J-REIT Seminar (15) Frontier (8964)

中湖 康太
GCS_J-REIT_15_Frontier_20160913_E.pdf
ダウンロード

Characteristics

  • Commercial/Retail Property Type Reit with 32 properties totaling Y288.8bn, on a purchase price basis, as of end August 2016, sponsored by Mitsui Fudosan (8801)
  • Area diversification: Tokyo 5 wards 5.7%, Tokyo 23 wards (excluding 5 wards) 18.4% (together 24.1%), Other Tokyo 5.1%, Kanto 25.2%, Chubu/Kinki 26.9%,Others 18.8% (as of end Aug. 2016) It can be said as non-urban centric type retail reit. Properties includes those prefixed by Mitsui Outletpark and Mitsui Shopping Park LaLaport
  • Conservative Portfolio and Balance Sheet Management: Fixed rent ratio is 99% of total rent revenues; LTV for the period ending June 2016 is 39.1%, and 42% as of end August. Hence, relatively high credit ratings; AA (JCR), AA-(R&I), A+(S&P)
  • DPU for the latest period ending June was flat p.o.p, as it incurred capital loss of Y460mn from sale of Joyfultown Okayama (key tenant: Ito-Yokado) which had long been a concern, while posting Y320mn gains by drawing down retained earnings, which can be regarded as positive as it took advantage of current active real estate market.
  • Recent external growth in 2016: Kojima x Bigcamera Naha for Y1.85bn, NOI 7.6% sourced from independent route, and LaLaport Shin-Misato, additional 50% co-ownership interest for Y15.1bn, NOI 5.0% sourced by sponsor.

Valuations

  • Unit price: Y507,000 as of September 13, 2016
  • Dividend Per Unit: Y9,500 (-2.0% p.o.p) Co’s forecast for 12/2016
  • Expected Dividend Yield: 3.75%, based on the company’s forecast for 12/2016 annualized
  • NAV multiple: 1.25x based on Y404,873 for the period ending June 2016
  • Dividend Yield (E): Somewhat lower than J-REIT average of 3.53% estimated
  • NAV multiple: Somewhat lower than J-REIT average of 1.3x estimated
  • But 25% premium to appraisal based NAV

Points to look at

  • In our estimate, dividend per unit would be stable at around Y9500 levels for the several periods to come perhaps, as the fixed rent ratio is 99% of total rent revenues; On the other hand, upside in dividend growth would be limited, in our opinion.
  • Management recognitions on recent real estate market are appropriate in our opinion; i.e. 1) fewer quality properties in good locations coming on the market, 2) Intensifying competition to acquire properties, 3) Falling cap rates in major cities; growing polarization of urban and non-urban areas; We expect the management to avoid aggressive external growth and seek to capture appropriate property replacement opportunities.
  • Concerns are somewhat weak personal consumption and in particular tenant appetite in non-urban markets
  • Currently 2 properties are under rent revision discussion; 1) Ito-Yokado Higashi Yamato (4.0%), 2) QANAT Rakuhoku (2.9%); and TSUTAYA BOOKS TENJIN (1.9%) is subject to tenant change, discussions underway with new candidates; figure in ( ) indicates share in total annual rent
  • Conservative balance sheet policy is estimated to be positive in terms of demand related to BOJ purchase for now; however, in the medium- and long-term, appropriately higher financial leverage can be implemented to enhance dividend level, in our opinion.

As of 13th September 2016

Disclaimer

  • Any comment, report, video or other material (hereinafter called “material”) published by GCS Co., Ltd. and/or the producer of the material (hereinafter called “GCS”) in electronic, printed or any other format, is for informational purposes only and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments.
  • The material is based on information obtained from sources believed to be reliable but is not guaranteed as being accurate, nor is it a complete statement or summary of the securities, markets, developments or any other subjects referred to in the material. The material should not be regarded by the recipients as a substitute for the exercise of their own judgement. Any opinions expressed in the material are as of the date produced or specified and are subject to change without notice and GCS is not under any obligation to update or keep current the information contained herein.

 

 

Copyright© 2019 株式会社ジー・シー・エス(GCS) 中湖康太 経済投資コラム All Rights Reserved.