Suntec – OCBC

23 January 2015
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Mixed outlook

  • 4Q14 DPU marginally up by 0.6% YoY
  • Office segment outperforming retail
  • Valuations unexciting

4Q14 results within expectations

Suntec REIT reported 4Q14 revenue of S$76.8m, an increase of 7.3% YoY. This was largely due to the opening of Suntec Singapore, completion of Phase 2 of the AEI at Suntec City mall and stronger contribution from its office segment. DPU was up marginally by 0.6% to 2.577 S cents and was in-line with our expectations. For FY14, revenue rose 20.6% to S$282.4m, or 2.4% above our forecast. DPU of 9.4 S cents translated into a growth of 0.8% and formed 100.9% of our FY14 projection.

Leasing progress for Phase 3 of Suntec City mall still muted

Management updated us that the committed occupancy for Phase 3 of Suntec City mall’s AEI came in slightly above 70% as at end FY14, as compared to 60% in 3Q14. This is a concern to us as TOP is expected to happen soon. We believe progress has been hampered by the tough leasing environment due to retail sector headwinds. Overall committed occupancy for all phases of the Suntec City AEI was 91.3%, with a committed passing rent of S$12.27 psf pm. On the other hand, Suntec REIT’s office segment continued to drive its growth, clocking in a committed occupancy rate of 100%. Average rental rates of S$8.92 psf pm were secured for leases signed in 4Q14, a healthy level, in our view, as Suntec REIT is still delivering positive rental reversions for its new office leases. Outlook for its office segment remains robust in 2015.

Maintain HOLD

We lower our FY15 DPU forecast by 5.9% and introduce our FY16 estimates. As we roll forward our valuations, our fair value estimate is lowered from S$1.90 to S$1.86. With a forecasted FY15F distribution yield of 5.1%, we believe valuations do not excite, as this is close to 1.5 standard deviations below Suntec REIT’s 5-year average forward yield of 6.2%. We thus maintain our HOLD rating on the stock.



23 January 2015
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Drag from higher property expenses

  • 3QFY15 DPU inched up 1.4% YoY
  • Expect positive rental reversions to continue
  • Lower FV and downgrade to HOLD

3QFY15 DPU slightly below expectations

Ascendas REIT (A-REIT) reported its 3QFY15 results with topline meeting our expectations but DPU fell slightly short due to higher-thanexpected property operating expenses. Gross revenue rose 11.2% YoY to S$171.7m, underpinned by contribution from new acquisitions (Aperia and Hyflux Innovation Centre) and higher occupancy at Nexus@one-north and A-REIT City@Jinqiao. However, property operating expenses spiked up by 24.6% to S$57.1m due to higher property tax and other property expenses incurred following the conversion of certain properties from single-tenanted to multi-tenanted lease structures. As a result, DPU grew by a mild 1.4% YoY to 3.59 S cents. For 9MFY15, revenue increased 9.3% to S$499.7m and formed 75.3% of our FY15 forecast. DPU of 10.89 S cents translated into a growth of 1.9% and constituted 73.6% of our full-year projection.

Rental reversion trend remains positive

During 3QFY15, A-REIT managed to achieve positive rental reversions of 7.7% for leases which were renewed. This was driven largely by its Light Industrial (+13.0%) and HiSpecs Industrial (+11.1%) segments. We believe this trend would likely continue going forward, as the weighted average passing rent for most of A-REIT’s multi-tenanted space which are due for renewal in FY15 and FY16 are still below current spot rents. AREIT’s overall portfolio occupancy rebounded on a QoQ basis from 85.6% to 86.8%, meeting our expectations as we had highlighted in our 2QFY15 results note that its occupancy may trough soon.

Downgrade to HOLD

We trim our FY15 and FY16 DPU forecasts by 1.8% and 2.1%, respectively, as we input lower NPI margin assumptions in our model. This causes our DDM-derived fair value estimate to decline slightly from S$2.45 to S$2.42. A-REIT’s share price has performed well YTD, appreciating 5.9%. We believe valuations are now fair, with the stock trading at 1.24x FY15F P/B ratio. This is approximately half a standard deviation above its 5-year average forward P/B ratio of 1.20x. Hence, we downgrade A-REIT to HOLD.


23 January 2015
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In-line results, diversified operations

  • 4Q14 DPU +12.8% YoY on adjusted basis
  • Hedging strategies in place
  • Resilient business model

4Q14 results in-line with our expectations

Ascott Residence Trust (ART) announced its 4Q14 results which came in within our expectations. Revenue increased 13.2% YoY to S$95.0m, while DPU jumped 62.4% to 2.16 S cents. Adjusting for one-off items and a rights issue exercise carried out in Dec 2013, ART’s normalised DPU would have increased 12.8% YoY to 1.76 S cents. For FY14, revenue climbed 12.8% to S$357.2m and formed 100.3% of our estimate. DPU of 8.2 S cents represented a slight decline of 2.4% (normalised DPU +5.8% to 7.61 S cents) but was 0.6% above our forecast.

Watching FX risks closely

As 89.9% of ART’s revenue is derived outside of Singapore, management keeps a close watch on its FX risks, especially in key markets such as Europe, UK and Japan. It has already hedged 70% of its estimated income denominated in Euros in 2015 (at a rate of EUR1 to S$1.63). For its Yen exposure, ART has hedged 20% of its estimated income and has the intention to increase this hedge to ~70%. In terms of capital management, 80% of ART’s total debt is on a fixed rate basis.

Maintain BUY

Looking ahead, although the global macroeconomic environment remains challenging, ART expects its operational performance to remain healthy given its resilient extended-stay business model and geographical diversification. It remains positive on its prospects in Japan given robust occupancy rates and ADR growth in excess of 10% in 2014. ART would be keen to acquire more assets in Japan. China, on the other hand, would be slightly challenging in FY15, but we believe this would be mitigated by contribution from new acquisitions made in FY14. As at 31 Dec 2014, ART’s portfolio comprises 90 properties with 10,502 apartment units spread across 37 cities in 13 countries in Asia Pacific and Europe. We fine-tune our assumptions and roll forward our valuations, thus deriving a higher fair value estimate of S$1.49 (previously S$1.37). Maintain BUY on ART, with the stock trading at FY15F P/B ratio of 0.9x and a distribution yield of 6.6%.

FortuneREIT – OCBC

22 January 2015
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Robust performance continues

  • 4Q14 DPU rose 8.0% YoY
  • Solid FY14 rental reversion of 23.8%
  • Stock appears fairly priced

4Q14 results met our expectations

Fortune REIT reported another good set of results, with 4Q14 revenue and DPU increasing by 8.4% and 8.0% YoY to HK$425.7m and 10.5 HK cents, respectively. For FY14, revenue jumped 25.7% to HK$1,655.8m, due to robust rental reversion of 23.8% and a full year of contribution from Fortune Kingswood (rental reversion in excess of 30%). Its portfolio passing rent increased by 8.7% to HK$36.4 psf pm. FY14 DPU of 41.68 HK cents translated into a growth of 15.8%, and formed 99.8% of our full year forecast. Results were within our expectations. All of Fortune REIT’s assets recorded an increase in their valuations ranging from 2.7% (Rhine Avenue) to 13.9% (Fortune City One).

Contribution from Laguna Plaza to further boost growth

Fortune REIT recently completed the acquisition of Laguna Plaza on 9 Jan 2015 for HK$1,918.5m (4.7% passing initial yield). This was fully funded by debt and the asset is expected to form synergies with Fortune REIT’s Centre de Laguna which is located at close proximity. We expect Fortune REIT’s gearing ratio to reach 33% at end FY15, versus 29.4% as at 31 Dec 2014. This is still a healthy level, in our view. Following this acquisition, Fortune REIT’s total debt hedged will ease from 55% to 46%.

Maintain HOLD

We raise our FY15 DPU forecast by 5.4% to take into account the acquisition of Laguna Plaza and also introduce our FY16 projections. Rolling forward our valuations, we bump up our fair value estimate from HK$7.29 to HK$8.05. While we like Fortune REIT for its resilient portfolio as 57% of its gross rental income is derived from the nondiscretionary retail sector, we believe the stock appears fairly priced, having appreciated 7.4% YTD. Our forecasted FY15F distribution yield of 5.4% is more than one standard deviation below its 5-year average forward yield of 6.4%. Maintain HOLD.


22 January 2015
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Downgrade to SELL

  • 4Q14 results in line
  • CapGreen now 69% precommitted
  • Downgrade to SELL on valuation

4Q14 results within expectations

CapitaCommercial Trust (CCT) reported 4Q14 distributable income and net property income of S$63.6m and S$50.6m which increased 5.7% and 3.0% YoY, respectively. DPU for the quarter is an estimated 2.15 S-cents, up 2.9% YoY versus 2.09 S-cents for 4Q13. We judge this set of results to be within expectations, as FY14 distributable income and net property income forms 102.7% and 100.4% of our full year forecast, respectively. In terms of the topline, the trust’s 4Q14 revenue similarly increased 3.1% YoY to S$66.4m mostly due to higher rentals and occupancy rates across its office portfolio.

Average portfolio rents up 5.9% YoY to S$8.61 psf

Excluding the newly completed CapitaGreen, the trust reports a healthy overall occupancy rate of 99.4% and positive rental reversions for its Grade A office leases committed over the quarter. Over the year, the trust signed leases for 900k sqft of NLA, of which 15% are new leases and management reports a tenant retention rate of 86% in 2014, significantly higher than 67% in 2013. Mainly due to positive rental reversions and the inclusion of CapitaGreen, CCT’s average portfolio rents continued its uptrend, rising 5.9% from S$8.13 psf as at Dec 13 to S$8.61 as at Dec 14. The group’s balance sheet remain healthy with gearing at 29.3% as at end 4Q14 and an average cost of debt of 2.3%.

CapitaGreen achieves 69% commitment

As at end 4Q14, CapitaGreen (which achieved TOP status on 18 Dec 2014) was valued at S$1,526m and CCT’s 40% interest held through MSO Trust is S$610.4m. The asset is now 69.3% committed, above the trust’s target occupancy of 50%. We note that the trust has a debt headroom of S$1.3b assuming a 40% gearing, and is holding a call option to buy the 60% remaining interest in CapitaGreen from 2015-17. Our fair value estimate remains unchanged at S$1.67 but we downgrade our rating to SELL on valuation grounds.

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