Month: July 2012
a-iTrust – DBSV
Currency remains a drag
• Strong performance in INR eroded by translation losses
• Operational performance robust but payout ratio is cut to 90% in FY13
• Downgrade to HOLD, TP lowered to S$0.84 based on DDM
Unfavorable currency movements impact performance. Ascendas India Trust’s (a-itrust) underlying performance in INR remained robust with a 23% and 22% jump in revenues and net property income to INR 1,393 m and INR 772m respectively. The stronger performance was due to an enlarged portfolio, coming from the acquisition of aVance & new buildings (Zenith, Park Square ad Voyager). However, the 20% strengthening of the SGD/INR exchange rate resulted in reported revenue and net property income coming in only a mere 2.6% and 1.4% higher at S$32m and S$17.8m respectively. Distributable income was 10.5% lower y-o-y at S$10.3m due to higher dividend distribution tax (DDT) and higher finance costs. Post withholding 10% of distributable income in 1Q13, distributable income was S$9.2m (1.2 Scts, -20% y-o-y)
Underlying performance stable. a-itrust’s underlying operational metrics remained healthy with occupancy at 95% (97% committed occupancy) supported by strong tenant retention rates of c.62%, while renewals were stable. The trust renewed close to 400k sqft in the quarter, of which 150k were forward leasing arrangements. In the coming three quarters, only 9% of its total space is left to be renewed. The trust’s new development project in ITPB also saw strong precommitments with over 26% of its space committed, implying strong demand for space within the IT SEZ in ITPB
Cut in payout ratio to 90%. The manager has cut its payout ratio to 90% in FY13 onwards, with the retained amount to be redeployed to part fund its 600,000 sqft development project, estimated to cost between S$30-S$34m. We see this move as positive as the trust moves towards a more self sustaining model going forward.
SGD/INR to be a drag on earnings in the near term; downgrade to HOLD. While management continues to execute strongly, the strong S$, which strengthened by 20% y-o-y, continues to undermine its ‘true operating performance’. Looking ahead, our DBS economist expects the INR to remain at the 42.5/43.5 level in the next 2 years. Hence, we adjust our currency forecasts, resulting in a c16.4% cut in our distribution assumptions, and a lower TP of S$0.84 based on DDM. Given limited re-rating catalysts in the immediate term and limited upside to our revised TP of S$0.84, we downgrade our recommendation to HOLD.
StarHill Global – Kim Eng
Positioned for Greater Upside
1H12 earnings inline. SGREIT’s 2Q12 revenue rose by 5% YoY to SGD46.4m, while the distributable income for unitholders increased by 4% YoY to SGD21m. 1H12 revenue at SGD92.4m, up 3% YoY, was 50% of our FY12 forecast and consensus estimate. 1H12 DPU at 2.15 SG-cts, up 2% YoY, was 50% of ours and consensus estimate.
Wisma Atria harvesting upside. Wisma’s AEI is completed in 2Q12 with all Orchard road fronting stores commencing business. ROI is 12.8%, exceeding the initial target of 8%. (CAPEX ~SGD31m), representing an annualized incremental NPI of SGD3.9m (based on secured tenancies as at 30 Jun 2012). Positive rental reversions of ~33% was achieved for leases committed between Jul 2011 to Jul 2012, since the start of the AEI. Wisma’s 2Q12 retail revenue rose 7.5% QoQ to SGD13.045m while average passing rent is up SGD34.29 psf/mth from SGD33.30 psf/mth last quarter, according to our estimates.
Portfolio review. Wisma’s retail and office occupancy improved to 99.5% and 99% from 95.3% and 96.8% last quarter respectively. Similarly, Ngee Ann City retail maintained at full occupancy while Ngee Ann City office occupancy improved to 98% from 97% last quarter. However, we noted that there was a 520bps occupancy dip in the Japan portfolio (representing 4.3% of 2Q12 revenue), due to a sharp occupancy decline in the Daikanyama mall (from 100% in 1Q12 to 62.6% in 2Q12).
Toshin rental review. Despite the court tussle having gone before the Singapore court of appeal, Toshin has exercised its option to renew Ngee Ann City (NAC) retail for another 12-year term, expiring in 2025, thus lowering the lease expiry in 2013 from 89.6% of gross rent last quarter to 3.8%. The next rent review will be in 3-years time. Toshin constitutes 88.6% of NAC retail gross rent as at 30 Jun 2012 and is SGREIT’s largest tenant (18.8% of portfolio gross rent). 2Q12 average passing rent at NAC retail stays at depressed levels of SGD13.60 psf/mth from our estimates. We expect marginal increment until the next rent review.
Deserving better. A prime retail play trading at a sharp 20% discount to its book value, Starhill Global REIT deserves better in our opinion. For one, its key assets are in the coveted Orchard Road area, where tight supply and the entry of new international retailers should give it greater bargaining power in terms of leasing its space. We like Starhill for the rental upside at Wisma Atria and income stability in Malaysia and Australia. At 6.1% FY12F yield, we reiterate BUY with a DDM-derived TP of SGD0.76.
StarHill Global – OCBC
ANOTHER QUARTER OF STRENGTH
•Stable 2QFY12 performance
•Wisma Atria redevelopment mostly done
•Positive contribution not fully reflected
Consistent set of 2QFY12 results
Starhill Global REIT (SGREIT) reported NPI of S$37.1m (+4.4% YoY) and distributable income of S$23.3m (+2.0% YoY) for 2QFY12, in line with our projections. DPU came in at 1.08 S cents (+3.8% YoY), after netting off S$2.3m in distribution to CPU holders. Together with the distribution in 1Q, 1HFY12 DPU amounted to 2.15 S cents, meeting 49.6% of our FY12 DPU forecast (50.0% of consensus). This translates to an annualized DPU yield of 6.2%.
Strong numbers from Wisma Atria
Wisma Atria was the key driver for the quarterly performance, thanks to improved office occupancy (99.0% vs. 92.0% a year ago) and comparatively higher rentals following the asset redevelopment (AEI) at its retail segment. We understand that SGREIT had achieved positive rental reversions of 33% for leases committed at the property, since the start of refurbishment works (Jul 2011 – Jun 2012). In addition, management updated that the AEI at Wisma Atria was substantially completed in the quarter and that the ROI of 12.8% based on annualized NPI had exceeded its initial target of 8%.
Maintain BUY
As at 30 Jun, SGREIT’s portfolio occupancy rate improved 50bps QoQ to 99.5% as a result of higher occupancies at all properties except Daikanyama in Japan. Aggregate leverage also remained healthy at 30.5% (30.4% in 1Q), with no debt refinancing until Jan 2013. In our view, SGREIT’s growth potential has yet to be unleashed as the full impact of positive rental reversions may only be realized in the upcoming quarters. The stock is currently trading at a P/B of 0.8x, one of the lowest among other retail REITs. We now raise our fair value from S$0.70 to S$0.74, as we factor in higher rental assumptions on both its retail and office segments. Maintain BUY. Other catalysts, we note, may come from interest savings from refinancing of its outstanding debts, favourable outcome from court appeal pertaining to the master lease arrangement with Toshin Development (expected latest by Sep 2012) and divestment of Japan properties at attractive valuations.
MIT – CIMB
Just ambling along
While we like MINT for its stable portfolio, we think organic growth could moderate as passing rents for its previously under-rented flatted factories catches up with renewal rents and the market. Higher asset leverage could also limit inorganic growth through debt-funding.
1QFY13 DPU at 26% of our FY13 number was in line with both our and street estimates. We lower DPUs on rental and interest cost adjustments, but raise our DDM target price with a lower discount rate of 8.1% (prev. 8.6%). We downgrade MINT to Neutral from Outperform on limited upside.
NPI margin boost
1QFY13 NPI was up 26% yoy, thanks to contributions from acquisitions, positive rental reversions and margin improvements. Qoq, NPI was up by 5% mainly due to higher NPI margin of 72.3% (vs. 4QFY12’s 69.4% and FY12’s 69.5%) on lower operating capital expenses offset by higher utilities and marketing expenses. We expect margins to moderate in coming quarters.
Moderation in reversions
Rental reversions remained strong: Flatted factories at +22%, Business parks at +9%, Stack-up/Ramp-up buildings at +32% and Warehouses at +15% over preceding leases. But there was some moderation in rental reversions vs. 4Q12’s +27% for flatted factories on attempts to lengthen lease tenures for targeted tenants, and tapering off in growth. Occupancy was flat at 94.9% as lower warehouse occupancy (with the departure of a major tenant, 20-30% back-filled) was offset by higher flatted factories’ occupancy. Business parks occupancy was flat at 91%.
Growth priced in
MINT’s performance should remain stable. However, we believe that the current valuation at 1.2x P/BV has priced in growth potential, particularly with organic growth expected to moderate as passing rents of its under-rented portfolio catches up with the market, and with likely increased resistance to rental increases in the current climate. Asset leverage of 38% or 39%, factoring in recent built-to-suit development, could also limit inorganic growth through debt funding, in our view.
CCT – DBSV
Looking for more catalysts
• In line performance, meeting 54% of our FY2012F DPU
• Rents and occupancy continue to be firm
• Downgrade to HOLD on valuation grounds, TP raised slightly to S$1.40
In line performance. Gross revenue and NPI for 2Q12 grew by 5-8% y-o-y largely due the additional contribution from the acquisition of Twenty Anson, as well as higher rental income from HSBC Building and Raffles City Singapore (RCS). Lower property tax, interest cost, as well as interest income from Twenty Anson also helped lift DPU by 7.3% to 2.06 Scts after retaining S$1.3m tax income from Quill Capita Trust (QCT). This brings 1H DPU to 3.96 Scts or 54% of our FY2012 forecast. The trust took in a small revaluation surplus of S$65.8m (+1.07%).
An active leasing quarter. Despite softer leasing activities, portfolio occupancy held steady at 96.21%. In total, the group secured about 180,500 sf, of new leases (50%) and renewals (50%). Monthly signing rents at One George Street was stable at S$9.50 psf and 6 Battery Road at >S$10 psf. The S$92m upgrading works at 6 Battery Road is on track with c.200,000 sf to be upgraded in 2012. Of which, 100,000 sf has been completed and 70% pre-leased. Meanwhile, CCT will be embarking on an asset enhancement initiative (AEI) exercise for Golden Shoe Car Park in 3Q12. The S$0.6m AEI exercise will generate incremental income of S$83,000 or 14% ROI upon completion.
Downgrade to HOLD on valuation grounds. While we like CCT for its strong balance sheet and pro-active leasing strategies, the stock is trading close to our target price, thus we downgrade our call to HOLD. We have nudged up our FY12/13F DPU by c.4 % and TP by 3% to S$1.40 as we lowered the risk free rate while also taking into account higher contribution from the hotel component at Raffles City Singapore, as well as higher takings from Golden Shoe Car Park. Upside risks will hinge on potential acquisitions or better than expected portfolio performance.