Month: January 2013
Kep REIT – DBSV
Fair value for a strong and steady portfolio
- Results in line
- Robust occupancy, long leases provide income stability
- Downgrade to HOLD on valuations
Results in line with expectations. Kreit reported an 80.4% y-oy rise (+1.5% qoq) in its 4Q top-line to $40.8m while NPI grew 84.7% y-o-y and 2.2% q-o-q to $32.8m. The higher jump in NPI was driven by the additional contribution from OFC. Taking into consideration the higher interest income from MBFC Phase 1 and 8 Chifley Square, distribution income improved 45.1% y-o-y to $51.9m translating to a DPU of 1.97cts. NAV rose to S$1.30/unit on the back of revaluation gain of c.S$140m. Cap rates for its Singapore and Australia portfolio are at 4.0% and 6.6%-7.0%, respectively.
Robust occupancy, forward leasing and long leases mitigate downside leasing risks. All local office assets (except Ocean Financial Centre at 95.9%) are 100% occupied. The Reit’s proactive leasing efforts in forward locking its leases have also reduce FY13 lease expiry and rent reviews to 4.4% and 3.0% respectively, which should help to mitigate leasing risk. Meanwhile, Australia properties continue to enjoy high occupancy of 97.4%-100%. Including the recent acquisition of the Old Treasury Building office, weighted average lease expiry tenure is c.7.0 years implying strong income visibility. As for ORQ, the underlying monthly rents of a c.S$9 psf are still below the income support level of c.S$10 psf. We understand that the group is still in the midst of rent review for some of their tenants. Post the review, rents should move up nicely. Going forward, earnings will be driven by (i) the additional contribution of Old Treasury Building, (S&P will likely completes in 1H); (ii) completion of the OFC retail and car park podium and 8 Chifley Square in the 2H13; and (iii) tax savings from the conversion of MBFC Phase 1 to LLP structure.
Downgrade to HOLD on valuations. We continue to like Keppel Reit for its stable and resilient cashflow, the share price is now trading close to our TP. We have downgraded our call to HOLD on valuations. While the next catalyst could come from acquisitions, we think an accretive acquisition could be modest as current physical prime office yields are trading at sub 4%. We see re-rating catalysts from stronger rentals reversions.
Kep REIT – Kim Eng
Building on a Good Year
Results did not surprise. Keppel REIT (KREIT) reported a 4Q12 distributable income of SGD51.9m (+45% YoY, flat QoQ), while full-year distributable income surged by 79% YoY to SGD201.9m. These were due mainly to contributions from Ocean Financial Centre (OFC). Full-year DPU was 7.77 cents, in line with expectations. KREIT’s portfolio occupancy is a healthy 98.5%. Maintain HOLD on valuation.
Portfolio near full-occupancy. With the exception of OFC which has a committed occupancy of 95.9%, the rest of KREIT’s Singapore properties are effectively at full-occupancy. Management continued to cite demand as coming from energy and resources companies, legal firms and corporate services providers. In the fourth quarter itself, nearly 80% of the leases were signed with new tenants, with the remaining 20% coming from existing ones seeking expansion.
FY13 growth drivers. Underpinning DPU growth in FY13 will be rent reviews to be carried out at One Raffles Quay (ORQ), where we expect positive rental reversion as under-rented leases are marked-to-market. In addition, the retail and car park podium at OFC and 8 Chifley Square are on track for completion in 3Q13. Management is also comfortable with KREIT’s current gearing level of 42.9%, considering that the interest coverage ratio is a high 4.8x.
Likely pause in Australian acquisitions. KREIT will be shortly completing the purchase of the Old Treasury Building in Perth, Australia, and management is happy to maintain status quo with four Australian assets, unless a very compelling value proposition comes along. In fact, management alluded that it could possibly consider divesting one or more of its Australian properties at the right price to help fund future acquisitions. In addition, management stated that it has yet to review the possible acquisition of MBFC Tower 3. We reiterate that a likely triggering event would be when the occupancy improves to above 90%, up from the last reported 76%.
Maintain HOLD. We raise our DDM-derived target price to SGD1.25 as we adjust our cost of equity and terminal growth rate assumptions, and maintain our HOLD recommendation base on valuation grounds.
CLT – OCBC
STILL ROOM FOR UPSIDE
- 4Q12 performance in line
- Enhanced financial position
- Valuation remains attractive
4Q12 results met forecasts
Cache Logistics Trust (CACHE) turned in a consistent set of 4Q12 results after market close yesterday. NPI grew 13.9% YoY to S$18.3m, while distributable income rose 12.8% to S$15.2m on the back of contribution from its two acquisitions in 2012 and rental escalations within its portfolio. DPU for the quarter registered a 2.5% increase to 2.154 S cents, notwithstanding an enlarged unit base from the private placement in Mar 2012. For FY12, DPU totalled 8.365 S cents (+1.6%), matching our/consensus full-year DPU forecasts of 8.29/8.3 S cents. This translates to an attractive FY12 yield of 6.4%, higher than the S-REIT sector average yield of 5.8%.
Rock solid lease profile
CACHE’s portfolio occupancy as at 31 Dec 2012 remained at 100% as its leases are predominantly based on triple-net master lease structures. Weighted average lease to expiry also stood resilient at 3.9 years (4.1 years in prior quarter), with only 1.7% of GFA due for renewal in FY13. In addition, its built-in rental escalation for master leases was maintained at 1.25-2.5%. This should give CACHE good earnings visibility and healthy organic growth in our view.
Strong fundamentals triumph
With the major refinancing exercise in Jun 2012, CACHE had successfully increased its loan-to-value over its previous collateral (including an enlarged revolving credit facility), reduced its all-in financing costs by 37 basis points YoY to 3.52% and enhanced its debt expiry profile (no debt will mature until 2015). Aggregate leverage was also healthy at 31.7%, and represented a 0.9ppt improvement QoQ due largely to a S$26.2m revaluation gain on its portfolio assets (+2.8%). This provides CACHE with the financial resources and flexibility to drive its new business initiatives. We now factor in the results into our forecasts. As such, our fair value inches up from S$1.30 to S$1.32. Maintain BUY.
Kep REIT – CIMB
Fine end to FY12
KREIT continued to provide a positive read-through of the office market in 4Q, with management guiding positively for ORQ. Headline yields are compelling but we see this as merely compensating for its higher asset leverage and income support.
4Q/FY12 DPUs were spot-on at 25/100% of our FY12 forecast, but came in slightly above street expectations. We raise our FY13-14 DPUs on stronger ORQ performance and adjustments to income support at OFC. Our DDM-based target price (discount rate: 7.7%) rises accordingly but we maintain our Neutral call. We see rerating catalysts from accretive acquisitions.
Steady quarter
4Q12 DPU was up 40% yoy on acquisitions and positive take-ups, partially inflated by a distorted base in 4Q11 due to a mismatch in the timing of OFC contributions and unit-base expansion. Qoq, DPU edged up 0.6%. Results provided a positive read-through of a stabilising office market. Portfolio occupancy rose to 98.5% from 98.2% on higher take-ups at OFC, where signing rents ranged S$9-11psf. At ORQ, where the market is concerned about the drop-off of income support (ORQ saw the last of its GST rebates in 3Q), management guided that the impact should be mitigated by the strong rental reversions (due to low expiring rents) on its rental reviews at the asset and FY12 acquisitions.
On acquisitions
Thanks to revaluation gains, asset leverage dipped to 42.9% from 44.1% as at end-3Q, albeit still the highest among S-REITs. Although this could warrant some equity fund-raising for sizeable acquisitions, management highlighted the possibility of asset divestment to reduce the quantum of possible cash calls. We understand that management has yet to indicate interest for a potential purchase of MBFC Tower 3.
Maintain Neutral
KREIT currently trades at 1.1x P/BV and forward yields at 5.7%. Headline yields are compelling, but we see this as merely compensating for its higher asset leverage. This should warrant equity-raising for further purchases, which could, in turn, limit accretion.
CMT – DMG
Stable quarter but high valuation
FY12 DPU in line with expectations. CapitaMall Trust (CMT) reported FY12 DPU of 9.46S¢ (+1.0% YoY), inline with our FY12 DPU estimate with a deviation of +0.2%. Revenue for this period grew to S$661.6m (+4.9% YoY) while net property income rose to S$445.3m (+6.5% YoY) mainly due to an increase in contribution from JCube, Bugis+ and positive rental reversion from both new and renewal of leases. Going forward, we expect CMT to continue to register strong numbers on the back of 1) contributions from JCube, Bugis+ and Orchard Atrium which were opened in April, August and October 2012 respectively; 2) additional income contribution from Westgate which is expected to be completed in December 2013 and 3) the repositioning of IMM as a value-focused mall with about 30 outlet brands. Although we like CMT for its bright prospect, defensive play (76% CMT’s revenue contributed from suburban malls) and a better than expected pre-commitment rate in its Westgate property (c.50%), given its current valuation, trading at a P/B of 1.3x and a dividend yield of 4.3% we believe this counter is fairly valued as we downgraded our call on CMT to NEUTRAL with an unchanged DDM based (COE: 7.2%, terminal growth: 2.0%) TP of S$2.27.
New contribution from Bugis+, JCube and Orchard Atrium. At the end of December, approximately 99.5%, 99.6% and 95.3% of NLA for JCube, Bugis+ and Orchard Atrium respectively have been committed. Due to the excellent locations coupled with diversified tenants, Since the re-opening of Orhard Atrium in 4Q12, this mall recorded on average of 1.2m footfall on a monthly basis. As Orchard Atrium continues to gain popularity coupled with higher occupancy in the coming months, we expect CMT to continue to benefit from this AEI going forward.
Westgate on-track for completion in 4Q13. Westgate a JV project being the first greenfield development project of CMT is currently on-track for completion in 4Q13.As revealed previously (November 2012), about half the retail space has been pre-leased at an average rent of S$16-18 psf/month. Concurrently, IMM is undergoing an AEI to reposition it as a value-focused mall. The entire exercise will be completed by May 2013 with a total of 50 outlet brands being repositioned.
Counter fairly priced. Although the outlook of CMT continues to remain strong going forward, we believe most of the positive news have been factored into the share price, giving this counter limited room for upside in the near term. In addition, with the counter trading at 1.3x P/B, coupled with a FY13 forecasted dividend yield of 4.3% , we have downgraded our call on CMT to Neutral with an unchanged DDM based TP of S$2.27.