Month: January 2013
Fortune – OCBC
EXCELLENT FY12 RESULTS AS EXPECTED
- Record DPU growth rate
- Portfolio valuation up 5%
- Maintain BUY
Rental reversions likely to be in mid-teens
FRT’s had a solid FY12, with revenue climbing 22.5% YoY to HK$1.11b and NPI rising 22.8% YoY to HK$788.3m. The two properties acquired on 17 Feb 2012 accounted for 12.4% of NPI growth. The remaining 10.4% of NPI growth from the original portfolio of 14 properties was from strong reversion and AEI results. Passing rent for the original portfolio was up 8.3%. Overall rental reversion was high at 19.8%, partially because of the low base in 2009. Management indicates that 2013’s rental reversions are likely to be in the mid-teen percentages. FY12 DPU of 23.35 HK cents was up 23.0% YoY, representing the highest growth trend in the REIT’s 9-years history. The results were in line with ours and consensus.
More AEI opportunities
Portfolio occupancy climbed from 96.1% as of 30 Sep 2012 to 97.7% as of 31 Dec 2012, reflecting good recovery upon AEI completion. Significant portions of GRA for FRT’s three largest assets by valuation, i.e., Fortune City One (FCO), Ma On Shan Plaza (MOSP) and Metro Town, will expire (43.1%, 41.4% and 69.9% respectively) in 2013. For FCO, 2013 will see the first reversion of leases from the AEIs that were completed in 2010. Following the completion of HK$100m AEI in 4Q12 (ROI of over 20%), management is considering a HK$10-20m AEI at FCO to improve the wet market and increase occupancy. At MOSP, FRT will explore getting back some space from the supermarket to bring in some higher yielding trades (e.g. another AEI at HK$10-20m). At Metro Town, there is mark-tomarket upside because of improvement in foot traffic. One of the Feb acquisitions, Belvedere, may see a ~HK$80m AEI starting end 2013.
Solid balance sheet
The portfolio valuation increased by 4.9% to HK$20.2b between Jun to Dec 2012; capitalisation rates stayed the same. The valuation of the original portfolio climbed 5.0% to HK18.0b. FRT has a low gearing of 23.4% and no refinancing needs till 2015.
Maintain FV
We are maintaining our fair value of HK$7.28 and a BUY rating on FRT. FRT is one of our top REIT picks and has an attractive P/B of 0.75x.
MIT – DBSV
Sailing along just fine
- 3Q13 results in line with expectations
- Positive rental reversions but growth moderating
- Maintain HOLD and S$1.43 TP
Highlights
3Q13 DPU of 2.29 Scts in line. Mapletree Industrial Trust (“MINT”) reported gross revenue and net property income of S$69.2m and S$49.1m, higher by 6% and 8% y-o-y respectively. The stronger performance was largely organic-led with positive rental reversions portfolio wide, while occupancy levels remained fairly stable at close to 95.2%. As a result, distributable income came in 7% higher at S$37.7m, translating to a DPU of 2.32 Scts. On a sequential basis, 3Q13 was an improvement with moderate rises of 1.5% and 1.4% in topline and net property income, respectively.
Positive reversions seen; strong retention rate. Portfolio retention rate was high at 85%, despite average rental hikes for new leases and renewals of 8%-24%, which implies the stickiness of the tenants in their portfolio. As a result, portfolio average rental inched up higher to S$1.61 psf/mth (vs S$1.59 in 2Q13).
Our View
Cautious outlook and pressure points in 2013. Looking ahead in the next financial year, MINT will be renewing close to 30% of its revenues, of which a majority are from its flatted factory space. Given pressure from new competing supply of new industrial space, coupled with a tougher operating environment for SMEs due to cost hikes on the labour front, we expect reversionary gap to compress in the coming quarters and retention rate to fall. In addition, management is expecting to see net property income margin of 70.9% to be under pressure – owing to expected cost increases from maintenance, utilities and security contracts expected to be renewed in the coming year.
Asset enhancement initiatives and development projects completing end of 2013 to lead growth initiatives. MINT is currently embarking on 3 asset enhancement projects (Woodlands Central, Toa Payoh North 1 and The Signature) and 1 development project (Built-to-suit for Kullicke & Soffa) which are on track for completion by the end of FY13. These properties should contribute positively to the trust performance in the medium term. For this quarter, MINT has instituted a dividend reinvestment scheme (DRP) of which proceeds can be channeled towards capex and maintenance needs.
Recommendation
HOLD Call maintained, TP S1.43. While FY13-14F yields of 6.5%-6.7% are attractive vs peers, we believe positives of its resilient portfolio are priced into the stock. Maintain HOLD and DCF based TP of S$1.43.
ART – CIMB
Headwinds persist in 2013
We see more headwinds in 2013, with Asia facing margin pressure and currency fluctuations across the board, albeit mitigated in part by downside protection on >40% of portfolio earnings. Acquisitions and pick up in demand for serviced residences are re-rating catalysts.
4QFY12 met our and consensus expectations at 23%/100% of our full year estimates. We lower FY13-14 DPUs on lower margins and introduce our FY15 estimates. DDM-based target price inches down slightly (disc rate: 8.2%). Maintain Neutral.
Lower margins and revaluation deficit
4Q12 gross profit dipped by 4% yoy (3Q: +2%) on higher staff costs and commission expenses. The European portfolio held up operationally. UK’s refurbishment and acquisition of the Hamburg asset boosted its European revenues, but forex movements again eroded the positives. Gross profit for Europe dipped 1% yoy. In Asia, performance was unexpectedly weak as higher operational costs, VND/SGD depreciation and divestments offset contributions from acquisitions and uptick in demand. Weaknesses in Vietnam and Indonesia led to 5% yoy decline in RevPAU to S$139.
Forex fluctuation dipped below -3% limit
Forex fluctuation exceeded internal +/-3% limit, hitting -3.3% on a portfolio basis (-2.8% in 3Q12) led by foreign currency weakness across the board since Dec 2011. While cashflow hedging of Euro and GBP may be considered, management expects forex impact to be mitigated by more stable European economies in 2013.
Expect acquisitions
We continue to expect growth from acquisitions and refurbishments this year, offset by lower margins in Asia and more negative forex fluctuations. A revaluation deficit of S$27.9m was recognised in 4Q12 due to Vietnam, France and Philippines. Management is most concerned about Vietnam (c.15% of gross profit) given cost pressures and slower corporate travel.
MCT – CIMB
VivoCity remains the Star
Positive rent reversions from previously negotiated leases at VivoCity kicked in in 3Q, which together with stronger GTO rentals, drove a 10% qoq jump in VivoCity revenue in 3Q. We remain positive on VivoCity, MCT’s largest asset, underpinned by its healthy operating stats.
3QFY13/9M13 met our expectations but was above street, forming 26/75% of our FY13 forecast. We tweak FY13 DPU but retain FY14-15 DPUs. We maintain Outperform with an unchanged DDM-based target price (discount rate: 6.9%). We see catalysts from stronger-than-expected rental reversions.
Strong showing at VivoCity
3QFY13 NPI was up 17% yoy as margin improvements added to a 12% rise in revenue. NPI growth was driven mainly by VivoCity, as positive rental reversions booked in previous quarters, coupled with stronger GTO rentals in 3QFY13 drove a 10% qoq jump in VivoCity. MCT had booked a 33% uplift in fixed rents at VivoCity. We estimate that passing rents at VivoCity edged closer to S$12psf in 3Q. Operating stats remain healthy, with yoy growth in shopper traffic (+3.8%) and tenant sales (+3.1%) still a tad above peers despite fit-outs by some tenants, auguring positively for future rental reversions.
Progress at ARC; Mapletree Anson acquisition approved
Alexandra Retail Centre (ARC) made further leasing progress in 3Q, as committed occupancy rose to 80.4% from 75.9% last quarter. The proposed acquisition of Mapletree Anson was approved by unitholders at the EGM on 23 Jan. Asset leverage should creep up from 35% as at end-3Q (on a revalued book during acquisition) to 41% after the deal.
Maintain Outperform
MCT is currently trading at forward yields of 5.3% and 1.2x P/BV, which appear undemanding relative to other retail REITs given room for further rental growth at a bustling VivoCity. We maintain Outperform as we see catalysts from stronger-than-expected rental reversions at VivoCity and the newly-acquired Mapletree Anson.
FirstREIT – OCBC
ON THE LOOKOUT FOR MORE ACQUISITIONS
- FY12 yield of 6.8%
- Indonesia remains the bedrock for growth
- HOLD; but FV raised to S$1.00
4Q12 results within expectations
First REIT (FREIT) reported 4Q12 results which were within our expectations. Gross revenue rose 10.7% YoY to S$15.4m, driven by maiden contributions from two new properties which were acquired in Nov 2012 and higher rental income from its remaining portfolio. Distributable amount to unitholders declined 8.7% YoY to S$11.1m, but this was due to a special distribution of S$2.2m in 4Q11. Excluding this, distributable amount to unitholders would have increased by 11.3% instead. For FY12, gross revenue rose 6.7% to S$57.6m and was just 0.2% below our full-year projection. Distributable income to unitholders rose 4.8% to S$46.0m, and formed 98.8% of our FY12 forecast. DPU for FY12 was 7.26 S cents, versus 7.01 S cents in FY11, and translates into a yield of 6.8%.
An eye for inorganic growth opportunities
Following FREIT’s recent acquisitions, its gearing (debt-to-assets) ratio increased from 15.0% in 3Q12 to 25.7% in 4Q12. We believe this is a manageable level as it is still one of the lowest in the S-REITs space. Looking ahead, we expect FREIT to aggressively seek inorganic growth opportunities, which are likely to be financed by both debt (leverage on low interest rate environment) and equity (trading at 30% premium to NAV), in our view. Indonesia would remain as its key market, given the nation’s robust healthcare dynamics and visible pipeline of acquisition targets from its sponsor Lippo Karawaci. Management has identified five potential targets in areas such as Bali, East Kalimantan and East Sumatra and will assess the feasibility of each potential investment. We expect acquisition terms to be largely similar to the two assets purchased in Nov last year.
Maintain HOLD
We make some minor adjustments to our estimates and also incorporate lower discount rate assumptions for FREIT’s Indonesian assets in our model, given improving economic fundamentals in Indonesia. This lifts our fair value estimate from S$0.98 to S$1.00. But we maintain our HOLD rating as we view FREIT’s valuations as expensive, with the stock trading at 1.3x FY13F P/B, a rich premium to its peers’ average.