Month: January 2010
Suntec – CIMB
Higher office revenue boosted distribution
• Results exceeded expectations; maintain Outperform. FY09 DPU exceeded Street and our expectations (107% of our estimate) mainly due to lower-thanexpected interest expense. As office occupancy strengthened above 95%, we believe management would not be under pressure to cut rents drastically in FY10. We retain our FY10-11 estimates and introduce FY12 estimates. Our DDM-based target price of S$1.59 is intact (discount rate 8.1%). Maintain Outperform as we believe the opening of Circle Line MRT stations next to the Suntec development will boost its retail performance in 2010.
• Full-year DPU of 11.7cts (CIMB-GK 10.9.cts) grew 6% yoy vs. distributable income growth of 13% yoy to S$189.6m. DPU’s weaker growth was due to deferred units paid out to the original vendors of Suntec City. Net property income of S$182.1m was up 5.6% yoy, mainly thanks to higher office rents achieved for Suntec City and Park Mall, including additional revenue from the Suntec City office strata space acquired in 2008. Leases secured in 4Q09 averaged S$7.11 psf, in line with market expectations for Grade A offices.
• Occupancy and rental reversions positive. Office occupancy as at Dec 09 was 96.8%, down 1.9% pts yoy. However, occupancy had improved steadily from its trough of 94.8% in 2Q09. Retail occupancy as at Dec 09 was 98.1%, down 1% pt yoy. With vacancy at less than 5% for both office and retail space, we believe the manager would not be under pressure to cut rents significantly in FY10.
• Assets written down by 3%. Suntec’s portfolio was revalued at S$5.2bn (including One Raffles Quay) as at Dec 09. This was a write-down of S$151m or 3.2% of its portfolio value mainly for ORQ. Valuers applied cap rates of 4.5-4.75% for office valuations, and 5.6-5.75% for retail valuations. Portfolio-wise, Suntec’s offices were valued at S$1,733 psf, and retail space at S$1,833 psf. One Raffles Quay was valued at S$2,100 psf.
FSL – DBS
All set for a take off
• 4Q09 DPU payout of 1.50 UScts in line with expectations, maintains similar guidance for 1Q10
• Potential bond issue may be expensive, but will provide acquisition war chest in excess of US$100m
• Poised for re-rating, share price lagging the recovery in shipping stocks across the world
• Limited downside; maintain BUY; TP raised to S$0.78
No surprises in 4Q09. FSLT delivered another quarter of steady results. Revenue of US$24.5m was stable q-o-q, and the Trust generated cash of US$16.2m, 8% below US$17.6m in 3Q09, owing to the higher interest costs. Of this, the Trust will distribute US$9m to shareholders, or a DPU of 1.50UScts for 4Q09.
Bond issue still in the offing. FSLT had to can its earlier US$200m bond offering owing to the higher spreads in the wake of the Dubai debt crisis last year. However, management plans to go ahead with the same offering when market improves. Key concern for the bond is pricing. About half of the bond proceeds will be used to repay existing borrowings, which will help resolve the LTV covenants issue to a greater extent. The rest will build up to a US$130m war chest, together with US$30m from the share placement last year, to pursue DPU accretive acquisitions.
Laggard stock, poised for re-rating. With economic numbers improving and container freight rates on the rise, most container shipping stocks have seen a steady reversal in fortunes of late. Even the US-listed shipping trusts have risen 10-20% since the beginning of 2010, whereas FSLT has stayed largely flat, despite promising much better yields in excess of 13%. Thus, we re-iterate our BUY call at a revised TP of S$0.78 (pegged to 10% target yield). Even if we assume the whole US$200m bond is used to repay existing (cheaper) bank debt, with continuing loan amortization payments and no acquisitions, the worst outcome would be higher interest expenses of ~US$12m p.a, which would imply a FY10 DPU of ~5.0Scts, or a worst case yield of 8.3%.
Suntec – DBS
Treading in line
At a Glance
• 4Q DPU of 2.88 Scts in line with expectations
• DPU +5% on higher occupancy and rental assumptions, lower interest costs
• Maintain BUY, TP S$1.47
Comment on Results
4Q09 DPU of 2.88 Scts in line. Revenues of S$61.8m (-2.7%,flat qoq) was largely due to lower retail revenue in 4Q09. Net property income of S$47.2m (-1.4%,flat qoq) declined by a smaller extent
due to lower property tax expenses. Distributable income of S$47.8m (+8% yoy, 0% qoq) translated to a DPU of 2.88 Scts. Portfolio was revalued down by 3% to S$150m leading to gearing to inch up to 33%.
Office outlook remains weak. While Suntec’s office portfolio occupancy strengthened slightly to 95.3%, average renewal rents continued to dip, albeit at a slower pace. As at 4Q09, leases were secured at a rate of S$7.11 psf pm (-37% yoy, -2.6% qoq) and are expected to continue to weaken in 2010 due to the increasingly competitive office leasing environment. In FY10F, Suntec will be renewing c0.37m sqft of office space, representing c20% of its total office portfolio NLA.
Retail revenues are growing steadily. We expect retail revenues to grow steadily, with the buzz generated at the Marina Bay area post the completion of Marina Bay Sands (MBS) and completion of 2 MRT stations nearby. Its portfolio is mostly targeted at the mid-end consumer market and will complement the higher end retail option in MBS. In addition, enhancement works at Suntec City will help lift its retail revenues slightly when completed.
Recommendation
Maintain BUY, TP S$1.47. We adjust our office/retail rental and occupancy assumptions (+3 to 5%) on improved outlook and lower interest costs (-20bps) assumptions. Maintain BUY, TP S$1.47 based
on DCF, which reflects a prospective yield of 6.7-6.9%.
FCT – OCBC
Acquisitions approved at EGM
Results in line. Frasers Centrepoint Trust (FCT) reported S$23.3m in 1Q10 revenue, up 19.6% YoY and down 6.2% QoQ. The strong YoY growth was due in large part to the income boost from the completion of asset enhancement works at Northpoint (NP). Meanwhile, we attribute the QoQ weakness to the FRS39 accounting adjustment at 4Q earnings – this is a typical 4Q blip for FCT. FCT will distribute 1.91 S cents for the quarter, up 14.4% YoY. On a QoQ basis, the payout represents a 6.4% decline but this is primarily due to retained cash from previous quarters boosting distributions in 4Q09. Excluding retained cash, the decline is 2% QoQ.
Portfolio performing well. The portfolio continues to perform well especially as occupancy picks up at NP. The retail mall is occupied at 95% as of Dec 09 versus 90% three months ago and 52% a year ago. The manager said that committed occupancy at NP stands at 99% as of end-Dec 09. The overall portfolio enjoyed occupancy of 98.6%. Leases renewed / replaced this quarter enjoyed a 3.9% increase over preceding rents.
Acquisitions approved at EGM. Unitholders yesterday approved the acquisition of two retail malls from FCT’s sponsor Fraser & Neave [FNN, NOT RATED]. FCT will pay S$164.6m for Northpoint 2 (NP2) and S$125.7m for YewTee Point (YP), at 5.78% and 5.87% net property income yields respectively, based on FCT’s forecast of forward income. The manager expects the completion of the acquisitions to be no later than July 2010. FCT will raise equity of up to 152m units (24.3% of existing units) to partially fund the purchase. The exact structure, issue price and timing of the equity fund raising (EFR) will be determined later based on “market conditions”. We assume the acquisitions are purchased on a 45-55 debtequity basis with equity raised at S$1.30.
Valuation. The manager said 95% of gross rental income is locked in for FY10. We have raised our retail rent growth rates from 0% to +5% per annum for FY10 and FY11. This is line with the revisions to our CapitaMall Trust [HOLD, FV: S$1.83] earnings estimates. At the same time, we have made some upwards adjustments to our cost of debt estimate, which brings our assumed WACC higher. Our fair value estimate slips slightly from S$1.49 to S$1.47. FCT is currently trading at 1.15x NAV and a 5.8% FY10F yield. Maintain HOLD. Key re-rating catalyst would be how (and at what issue price) FCT executes the planned acquisitions.
Suntec – Phillip
Full Year 2009 Results
• Full year revenue of $253.1 million, net property income of $192.2 million, distributable income of $189.6 million.
• 4Q09 DPU of 2.887 cents, bringing full year DPU to 11.703 cents.
• Total asset value of $5.2 billion.
• Maintain hold recommendation with fair value of $1.21
.
Results within expectations
Suntec REIT recorded full year revenue of $253.1 million (+5.4% y-y), net property income of $192.2 million (+5.5% y-y) and distributable income of $189.6 million (+13.1% y-y). Full year DPU was 11.703 cents (+6.2% y-y). Suntec REIT full year results came in better than our projections (revenue +4.1%, net property income +2.3%, distributable income +7.3%, DPU +10.8%). The increase in revenue is backed mainly from higher office rental achieved in 2009. For FY2009, office portfolio accounted for 47% of gross revenue while the retail portfolio accounted for 53% of gross revenue.
We continue to see weakness in asset valuation. In the property valuations as at 31 Dec 2009, Suntec City recorded 3.8% decrease in value, while Park Mall and Chijmes held steady valuations. One Raffles Quay also recorded 11.7% devaluation. Including Suntec convention centre, which was acquired in September 2009, Suntec REIT has total asset value of $5.2 billion.
Quarterly results review
The office portfolio continues to see weakness in reversionary rent. New leases were contracted in 4Q09 at an average rate of $7.11 psf per month, which was the lowest in the 2-year periods from 1Q08 to 4Q09. However we could observe that the rate of decline has slowed. We believed the drop in rental could also be attributed to management trying to strike a balance in maintaining the office occupancy rate. Office occupancy has increased from 94.8% in 2Q09 to 96.8% in 4Q09. On the other hand, retail occupancy has dropped slightly from 99.1% in 3Q09 to 98.1% in 4Q09. Suntec REIT has managed to achieve relatively high portfolio occupancy amidst the recession and we think management has done a good job in maintaining this.
Capital management
Suntec REIT has total debt of $1,752 million and gearing (debt/assets) of 33.3%. It has no near term refinancing concern. The next loan maturity is in 2011 with loan amount of $632.5 million.
Forecasts
We retain our gross revenue forecasts and made slight changes to our DPU forecast. We forecast FY2010E revenue to decrease 5% before registering growth in FY2011E. Our DPU forecast for FY2010E is 8.49 cents, translating to a yield of 6.4%. Suntec REIT will be issuing the remaining of the 69 million deferred units this year. We believe average office rent may be bottoming for Suntec REIT, however we think spot office rent may be sticky for a while and do not expect a quick pick-up. We utilized a lower WACC assumption in our DCF valuation and raised our fair value from $1.14 to $1.21. We maintain our hold recommendation.