Month: July 2011
FCT – DBSV
Waiting for year-end bonus
At a Glance
• In line with expectation and on track to meet our full year estimates.
• 51% of completed CWP AEI works at prime levels to underpin earning growth; DPU accretive Bedok Point acquisition likely within next quarter.
• Maintain BUY, TP $1.73 for 17% total return
Comment on Results
FCT 3Q results is in line with expectations. The 11.1% and 13.4% yoy decline in gross revenue and net property income to S$27.3 m and S$18.7 m respectively were expected. Lower contribution from Causeway Point (CWP), currently under
renovation, was the key factor but performance was partially offset by the stable occupancies at its other retail malls as well as healthy rental reversions (+3.8%) enjoyed in 3Q. On a q-o-q basis, gross revenue and NPI dipped marginally by 3.5% and 4.0% respectively. Distributable income was S$15.08m (-5.8% yoy, -5.7% qoq) including the S$0.3m retained from the previous quarter, translating to a DPU of 1.95 Scts. DPU achieved in the first 3 quarters form c.72% of our full year estimates and we believe that the group is on track to meet our estimates.
Improving occupancies at CWP to underpin earning growth. Portfolio occupancy increased from 83% a quarter ago to 88% in 3Q with the completion of 51% of the AEI works at CWP. They are mostly at B1 and Level 1, the most prime space of the mall. CWP’s occupancy rate rebounded from 69% to 78% and should hover above 90% from 4Q11 onwards. About 95% of the AEI works has been pre-committed and is expected to see at least a 20% increase in average rent from the current S$10.2 psf pm post AEI works. Meanwhile, the group has refinanced S$260m with a 5-year loan facility at a more attractive rate, lowering all-in interest rate from 3.83% to about c.3.68% and should enjoy some interest savings going forward. Gearing is at a healthy 31.7%.
Recommendation
We believe that the group is on track to meet our estimates on the back of strong portfolio performance. Our forecasts exclude acquisition of Bedok Point, which will likely materialise within the next quarter. The stock offers FY11/12F yields of 5.4%-5.7%, translating to a total return of 17%.
ART – DBSV
Singapore/London power ahead
• 2Q11 DPU of 2.33 Scts above street and our estimates
• Singapore and London continue to perform, lower than expected interest costs lifts net margin
• BUY, TP revised to S$1.42 and offers 24% total return
2Q11 DPU of 2.33 Scts above estimates. Revenues and gross profits were higher by 65% and 98% respectively to S$73.1m and S$41.2m. This was largely due to the contribution from its acquisition of 28 serviced residences in Oct’10, which more than offset the divestment of Ascott Beijing and Country Woods Jakarta. Singapore operations came in stronger than expected with portfolio wide RevPAU increased 7% y-o-y to S$147/night. Distributable income was 127% higher at S$26.3m due to interest savings from refinancing activities (3.2% vs 3.5% forecast), translating to a DPU of 2.33 Scts. The group also wrote up its book value by S$82.8m, resulting in a 4% hike in NAV /share to S$1.33.
Singapore and London power on while Japan was weak from Earthquake aftermath effects. The group’s refurbishment works is bearing fruit- judging by the performance of its Singapore properties, which saw RevPAU
hikes in excess of 30% for its refurbished units in Cairnhill and Liang Court. Its London operations also posted a 15% increase in RevPAU benefiting from renovation works and should continue to perform well after the completion of its refurbishment of Trafalgar Square property. Looking ahead, Japan is expected to remain weak post the Earthquake but their rental-housing portfolio, which has proven to remain resilient, should limit the impact.
BUY, TP upped to S$1.42/share. Our forward DPU estimates are raised c6.0% from (i) higher RevPAU assumptions in London and Singapore; and (ii) lower than expected interest costs achieved. Trading at an attractive forward yield of 7.2-7.3%, >100bps above the S-REIT sector peers. Re-rating catalysts will hinge on higher than expected operational performance and/or acquisitions.
MLT – DBSV
Acquisitions remain in focus
At a Glance
• 2Q11 DPU of 1.6 Scts (+7%y-o-y) was in line • Operationally stable; further acquisitions to underpin earnings upside
• Maintain BUY and S$1.07 TP based on DCF
Comment on Results
In Line 2Q11 results. Gross revenue and NPI for the quarter rose 26% y-o-y (+6% q-o-q) and 25% y-o-y (4% q-o-q) to S$65.8m and S$57.1m respectively, lifting distributable income to about S$38.8m (+26% yoy, +3% qoq). The robust performance was largely due to an enlarged portfolio size as well as strong organic growth of 5%, backed by positive rental renewals and high occupancies. As a result, DPU rose by about 7% to 1.6 Scts. Separately, the group has also announced a 0.09ct bonus payout from the divestment gain of 2 properties to the unit holders over the next 3 quarters.
The group has successfully renewed 52,000 sqm of space at higher average rentals. Average portfolio occupancy remains robust at 98.9%. While the group has another 169,000 sqm of space to be renewed for the remaining year, management guided that about 50% is currently under negotiation and is on track to lease out the remainder. The manager also intends to continue to reconfigure some of their portfolio single-tenanted space to multi-tenanted building to further optimize property yields.
Further acquisitions a possibility. While Singapore remains its core business area, the group is also actively looking to grow its overseas portfolio in markets like China and Korea. The group recently signed MOUs to develop 2 distribution centres in Zhengzhou with total GFA of 144,000 sqm recently, which should contribute positively in the medium term.
Recommendation
BUY, TP S$1.07 maintained. Backed by strong economic fundamentals and a robust balance sheet, MLT remains on a growth track. Forward yields of 7.1-7.3% remain attractive, given its large cap and strong sponsor status.
FirstREIT – OCBC
2Q11 results within expectations
2Q11 results within expectations. First REIT (FREIT) reported its 2Q11 results which were within expectations. Gross revenue surged 75.3% YoY and 0.3% QoQ (deferred rental from the Adam Road property of S$1.4m recognised in 1Q11 as revenue has been reclassified to ‘gain on divestment of investment property’) to S$13.2m, forming 24.0% of our full year projection. The YoY increase was due to contributions from its two Indonesian hospitals acquired in Dec 2010. Income available for distribution jumped 86.5% YoY but was flat QoQ at S$9.9m. However, DPU of 1.58 S cents represented a 17.7% YoY decline (flat sequentially) due to an enlarged unit base from the effects of the 5-for-4 rights issue in Dec 2010 and constituted 25.5% of our FY11 estimate. This equates to an annualised yield of 7.6%. For 1H11, gross revenue increased 76.1% to S$26.4m while DPU fell 17.3% to 3.16 S cents due to the larger unit base highlighted earlier.
Sufficient debt headroom for new acquisitions. As at 30 Jun 2011, FREIT’s gearing ratio stands at a healthy 12.7%. Hence we expect any future acquisitions in the near term to be funded by debt as FREIT still has sufficient debt headroom of S$103.3-155.5m before reaching its long-term target gearing ratio range of 25-30%. While FREIT is keeping a lookout for accretive targets in the region, we opine that future acquisitions are likely to come from its sponsor Lippo Karawaci (Lippo). This is because FREIT has the first right of refusal to the pipeline of hospitals in Lippo’s portfolio.
Downgrade to HOLD on valuation grounds. We fine-tune our assumptions in accordance with FREIT’s 2Q11 results, and our RNAV-derived fair value estimate inches up to S$0.84 (previously S$0.835). FREIT’s share price has surged 12.8% since we initiated coverage with a BUY rating on 7 Jan 2011, outperforming the STI and FTSE ST Real Estate Investment Trusts Index substantially by 15.8 ppt and 14.2 ppt respectively. We opine that current valuations appear fair, with FREIT now trading at a PBR of 1.07x, versus its historical PBR of 0.80x. We note that companies with assets in overseas countries which are economically and politically more risky than Singapore typically trade at a discount to NAV. While we continue to like FREIT for its resilient business model, strong management and proxy to Indonesia’s growing private healthcare sector, we believe that these positives have already been factored in. Hence we downgrade FREIT to HOLD, purely on valuation grounds. Downside risk should be limited by its healthy FY11F distribution yield of 7.6%; while re-rating catalysts include yield-accretive acquisitions.
ART – OCBC
Results above expectations; Maintain BUY
2Q11 results above expectations. Ascott Residence Trust (ART) announced a 2Q11 distribution of S$26.3m, up 127% YoY. This came in above our expectations as 2Q11 distribution income made up 30% of our FY11 forecast. As a result, we increase our FY11 revenue and distribution income forecasts by 5.0% and 11.3% respectively. 2Q11 revenue improved 65% YoY mainly due to the contributions from 28 properties acquired in Oct10. Gross margin expansion to 56% in 2Q11 further boosted the YoY gross profit growth to 98%, fueled by higher margins on master leases, higher rental rates and better cost management. Revaluation gains of S$82.8m were also recognized.
Steady performance across portfolio. Master leases on 20 properties constituted about 25% of ART’s 2Q11 gross profit, boosting performance YoY given the higher margins from these leases. These leases have an average weighted remaining tenure of seven years and are expected to underpin performance going forward. We saw improved YoY performance across countries, except for China, Indonesia and Japan. In China, this was due to the divestment of Ascott Beijing in Oct10 and poorer performance at Tianjin and Shanghai, offset by Beijing. In Indonesia, this was due to the divestment of Country Woods in Oct 10 and the strengthening of the SGD versus USD. The poorer performance in Japan was mainly due to the effects of the earthquake. 2Q11 REVPAR across the portfolio increased 17% YoY to $147, mostly due to Singapore and UK. Occupancy remained stable at 81%.
Healthy balance sheet. ART continued to show a healthy balance sheet with gearing at 40.1% and cash at S$112.7m. 59% of debt have fixed-rate terms, with the remaining 22% and 19% under floating with interest rate caps and floating rates, respectively. 11% or S$119.4m of total outstanding borrowings fall due in 2011, of which S$110.0m has been refinanced in Jul 11. The remaining S$9.4m is expected to be paid down according to scheduled terms.
Maintain BUY. We see further upside to ART’s unit price due to continued good execution from management. Its diversified portfolio across geographical regions would also buffer earnings somewhat against region-specific weaknesses. (28.3% Europe ex. UK, 45.1% Asia ex. Japan, 16.6% UK, 10% Japan, by asset values end 2Q11) Moreover, we expect a significant portion of profits (44% of gross profit 2011 YTD) to be underpinned by master leases and guaranteed income management contracts going forward. Maintain BUY with a revised fair value estimate of S$1.35 ($1.30 previously).