Month: May 2012
a-iTrust – DBSV
New buildings filling up
• 4Q12 DPU of 1.46 Scts in line
• New buildings ramping up; S$ continues to moderate true earnings potential
• BUY with revised S$0.91 TP; Yields of c.8% attractive
Highlights
DPU of 1.46 Scts. Total property income and net property income were 10% and 18% higher y-o-y at S$34.3m and S$19.4m respectively. The better performance was mainly driven from portfolio expansion where the trust saw maiden rental income contribution from newly completed acquisition of aVance Business hub (not full month contribution) while (Zenith, Park Square ad Voyager) continue to ramp up. Distributable income however shrank by 2% to S$11.2m, from a stronger S$, higher interest costs from financing of its development activities and taxes, translating to a DPU of 1.46 Scts (-3%). There was a revaluation gain of close to S$8m, but NAV declined to S$0.71 (-11%) due to unfavorable translation rates.
Our View
Strong S$ vs INR exchange rate moderated earnings; underlying performance robust. The strong S$-INR, which has appreciated 10% since a year ago, moderated the operational performance in INR terms, with topline/net property income growing by 22%/30% y-o-y to INR 1,352m/INR764.7m. On a q-o-q basis, a-itrust rental income and net property income increased by 10% and 6% respectively.
Occupancy levels are high and improving. Average portfolio occupancy was stable at 97%, excluding the new buildings which are at 98% (Zenith), 80%(Park Square) and 82% (Voyager) occupied respectively, with the balance actively marketed and we believe will soon be filled up. In addition, we note that a-itrust has added an additional 10% space to the planned 540k sqft multi-tenanted building at ITPB, implying the strong demand for quality space at that location. This building is expected to complete in Dec’13 and should start contributing to earnings from FY15 onwards.
Recommendation
Maintain BUY, TP revised to S$0.91. Our earnings estimates are adjusted slightly to account for higher interest costs and phased out contribution from new buildings. Stock continues to offer an attractive prospective FY13-14F yield of c. 8%.
CRCT – DBSV
Ramping up growth engines
• Upgrade to BUY on acceleration in earnings growth
• Highest yielding retail reit and undemanding P/BK
• More room for growth via AEI works, tenancy remixing and acquisitions
Upgrade to BUY. CRCT offers investors a pure play into the largest and fastest growing retail market in the world, China. We believe that investors should re-evaluate this stock as earnings growth is set to accelerate. The portfolio is maturing with growing shopper footfalls and rising tenant sales while tenancy remixing and asset enhancement activities over the past 24 months have also created a greater correlation between rising retail sales and rental reversions. It is trading at an undemanding 1x FY12F P/BV and offers attractive yields of 6.9 -7% for both FY12 and FY13 – one of the highest amongst Asian retail reits. We see strong organic growth from rising rentals and AEI works, while its large and visible pipeline from its sponsor (CMA) would provide a solid platform to grow its portfolio. We upgrade the stock to BUY. TP is raised to S$1.48, offering investors a total return of 20%.
Strong positive rental reversion to continue, more value to be unlock. Going forward, strong positive rental reversion will be likely supported by (1) the opening of the basement 1 connection at Xizhimen mall to the subway interchange in Dec 11. Leveraging on the increased footfall (+30% y-o-y), the manager intends to widen its retail offering and transform it into a destination mall, which should attract strong leasing interest; (2) a series of tenancy adjustments to the seven-storey block at Wangjing to drive footfall. This should help raise average rents, which is at a significant discount to market rents; and (3) the execution of the AEI works at Mingzhongleyuan (MZLY). AEI works costing Rmb74m will improve the mall’s overall yield from c.6% to 8.4% and generate an estimated incremental NPI of Rmb 8.0m post the completion of the AEI works. In the longer term, we see significant value to be unlocked from the repositioning of its three single tenant malls to multi-tenanted buildings.
Sound financial metrics, able to leverage on sponsor’s pipeline. Gearing at c.28% is one of the lowest in the reit space and the trust has limited refinancing obligations this year. In addition, the S$500m MTN facility established recently will enable the trust to tap into funds when necessary.
LMIR – OCBC
STRONG FUNDAMENTALS INTACT
•DPU slightly below expectations
•Fundamentals still strong
•Maintain BUY, but drops FV to S$0.43
NPI boosted by newly acquired retail malls
Lippo Malls Indonesia Retail Trust’s (LMIRT) 1Q12 gross revenue of S$45.6m (+39.0 YoY) and NPI of S$30.9m (+38.0% YoY) were in line with our expectations, meeting 25.1-25.6% of our full-year estimates. The strong performance was primarily driven by a full-quarter contribution of the two retail malls that were acquired in 4Q11. Distributable income, however, was slightly lower than expected at S$15.0m, due to higher tax expenses and one-off charges of ~S1.7m associated with the refinancing and acquisition activities in prior quarter. As a result, DPU for the quarter registered 0.69 S cents, forming 18.6% of our FY12F DPU (20.9% of consensus). This is lower than the DPU of 1.17 S cents seen a year ago due to a 1-for-1 rights issue in 4Q11, but represents a significant QoQ improvement of 30.2%. The DPU will be payable on 24 May.
Positive outlook
As at 31 Mar, LMIRT’s portfolio occupancy had remained steady at 94.5% (94.1% in prior quarter). This is well above Indonesia’s retail industry average occupancy rate of ~87.6%. According to management, its malls have been seeing strong interest by
international and local retailers, while shopper traffic has been rising amid strong domestic consumption. LMIRT also reiterated that Jakarta remains ‘under-shopped’, as evidenced by its low retail density of 0.4 sqm per person relative to 0.7 sqm in Singapore and 2.7 sqm in Kuala Lumpur. Hence, it is confident that its retail malls are well positioned to benefit from the burgeoning Indonesian retail industry.
Maintain BUY; but lowering fair value from S$0.45 to S$0.43
LMIRT’s aggregate leverage was slightly up from 8.7% in 31 Dec to 9.2%, largely due to a 5.0% QoQ decline in investment properties resulting from the effect of forex rate changes. However, its financial position is still strong in our view, with no refinancing needs until Jun 2014. We now revise our FY12-13 forecasts to factor in the 1Q results. Accordingly, our fair value eases slightly from S$0.45 to S$0.43. Maintain BUY on LMIRT, as we are still looking at favourable total expected return of 13.3%.
TCT – BT
TCT says Q1 profits up 9.7%
Treasury China Trust (TCT) on Monday posted a 9.7 per cent gain in first quarter net profit to S$7.71 million, up from S$7.03 million a year ago.
Helped by assets acquired over the prior year, this translates to a quarterly earnings per unit of 3.0 cents compared to 2.7 cents in the same period last year.
As a Singapore-listed entity, TCT's reporting currency is in Singapore dollars, which takes into account its appreciation against the Chinese yuan.
Gross revenue for Q1 leapt 33.5 per cent year-on-year to S$25.97 million, while net property income rose 28.4 per cent to S$15.99 million.