Month: January 2009
FrasersCT – DMG
Flat Is The New Up
Modest 1Q09 performance. Frasers Centrepoint Trust (FCT) recorded a 3.7% YoY improvement (-18.3% QoQ) in 1Q09 DPU to 1.67¢, which accounted for 24% of our FY09 estimates (in line) and 22% of the Street’s (slightly below). Operating-wise, topline inched lower by 3.2% YoY (-11.8% QoQ) to S$19.5m, attributable to ongoing AEIs at Northpoint. NPI was down by a wider margin (- 8.0% YoY, -9.0% QoQ) to S$12.8m, due to higher property taxes and other property operating expenses.
Flat (reversions) is the new up. With 90% of FY09 gross rental income already locked in, we reckon earnings should be rather stable for the remaining three quarters of FY09. Any possible growth in FY10 DPU should herald from a full year contribution from the post-AEI Northpoint (annual incremental NPI of S$4.1m, completion in end-Jun 09). Occupancy rate should also then revert to > 90% (88.7% currently), from our view. For FY09F and FY10F, we have tweaked our occupancy levels to 95% (96% previously). Flat (-1% to 2% previously) rental reversion rates have been assumed for the 16.6% and 12.1% in NLA which are up for renewal in FY09 and FY10 respectively. FY09F and FY10F DPU thus slip by 1.5 – 1.8% to 6.9¢ and 7.1¢ respectively.
Maintain BUY at lower fair value of S$0.82. As FCT enters the third major economic downcycle, we cannot stress enough the unfailing resilience of Causeway Point and Northpoint (90 – 95% of topline and NPI), as exhibited by their > 95% occupancy and minimal loss of rental income during the previous two crises. This is not unjustifiable given that their suburban malls target mainly the consumers who shop for non-discretionary items regardless of the general economic performance. Further, we believe supply-side competitive pressures from upcoming malls are insignificant, as there is still a paucity of new malls within the close vicinity of FCT’s properties, aside from the surrounding small mom and pop neighbourhood shops. We also welcome FCT’s move to pass on the 40% property tax rebates within the recent Budget 09 to tenants. At 28.5%, FCT remains one of the lower-geared S-REITs, with its next major loan only due in 2H11. At current levels, the stock is trading at FY09F – FY10F yields of ~ 10%. Maintain BUY at lower fair value of S$0.82 (S$0.86 previously). Key risks include more macroeconomic dampeners and prolonged credit crunch.
a-iTrust – DBS
Facing headwinds
Ascendas India Trust (AiT) delivered a 3Q09 DPU of 2.02 Scts on the back of continued strong portfolio performance. Looking ahead, AiT faces a deteriorating business environment, which could translate to softer demand for space at its various IT tech parks. As such, we maintain HOLD, TP $0.53 based on DDM. AiT current trades at a FY09-11 yield of c. 12-15%
Results in line. AiT’s 3Q09 gross revenues and net property income continued to remain firm at S$28.7m and S$17.0 m respectively (+ 7% yoy and + 9% yoy), backed by continued strong portfolio occupancies and contributions from The Crest and Vega. Net profit, however, was slightly ahead at S$15.5m, due to a slower than expected drawdown of their construction loan. As a result, distributable income was also slightly ahead at S$15.3m for 3Q08 (+36% y-o-y, 10% q-o-q), translating to a DPU of 2.02 Scts for the quarter. NAV currently stands at S$0.99 with a gearing ratio of 9%.
Outlook remains challenging. While portfolio occupancies have remained stable at c.98% till date, we anticipate demand for IT outsourcing services to weaken on the back of new supply and down-sizing activities at various MNCs, which form a major proportion of AiT’s tenant base. We estimate occupancy levels to decline 5- 10% over FY09-10.
Moderating DPU estimates. We lower FY10 DPU estimate by c.9% to take into account (i) increased vacancies (5%-10%) at the various tech parks, (ii) lower SGD-INR exchange rates (assumed @ 1SGD=30 INR) due to expiry of currency forward in March’09, offset by (iii) earning contributions from completing buildings from FY11 onwards compared to FY10-11 previously.
Suntec – OCBC
Results flat on QoQ basis
Results flat QoQ. Suntec REIT (Suntec) posted a 16.8% YoY and 3.3% QoQ gain in gross revenue to S$63.5m for the quarter ended 31 December. Suntec will pay out 2.858 S cents per unit for the quarter, up 25.4% YoY but flat QoQ, translating to an annualized yield of roughly 17%. We note that Suntec had enjoyed a marginal uptick during the property revaluation completed in the previous quarter. Just three months later, Suntec booked a revaluation deficit of S$328.7m driven by the valuers’ more conservative projection of rental rates.
Achieved office rentals slip, as expected. Office revenue contributed 45% to total gross revenue (ex One Raffles Quay revenue). For the quarter, Suntec City office replacement and renewal leases were secured at an average of S$11.20 psf per month – 11% lower compared to the S$12.57 psf pm achieved in the previous quarter but higher than preceding rents. The REIT will see about 65% of its office portfolio ex ORQ up for renewal in the next two years. We expect achieved rentals to continue softening down to high single digits this year. But the average passing rent at Suntec City Office of around S$6.50 psf pm (our estimate) gives an adequate margin of safety.
Uncertain retail landscape. Retail revenue contributed 55% to total gross revenue (ex ORQ). We expect that like its peers, Suntec will pass on the bulk of the savings from the recently announced property tax rebate to its tenants. Suntec’s manager said the “real test” for retailers will be the post- Christmas and Chinese New Year shopping landscape. The manager said that there isn’t a long queue, so far, looking for renegotiations but it was willing to work out something mutually satisfactory with its tenants. It said the main priority was to maintain occupancy levels. We understand that a typical response would be to restructure the lease (a lower rental today but a longer lease term, etc). We have priced in a 8-10% per annum decline in Suntec City Mall rentals over the next two years.
Refinancing key overhang. Suntec has about S$825m of debt, or about 44% of its total borrowings, up for refinancing in the next 12 months. The manager said Suntec is in the midst of engaging with several financial institutions. This is a lengthy process but the sooner Suntec can clear this overhang, which is weighing down valuations, the better. The REIT is currently leveraged at 0.34x debt-to-assets. Maintain BUY with S$0.90 fair value on valuation grounds.
Suntec – DBS
Results in line
Suntec’s results were in line with expectations, with the reit still enjoying organic growth from positive rental reversions. Although we expect the group to continue to benefit from positive average rental revenue growth, the pace is moderated by the softer economic environment. While Suntec’s mixed portfolio of office and retail space offers investors relatively more resilience, there is unlikely to be near term catalyst to drive share price. Maintain Hold with DCF-backed TP of $0.79.
Low base effect. Suntec reported Oct –Dec 08 distribution income of $44.2m (DPU: 2.86cts), +32% yoy on a 16% higher revenue of $63.5m, thanks to organic growth across its portfolio. Retail revenue accounted for 55% of topline and benefited from higher renewal and replacement rents. Office income continued to enjoy positive rental reversions with quarterly transacted rents at Suntec Office averaging $11.20psf. Occupancy dipped slightly to 98.2% due to frictional issues. The group had changed its FY end to Dec and FY08 revenue and distribution income of $294m and $201m are based on 15-mth performance. Portfolio was revalued down by 7% over Sep 07 l evels, lowering bk NAV to $2.01 and lifting gearing to 34.3%.
Uncertain macro outlook. Weaker economic outlook going forward is likely to dampen demand for office space and moderate retail sales. Our current projections are for office rnts to dip 35% over this cycle with vacancies rising to 15% correspondingly. The group has 28% of its office portfolio and 39% of its retail NLA due for renewal in 09. While the group should enjoy positive rental reversions, owing to a low base, possible vacancy risks exist as demand for office space contracts. While occupancy level of its retail space is full, retail rents are likely to remain stable. Negotiations for refinancing its $700m CMBS due Dec 09 are already underway.
Lack of near term drivers. Suntec is offering FY09 and FY10 DPU yield of 13.6-15% and 0.3x P/bk NAV, in line with other office and retail S-reits. While valuation is compelling, given the lack of near term drivers, we maintain our Hold call with a target price of $0.79.
FrasersCT – DBS
Quiet Gem
FCT’s 1Q09 results spring no surprises as it delivered a DPU of 1.69cts on the back of resilient earnings from its portfolio of sub-urban malls. Looking ahead, earnings should remain stable with 90% of its income locked in. In addition, AEI activities at Northpoint will likely boost portfolio revenues and occupancy levels further when completed in Jun’09. As such, we believe that FCT should continue to deliver a sustained FY09-10 DPU yield of c.11%. Maintain buy, TP$0.81 based on DCF.
Results in line. 1Q09 distributable income of S$10.4m(+4.4% yoy) was within 25% of our forecast. DPU of 1.69 Scts was a 4% growth from that a year ago. Gross revenues and NPI were slightly weaker yoy at S$19m (–3%) and S$12.8m (–8%) respectively, due to planned vacancies at Northpoint offset by continued positive rental reversions at Causeway Point. NAV stood at S$1.23 with a low gearing of c.29%.
Defensive earnings. 90% of FY09 income locked in. With over 90% of its FY09 income already locked in, we believe that FCT, with its portfolio of sub-urban malls, should continue to deliver stable cash flows over the course of the current recession. Major mall anchors like Cold Storage and Food Junction catering to serving daily necessities, F&B and non-discretionary spending is likely to keep consumer traffic high.
Maintain Buy. We believe that FCT should continue to deliver a sustainable 11% FY09-FY10 DPU yield to unitholders. Catalyst for the stock will stem from future asset injections in the medium term when capital and credit markets ease, which will improve the liquidity of the stock. Maintain BUY.