Month: January 2013
CCT – DBSV
Looking for growth catalysts
- Full year DPU of 8.04 cts in line with expectations
- Steady occupancy, positive rental reversion, higher contributions from 6 Battery Road to drive FY13 earning.
- Low gearing and strong balance sheet can be used to drive inorganic growth
- Maintain HOLD at a higher TP of S$1.54
Highlights
In-line results. On a year-on-year basis, gross revenue and NPI rose by 8.0% and 1.6% respectively. The uplift in income was driven by the higher revenue from HSBC Building, the additional contribution from Twenty Anson and the higher income support from One George Street (OGS). NPI margin held steady at 77% as nonrecurring property tax refunds offset higher operating costs. DPU came in at 2.05cts, representing a +6.8% after retaining the $0.2m tax exempt income from QCT. NAV rose 2.5% to $1.62 upon a revaluation gain of S$154m. This largely led by cap rate compression of 25bbp to 3.75% -4.25% for its offices, alongside more moderated rental assumptions, resulting in a revaluation gain of S$154m.
Our View
Moving in the right direction. Occupancy continued to hold steady at 97.2% with average portfolio monthly rents moving up to S$7.64 psf from S$7.53 psf a quarter ago. Positive rental reversion is expected to continue as the average monthly rents for the 26.2% (gross rental income) leases expiring this year are at S$7.44 psf – S$7.53 psf vs Grade A market rents of S$9.58psf. Pre-commitments at 6 battery road are coming in strong. 91% and 86% of the 200,000 sf of space completed in 2012 and the final 171,000 sf scheduled for upgrading works in 2013 have been taken up respectively. Meanwhile, OGS’s occupancy held up pretty well at 92.5% despite the exit of a few large tenants. Underlying rents of S$8.50 – $9.50 psf have moved up closer to the income support rents of S$11.20 psf, which partly mitigate the income vacuum post the expiry of income support in July 2013.
Prudent capital structure. Gearing remains low at 30.9% and the trust only has about $50m or 2% of its debt due for refinancing in 2013. That would give the trust up to S$1b debt headroom (40% gearing) to undertake AEI work for some of its older projects or to capture accretive acquisition potential.
Recommendation
Maintain HOLD. We have nudged upwards our TP and FY13/14DPU by 3% to adjust for the better rents achieved at HSBC. Upside risk will hinge on potential accretive acquisitions or better-than-expected leasing performance at CapitaGreen and OGS
ART – DBSV
An eye on high growth Asia
- 4Q12 results in line
- Moderate outlook with bright spots in Asia
- An eye on growth, TP raised to S$1.49
4Q12 DPU of 2.0 Scts in line. Ascott Residence Trust (Ascott REIT) reported 4Q12 distributable income of S$22.8m (DPU of 2.0 Scts) which was 10% higher y-o-y on the back of a 1% growth in topline to S$75.9m. This was due to the income contribution from its 4 newly acquired properties while portfolio RevPAU saw a slight dip of 5% to S$139/night. Translation impact on gross profits remains manageable at -3.3%.
Moderate outlook but with bright spots within Asia. While there is a general cautious mood amongst corporate clients, Ascott REIT will be taking a more active management role in starting refurbishment programs in order to refresh their product and raise room rates to optimise returns. There were bright spots noted in operations like China, Philippines, Indonesia and UK (combined forms c37% of FY13F topline), which are seeing improved demand while the remainder of its operations are expected to remain fairly stable, except for Vietnam, where there is increased competition.
An eye on growth, BUY TP S$1.49. We maintain BUY with a higher TP of S$1.49 after tweaking our forward RevPAU estimates and ascribing a lower discount rate. Looking ahead, management remains focused on growing its presence in growth markets in Asia and is reviewing opportunities to acquire in the region. Assuming a target initial yield of 6.0%, a debt cost of 3.5% and keeping gearing constant, we estimate that acquisitions of up to S$500m could boost DPU by up to 10.1% and add a further S$0.10 to our TP.
Suntec – DBSV
AEI growth priced in
- Results in line
- Focusing on delivering AEI, strong precommitment.
- Positives from AEI priced in, downgrade to HOLD at an unchanged TP of S$1.70
Suntec 4Q results are in line. NPI on a year-on-year and qo-q basis recorded a decline of 41.3% and 20.5%, respectively, which is in line with expectations. The was largely led by the lower contribution from Suntec Mall as the reit executed its AEI plans, as well as the income vacuum from the divestment of CHIMJES, which was partly mitigated by the strong office occupancy (99.7%) and positive rental reversions at Suntec offices (rents secured at $8.98 psf). Accounting for the higher contribution from MBFC phase 1, DPU came in at 2.326cts, representing a slight 6.2% drop. Full-year DPU of 9.49 cts is in line with our forecast. NAV rose by 5% to S$2.044 on the back of a revaluation gain of c.S$117m.
Executing Suntec retail AEI. Looking forward, AEI at its Suntec retail mall is likely to be its main focus on the back of a subdued acquisition outlook. Execution of Phase 1 AEI at Suntec City Mall is on track for completion in 1Q. Precommitments came in strong at 83% and 37% for Phase 1 and 2, respectively. While Phase 2 AEI spanning over 380,000 sf will commence by end-Feb, we expect the rental vacuum to be partly mitigated by (i) the incremental income from the completion of P1 AEI work; (ii) the additional 125,000 sf of space created at L1/2 of the conventional centre; (iii) positive rental reversions at Suntec offices.
Downgrade to HOLD on valuations. While we like the reit for its proactive leasing strategies, we believe the positives of the Suntec Mall AEI work have already been priced in. Given the lack of positive catalysts in the near term, we downgrade our rating for Suntec Reit to HOLD, but maintain the target price at S$1.70. Upside risks to our call will hinge on better-than-expected execution of its enhancement initiatives and the topping up of distribution from the sale proceeds of CHIJMES, which we have not yet factored in.
CCT – CIMB
Rich Valuations
4Q12 remained an active quarter of leasing for CCT. In 2013, all eyes are likely to rest on One George Street with the expiry of yield support and departure of major tenant, Wong Partnership in mid-2013. We view CCT’s current valuations as stretched.
4Q12/FY12 DPUs met our and market expectations, at 26%/101% of our full-year forecast. Factoring in 4Q12, we tweak DPUs but keep our DDM-based target price (discount rate: 7.3%) unchanged. We maintain an Underperform on valuations and uncertainty after income support falls off.
Steady leasing
We expect FY13 DPU to be flat as positive rental reversions and potential interest cost savings (with the expiry of a high-cost interest rate swap) mitigate downside from downtime on back-filling and expiry of income support at One George Street. 4Q12 DPU was up 7% yoy on higher contributions from HSBC Building and 20 Anson.
Management remained active in leasing in 4Q, signing 140,000sf of leases. Demand was still mainly from smaller and mid-sized non-financial tenants. With back-filling, occupancy inched up to 97.2% from 97.1% last quarter. Management is targeting an estimated 171k sf of space (86% pre-committed) for upgrading at Six Battery Road. All eyes this year are likely to rest on One George Street with the expiry of yield support (passing rents of S$8+ psf vs. support rents of S$11.5psf) and impending departure of major tenant Wong Partnership in mid-2013.
Lower cap rates
CCT’s asset portfolio was revalued upwards by S$129m (+3%) as a 25bp cap rate compression on its Grade A offices offset lower forward rental projections. Office assets are now valued at 3.75-4.25% cap rates.
Maintain Underperform
Given the flattish DPU outlook and uncertainty with the fall-off in yield support, we see valuations stretched at 1.1x P/BV and forward yields of 4.8%. Upside could also be capped by its two tranches of convertible bonds due 2015 and 2017 which are already in the money, at S$1.23/ shr and S$1.64/shr, respectively.
CCT – DMG
Good Quarter But Not Without Concern
FY12 earnings in line with expectations. CapitaCommercial Trust (CCT) reported its FY12 results with a DPU of 8.04S¢ (+6.9% YoY); largely inline with our estimate of 8.02S¢. Revenue and net property income for the period came in at S$375.8m (+4.0% YoY) and S$295.5m (+6.6% YoY) respectively. Distributable income came in at S$228.5m (+7.4% YoY); mainly attributable to revenue contribution from the acquisition of Twenty Anson and higher rental income from HSBC Building. These results are generally respectable as 2012 has proven to be a challenging market for the office sector. However, the increase in income support, particularly for One George Street, remains a concern as it rises to S$4.2m in 4Q12 (vs S$2.2m 4Q11). Going forward, although CCT’s portfolio is expected to benefit from positive rental reversion, as 28.8% of NLA is due for renewal in FY13, the expiry of income support at One George Street in July 2013 proves to be a concern in the short term. With a forecasted FY13 dividend yield of 4.7% at current share price, we have downgraded our rating on CCT to Neutral with a slightly tuned down DDM based (COE: 8.0%; TGR: 1.0%) TP of S$1.70.
Concern on the ending of income support for One George Street. During 4Q12, it was noted that the income support for One George Street amounted to S$4.2m (S$18.1m for FY12) vs S$2.2m for 4Q11 (S$5.0m for FY11). This was mainly attributed to negative rental reversion in this property coupled with the moving out of several tenants over the year (committed occupancy for this building was 92.5% in 4Q12). As the income support is due to expire in July 2013, the relatively low occupancy and negative rental reversion posts to be a key uncertainty in our valuation of CCT. In view of this, we have tuned down our FY13 DPU estimate by c.1.5% to justify for a probable weaker 2H13.
Well positioned to enjoy positive rental reversion in FY13. Going forward, we believe CCT will remain largely stable on the back of additional contribution from Twenty Anson and positive rental reversion from leases that will expire in 2013 (26.2% of gross rental income). Currently, CCT’s average passing rent for the leases to expire in FY13 is at S$7.64 psf/mth. As compared to the market rate of S$9.58 psf/mth, we believe CCT is currently well positioned to capture potential rental upside when its leases expire in FY13.
Downgrade to NEUTRAL with lower TP of S$1.70. As CCT currently trades at a forecasted FY13 dividend yield of 4.7%, coupled with a possible weaker 2H13 on the back of the upcoming lost in income support as highlighted above, we have downgraded our rating on this counter to NEUTRAL with a slightly tuned down DDM-based TP of S$1.70.