A-REIT – DBSV

23 April 2014
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Room to manoeuvre

  • 4QFYMar14 results in line
  • Organic growth underpinned by positive rental reversions; Aperia acquisition on track in 1QFY15
  • Maintain BUY, TP raised to S$2.47

Highlights

4Q14 results in line. A-REIT’s 4Q14 DPU of 3.55 Scts (+5.3% y-o-y) brings DPU for the full year to 14.2 Scts, within our estimates. 4Q14 topline and net property income came in 8% and 12% higher y-o-y at S$156.5m and S$112.3m, respectively. This was largely due to contributions from an expanded portfolio (105 properties v 102 properties a year ago), supported by organic growth of c.1.9% y-o-y. Rental reversions remained robust, with an uplift of c. 14.8% owing due to low passing rents. Occupancy rates remained stable at 89.6%. Distributable income was 22% higher at S$85.2m (inclusive of tax imcome from prior periods/capital distribution) due to (i) payment of performance fee of S$6.9m in 4Q13 but nil in 4Q14 and (ii) lower interest expenses.

NAV higher by c.1.5% to S$1.98. This was brought about by revaluation gains from A-REIT City @ Jinqiao and slight compression in portfolio cap rates to 6.57% (vs 6.6% in FY13).

Our views

Steady organic growth to compensate for margin pressure. We expect A-REIT to continue reporting positive rental reversions from the renewal of c. 21.6% of its income in FY15, however uplifts in rents are expected to be more moderate in the mid to high single digit range. We believe this will more than compensate for expected hikes in operating costs (utilities/maintenance contracts) and nil vacancy refunds going forward from the tax authorities. As a result, net property income margins are expected to remain flattish.

Visible pipeline and proposed acquisition of Aperia in 1QFY15 to drive growth. A-REIT’s potential to grow inorganically is strong through (i) an active pipeline of development and committed asset enhancement projects (AEI) worth S$106.5m (added new development projects – C&P Logistics Hub and Techlink and Techview); and (ii) proposed acquisition of Aperia in 1Q15. Management gave an update that Aperia property is on track to achieve TOP by 1Q15 and is 40% pre-committed at this point. The Manager is expected to acquire the remaining stake from the vendor. We estimate the trust will have sufficient debt-headroom to fund these initiatives and should see gearing settle at c34%.

Recommendation

Maintain BUY, TP raised to S$2.47. A-REIT’s is expected to offer steady and resilient earnings. TP is raised to S$2.47 as we roll forward our valuation base. Maintain BUY for a total return of c. 12%.

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MIT – CIMB

23 April 2014
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A bright outlook

Our FY3/14 DPU forecast was almost spot on as MIT raised its 4Q DPU by 7.2% yoy on the back of 4.2% revenue growth. We expect the recently announced S$250m BTS project, the largest BTS project undertaken by MIT to contribute to the next stage of growth. In light of the room for growth, we maintain our Add rating on MIT, with an unchanged DDM-based (discount rate: 8.1%) target price of S$1.64.

Positive rental reversion continues

Mapletree Industrial Trust (MIT) reported a 4QFY14 revenue of S$75.2m (+4.2% yoy) and DPU of 2.51 Scts (+7.2% yoy), mainly driven by rental revenue growth (ranging between 9.4% and 21.6%) for all property segments and rising occupancy of the flatted factories. The average portfolio occupancy eased from 92.5% in 3QFY14 to 91.3% in 4QFY14, partly due to higher leasable space following the completion of AEI at Toa Payoh North 1 Cluster.

Clear outlook

MIT recently announced its largest BTS to date, a S$250m project for Hewlett-Packard (HP) Singapore. On completion in 1H17, the project is expected to boost DPU by c.9.7%, bringing about the next stage of growth for MIT. In the nearer term, with 22.5% of leases up for renewal in FY14-15, mainly concentrated in the flatted factories (c.14.8%), we expect MIT to continue to achieve positive rental reversion as these leases are estimated to be c.20-25% below the average spot rent. In addition, with the built-to-suit (BTS) Equinix project scheduled to be completed in 2HCY14, coupled with the recently completed AEI at Toa Payoh North 1, we expect MIT’s outlook to remain positive. We forecast FY15 DPU to rise by c.1.5% as the bright outlook is partially offset by the higher interest payment for the BTS project.

Maintain Add

With c.29% of total debt due in FY14-15 to be refinanced, we are confident that MIT’s management will continue to take advantage of the current cheap lending environment and refinance these debts before they are due. On the back of further room to grow both organically and inorganically, we maintain our Add rating with an unchanged target price of S$1.64.

FCT – CIMB

23 April 2014
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It’s getting better

FCT’s 2QFY9/14 results were largely in line, with 1H DPU coming in at 51% of our full year forecast. Revenue growth of 2.9% yoy and NPI growth of 6.7% yoy enabled 2Q to achieve 48-51% of our half-year forecast. Thanks to strong performances from its malls, FCT is fundamentally solid. We expect the pcoming S$305m acquisition of Changi City Point (CCP) to contribute to the next stage of growth. We maintain our Add rating and DDM-based target price (discount rate: 8.4%) of S$2.19.

Another stellar quarter

2QFY14 revenue came in at S$41m (+2.9% yoy) while DPU was 2.88 S¢ (+6.7%). The strong showing was mainly attributed to the good performance of most of the malls in the portfolio. During the quarter, Causeway Point and Northpoint achieved rental growth of 9.7% and 10.9%, respectively. Other smaller malls posted strong rental reversion averaging 11.5% though this was partially offset by negative rental reversion (-11.8%) for Bedok Point. Although this quarter’s result is c.2.0% above our expectations, this is largely because it does not yet reflect the higher interest payment that we believe will come through when the acquisition of CCP is completed in c.3Q14.

To benefit from CCP and upcoming lease expiry

Currently, with CCP’s average monthly passing rent at S$9.08 psf, we believe FCT will be able to achieve 20-30% positive rental reversion when the majority of the leases are renewed over the upcoming two years. In addition, with 13.3% and 39.6% of leases (as % of total gross rental income) due to be renewed in FY14 and FY15, respectively and most of these leases concentrated at Northpoint and Causeway Point, we believe that FCT will continue to post positive rental reversion for years to come.

Maintain Add

Although the 77% occupancy at Bedok Point may seem worrying on the surface, management indicated that it will recover to above 95% in 2H14 when the leases for several tenants commence. We continue to favour FCT for its solid portfolio, room for further rental reversions and upcoming acquisition of CCP. We maintain our Add rating and target price of S$2.19.

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