Month: January 2013
CLT – AmFraser
Delivering another year of stellar performance
Cache Logistics Trust delivered another year of stellar performance, with its FY2012 revenue and distributable income up by 12.4% and 9.5% respectively. Following our downgrade call to hold on 25 October 2012, Cache witnessed a correction of c.6%. While it has recovered ground in recent months, we believe Cache is now close to being fully valued. We maintain HOLD with fair value of S$1.315.
Forward dividend yield of 6.7% for Cache. We continue to like the sustainability of Cache’s dividend yield, which remains one of its key investment positives. Factors namely its triple‐net master lease structure, 1.25%‐2.5% annual rental escalation rates and strong cash flow generation will continue to underpin the stability of Cache’s distribution yield.
Minimal releasing risks in 2013. We would also highlight that Cache faces negligible releasing risks in 2013. Only 2% of its GFA is up for renewal this year, leaving it well‐insulated against current macroeconomic uncertainties.
Hungry for acquisitions. Cache’s current gearing stands at 31.7%, which provides ample headroom for it to pursue acquisitions in its focus markets of Singapore and China. Should Cache choose to finance its acquisition entirely with debt, it would find itself with an additional debt headroom of S$48.8mil. Given the assumption of a 7.1% yield on acquired properties, this would be 2% accretive to our target price. Alternatively, Cache could finance its acquisition through a mix of debt and equity and take on additional leverage of S$127mil based on a debt‐to‐asset ratio of 45%. Assuming that acquisitions come at a 7.1% yield, we estimate that such a scenario would be 3% accretive to our current fair value.
Assessing the impact of the seller’s stamp duty. From a divestment perspective, the recent imposition of the seller’s stamp duty on industrial properties is unlikely to bear a significant impact on Cache given that its assets are held with a long‐term investment horizon in mind. As its potential acquisition targets are typically under JTC leases, which have to fulfil a minimum lease term before they can be divested, Cache is not likely to face a substantially higher acquisition price tag as well.
Cambridge – DBSV
More surprises in 2013
- 4Q12 results in line; NAV written up by 4.4% with potential for further expansion
- Acquisitions and AEIs to contribute positively in the coming quarters
- BUY, raised to S$0.75
Highlights
4Q12 results in line. Cambridge REIT (CREIT) reported a 15.6% and 20.7% y-o-y rise in topline and net property income to S$24.0m and S$20.8m respectively. Growth was largely attributable to the additional income from the acquisition of five properties, rental escalations and higher reversions from its multi-tenanted properties, which more than offsets the impact of divestments. Portfolio occupancy remained high at 99.2% (vs 98.6% in 4Q11). Distributable income rose 12.4% y-o-y to S$14.9m (inclusive of S$3.3m of capital distribution), translating to a DPU of 1.229 Scts (+9.9% y-o-y).
NAV raised to 4.4% to S$0.64; further expansion possible. Portfolio valuations recorded a net gain of by 4.4%, NAV increased slightly 4.4% to S$0.64. We believe that further NAV expansion is possible with its recent acquisitions (54 Serangoon North Avenue 4 and 3 Tuas South Ave 4), which are purchased at attractive valuations. Gearing levels remained stable at 38.6% (36.0% after bridging loan repayment in the coming quarter).
Our View
Acquisitions and AEIs to contribute positively in the coming quarters. CREIT’s acquisitions of nine industrial properties worth a collective S$280.4m (of which five were completed in 2012) is likely to more than offset the loss of income from SLA’s compulsory acquisition of 30 Tuas Road and 1 Tuas Ave 3. In addition, the completion of various asset enhancement initiatives and development projects over the course of 2013 will mean incremental growth in revenues and distribution in the medium term. In addition, we see further divestment opportunities in the coming year as the management aims to keep its portfolio contemporary and relevant. Rental reversions in 2013-2014 likely to remain stable. A significant 44.6% of its leases are up for renewal (15% in FY13; 29.6%) where close to 2/3 are from its single-tenanted properties. While we note a potential risk that some of these master-leases might not roll over, this is mitigated by (i) expiring rents that are lower than market levels which means that these properties should see a net uplift in rental income eventually if fully let-out on a multi-tenanted basis (ii) seethrough occupancy for those properties are fairly high. Moreover, the manager is in active negotiations with the vendors to renew the leases ahead of their expiry.
Recommendation
BUY call maintained, TP S$0.75. Our target price is nudged up to S$0.75 after taking into account the latest announced acquisitions. CREIT continues to offer an attractive FY13-14F yield of 7.2-7.6%.
CMT – DBSV
AEI came into fruition
- In line with expectations
- FY13 earnings to be driven by full contributions from JCube, Bugis+ and The Atrium
- Low gearing and strong balance can be utilised to drive inorganic growth
- Maintain HOLD at TP S$2.15
Highlights
In line results. CMT reported 4Q revenue and net property income (NPI) of S$173.67m and S$112.9m, +10% y-o-y and +14% y-o-y respectively. The top-line benefitted from the opening of JCube and Bugis+. On a q-o-q basis revenue grew by 1-3% supported by healthy rental reversions of 5.4% to 10.9% p.a for most of its operating malls. The occupancy rate also rose to 98.2% from 94.8% a year ago upon the progressive completion of the asset enhancement initiatives (AEI) work at various malls. 4Q DPU came in at 2.36 cts after retaining CRCT’s S$4m distribution. The management guided that it will retain CRCT’s FY12 (S$15.3m) and future tax-exempted distribution to part fund its capex purpose for various malls which could amount to S$2m per mall per year.
Our View
AEI to drive FY13 earnings. Going forward, the trust should continue to see positive rental reversion of c.6.0% or 2-3% p.a backed by healthy population growth and low unemployment rate. Occupancy for its existing malls should trend up further when the 81,000 sf of space vacated by Carrefour at Plaza Singapura is filled in 1H2013. We expect The Atrium @ Orchard with 87% occupancy to move up progressively as traffic footfall for the enlarged Plaza Singapura gain momentum. The mall attracted a footfall of 1.2m visitors per month post AEI works. The improved portfolio occupancy coupled with the higher contributions from JCube and Bugis will continue to underpin FY13 earnings growth. Meanwhile, the completion of the retail portion of Westgate (currently 50% pre-committed) at the end of 2013 will help to drive earnings in the medium term Healthy financial metrics . The trust refinanced S$783 m loan in Oct’12 and has unencumbered an additional seven properties to 13 out of the 15 properties. In addition, the trust has also secured financing for its 2013 debt with longer term loan with an average debt maturity of 8.8 years. Gearing has moved down to 36.7% post recent placement and revaluation gain of S$69m placing them well to capture acquisition opportunities
Recommendation
Maintain HOLD at S$2.15. We continue to like CMT for its large cap and its conservative balance sheet which we believe can be utilized to drive inorganic growth. Opportunities could come from a visible sponsor pipeline or even through greenfield developments. We have previously factored in $400m worth of acquisitions in our numbers by end of 2013. Trading at 1.3x P/BV, offering a FY13/14 yields at 4.7%-5.0%, we think much of the positives have already been priced in. Upside surprise hinges on CMT delivering higher than expected returns from its completing AEIs or acquisitions.
MLT – Kim Eng
Looks fairly valued; Catalyst limited
3Q & 9M FY3/13 results inline. 9MFY3/13 revenue at SGD232m (+13% YoY) was 73% of ours and 76% of consensus estimate. 3QFY3/13 revenue at SGD77m (flat QoQ, +8% YoY), was 24% of ours and 25% of consensus estimate. 9MFY3/13 DPU at 5.13 SG-cts (+3% YoY) was 73% of ours and consensus estimates. 3QFY3/13 DPU at 3.53 SG-cts (+0.6% QoQ, +1% YoY) was 25% of ours and consensus estimates. Aggregate leverage inched down to 35.9% from 37% last quarter. Interest rate for 3QFY3/13 averaged 2.40% with an average term of debt of 4.1 years.
Portfolio review. Portfolio occupancy remains stable at 99.2%. MLT garnered 17% positive rental reversions from leases renewed/replaced in 3QFY3/13, mainly contributed by leases in Singapore and Hong Kong. To-date, of the 12.7% of leases (by NLA) due for renewal in FY3/13, the Manager has successfully renewed/replaced 85% of these. We also noted that the Japan portfolio suffered a 4.7% QoQ dip in revenue and 4.6% QoQ decline in NPI. This was attributed to the weakening of Yen against SGD. Nonetheless, management maintained that its impact on DPU is offset by its existing forex hedges.
Acquisition hotspots. For inorganic growth, MLT opined that it will focus more on acquiring assets in China, South Korea Malaysia or even Australia, but less in Japan. The recent Mapletree Wuxi Logistics Park (MWLP) acquisition (completed on 11 Jan) attests to this strategy. We understand that there is a scarcity of modern logistics facilities in China but with only seven properties (including MWLP), we doubt that MLT can scale fast enough to stand against big boys like Global Logistic Properties, which thrive on “network effect” and operational synergies.
Trading yield looks tight for further compression. From our estimates, the implied cap rate for MLT (based on 3QFY3/13 results) is 6%. The counter currently trades at 6.2% FY3/13 DPU yield, which we believe is almost near the end of its yield-compression cycle. We have factored in the completion of the MWLP acquisition. Pending further acquisitions and asset enhancement initiatives, we see limited near-term upside for now. Maintain HOLD with a TP of SGD1.16. We prefer A-REIT (TP: SGD2.60) which has more room for yield compression and DPU growth.
MLT – DBSV
Steady growth profile
• Stable 3QFY13 result
• Resilient portfolio; 17% positive rental reversion led by robust demand in Singapore and Hong Kong
• Future acquisitions are re-rating catalysts; BUY, S$1.22 TP offers 12% total return
Highlights
3QFY13 result in line with expectations. Gross revenues grew 7.7% y-o-y to S$77.4m and net property income 9.7% to S$67.5m. This was attributed to contribution from a larger portfolio (7 Japan properties, 4 in Korea and Malaysia), which also offset lost income from two properties in Iwatsuki Centre, Japan, that were destroyed by a fire in 2011. Organic growth remained fairly modest at 0.5% y-o-y. NPI margin inched up to 87.3%, driven by savings in property maintenance expenses in Singapore. Distributable income inched up 1.1% y-o-y to S$41.8m (after distributions to perpetual securities holders), translating into 1.72 Scts DPU (+1.2% y-o-y); the increment would have been higher at 3% if we exclude divestment gains paid out a year ago.
Our View
Resilient portfolio; Singapore and Hong Kong seeing strong rental reversions. Portfolio occupancy remained healthy at 99.2% and the trust continues to record positive rental reversions to the tune of 17%, largely from Hong Kong and Singapore. Looking ahead, given the relatively sticky nature of warehouse space and only 14.7% of its income up for renewal in the coming financial year, we expect reversions to still remain positive and thus earnings should continue to remain firm.
Future acquisitions could re-rate stock. Recently acquired Wuxi Logistics Hub (@ 8% yield) will start to contribute positively in the coming quarter. And with an implied yield of 5.8%, we expect MLT to remain on the hunt for more acquisitions regionally with a focus on growth regions like China, South Korea, Malaysia and even Australia (sponsor or 3rd party). We continue to believe that future acquisitions will occur in the immediate term and will re-rate the stock.
Recommendation
Maintain BUY rating and S$1.22 TP. We continue to like MLT for its resilient earnings and a visible pipeline of acquisitions that when acquired is likely to lead to higher distributions.