Property sector
Maintain overweight: We believe M-REIT will continue to garner interest due to the uncertain investing climate where most investors will opt for defensive plays. We remain positive on the sector for its solid fundamentals and defensive yields averaging 6.8% (net). We see a further re-rating on M-REIT with the potential REIT-ing of Mid Valley Megamall and The Gardens Mall, making the sector more appealing to international investors. Axis REIT is our top pick for the sector.
M-REIT have outperformed S-REIT, particularly with the listing of Pavilion REIT on Dec 8, 2011, which has narrowed M-REIT-S-REIT yield gap to +29 basis points (bps) in mid-December (from 119bps in mid-October). The potential REIT-ing of KrisAssets’ (not rated) RM2.8 billion Mid Valley Megamall and The Gardens Mall would further develop the breadth and depth of M-REIT, we believe. It was reported that KrisAssets’ major shareholder, IGB Corp Bhd (not rated; 76% stake) is hiring investment bankers to look into structuring a REIT which they hope to launch by 1H12.
Most M-REIT have gearing below 0.4 times (well below the Securities Commission’s 0.5 times cap). Post-private placements, Axis REIT and CMMT’s gearing would be around 0.24-0.3 times. M-REIT also have low refinancing risks over the next one year due to active capital management (preference for long-term over short-term debt) after the 2008 global financial crisis. Strong balance sheets provide room for expansion without equity fundraising.
Quill Capita Trust has the highest percentage of leases up for renewal (38% of net lettable area or NLA) in 2012, followed by 32% for CMMT. While the office market continues to be threatened by excessive supply, Quill has thus far managed to retain its tenants with a 2% to 3% annual rate hike due to its active management and good relations with the existing tenants. As for CMMT, the bulk of the 32% relates to occupancy at The Mines. We understand that CMMT has received positive indications on renewals thus far.
M-REIT trade at an average 6.8% 2012 net yield, which is attractive compared with the 3.7% yield on 10-year MGS. At our DCF-based target prices, M-REIT under our coverage would trade at implied yields of 6.3% to 7.8% (gross). We retain all stock calls except for CMMT (downgrade to “hold” from “buy”) whose share price has run ahead due to the spillover effects post listing of large-cap Pavilion REIT. — Maybank IB Research, Jan 6
This article appeared in The Edge Financial Daily, January 9, 2012.
Maintain overweight: We believe M-REIT will continue to garner interest due to the uncertain investing climate where most investors will opt for defensive plays. We remain positive on the sector for its solid fundamentals and defensive yields averaging 6.8% (net). We see a further re-rating on M-REIT with the potential REIT-ing of Mid Valley Megamall and The Gardens Mall, making the sector more appealing to international investors. Axis REIT is our top pick for the sector.
M-REIT have outperformed S-REIT, particularly with the listing of Pavilion REIT on Dec 8, 2011, which has narrowed M-REIT-S-REIT yield gap to +29 basis points (bps) in mid-December (from 119bps in mid-October). The potential REIT-ing of KrisAssets’ (not rated) RM2.8 billion Mid Valley Megamall and The Gardens Mall would further develop the breadth and depth of M-REIT, we believe. It was reported that KrisAssets’ major shareholder, IGB Corp Bhd (not rated; 76% stake) is hiring investment bankers to look into structuring a REIT which they hope to launch by 1H12.
Most M-REIT have gearing below 0.4 times (well below the Securities Commission’s 0.5 times cap). Post-private placements, Axis REIT and CMMT’s gearing would be around 0.24-0.3 times. M-REIT also have low refinancing risks over the next one year due to active capital management (preference for long-term over short-term debt) after the 2008 global financial crisis. Strong balance sheets provide room for expansion without equity fundraising.
Quill Capita Trust has the highest percentage of leases up for renewal (38% of net lettable area or NLA) in 2012, followed by 32% for CMMT. While the office market continues to be threatened by excessive supply, Quill has thus far managed to retain its tenants with a 2% to 3% annual rate hike due to its active management and good relations with the existing tenants. As for CMMT, the bulk of the 32% relates to occupancy at The Mines. We understand that CMMT has received positive indications on renewals thus far.
M-REIT trade at an average 6.8% 2012 net yield, which is attractive compared with the 3.7% yield on 10-year MGS. At our DCF-based target prices, M-REIT under our coverage would trade at implied yields of 6.3% to 7.8% (gross). We retain all stock calls except for CMMT (downgrade to “hold” from “buy”) whose share price has run ahead due to the spillover effects post listing of large-cap Pavilion REIT. — Maybank IB Research, Jan 6
This article appeared in The Edge Financial Daily, January 9, 2012.
