Month: July 2010
FCOT – Phillip
3QFY10 Results
• 3Q10 revenue of $29.2 million, net property income of $22.7 million, distributable income of $7.7 million
• 3Q10 DPU of 0.25 cents
• Downgrade to Hold, fair value of $0.17
FCOT recorded 3Q10 revenue of $29.2 million (+28.9% y-y, -1.8% q-q), net property income of $22.7 million (+32.9% y-y, -3.9% q-q) and distributable income available to unitholders of $7.7 million (+38.7% y-y, -21.5% q-q). 3Q10 DPU was 0.25 cents (-65.8% y-y, -21.9% q-q). The improved y-y performance is mainly attributed to the contribution from Alexandra Technopark. However we also note that there was a general drop on a q-q basis. DPU was much lower from the previous year due to the increased unit base from the equity fund raising. Revenue contributions from Singapore, Australia and Japan are 52%, 35% and 13% respectively. Average portfolio occupancy rate is 93.1%, with most properties holding steady. Zooming in on the individual properties, KeyPoint and Galleria Otemae occupancy increased by 2.9% and 7.7% respectively however 55 Market Street saw a drop of 6.1%. There are five properties with full occupancy. KeyPoint has seen a gradual take-up in occupancy since management started repositioning the property to capitalize on the opening of the circle line MRT station. On Japan side, Cosmo Plaza continues to be the drag and the property is still listed as an asset to be sold. Effective occupancy is only 25.6% which drags down overall Japan properties occupancy to 77.6%.
FCOT has total debt of $818.5 million and gearing is 40.4%.
We think the property portfolio has shown consistent results, with not much change from the prior quarters. Step-by-step, we have seen management carrying out its plan to rebalance the REIT. A quick flow of event is the recapitalization of the REIT through the injection of Alexandra Technopark, forming a natural hedge of the foreign sourced income by rebalancing debts in the local currencies, the improvement in occupancy of KeyPoint. We believe there is further upside to KeyPoint occupancy rate. Something we would like to see is the divestment of the Cosmo Plaza and the AWPF investment since these two are not contributing effectively to the bottomline and which is also part of management plan when it took over from the previous management team.
We tweaked some of our expenses assumptions as we had been overly conservative in estimating the non-core expenses. This reduces our FY10E DPU forecast by 11% to 1.12 cents. Accordingly, we lower our fair value from $0.18 to $0.17. Thus we are downgrading our recommendation to Hold and reiterate that our said divestment and lowering of debt would be a re-rating catalyst for the stock.
CLT – DBSV
Steady as she goes
• Maiden DPU of 1.71 Scts above IPO forecasts
• Adjusting DPU estimates upwards by 3% on lower interest costs assumptions
• Maintain BUY, TP revised to S$1.08; total return of 15%
DPU of 1.71 Scts (1.4% above IPO forecast). For the period of 12th April – Jun’10, Cache Logistics Trust (Cache) reported gross revenues and net property income of S$12.9 m and S$12.6 m that were 0.2% and 1.3%, respectively, above IPO forecasts. Distributable income came in at S$10.8m, 1.4% above forecasts due to lower than projected interest costs (achieved 4.14% all in costs, against estimate of 4.5%), translating to DPU of 1.71 Scts Note that while Cache will pay out dividends quarterly, its first distribution will be paid together with the next quarter’s distribution.
Strong financial metrics, adjusting earnings up from lower interest expense. Balance sheet metrics is strong with a low gearing of 25.5% with interest cover of over 9.3x. We adjust our forecasts slightly upwards given lower locked in all-in rates (4.14% vs 4.5% previously). DPU estimates are raised by 3%
Catalysts: Acquisitions to drive further earnings growth. Apart from an in-built 1.5% p.a growth in topline from its master lease structure, we believe that further earnings growth will have to be acquisition driven; we have assumed S$100m worth of new assets in our numbers. Apart from potential 3rd
party acquisitions, Sponsor CWT offers a visible pipeline of logistics properties for injection in the medium term (13 properties, 2.9 sqft of GFA).
Maintain BUY, TP revised to S$1.08. DPU is relatively secured. Cache is trading at FY10-11F yields of 8.0-8.3%, 140 bps above sector’s average of 6.6%, which is attractive. Price catalysts will hinge on (i) acquisitions to grow earnings; and (ii) Cache obtaining a rating that could improve its financial flexibility.
MLT – DBSV
Takes 3 in Japan
• Buying 3 Japanese properties for cS$200m
• Yield accretive at 7.3%, above current Japanese portfolio yield of 5.0%
• Gearing at 43%, future acquisitions to be funded through debt/equity
• BUY, TP raised to S$1.00.
Growing its Japanese exposure. Mapletree Logistics Trust (“MLT”) announced the acquisition of 3 Japanese properties for a total consideration of S$200m. Completion of this deal will increase revenue contribution from Japan to 23.7% (from 17.8% currently).
Yield accretive at 7.3%, secured long-term leases. The underlying end users are understood to be major local logistics players in Japan. The assets are signed on long-term 10-year fixed leases, adding to MLT’s earnings visibility and sustainability. The acquisitions will lift MLT’s average lease expiry to 5.0 years from 4.8 years currently. We include these assets in our numbers, raising our FY11F DPU by c3%.
Gearing to head up to 43%, further acquisitions could see equity fund raisings. Gearing post acquisition is expected to head up to c43%, still within the manger’s comfortable range of 40-45%. However, any further acquisitions, which we believe are likely, would be part-funded through new equity. We have assumed further acquisitions of S$100m funded by a 40/60 debt-equity ratio.
Maintain BUY, raised TP to S$1.00. MLT continues to offer attractive and stable FY10-11F yield of 7.0-7.7%. Catalysts for further re-rating will hinge on the trust acquiring more assets and growing its earnings.
CLT – CIMB
Good debut
• Results above; maintain Outperform. Cache’s maiden results after its April listing for the period 11 Feb-30 Jun 10 exceeded our expectations. DPU of 1.71cts (annualised DPU of 7.81cts) forms 31% of our forecast of 5.6cts (adjusted from 5.2cts for alignment with the reporting period). The good results stemmed from higher NPI margins and lower-than-guided costs of debt. Reported DPU translates to an absolute dividend yield of 5.6% and annualised yield of 7.8%, above the average S-Reit’s yield of 7%. We fine-tune our estimates to adjust for the actual accounting period, higher NPI margins and lower interest costs. Our DPU estimates increase by 3-9% for FY10-12, lifting our DDM-based target price to S$1.26 (discount rate 8.4%) from S$1.23. Forward annualised yields based on our estimates are 7.95%. Management is exploring growth opportunities and we expect stock catalysts from early announcements of any accretive acquisitions.
• Portfolio 100% leased on long-term, stable triple-net master lease. Weighted average length of expiry (WALE) was 6.1 years, above the average industrial WALE of five years. Over 90% of its gross floor area is taken by MNCs and government agencies.
• Higher NPI margins, and 40bp reduction in interest cost. NPI margin was 97.7% in the quarter, above our estimate of 96%. Additionally, management was able to cut all-in borrowing costs after the listing from the 4.5% guided to 4.1% (inclusive of amortisation of upfront fees capitalised at 0.8% p.a. and margins of 2.3%).
FCOT – DBSV
Steady performance
At a Glance
• 3Q10 DPU of 0.25 Scts in line
• Keypoint’s occupancy inching up to 78.6% as of 3Q10
• HOLD, TP S$0.16 maintained
Comment on Results
3Q10 DPU of 0.25 Scts in line. Gross revenues and net property income were higher by 29% and 33% yoy to S$29.2m and S$22.7m respectively. Performance was largely due to contributions from Alexandra Technopark, which was acquired back in 4Q09. Distributable income to unitholders came in at S$7.7m (DPU of 0.25 Scts), up 39% yoy, partly lifted by lower interest costs post debt re-financing in conjunction with its rights issue a year back.
Stable balance sheet metrics. FCOT’s balance sheet remains healthy with gearing at 40.4% and interest cover of 2.74x.
95% of income secured YTD, Keypoint’s occupancy inching up. With a quarter to go, FCOT has secured majority of its income to date. Keypoint has also seen an improvement in average occupancy after the opening of nearby MRT train station– inching up to 78.6% as of 3Q10. Looking forward, 11.6% of revenues will be up for renewal in FY11, of which a majority will be for leases in Keypoint asset in Singapore (5.3% of portfolio income). Average expiring rentals are at cS$5.50psf pm and we expect renewals to remain flattish.
Recommendation
HOLD, TP S$0.16 maintained. Valuations are undemanding at 0.6x P/BV and FY10-11F yields of 7.6-8.0%. However, we see further catalysts only upon completion of its portfolio restructuring with the proposed sale of its Japanese assets. Maintain HOLD.