24 July 2014
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Accelerating growth trajectory

  • Under-rented portfolio to enjoy significant reversionary prospects come 2015
  • Robust earnings CAGR of 8% over 3 years
  • Maintain BUY, TP raised to S$1.37

Under-rented portfolio to be marked-to-market in 2015. Cache continued to deliver consistent results in 2Q14, with DPU of 2.147 Scts (flat y-o-y) backed by a portfolio of master-leases. However, in the next 2 years (FY15-16), these master leases will be rolling off from their initial lease terms. Lessees (CWT and C&P) would be winding down their exposure by 50% and we see strong reversionary prospects when that happens. We estimate close to c69% of its income will be up for renewal in the next 2 years with a majority (4 out of 6 properties or c60% of revenues) in April’15.

Strong earnings CAGR of 8% over FY14-16F.

Annual rental escalations of its initial portfolio grew by 1.5% p.a., which means that on a cumulative basis after 5 years, Cache’s rents would have only grown by c.8% by April’15. We have seen industry average warehouse rentals growing by 43% over the same period, implying a significant spread of close to 37%. While we expect rents to dip by c.5% over 2014-15 due to increasing competitive supply, there is still sufficient buffer for Cache to raise rents and we conservatively forecast a 10% rise. With our revised estimates, Cache is expected to deliver robust 8% CAGR in DPU over FY14-16F.

Maintain BUY, TP raised to S$1.37. We have raised our TP by c.10% to account for the estimated earnings hike from its initial portfolio. Despite trading at P/Bk NAV of 1.3x, we believe that the strong reversionary prospects will underpin further upside in NAVs, and be catalysts for further re-rating from current levels. Maintain BUY.



24 July 2014
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Outlook remains healthy

  • 1QFY15 DPU up 2.5% YoY
  • Rental reversion at 11.8%
  • Embarking on two new AEIs


No surprises for 1QFY15 results

Ascendas REIT (A-REIT) reported a consistent set of 1QFY15 results last evening. NPI grew by 7.7% YoY to S$116.3m, while distributable income increased 2.8% to S$87.6m. The improved performance was mainly due to the recognition of rental income from Nexus@one-north, A-REIT City@Jinqiao and higher secured rentals within portfolio. DPU for the quarter stood at 3.64 S cents, up by a similar 2.5% YoY. This is in line with expectations, as the interim DPU formed 24.0% of both ours and consensus FY15 distribution forecasts. However, as A-REIT has changed its distribution frequency to semi-annual basis with effect from FY15, no payout will be made this quarter.

Portfolio operating metrics largely stable

For the quarter, we note that positive rental reversion averaging 11.8% (FY14: +14.8%) was achieved for leases renewed, as passing rents were still below the current market levels. Portfolio occupancy, on the other hand, eased from 89.6% in Mar to 88.1% as a result of the expiry of leases of two single-user assets. We understand that one is 61.2% occupied while the other is vacant. Nonetheless, management guided that the latter is expected to be fully occupied by Aug, which should bring the overall occupancy above the 90% level. Notably, the percentage of A-REIT’s rental due for renewal has been reduced from 21.3% at the start of FY15 to 15.4%, thanks to A-REIT’s proactive marketing and negotiation efforts. Looking ahead, management expects reversions to stay positive at mid-to-high single-digit rates in FY15.

Maintain BUY

A-REIT announced two new asset enhancement initiatives (AEIs) at the Gemini-Aries and Science Hub with an aggregate estimated value of S$25.6m to maximise the plot ratio and improve the

marketability of the assets. We note that the acquisition of Hyflux Innovation Centre and AEI at 5 Toh Guan Road East was completed in 1Q, and both properties are expected to start contributing to A-REIT’s income. We maintain BUY with an unchanged fair value of S$2.45 on A-REIT.


24 July 2014
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No surprises

CMT’s results were within expectations, with 1H14 DPU making up c.48% of our full-year forecast. Although sequentially better, 2Q’s tenant sales and shopper footfall continued to dip yoy. This moderated outlook would mean that organic rental growth potential remains anaemic going forward. In the absence of details any makeover plans at Funan Mall and with only a small new AEI planned at Bukit Panjang Plaza, we think the drivers for share price

performance would have to come from new acquisitions. The balance sheet is strong with a gearing of 34.3%. We maintain a Hold rating with earnings projections unchanged. Our DDM-backed target price is slightly higher at $2.11 as we roll forward our numbers.

Rental renewal growth sustaining at more than 6%

2Q14′s gross revenue grew 2.5% to S$164.3m, lifted by a 6.6% positive rental reversion for its renewal leases and high occupancy of 98.6%, while NPI rose a higher 4.4% on lower property tax and better cost management. The 30%-owned Westgate contributed another S$5.6m of NPI. Distribution income of S$93.4m was up 6.5% yoy and represents a 97% payout ratio, translating to a DPU of 2.69Scts. At half time, the group achieved c.48% of our full-year DPU estimate. The group enjoyed a slight boost in valuation (with the exception of JCube) bringing book NAV to S$1.79/unit.

Cautious consumer spending still

Consumer spending remained cautious, with shopper traffic and tenant sales down 2% and 3.3% yoy respectively, although a tad better than in 1Q14. This modest spending scene would mean that rental reversion upside for the 6.4%/29% of its gross rental income due to be re-contracted in 2H14/FY15 is likely to remain anaemic. CMT plans to start an $18.5m AEI at Bukit Panjang Plaza to free up 18ksf of commercial GFA. This exercise should span over 3Q14-3Q16 with a projected ROI of 8%. Meanwhile, the creation of a 25ksf trendy cluster at J Ave, is underway and 2/3s of the space has been taken up.

Inorganic growth could be catalysts

Catalysts for stock upside would likely have to come from new acquisitions. With a gearing of 34.3% and proceeds from the sale of Westgate Office Tower, its balance sheet is in a strong position.

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