Month: October 2012
A-REIT – Kim Eng
Industrial Bulwark: Unfaltering Momentum
2Q-1H FY3/13 results inline. 1HFY3/13 revenue at SGD285m, was 55% of ours and 52% of consensus estimate. 2QFY3/13 revenue at SGD143m, was 28% of ours and 26% of consensus estimate. 1HFY3/13 DPU at 7.06 SG-cts (+7.3% YoY) was 54% of ours and 50% of consensus estimates. 2QFY3/13 DPU at 3.53 SG-cts (flat QoQ, +4.4% YoY) was 27% of ours and 25% of consensus estimates. Aggregate leverage inched down to 32.5% from 32.7% last quarter. After funding of committed capital expenditure, aggregate leverage is expected to be 34.8%. All-in-financing costs for 2QFY3/13 averaged 3.15% with an average term of debt of 4.2 years.
Stable portfolio continues to deliver. Occupancy rate (same-store basis) for th e portfolio and multi-tenanted buildings (MTB) improved to 96.6% and 93.4% respectively from 96.4% and 92.8% a quarter ago. 2QFY3/13 weighted average lease to expiry was 3.9 years, with only 5.8% of income due for renewal for the remaining FY3/13. Positive rental reversion on renewal range between 9.5%-13.3% throughout all segments of the portfolio boosting NPI margin (71.8%) and yields (6.6%)
New Asset Enhancement Initiatives. The former Aztech Building and Ultro Building will be undergoing refurbishment works till 2Q13 and 4Q13 respectively. We expect rental upside of 117% for Aztech (SGD 2.73 psf/mth from SGD1.25 psf/mth) and 56% for Ultro (SGD3.90 psf/mth from SGD2.50 psf/mth on completion. We raise our FY3/13-3/15 DPU by 0.9%-3% in view of the enhancements and better-than expected rental reversions from renewals.
Yields can be compressed by another 40bps. We continue to like AREIT for its stable DPU yield, healthy lease expiry (not more than 25.5% of income expiring per annum) and debt maturity profile (not more than SGD400m maturing per annum). In addition, only 19.8% of A-REIT’s NLA is used for conventional manufacturing, which is a plus given that the per annum net demand for factory space has been modest compared to warehouses and business parks. From our estimates, the implied cap rate for A-REIT is 5.4%. If we take this cap rate as the floor for FY3/14 DPU yield, we believe that yields can be further compressed by another 40bps from our forecasted FY3/14 DPU of 5.8%. Reiterate BUY with a DDM-derived TP of SGD2.65.
HPH-Trust – DBSV
Positive surprise from Yantian
Second consecutive month of double-digit growth at Yantian Port. Yantian Port’s September throughput grew by 16.7% y-o-y to 1.06m TEUs for the month. This follows healthy growth of 11.7% y-o-y in August. While part of the growth in August was weather-related, the higher growth in September is largely a function of a lower base in September 2011, a likely return to more normal peak season patterns in trade, and continued market share gains.
Yantian Port volumes continued to outstrip growth in Western Shenzhen ports – which grew at c.8% for the month – as we believe larger container vessels utilised on the US and European main lanes prefer to call at Yantian Port in Eastern Shenzhen given its wider access channels. For 3Q12, Yantian Port volumes are up 10%. YTD in 2012, Yantian Port’s throughput growth now stands at 4.8% y-oy, compared to only 2% in 1H12.
Hong Kong numbers decent. Over in HK, throughput growth turned positive at Kwai Tsing terminals for the first time in 4 months, again helped by a low base effect. Volume handled at Kwai Tsing terminals grew 7.3% y-o-y to 1.46m TEUs in September. YTD, Kwai Tsing terminal throughput is up 1.5%. We estimate volumes at HPH Trust’s HIT terminals at Kwai Tsing could be up at a faster clip of 5-6% YTD, as other terminal operators are losing ground. In 1H12, HIT had registered 8% growth in volumes, compared to 2.2% growth overall at Kwai Tsing. COSCO-HIT volumes registered growth of 1.4% y-o-y in September, and are up 5.1% y-o-y YTD.
Re-rating in progress. Overall growth numbers are in line or slightly higher than our 2-4% full year growth forecast for Yantian and HIT. No changes to our DPU estimates. We forecast 6.6UScts payout for FY12, including interim DPU of 3.1UScts. This implies a higher DPU of 3.5UScts for 2H12, supported by seasonally higher volumes, and some deferral of development capex plans. Better growth numbers at Yantian may lead to lower need for capex deferral to meet DPU guidance. Maintain BUY, TP US$0.85. Despite some recent re-rating, yield remains attractive at 8.25%. We expect further re-rating as market increasingly appreciates the steady and sustainable dividend generating capability of the Trust.
Keppel REIT – DBSV
Occupancy keeper
- Results in line; 9M DPU is 76% of our FY12 forecast
- Healthy take-up, stable rents backed by high occupancy rates and low expiry leases
- Kreit Asia renamed as Keppel REIT
- Maintain BUY, DCF-backed TP unchanged at S$1.28
Highlights
Results in line. On a y-o-y basis, K-REIT’s gross revenues and NPI more than doubled to S$40.2m and S$32.1m respectively, led by an enlarged portfolio. On a q-o-q basis, revenue grew by a more stable 2.3-2.6% backed by improving occupancy rates at all properties, tax savings at MBFC Phase 1 and the additional contribution from a GST rebate from One Raffles Quay (ORQ). Distributable income was S$51.7m or 1.96cts DPU (+85% y-o-y, +1% q-o-q). To mark its next chapter of growth, K-Reit Asia will be renamed as Keppel Reit.
Our View
Stable rents backed by strong occupancy. Demonstrating its strong leasing capabilities, portfolio occupancy inched upwards to 98.2%. Take-up came from existing tenants, as well as new tenants from the shipping, insurance, fund management and legal sectors, with space requirement from as small as 2,000 sf to 50,000 sf. The high occupancy also translates to better holding power in terms of rents. Monthly asking rents at Prudential Towers and OFC held firm at c.S$9 psf and the low teens respectively with standard incentives provided to the tenants.
Limited downside risk, earnings growth from enlarged portfolio. Looking ahead, we see limited downside risk to revenue. Lease expiry for 2012 is now close to nil with only 14% of its net lettable area to be renewed or reviewed next year. The reit is already actively looking at renewing 2013 leases and interest from tenants is relatively encouraging. Meanwhile, additional contribution from its recently acquired Perth asset, the progressive completion of 8 Chifley Square and the full contribution from Ocean Financial Centre should continue to lift revenue.
Recommendation
Maintain BUY at S$1.28 TP. We continue to like the reit for its strong earnings visibility supported by long-weighted lease expiry of 7.2 years. While gearing has increased to 44.1%, we note that its other financial metrics remained healthy including management confidence in refinancing its S$598m due end of the year. FY13/14F yields at 6.6-6.7%, one of the highest among REITs. Maintain Buy at an unchanged DCF-backed TP of S$1.28.
Keppel REIT – Kim Eng
More of the Same Despite New Name
Quarterly earnings remained steady. KREIT (officially renamed as Keppel REIT wef from 15 Oct) posted a 3Q12 distributable income of SGD51.7m – a 94% YoY increase mainly due to contributions from Ocean Financial Centre (OFC). This was largely in line with expectations. With a 3Q12 DPU increasing 1% QoQ to 1.96 cents, 9M12 DPU now stands at 5.8 cents. We adjust our forecasts to include the recent acquisition of a 50% stake in the Old Treasury Building in Perth. Upgrading KREIT to HOLD, with a fair value of SGD1.09.
OFC occupancy only improves marginally. KREIT’s Singapore portfolio occupancy remained healthy at 98.2%, but the occupancy rate at OFC improved just marginally from 92.3% in 2Q12 to 95% in 3Q12. All leases expiring in 2012 have already been renewed and only 0.3% of the leases (by NLA) will be due for review in 4Q12.
Further diversification into Australia. KREIT recently announced that it will be acquiring a 50% stake in the Old Treasury Building in Perth for an estimated consideration of AUD165m (SGD211.2m). The development is only expected to be completed in 2015, but in the meanwhile, KREIT will enjoy an effective return of 7% based on its progressive capital contribution. The Government of Western Australia has already pre-committed to 98% of the net lettable area on a 25+25 year lease, which increases KREIT’s portfolio WALE to 7.5 years.
Fund-raising still a possibility. Post-acquisition of the Old Treasury Building, KREIT’s gearing is expected to creep up to 45% – right on the cusp of what is generally perceived as an acceptable level for S-REITs. We note that the current commitment level at MBFC Tower 3 has edged up to ~76%. At this rate, the occupancy level could exceed 90% by this time next year, suggesting that the property may be ready for acquisition then. Based on the current gearing level, KREIT would very likely have to undertake an equity fund-raising to fund the acquisition.
Fairly-valued. Due to the long WALE and certain rental supports, KREIT’s DPUs are expected to remain resilient up to FY15F, but the prospect of equity fund-raising remains a near-term overhang. We upgrade KREIT to HOLD, with a DDM-derived target price of SGD1.09.
Religare Health Trust – Phillip
Exposure to India's Healthcare Sector
Company Overview
Religare Health Trust, a business trust, comprising healthcare assets in India. Its mandate is to invest in medical and healthcare assets and services in Asia, Australasia and global emerging markets, including medical and healthcare asset developments.
- RHT's initial portfolio consists of 11 clinical establishments, four greenfield clinical establishments and two operating hospitals valued at S$748mn
- At the IPO price of S$0.90, RHT is trading at one time to its book value and appears inexpensive
- The institutional tranche was 2.5 times oversubscribed
What is the news?
RHT is scheduled to list on the third week of Oct-12. Approximately S$510.8mn will be raised from the public offering. 95% of the proceeds will be uitilised to partially fund the initial portfolio. Its initial portfolio consists of 11 clinical establishments (S$714mn), four greenfield clinical establishments (S$29mn) and two hospitals managed and operated by RHT (S$5mn), which are all geographically diversified across India.
How do we view this?
RHT provides unique value proposition for investors to have exposure to the growing demand of quality healthcare services in India and Asia Pacific. We like RHT's service fee revenues term structure that offers both downside protection (15 years term with annual escalation of 3%) and upside potential (7.5% of Fortis companies' operating revenue). In addition, rising affluence in upper middle class segment and underserved Indian healthcare market would benefit RHT. Foreign exchange risk is the main concern for RHT but forward contracts are put in place to hedge the currency translation up to FY2014.
Investment Actions?
On the valuation, RHT is priced at one time to book. The price of RHT appears inexpensive on the P/B basis relative to the rich P/B valuation of Ascendas India Trust (a-iTrust) at 1.27 times which is way above its historical P/B mean of 0.83. Annualised FY13 dividend yield of 9.0% including the distribution wavier (up to FY2014), looks appealing given the current slow growth and yield-starved period. By stripping out the distribution wavier, the yield is around 6.5% which is lower than a-iTrust yield of 7.1%. The institutional tranche was 2.5 times oversubscribed according to the news flow compared to Courts Asia which was 3.4 times subscribed.