Month: April 2012
FCOT – BT
Frasers Commercial to sell property for S$360 mln
Frasers Commercial Trust , which owns office assets in Asia, said on Tuesday it will sell a Singapore commercial property to Bayfront Ventures Pte Ltd for S$360 million (US$288 million).
Bayfront Ventures is a company jointly owned by Fragrance Group Ltd and World Class Land Pte Ltd, a subsidiary of Aspial Corporation Ltd.
Frasers Commercial said it will realise a gain of S$72.8 million from the sale of the property.
CCT – DMG
Weak market sentiment going forward
1Q12 DPU in line with expectations. CapitaCommercial Trust (CCT) reported 1Q12 DPU of 1.90S¢ (+3.3% YoY), equivalent to 24.3% of our FY12 DPU estimate. Revenue and net property income came in at S$87.4m and S$69.9m respectively. Although gross revenue fall by 3.9% YoY NPI came in flat as operating expenses dropped by 17.1%. In the subsequent quarters, we expect CCT to register a slight growth in DPU, mainly from additional contribution from the recently acquired building at Twenty Anson Road. Although leasing activities have remained active during 1Q12, we expect the pressure on office rental rates to continue to remain high due to 1) weakening absorption rate for office space amid global economic uncertainty, 2) rising available office space from the secondary market and 3) negative reversion to continue as 1Q12 Grade A and island wide Grade B office rent fell by 3.6% and 1.3% respectively QoQ. We maintain our NEUTRAL call on CCT with an unchanged DDM based (COE: 8.7%; TGR:2.0%) TP of S$1.38.
More space from secondary market expected. During the 1Q12, office stock reached 52.8m sf on the back of 1.3m sf from MBFC Tower 3 completion. Although net absorption for this period grew positively to 587,000 sf (as compared to 93,313 in 4Q11), going forward, we expect sizeable amount of stock from the secondary market to be released as major financial companies move their offices out of the existing buildings to new facilities when their leases are due.
Weak market sentiment for offices. As indicated by CBRE, occupancy rate island-wide during the 1Q12 came in at 92.7%, a drop of 57bps QoQ (-162 bps YoY). Concurrently, Core CBD occupancy rate was noted to have fallen to 90.7% from 91.2% in the previous quarter. During 1Q12, both Grade A and island wide Grade B office rents also declined to S$10.60 psf/mth (-3.6% QoQ) and S$7.25 psf/mth (-1.3% QoQ) respectively. Going forward, we have projected a 10% negative rental decline in 2012.
Limited room for growth in 2012. Due to the expected weak market sentiment for offices together with negative rental reversion and the loss in income due to lower occupancy rate in some of CCT’s properties, we believe there are limited room for growth in near term. At this juncture, we continue to maintain our NEUTRAL rating on CCT and TP of S$1.38.
Sabana – Phillip
Company Overview
Sabana REIT is a Singapore-based REIT with a mandate to invest in income-producing industrial real estate and real estate-related assets in Singapore and Asia with compliance to Shari’ah investment principles.
• 1QFY12 revenue $19.7mn, NPI $18.5mn, distributable income $14.5mn
• 1QFY12 DPU of 2.26 cents
• Maintain Buy recommendation with unchanged target price of $1.05
What is the news?
Sabana REIT reported another consistent performance, with both gross revenue and net property income increased 8.8% to $19.7mn and $18.5mn, relative to the previous quarter. On the same token, distributable income edged up 4.1% q-q to $14.5mn. This was largely attributable to the full quarter contribution from the purchase completion of the five yield-accretive properties in 4Q11. DPU for the reported quarter was 2.26 cents, forming c.24% of our FY12 DPU estimates. Apart from the results, a new master tenant had committed a ten-year master lease agreement with an option to renew for another five years for the property at 1 Tuas Avenue 4. The lease will commence on 1 April 2012.
How do we view this?
The first quarter result was within our expectation. We noted that higher operational expenditures such as JTC land rents, property tax and utilities costs have partially weighed on the distribution margin over the past three quarters, with 2% dip in each quarter from 80% in 2Q11 to 74% in 1Q12. The new master lease is likely to turn in higher rent from next quarter as the monthly rental rate of $1.11 psf signed by the previous master tenant was lower than the prevailing market rent in our view.
Investment Actions?
As the new master lease is yet to be incorporated into our model, we therefore have our target price unchanged at $1.050 and maintain our BUY recommendation.
FCOT – OCBC
POSITIVE SURPRISE ON DPU
•Better results from lower interest costs
•Stable operational performance
•Expecting positive income growth
Good set of results
Frasers Commercial Trust (FCOT) announced its 2QFY12 results last evening. NPI came in within our estimates at S$24.8m (+3.8% YoY), driven primarily by positive rental reversions from Central Park in Perth (+12.0%) and higher share of profits from the master lessee of China Square Central (CSC) in Singapore (+7.9%). Distributable income, on the other hand, increased at a faster-than-expected pace of 7.7% YoY to S$15.9m as a result of lower interest expenses. Consequently, DPU for the quarter stood at 1.74 S cents, up 8.1% YoY. For 1HFY12, NPI rose by 5.6% YoY to S$49.4m, while distributable income climbed 10.4% to S$30.2m. In addition, DPU was up 13.2% YoY to 3.2423 S cents, forming 48.5% of our DPU forecast. This is slightly ahead of our expectations, considering FCOT may likely benefit from future earnings uplift following its recent acquisition of the remaining 50% stake in Caroline Chisholm Centre (CTL).
Healthy occupancy and lease profile
On its operational front, we note that FCOT’s performance was largely stable. Average portfolio occupancy eased marginally to 96.1% from 97.6% seen in 1Q, due partially to a 1.3ppt decline in CSC’s occupancy to 91.2%. However, management revealed that it is mainly due to timing of the tenancy leases (expected to commence in Apr), and that fundamentals are still healthy. Weighted average lease to expiry as at 31 Mar was maintained at 3.4 years, with a comfortable 17.0% of its leases due to expire in FY12.
Maintain BUY
FCOT also provided a relatively upbeat outlook for the coming quarters. While management may likely be more prudent on its investment decisions given that FCOT’s aggregate leverage may trend towards 40% post acquisition of CTL, it expects positive income growth to its portfolio, supported by acquisition and positive rental reversions/escalations. We also understand that FCOT had taken over the management of CSC on 30 Mar and is currently exploring options to rejuvenate the asset. Maintain BUY with a revised fair value of S$0.97, as we incorporate the results into our forecasts.
MLT – CIMB
Busy quarter
5QFY12 was boosted by positive rental reversions and completed acquisitions. Resilience should stem from Asian logistics demand, its long WALE and geographical diversification.
5Q12/FY12 DPU meets our estimate and consensus at 20%/99% of FY12. MLT has changed its year-end to Mar from Dec. We tweak our DPU by 1-6% for FY12-13 factoring the change in year-end but keep our DDM target (discount rate: 9.0%) pending its briefing. Maintain Outperform.
Stable occupancy, stronger rents
Portfolio stability was underpinned by a long WALE of six years and high occupancy of 98.7%. 5Q12 NPI was up 12% yoy on organic growth and acquisitions. NPI was flat qoq due to the depreciation of the HK$ and yen, although the DPU impact was buffered by hedging. Occupancy was slightly lower at 98.8% in Singapore (5QFY11: 99.4%) after the conversion of two single-tenanted assets into multi-tenanted buildings. Rental reversions remained healthy at 12%, led mainly by Singapore and Hong Kong, albeit slightly lower than 4Q’s 16%. Rental reversions should remain positive, with most expiring leases in 2012 coming from Singapore and Hong Kong.
Acquisitions
Management acquired 11 properties for S$365m during the quarter. While the acquisition momentum could moderate, MLT still has ROFR to its sponsor’s >S$300m greenfield pipeline and continues to look at AEI and lease management to optimise yields. We have factored in S$150m of acquisitions for FY13. Asset leverage will be fairly healthy at 37% following its perpetuity issuance, acquisitions and a 3% portfolio revaluation − still conducive for debt-funded acquisitions.
Capital management
Balance sheet strengthened with the extension of a ¥17bn loan maturing in Apr 12 to Apr 16. Average cost of borrowing is up 10bp after this but remains fairly low at 2.4%.