going.

Source: OCBC Research - 20 Nov 2019

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OUE Commercial REIT: Driving Rental Reversions

Author: kimeng   |  Publish date: Mon, 18 Nov 2019, 3:38 PM


  • Interim DPU of 0.79 S cents
  • Positive office rental reversions in 3Q
  • Higher FV estimate of S$0.535

Completion of Merger With OUE Hospitality Trust

OUE Commercial REIT’s (OUECT) 3QFY19 revenue and net property income rose 53.7% YoY and 54.8% YoY to S$63.3m and S$50.1m respectively, primarily driven by the contribution from OUE Hospitality Trust (OUEHT) as well as the inclusion of OUE Downtown Office which was acquired in November 2018. Recall that OUECT completed the merger with OUEHT on 4 September 2019. Post-merger, OUECT’s total assets increased to ~S$6.8b with 7 properties in Singapore and Shanghai, across three asset classes: office, hospitality and retail.

An interim DPU of 0.79 S cents was declared which includes the clean-up distribution of 0.53 S cents per unit for the period 1 Jul to 3 Sep before the merger effective date, and the distribution of 0.26 S cents per unit for the period 4 Sep to 30 Sep. YTD Sep 2019, a total of 2.47 S cents were declared.

Healthy Commercial Portfolio Occupancy

OUECT’s commercial portfolio which consisted of 4 office properties: OUE Bayfront, One Raffles Place, OUE Downtown and Lippo Plaza (in Shanghai), and 1 retail property: Mandarin Gallery, reported improved committed occupancy of 95.2% (+0.3 ppt) as at 30 Sep 2019. All office properties recorded positive rental reversions this quarter as rents for renewed leases were higher than expiring rents. With ~2.3% of OUECT’s commercial portfolio by GRI due for renewal for the rest of 2019, and ~23.9% due in 2020, we expect good rental reversions potential.

For OUECT’s hospitality portfolio, 3QFY19 RevPAR improved 3.3% YoY to S$224, largely driven by stronger performance from Crowne Plaza Changi Airport which continued to perform. Crowne Plaza Changi’s RevPAR rose 13.3% YoY to S$212 in 3QFY19, on the back of higher ADR and occupancy rate, boosted by the opening of Jewel. Mandarin Orchard Singapore’s performance was relatively stable, with a marginal fall of 0.9% in RevPAR to S$231 this quarter due to soft demand.

Office Market Sentiment Remained Cautious

Despite the potential positive rental reversions, near term outlook for office market could continue to be weighed by economic uncertainty. Management noted the cautious sentiment among occupiers, in particular of Lippo Plaza which is likely to face headwinds from rising supply with office projects which were previously deferred entering the market in 2020.

However, we expect a stronger 4Q and 2020 for hospitality on the back of benign supply and stronger leisure travel market which could provide a buffer for OUECT. We incorporated the merger into our model, and subsequently derived a higher fair value estimate of S$0.535 (previously S$0.50).

Source: OCBC Research - 18 Nov 2019

Labels: OUE Com Reit
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