Month: January 2012
FCT – OCBC
GOOD START TO FY12
•Results within expectations
•Strong operational performance
•Asset enhancements and acquisitions likely to drive growth
Sturdy results as expected.
Frasers Centrepoint Trust (FCT) reported NPI of S$24.9m (+33.6% YoY) and distributable income of S$19.7m (+31.3% YoY) for 1QFY12, supported by strong uplift from Causeway Point (CWP), full-quarter contribution from Bedok Point and positive rental reversions. The results were consistent with our estimates, with headline numbers forming 23.5-26.7% of our full-year forecasts. We note that ~S$1.6m (c.0.2 S cents) will temporarily be retained, resulting in a quarterly DPU of 2.2 S cents (+12.8% YoY). This will be paid on 29 Feb 2012, together with DPU of 0.28 S cents announced in Oct 2011.
Demand for malls still strong.
Except for Bedok Point whose occupancy was unchanged at 98.3%, all four other malls in FCT’s portfolio continued to register improvements in their occupancies over the quarter. This brought the overall portfolio occupancy to 97.5%, up from 95.1% in prior quarter. In addition, positive rental reversions of 9.3-11.2% (average 9.6% vs. 7.9% in 4QFY11) were seen across its portfolio properties, reflecting still healthy demand for its malls.
Maintain BUY.
Going forward, FCT believes that its portfolio performance is expected to remain stable, with positive growth in overall rental reversions likely in the coming months. Management also guided that the refurbishment works at CWP, now 80% completed, is on track for full completion by Dec 2012. While occupancy is projected to dip slightly from 95.5% to 90% during this phase of work, the impact to rental income is likely to be limited in our view, since it involves mainly the higher levels and mall’s facade. We continue to like FCT for its pure exposure to suburban malls and its growth potential. With the impending completion of the asset enhancement initiatives at CWP, we believe FCT may be more active in seeking investment opportunities to drive growth, possibly asset injection from pipeline or third-party assets. Maintain BUY with unchanged S$1.68 fair value on FCT.
Suntec – CIMB
Preparing for darker days
Management is renewing leases to mitigate risks. However, with job cuts only starting to surface and higher asset leverage, downside risks could outweigh upside potential.
4Q11/FY11 DPU is broadly in line with our forecast and consensus at 26%/102% of FY11. We fine-tune our DPU estimates but keep our DDM TP (disc rate 9.8%). We also introduce FY14 numbers. Maintain Underperform.
Too early to turn positive
While 4Q was decent, we remain negative on offices. Positives came from the leasing of more office space vacated by IDA at Suntec City (taking occupancy from 3Q’s 98% to 99%) and higher achieved rents for leases secured in the quarter (S$8.72 psf vs. 3Q’s S$8.41 psf) though we believe 3Q rentals could have been locked in for bigger space. With proactive lease renewals, office leases expiring in FY12 had dipped to 10% of its office NLA from 13% last quarter. However, given limited expiries at ORQ and MBFC, the bulk of renewals are likely to come from ‘older’ Suntec City offices, which we think could face more leasing difficulties in an office slowdown. With job cuts only starting to surface and upcoming supply, we think it’s too early to turn positive.
Suntec City Mall AEI
Suntec City Mall was stable ahead of AEI. Management has signed leases with a few tenants while in advanced negotiations with others. More colour will be provided in 1Q12 results. Management remains mum on expected disruptions but maintains that it will seek to minimise disruption.
Lower aggregate leverage
Aggregate leverage dipped to 39% from 42% the last quarter, on higher asset revaluation with 6-9% increases for key assets on 0-25bp cap-rate compressions and improved property performances. With this, asset valuations have returned to pre-crisis peaks, implying downside risks in a worse slowdown.
FSL – DBSV
Bracing for more pain
• In a surprise move, DPU was cut by almost 90% from 0.95 UScts in 3Q11 to 0.10 UScts in 4Q11
• This defensive move is aimed at staying within loan covenants and withstanding any potential counterparty defaults in FY12
• Uninspiring asset valuations and DPU outlook. Cut to SELL with TP of S$0.20
Survival strategies. While operating cash flows in 4Q11 were largely in line with estimates, the key surprise was a 90% cut in DPU to 0.10UScts. The Board’s move is aimed to strengthen balance sheet and conserve liquidity amid a tough operating environment.
Declining asset values threaten. The Trust was able to successfully refinance its borrowings last year with a US$479.6m 6-year amortising loan, secured against its current portfolio of 25 vessels. Under this new term loan facility, FSL Trust will make quarterly loan repayments of US$11m and interest margin will be increased to 2.6-3.0% above LIBOR, depending on the value-to-loan coverage. The charter-free valuation of its vessels must not go below 125% of outstanding loans, and the ratio stands at about 130% as of last valuation. This does not leave much room for comfort.
And counterparty risks hover. Management believes that 2012 will be another bad year for the shipping industry. The Trust’s counterparty risks will be considerably higher amid growing risk of defaults and bankruptcies among shipping companies. Indeed, its newest customer, Danish tanker operator TORM is already in negotiations with lenders to restructure its debt to avoid default. Other tanker players are unlikely to fare any better. Thus, we prefer to avoid exposure to these risks and downgrade the stock to SELL, with a reduced DDM-based TP of S$0.20. Without any dividend support, the stock is unlikely to perform in a downturn. If and when the shipping markets turnaround, high-beta pure container operators like NOL will fare better.
Suntec – DBSV
Executing AEI works
At a Glance
• Full year DPU was 7% above our forecast
• Half of office leases expiring this year have been renewed, likely see some positive rental reversion
• AEI at Suntec City commencing in June
• Maintain BUY and S$1.46 TP
Comment on Results
Slightly above expectations. 4Q11 gross revenue and NPI rose by 30.4% and 10.1% yoy to S$80m and S$52m respectively, largely due to the consolidation of revenue from Suntec Singapore. Additional contribution from Marina Bay Financial Centre (MBFC) Phase 1 also helped to lift distributable income by 23.1% to S$55.3m. DPU was 2.479Scts and full year DPU was 7% above our forecast. NAV rose by 10% as the trust took in a revaluation surplus of S$396m.
Office performance on track. The office space vacated by some of the tenants has been largely absorbed, hence pushing up overall portfolio office occupancy by 0.6ppt to 99.2%. On top of that, the trust has further renewed another 62,600 sf of FY12 office leases at an average of S$8.72 psf pm, a tad higher than last quarter’s S$8.41 psf. Hence, we expect to see some positive rental reversion given that some of these leases may have been signed in 2H 09 where monthly rents were S$7.1 –S$7.3 psf. The trust has only another 10.1% of leases in terms of NLA to renew in FY12.
AEI works at Suntec City will kick start in June. While we expect a further drop in occupancy from its current 97.5%, we believe that occupancy should not decline beyond 80% at any point in time as the works would be carried out in phases. Meanwhile, the trust has commenced the marketing of space ahead of CDL’s South Beach project, which is largely retail and hotel space.
Recommendation
Maintain BUY. Suntec offers FY12-13F DPU yields of 7.5%-7.6% and is trading at an undemanding at 0.6 x P/BV. Gearing has fallen from close to 40% a quarter ago to 38.5%. There is also minimum refinancing this year (7% of total debt). Our unchanged DCF-backed TP of S$1.46 offers a total return of 35%.
Office REITs – BT
Grade A office rents decline in Q42011 as office stock climbs
Micro-market’s occupancy rate falls below 90% for first time since Q3 2005
SINGAPORE’S office leasing market buckled in Q4 2011 under the stress of the heightened uncertainties and volatility arising from the debt crisis in the eurozone, said a new report from Colliers International.
According to the property firm, the average monthly gross rents for Grade A office space in the Raffles Place and New Downtown micro-market fell by 4.3 per cent to $10.31 per square foot per month (psf pm) in Q4 2011 – marking the first time rents fell quarter on quarter since the market bottomed out in Q4 2009.
The rental dip was in tandem with a fall in the micro-market’s occupancy rate to below 90 per cent for the first time since Q3 2005. Occupancy eased to 88 per cent from 90.9 per cent in Q3 2011.
Colliers said that the increase in office stock was not met with corresponding new occupier demand as many firms – including major financial institutions and accounting firms – turned cautious about their expansion plans. ‘The demand and supply equilibrium is further tipped with more office tenants relocating or locating some of their operations – including regional functions, back offices and business continuity premises – out of the central business district (CBD),’ noted Calvin Yeo, Colliers’ executive director of office services.
These moves are facilitated by the availability of compelling suburban options in the form of new office and business park developments, which have specifications and amenities similar to Grade A office buildings in the CBD, he added.
Rents in two other Grade A micro-markets also saw corrections in the final quarter of last year. Rents in the Marina and City Hall areas retreated by 2.3 per cent from the previous quarter, while those in Beach Road edged down by 0.8 per cent.
On the whole, average CBD Grade A office rents fell by 1.6 per cent in Q4 2011 to $8.93 psf pm by end-December 2011.
However, Colliers noted that the sales market stirred, underpinned by new launches of strata-titled office projects and the continued low interest rate environment.
Healthy buying momentum in the sales market enabled capital values to hold stable in Q4 2011, despite the softening rental market.
The average capital value of Grade A office space in the Raffles Place and New Downtown micro-market was $2,459 psf in Q4 2011, relatively unchanged from the $2,460 psf recorded in Q3.
However, it is still some 12.6 per cent below its previous peak of $2,814 sq ft in Q3 2008.
For the whole of 2011, the average capital value of Grade A office space in the Raffles Place and New Downtown micro-market grew by a total of 17.8 per cent. Looking ahead, Colliers expects rents to dip further as a large pipeline of around 11 million sq ft of office space is set to come on stream from 2012 to 2016.
‘The large pipeline of office space supply coming on stream from 2012 to 2016 is of concern,’ said Colliers’ director of research & advisory Chia Siew Chuin.
‘The future supply of islandwide office space is forecast to amount to close to 11 million sq ft, which translates to an average 2.2 million sq ft per annum.’