Month: August 2012
CRCT – AmFraser
Potential Headwinds On Near‐Term Horizon
Investment Highlights
Q212 Marks Strong Quarter Of Growth
CapitaRetail China Trust (CRCT) recorded growth of 18.2% YoY in its 2QFY12 gross revenue. CRCT's shopper traffic climbed by 26.4% YoY and its tenant sales increased by 13.1% YoY in 2QFY12, despite an uncertain macroeconomic climate in China. Contribution from recently‐acquired CapitaMall Minzhongleyuan and higher rental sales across its multi‐tenanted malls were major drivers underpinning CRCT's 2QFY12 growth.
Healthy Rental Reversions
2QFY12 was also a quarter of good rental reversions for CRCT. CRCT recorded a total of 223 new leases and renewals in the quarter and observed a portfolio rental reversion of 15.2% YoY. CRCT's ongoing initiatives at improving its tenant mix by attracting big names such as Urban Renewal and UNIQLO could provide potential upside on overall tenant sales and rental reversions. According to CRCT, tenant sales growth at CapitaMall Xizhimen was at the high single‐digit range and management believes there is scope for further enhancement to its existing tenant mix.
Higher Revenue Translating Into Profitability Gains.
CRCT’s net property income grew by 15.0% YoY in 2QFY12. While this result was partly supported by the contribution from CapitaMall Minzhongleyuan, we observed that strong growth from CapitaMall Qibao, CapitaMall Saihan and CapitaMall Wuhu played a part as well.
Potential Near‐Term Headwinds Ahead.
Trading at 1.1x price‐to‐book and with a forward dividend yield of 6.7% (according to Bloomberg consensus estimate), CRCT is relatively expensive compared to its industry peers. Nearterm risks appear to be weighted to the downside and we would view CRCT’s recent quarterly results with cautious optimism. A Chinese macroeconomic slowdown is likely to weigh on near‐term consumer sentiment and put downside pressure on discretionary spending. Generating the bulk of its rental sales from consumer discretionary sectors such as department stores and apparel, CRCT is not immune to the macroeconomic headwinds in China. CRCT is already witnessing a slowdown in sales in the sporting and fashion trade, according to management.
PLife – DMG
Stable growth
PREIT achieved 2Q12 DPU of 2.5 S¢ (+4.6% YoY), ~24% of our FY12 estimates, which was in line with our expectations. NPI was up 9.3% YoY to S$21.4m, due to full-quarter contribution from acquisitions made during 1Q12 and higher rental income from Singapore properties. With growing demand for quality healthcare services and facilities amid the economic uncertainty, management is taking a cautious stance towards acquisitions that are in the pipeline. In the meantime, PREIT will continue to explore accretive AEI opportunities to boost growth. At S$1.995, PREIT is trading at 5.1% FY12F yield (it traded at 5.3% during its heydays in 08/09). We have tweaked our COE assumptions in our DDM valuation methodology, given the ongoing uncertainties. Our revised TP is S$2.11 (up from S$2.07). We remain positive on PREIT's long-term prospects and we think PREIT could make some acquisitions in 2H12.
Looking to expand portfolio in Australia and Malaysia. PREIT is negotiating to acquire healthcare assets in Australia and Malaysia where the demand for quality healthcare services in these two markets continue to be strong. As at end 2Q12, PREIT has a gearing of 36.4%, with debt headroom of S$228.7m before reaching 45% gearing. It is in a good position to take on suitable acquisitions.
New Refurbishment AEI concept helps growth. PREIT introduced its new Refurbishment AEI concept, where the cost of refurbishment AEI is borne by PREIT in return for incremental rent. The first Refurbishment AEI at a Japan nursing home is expected to yield a 2% increase in gross rent from this property. PREIT will continue to look out for AEI opportunities to drive growth.
Yield is decent for a defensive stock. We like PREIT for its defensive nature, especially during these uncertain times. The stock's yield may be lower vis-à-vis other S-REITs, but it has a unique revenue downside protection structure.
LMIR – OCBC
POTENTIAL ASSET INJECTION IN THE NEAR TERM
- Occupancy rate at high level
- Strong retail industry dynamics
- Bond issue provides acquisition flexibility
Larger-than-expected impact from forex movement
Lippo Malls Indonesia Retail Trust's (LMIRT) reported 2Q12 NPI of S$30.7m and distributable income of S$17.1m, up 36.2% and 44.3% YoY respectively. Expectedly, the strong performance was driven by full-quarter contribution from Pluit Village and Plaza Medan Fair that were acquired in Dec 2011. DPU for the quarter came in at 0.79 S cents, down from 1.09 S cents as a result of the 1-for-1 rights issue in 4Q11. However, this represents a 14.5% QoQ improvement from DPU of 0.69 S cents achieved in prior quarter. For 1H12, NPI grew 37.1% YoY to S$61.6m, meeting 51.1% of full-year estimate. 1H12 DPU, on the other hand, was down 34.5% to 1.48 S cents, equivalent to 42.9% of our DPU projection. This is slightly below our expectations, due to larger-than-expect impact from unfavourable forex movement.
Outlook remains buoyant
Nevertheless, the portfolio operating metrics and outlook remain buoyant, in our view. As at 30 Jun, LMIRT's overall occupancy rate remained steady at 94.7% vs. 94.5 in prior quarter. This is significantly higher than Indonesia's retail industry average of 86.7%, based on Jones Lang Lasalle's 1Q12 market review report. Management reiterated that Jakarta remains 'under-shopped' and that the retail industry will continue from the robust domestic economy and burgeoning middle class population. This is likely to continue to drive the demand for LMIRT's retail space.
Maintain BUY
We also understand that LMIRT launched two bonds with an aggregate amount of S$250m in early Jul. This leads us to believe that another round of acquisitions may be imminent, given that its financial position was already very strong. While finance expenses may be higher in the immediate term, LMIRT's DPU is likely to be boosted going forward. Gearing post bond issue is expected to remain healthy at 21% (9.3% in 2Q; no refinancing needs till 2014). Maintain BUY on LMIRT with revised fair value of S$0.45 (S$0.43 previously) as we tweak our rental assumptions in FY13-14 to reflect better growth outlook.
PLife – Phillip
Company Overview
PLife REIT is one of the largest listed healthcare REITs in Asia by asset size. Its mandate is to invest in income-producing real estate and/or healthcare-related assets primarily used for healthcare and/or healthcare-related purposes in Singapore and Asia.
- 2Q12 revenue $23.4mn, NPI $21.4mn, distributable income $15.0mn
- DPU for 2Q12 at 2.48 cents
- Raise FY12-16 DPU by 1.1%
- Downgrade to Neutral on valuation ground despite higher target price of $2.010
What is the news?
PLife REIT reported another set of steady results, with DPU grew 4.6% y-y to 2.48 cents. The growth boiled down to the full quarter revenue contribution from the three Japan properties acquired in March 2012 and higher rent received from Singapore properties. The acquisition of strata titled units/lots within Gleneagles Medical Centre Kuala Lumpur (GMCKL), Malaysia was completed on 1 August 2012.
How do we view this?
2Q12 DPU was in-line with our expectation. The DPU for the first two quarters translated to 51% of our FY12 estimates. Revenue contribution from GMCKL will kick in from the forthcoming quarter.
Investment Actions?
Lower all-in interest cost, higher-than-expected annual rental revision for Singapore properties and AEI at Ishizugawa nursing home raised our DPU estimates by 1.1% on average for the next five years and our price target to $2.010. Despite the fundamentals are intact with sustainable and growing DPU, the stock price is nonetheless fairly valued on valuation ground. Dividend yield of 4.9% may not be sufficient to warrant an accumulate call and thus we downgrade our recommendation to neutral.
Cambridge – DBSV
Still "Work in Progress"
- 2Q12 results in line, 1H DPU makes up 49% of our forecast.
- Acquisitions and AEIs to underpin earnings growth in the coming quarters
- Portfolio rebalancing continues, redeployment is key
- Maintain BUY, TP raised to S$0.65
Highlights
Improved set of 2Q12 results. Cambridge REIT (CREIT) reported a 10% and 9% y-o-y rise in topline and net property income to S$21.5m and S$18.4m respectively. Growth was largely attributable to the additional income from the acquisition of six properties a year ago, organic growth from rental escalations (single tenanted buildings) and higher reversions from its multi-tenanted properties. Portfolio occupancy remained high at 99.1% (vs 98.5% in 1Q12). This more than offset the loss of income from its divestments over the same period. Distributable income rose 15% to S$14.1m (inclusive of S$0.9m of capital distribution), translating to a DPU of 1.18 Scts (+14%).
Our View
Acquisitions and AEIs to contribute in coming quarters. With organic performance to remain stable, earnings growth will be driven by the recently acquired 16 Tai Seng Street (S$59.3m) and the expected completion of development of Tuas View Circuit (BTS for Peter Polyethylene) in Aug 12, while other development projects continue to remain on track for completion in the coming quarters up till 2013.
Portfolio rebalancing continues; redeployment of proceeds is key. The manager has 4 properties (worth S$198m) for sale – amongst them are two properties, valued at S$101.6m, which will be compulsorily acquired by SLA in Jan 13. We understand that plans are underway to redeploy capital towards new acquisitions and we believe the manager is looking to acquire these targets before the end of FY12 in order to compensate for the expected loss of rental income. We tweak our estimates slightly to account for the redeployment of proceeds from the SLA acquisition into new acquisitions in 2013.
Recommendation
BUY maintained, TP raised to S$0.65. Our target price is nudged up to S$0.65 after rolling forward our valuations and taking a lower discount rate with lower risk free assumptions. CREIT continues to offer attractive prospective FY12-13F yields of 8.0-8.3%. Downside risk to our estimates hinges on the slower than projected deployment of divestment proceeds.