Month: October 2012
CLT – CIMB
Pandan acquisition kicks in
3Q12 benefitted from acquisitions earlier this year, with net property income up 12.9% yoy. Completion of refinancing led to lower all-in cost of debt; we should see some interest cost savings next quarter. We continue to like the stock for its quality assets and resilient yields.
3Q/9M12 DPU came in slightly below at 25%/73% of our FY12 and 25%/74% of consensus on higher property expenses following rental adjustments. We lower FY12-14 DPUs to factor this in, but raise our DDM-based target price on lower discount rate of 7.7% (2Q12: 8.5%). Maintain Outperform; accretive acquisitions are catalysts.
Another resilient quarter
3Q12 NPI grew 12.9% yoy, trickling down to a 2.3% growth in DPU, as rental contributions kicked in from Pan Asia Logistics Centre and Pandan Logistics Hub. Debt profile was also strengthened following refinancing, with no debt expiring till 2015/16 and all-in cost of debt lowered from 4.28% to 3.57%. We should see some interest cost savings going forward. While gearing inched up on completion of the Pandan acquisition, it remains low at 32.6%.
Potential for growth
We still some potential for acquisition growth from the pipeline of assets from Sponsor. Management has delivered on acquisitions thus far, albeit over a short track record, but surprising us with the size of acquisitions YTD. Organic growth will still be driven by 1.5-2.5% rental step-ups structured into master leases, topped with potential for GFA maximisation or enhancements further down the road when leases expire.
Reasonable price for quality portfolio
Distribution yield stands at 6.8% and 7.1% for FY12/13 on current share price, the highest among industrial S-REITs under our coverage despite a Singapore-centric portfolio of quality assets. We continue to like the stock for its defensiveness from master leases, with one of the longer average lease expiries at 4.1 years, backed by 89% MNC and government entity end users.
CLT – AmFraser
Cache Demonstrates Resilience Amid Marco Uncertainties
Results bolstered by positive rental adjustments and acquisitions: Cache reported growth of 14.1% and 12.9% in its gross revenue and net property income (NPI), on a YoY basis, in 3QFY12, which was consistent with our forecasts. Year‐to‐date gross revenue and NPI constitute approximately 74.0% of our end‐2012 forecast. This resilient set of results was partially supported by escalation in rental rates and, to a larger extent, the rental contribution from newly‐acquired assets Pan Asia Logistics Centre and Pandan Logistics Hub.
Distributable income increased by 12.7% YoY, which translates into a 2.3% YoY increase in distribution per unit. This was largely a result of the acquisition of Pandan Logistics Hub and cost savings from debt refinancing. Due to a debt refinancing exercise in 2QFY12, Cache successfully lowered its average all‐in financing cost from 4.38% in 2QFY12 to 3.57% in 3QFY12.
Downgrade to HOLD on rich valuations: Following our initiation on 11 September 2012, Cache has had a decent run‐up of 5.6%. Trading at a price‐to‐book ratio of 1.3 (price ‐to‐book ratio for industrial S‐REITs is currently at 1.06), Cache is relatively expensive to its peers and we believe there is limited scope for further upside. Our fair value of S$1.31 translates to a potential capital appreciation of 7.2%. This, coupled with a 6.7% yield, gives a total return of 13.9%.
That said, we continue to like the sustainability of Cache's distribution yield particularly in view of the challenging macroeconomic backdrop. Sustainability of its yield is underpinned by its triple‐net master lease structure and built‐in rental escalation rates of 1.5‐2.5%. While industrial rents could come under some stress on the back of upcoming supply of industrial land and subdued global trade conditions in the near term, we highlight that Cache is relatively sheltered against these headwinds given that less than 2% of its gross floor area is due for lease renewal in 2013F.
Future acquisitions could serve as positive catalysts: Based on our implied cap rate estimate of 5.9%, we believe Cache stands in a good position to pursue yield‐accretive acquisitions. Assuming that future acquisitions are to be financed with a debt/equity mix of 45/55%, we estimate that Cache has an additional debt headroom of S$103.3mil without obtaining a credit rating. Given the current lowrate environment, we would not be surprised if Cache were to take advantage of the low borrowing rates to further its acquisition growth ambitions. Cache could tap on its sponsor CWT's pipeline of assets on this front.
MIT – CIMB
No major surprises
We believe MINT’s current P/BV of 1.4x has priced in its growth potential, particularly as passing rents of its under-rented portfolio catches up with the market and on likely increasing resistance from tenants amid external demand headwinds and cost pressures.
2Q/1HFY13 DPUs broadly met our and consensus expectations, at 26/53% of our FY13 estimates. We nudge DPUs marginally higher on margin adjustments and raise our DDM-based target price after lowering our discount rate to 7.3% from 8.1% previously. Maintain Neutral.
No major surprises
The portfolio remained resilient. 2QFY13 DPU was up 12% yoy on contributions from acquisitions, positive rental reversions and margin improvement. Qoq, DPU was flat (+1%). Positives came from the marginally stronger portfolio occupancy of 95.0% (1Q: 94.9%). Rental reversions remained fairly strong: flatted factories at +23%; business parks at +8%; stack-up/ ramp-up at 20.7%; and warehouse at +19%. Some concerns could come from the fairly slow take-ups at its BTS/AEIs as pre-commitments remain fairly unchanged from 1Q, though more take-ups could flow through nearer to completion. Warehouse occupancy had also dipped to 73% from 90% in 1Q.
Stronger capital management
Asset leverage is at 37.2% as at end-2Q, or 39-40% considering developments and AEIs. In 2Q, MINT issued a S$45m 10-year fixed rate note which successfully lengthened average debt tenure to 3.2 yrs from 2.7 yrs. Yet, cost of borrowing fell from 2.5% to 2.3%, due partly to the replacement of expiring interest rate swaps with lower cost ones.
Maintain Neutral
Notwithstanding the resilient portfolio, we believe the current P/BV of 1.4x (among the highest in the sector) has likely priced in growth potential, particularly as passing rents of its under-rented portfolio catches up with the market, and on likely increasing resistance from tenants amid external demand headwinds and cost pressures.
FCT – OCBC
READY FOR NEXT GROWTH PHASE
- Strong end to FY12
- Rental and occupancy rates to improve
- Asset injection may be on horizon
FY12 results in line with our projections
Frasers Centrepoint Trust (FCT) reported a strong set of 4QFY12 results yesterday. NPI grew by 13.7% YoY to S$28.7m, while distributable amount rose 21.8% to S$22.3m. DPU reached its record high at 2.71 S cents (+15.3%), partially boosted by a distribution of S$1.2m that was retained in 1HFY12. This was spot on with our 4Q DPU forecast but was ahead of street’s expectations. As a result, FY12 DPU amounted to 10.01 S cents, up 20.3%. This implies a decent yield of 5.3%.
Operating performance looks set to improve
Expectedly, the strong performance was driven by Causeway Point (CWP) following the substantial completion of the mall’s refurbishment and full-year contribution from Bedok Point. Positive rental reversion of 8.9% was also achieved during the quarter. As at 30 Sep, FCT’s portfolio occupancy was largely unchanged at 93.6% (93.7% in 3Q). Management reiterated that the asset enhancement initiative (AEI) at CWP is on track for full completion and is expected to reach full occupancy by Dec as the refurbished space on levels 5 and 7 are progressively leased out to tenants. In addition, average current passing rent is north of S$12.20, significantly higher than the rent of S$10.20 prior to AEI.
Maintain BUY with higher fair value of S$2.13
We also note that FCT’s financial position has strengthened. Gearing ratio improved to 30.1% from 31.3% a year ago (31.7% in 3Q), due mainly to an enlarged asset base and asset revaluation gain of S$100.7m (NAV up 8.5% YoY). We continue to like FCT for its pure suburban mall exposure and growth potential. Based on our understanding, the business park at One@Changi City may possibly obtain TOP by end-2012, while its retail mall occupancy may have already stabilized above 90%. Hence, we believe the injection of Changi City Point may likely happen in FY13, which should provide FCT with next level of growth. Maintain BUY with higher fair value of $2.13 (S$1.97 previously) as we update our model to incorporate firmer cap rates.
ART – CIMB
Forex dampener
ART's 3Q earnings growth was decent, but we expected a bigger boost from the London Olympics. UK RevPAU was resilient largely on the back of strong room rates post AEI. Revpau growth was again eroded by forex movements, the worst since 4Q08.
3Q/9M12 DPU met expectations at 25%/77% of our FY12 forecast and 26%/80% of consensus number. We adjust FY12-14 DPUs after factoring in the Hamburg acquisition and raise DDM-based target price for a lower discount rate of 8.2% (previously 8.5%). We remain Neutral given the lack of catalysts.
Decent growth
3Q12 growth of 6% yoy for revenue and 2% for gross profit were decent but fairly unexciting as a stronger 3Q had been expected. Group RevPAU edged up 1.4% yoy, led by the pan-Asian portfolio and the UK, offset by Europe. The euro's depreciation against S$ continued to erode gains in RevPAU and gross profit for the European portfolio (3Q: 43% of gross profit). Rental income will see a future boost from Ascott Raffles Place and Ascott Guangzhou acquisitions (completed in 3Q12) and Madison Hamburg (complete by 4Q12), offset by closure of Somerset Grand Cairnhill.
Smaller London boost
UK was resilient but slightly below expectations, with RevPAU +9% yoy and flat qoq from higher room rates post-refurbishment and close to 90% occupancy during the Olympics. Enhancements of its properties in Brussels, Jakarta and Spain should strengthen room rates in the next few quarters. Ascott's occupancies have proven fairly resilient in London (75%) and European cities (>70%), 5-10% pts below peak levels.
Europe opportunities but forex woes
On a portfolio basis, forex movements worsened for another quarter to -2.8%, bordering on the +/-3% range acceptable to management, led by Europe. We see the hedging of the euro as a possibility going forward. While macro conditions present opportunities for acquisition of higher-yielding assets, exposure to forex risk, a key concern, is also heightened.