Month: November 2012
Fortune – OCBC
RAISE FV TO HK$7.28
- Strong 9M12, stable outlook
- Yield compression vs. physical property and peers
- Raise FV to HK$7.28; maintain BUY
Impressive 9M12
To recap, 9M12 DPU grew 23.1% YoY, the highest rate of growth in the REIT’s nine-year history. The performance was due to a three-pronged growth strategy: active lease management, yield-accretive acquisitions (e.g. FRT acuired Provident Square and Belvedere Square in mid-Feb) and asset enhancement initiatives with ROIs of at least 15%. Given stable retail space supply in the vicinity of its malls, we believe FRT has a positive operational outlook.
Yield compression versus physical property
As first analysed in our report dated 8 Oct 2012, FRT can see further dividend yield compression from unit price increases. On average, for the period 2003-2011 (excluding 2008), FRT’s DPU yield has been at 1.4x relative to the yield for HK physical retail property. Based on 1.4x, and given that the 2012 average annualized yield for physical retail property in HK is 2.7% (based on 9M12), this implies a possible yield of ~3.8% for FRT’s FY12F. At FRT’s current unit price, FY12F DPU yield is 4.9%. As such, there is potential upside for FRT’s unit price.
Yield compression versus peers
We believe that FRT’s FY13F DPU yield is attractive at 5.0%, especially compared to that of its closest HK peer, The LINK REIT, which has a consensus FY13F DPU yield of 3.7% (Bloomberg). It should be noted that HK’s 10-year government bond yield is 0.56%, versus 1.33% for Singapore. This means that the average FY13F DPU yield of 5.5% for local retail REITs implies a spread of 4.2%, tighter than the 4.4% spread for FRT. At an NAV per unit of HK$8.32, FRT is trading at a P/B of 0.80x, at a good discount to the overall local retail S-REITs’ P/B of 1.15x and The LINK’s P/B of 1.52x. Gearing is low at 24.6%.
Raise FV to HK$7.28
Adjusting our DDM model assumptions, which were previously conservative, we raise our fair value from HK$6.63 to HK$7.28 and maintain our BUY call on FRT. FRT is one of our top two picks among the retail S-REITs.
CMT – OCBC
LOADING FIREPOWER FOR GROWTH
- Equity cash call at premium to NAV
- Enhanced financial position
- Limited dilution to unit base
Successful private placement
CapitaMall Trust (CMT) had received the approval in-principle for the offering of new units in CMT pursuant to the private placement. The retail landlord had initially proposed to carry out a placement of 100.5m new units to raise gross proceeds of no less than S$200m, but the placement was upsized to 125m units due to positive market demand. Issue price was fixed at S$2.00 apiece, within the indicated issue price range of between S$1.99 and S$2.07, and represented a 4.8% discount to the adjusted volume weighted average price of S$2.10 on 21 Nov.
Greater financial flexibility
According to management, around 90% of the net proceeds of ~S$245.8m is expected to be used to fund capex and asset enhancement initiatives (AEIs) of its portfolio properties and refinancing of existing debts, while the remainder will be used for general corporate and working capital purposes. We are positive on the cash call as 1) it was done at a 22% premium to its NAV as at 30 Sep; 2) there is limited dilution given that the new units would constitute only 3.8% of its units outstanding; and 3) the placement will provide CMT greater financial capacity and flexibility to pursue its growth plans. We understand from management that CMT’s aggregate leverage is likely to be improved from 37.7% to 35.1%, assuming all the proceeds is used to repay its existing debts. We believe this will not only remove any price overhang in relation to its relatively high debt level but also enhance its capital structure and debt headroom.
Maintain BUY
We are adjusting our forecasts to incorporate the enlarged unit base as the trading of the new units is expected to commence today. Our fair value eases slightly from S$2.38 to S$2.30. However, we continue to like CMT for its quality portfolio, strong execution and growth profile. The Westgate development, we note, has already been 50% pre-leased well ahead of its opening by Dec 2013. Maintain BUY.
RHT – DBSV
Good bargain at 10% yield
- Initiating coverage with BUY for 10% yield
- Exposure to fast growing Indian healthcare sector (15% CAGR), backed by Fortis
- 96% of assets are operational; distribution income hedged till FY14F, providing assurance in meeting DPU forecasts
- Confidence to build up as management delivers, particularly with announcement of maiden distribution end FY13
Buy for 10% yield and c.20% upside to S$0.97 TP. We initiate Religare Health Trust (RHT) with BUY, TP of S$0.97. This is an overlooked stock, which offers exposure to the fast growing Indian healthcare market, projected to be 15% CAGR (10-15F) by Frost & Sullivan. RHT, a business trust, has initial 17 assets (13 are operational), which we estimate should enable unitholders to enjoy distribution yields of c.10% at the current price.
Structured to offer upside potential. RHT derives its revenue from service fees payable by Fortis Healthcare, a leading integrated healthcare services provider in India, through base and variable fees. Variable fees are calculated at 7.5% of operating revenue, rather than profits. This provides upside potential as Fortis continues its growth trajectory on the back of increasing average revenue per bed, occupancy and bed capacities. Over the medium term, we believe DPU could be further enhanced as its greenfield clinical establishments come onstream, coupled with inorganic growth through acquisitions to leverage on its current low gearing (at c.7%).
A good bargain, BUY for >30% upside. DDM-backed TP is S$0.97 (CoE: 11.8%, t=3%). The c.10% yield looks very attractive compared to peers trading at yields of 6.8%-8.4%. Currently, 96% of its assets are operational and its distribution income hedged in SGD till end FY14F, giving greater assurance in meeting our DPU forecasts. We see confidence rising as management delivers, with the first distribution (end FYE Mar’13) as a key catalyst. BUY for >30% total return upside. A key risk is the weakening of INR vs SGD; and, we estimate a 1% depreciation will impact DPU by c.1%, all else constant.
RHT – CIMB
Indian healthcare exposure
Sponsored by Fortis Healthcare, the second largest hospital chain by revenue in India, RHT will be the first SGX-listed trust to offer unique exposure to the growing Indian healthcare market. We see long-term growth underpinned by capacity expansion and ARPOB increases.
We initiate coverage with Outperform and DDM-based target price of S$0.95 (discount rate: 12.4%). Forward yields of 9.7-10.0% (for ordinary unit-holders) are among the highest within the Singapore market and are attractive against listed peers. We expect catalysts from earnings delivery and execution.
Unique Indian healthcare exposure with Fortis
With 17 assets valued at INR32.6bn (S$748m), RHT will be the first SGX-listed business trust to offer exposure to the Indian healthcare market. Frost & Sullivan expects the Indian healthcare market to grow at a 15% CAGR by 2015, thanks to favourable demographics, rise in both insurance penetration and medical tourism, and a chronic shortage of beds. We expect RHT to tap into this growth, alongside sponsor Fortis, the second largest healthcare operator by revenue in India.
Long-term growth embedded in portfolio
Growth is embedded in RHT’s portfolio. With 1,782 operational beds as at end-Jun 12, its portfolio can ramp up by 79% without expansion and a further 44% when all stages of development are completed. Net revenue on selected RHT assets had grown by 10-36% in FY12. We expect growth to remain sustainable given supply gaps at certain states where RHT’s assets are located and rising beds, occupancy, and ARPOB as assets mature.
Downside protection; upside potential
RHT’s service fee revenues and terms are structured for stability and upside potential. Stability is anchored by its long 15+15 year terms for most assets, and a fixed base fee which would grow at 3.0% p.a. and underpin >70% of service fees revenue in FY13-14. Upside comes from the variable fees tied to 7.5% of underlying assets’ operating revenues.
FE-Htrust – DBSV
Growing its Singapore presence
- Proposed acquisition of Rendezvous Grand Hotel Singapore and accompanying retail wing
- A value accretive deal in our view with synergies to be extracted from an enlarged Singapore presence
- BUY, TP S$1.10 based on DCF
Proposed acquisition of Rendezvous Grand Hotel Singapore and accompanying retail wing. Recently refurbished and re-opened, the 298-room Rendezvous Grand Hotel Singapore is well located near the central commercial and cultural district in Bras Basah Road. This proposed acquisition will further deepen the trust’s already entrenched position as one of Singapore’s largest hotel owners. This deal will be keenly watched as this is the manager’s maiden deal post IPO and will be a gauge of their ability in driving synergies between this new hotel and its existing portfolio.
Likely to be a value accretive deal. No financial details are disclosed at this point. Using available data and industry averages as a guide, based on our estimates, the property (hotel and retail wing) could be valued at close to S$277.8m-S$292.0m, implying an initial yield of c5.6-5.9%, which is higher than FEHT’s current implied yield of c5.4%. Hence, this deal is likely to be accretive. We note that FEHT’s non-credit rated status means debt-funded headroom of c.S$200m (to 35% gearing ratio). As such, we believe the manager could consider obtaining a credit rating in order to improve the trust’s financial flexibility and move above the 35% gearing threshold in the near term.
BUY, TP S$1.10. We have kept our numbers intact and not factored in this acquisition pending further details for this deal. At current levels, FEHT offers an attractive 6.1-6.3% yield with potential upside to our numbers upon completion of this deal. Maintain BUY.