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Investors’ Corner (Kimly, SPH REIT, Mapletree Industrial Trust, First REIT)

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Price – $0.24

Target – $0.27

Kimly was being investigated over a controversial purchase of a drinks firm that was later aborted. While it remains open to acquisitions and strategic alliances, it is currently working on developing its own brand of coffees and tea. According to its business update, the group has been able to acquire between three to five new food outlet locations each year, and so it expects to operate about 70 coffee shops and food courts in Singapore by the end of the financial year ending 30 Sep-19. We walked away from Kimly’s corporate update feeling reassured that the business operations would not be affected by the ongoing investigations although the management is unable to share much information on the case at this stage. Nevertheless, we think that the investigation will likely generate some negative sentiment and be an overhang on the stock, limiting any potential upside. Maintain NEUTRAL. RHB Research (19 Dec)


Price – $1.01

Target – $1.02

SPH REIT announced its first overseas acquisition – an 85% interest in Figtree Grove shopping centre in New South Wales Australia for a consideration of AUD188.2m. The property’s tenancies have a non-discretionary retail focus and is well-supported by a 24-hour Kmart, Coles and Woolworths supermarkets leasing 58.4% of the space in total, as well as two mini majors and 72 specialty. This transaction is expected to achieve a 6% Net Property Income yield, adding another 1-2% to SPH REIT’s FY19-20E DPUs and constitute 5.2% of the trust’s Asset Under Management. We see this as another sound initiative towards meaningful diversification. Following this deal, gearing will rise to 30.1% which is still comfortable, leaving $600-950m in debt headroom. Reiterate HOLD. Maybank Kim Eng (19 Dec)

Mapletree Industrial Trust

Price – $1.91

Target – $2.03

Mapletree Industrial Trust (MIT) announced the acquisition of 18 Tai Seng from its Sponsor, Mapletree Investments. The property is located in Paya Lebar iPark and is easily accessible by public transportation and major expressways. Occupancy currently stood at 87.4%, with committed leases of 95.7% to commence progressively by 1 Mar-19. 18 Tai Seng’s weighted average lease expiry of 3.6 years is in line with that of the existing portfolio, and addition of it into the portfolio would lower tenant concentration risk by reducing the maximum risk exposure to any single tenant from 10% to 9.4%. MIT has sufficient debt headroom to acquire the property fully-fund by debt. According to pro forma illustrations for various loan-to-value scenarios, the acquisition is DPU and NAV accretive. Assuming the purchase is fully-funded by debt and distribution reinvestment plan is maintained, we estimate FY19/20 DPU to rise by 3.4%. Upgrade to ACCUMULATE. Phillip Securities (14 Dec)

First REIT

Price – $1.04

Target – $1.05

We attended First REIT’s (FREIT) analyst briefing, and one of the key concerns related to the current master leases between Lippo Karawaci (LK) and FREIT with the first batch of leases due in 2021. The possibility of lease non-renewals is likely, since the current structure results in LK collecting less from Siloam Hospitals than what it pays out to FREIT. While Siloam Hospitals could theoretically take over those leases, negotiated terms could leave FREIT in a less-than-favourable position. Meanwhile, FREIT is seeking to rebalance its portfolio where up to 50% of its asset will be located outside of Indonesia in the next three to five years. We think that FREIT could be looking to acquire a significant portion of OUE Lippo Healthcare’s Japanese nursing home portfolio. Hence, we cannot rule out the possibility of a substantial amount of equity fund raising through a rights issuance. In view of the various risks mentioned above, we lowered our target price to $1.05. Maintain HOLD. OCBC Investment (13 Dec)

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