Month: January 2013
CMT – Kim Eng
AEI Plans Under Wraps For Now
Tip of the iceberg. CapitaMall Trust (CMT) reported a 4Q12 distributable income of SGD79.8m (+6% YoY; -1% QoQ), for a full-year distributable income of SGD316.9m (+5% YoY). This translates to a 4Q12 DPU of 2.36 cents and FY12 DPU of 9.46 cents, in line with expectations. We expect the recently completed AEIs to contribute more meaningfully in FY13, with a high possibility of announcements on new AEIs to be made in the 1Q13 results. Maintain BUY.
Growth driven by completed AEIs. On a comparable basis, CMT’s FY12 gross revenue inched up by barely 1.0% YoY, tracking its tenants’ sales growth of 1.6% YoY. Revenue and NPI contributions from JCube and Bugis+, two malls that have completed their AEIs in FY12, amounted to SGD44.9m (6.8% of total revenue) and SGD24.5m (5.5% of total NPI) respectively. AEI works at The Atrium@Orchard were completed in end-October, but since opening, the property has attracted 1.2m visitors a month on average.
Not ready to announce new AEIs. Besides looking for yield-accretive acquisitions and greenfield sites possibly from the Government Land Sales programme, management alluded that it is reviewing the options and evaluating the costs of potential AEIs at Funan and Tampines Mall to take advantage of the unused GFA. However, it is not ready to provide more details until the plans are firmed up.
Other works ongoing. For now, CMT’s project pipeline comprises the repositioning of IMM to house up to 50 outlet stores, as well as the construction of Westgate Mall, which is on track to open before Christmas this year. Tenants that have already committed to space at Westgate include Isetan, Food Republic and Fitness First gym. Westgate office tower will be completed around a year later, with the CapitaLand group already announced as an anchor tenant.
Attractive as it is. We raise our DDM-derived target price to SGD2.36, without factoring in the potential AEI works at Funan and Tampines Mall or any yield-accretive acquisitions. With its strong track record of delivering DPU growth via successful AEIs, we maintain our BUY recommendation.
Sabana – Phillip
Above our expectation!
Company Overview
Sabana REIT is a Singapore-based REIT with a mandate to invest in income-producing industrial real estate and real estate-related assets in Singapore and Asia with compliance to Shari’ah investment principles.
- 4Q12 (FY12) revenue S$21.5mn (S$81.8mn), NPI S$20.2mn (S$76.9mn), distributable income S$15.4mn (S$59.4mn)
- 4Q12 (FY12) DPU of 2.41 cents (9.28 cents)
- Maintain Neutral with revised target price of $1.190
What is the news?
Sabana REIT reported another credible set of results for 4Q12. Fourth quarter DPU was 2.41 cents (+11.1% y-y and +3% q-q), bringing the total FY12 DPU to 9.28 cents (-2.6% y-y). Gross revenue and net property income (NPI) came in at S$81.8mn (+6.3% y-y) and S$76.9mn (+5.3% y-y) for FY12 respectively. The increase in revenue and NPI stemmed from the six properties acquired over the period between Nov-11 to Oct-12. The property portfolio was revalued at S$1.1bn, registering ~S$25.3mn revaluation gains. Portfolio occupancy was maintained at 99% level.
How do we view this?
FY12 DPU exceeded our estimates by 5%, partly due to lower-than-expected finance expenses. The revaluation surplus boosted the debt headroom to ~S$50mn for future acquisitions. Occupancy level will be tested this year subject to the renewal of master leases expiring in end of 2013. On the brighter spot, we do see significant positive rental reversions from the expiring master leases to partly offset the possible drop in occupancies.
Investment Actions?
We fine-tuned our assumptions and rolled over our estimates to FY13 and include FY17 to our model. These raised our price target from S$1.150 to S$1.190. We reckon the renewal and replacement risks may suppress the price to grind higher until a clearer picture can be painted on the expiring master leases. We will then re-rate Sabana REIT when relevant updates stream in. Nevertheless, attractive FY13 yield of 8.0% will support the stock price.
A-REIT – DBSV
Delivering as promised
• Stable operational performance
• Active pipeline of developments, asset enhancements, to sustain growth
• HOLD, S$2.30 TP is based on DCF metric
Stable operational performance. A-REIT’s 3QFY13 result was in line. Topline and net property income grew 14% and 11%, respectively, driven by a larger portfolio, while organic growth remained steady at 4.8%. Rental reversions remained strong (+18.5%) and outpaced the slight dip in portfolio occupancy rate to 94%. Operational outlook remains stable as the portfolio will continue to benefit from positive spreads between expiring and market rents (currently 24-50%), which should more than offset weaker occupancy rates amid a more subdued demand outlook. But cost hikes continue to threaten margins.
Active development pipeline, asset enhancement projects to supplement growth. At end Dec12, A-REIT had committed to S$430m worth of investments, of which S$217m is yet to be funded. We see opportunities to extract further growth from existing assets, especially through asset enhancement initiatives (AEI) to convert single-tenant buildings to multi-tenanted buildings, to enable A-REIT to lift underlying rents closer to market rates which are c.40% higher. The completion of AEI projects will support sustained growth in distributions.
HOLD, TP S$2.30. We like A-REIT for its defensive portfolio and strong execution track record. Our HOLD call is based on valuation grounds: A-REIT offers <10% upside to our revised TP of S$2.30 (rolled-forward valuation base).
A-REIT – DMG
Stability comes at a price
3QFY13 DPU in line with expectations. Ascendas REIT (AREIT) reported 3QFY13 DPU of 3.62S¢ (+4.0% YoY), equivalent to 26.2% of our FY13 DPU estimate. Revenue and net property income came in at S$145.2m and S$104.7m respectively. The rise in NPI by 11.5% YoY was mainly due to additional contribution of full quarter rental income from completed development projects and newly acquired properties since September 2011. Going forward, we expect AREIT to register continual growth in DPU, mainly from 1) additional contribution from the new properties acquired; 2) further AEIs on its existing properties and 3) positive rental reversion contributed by low rates due for renewal in the coming quarters. Although both AREIT’s earnings and portfolio occupancy rate are expected to remain stable going forward, due to the lack of new potential acquisition targets, coupled with the high valuation it is currently trading at (1.31x P/B and FY13 forecasted dividend yield of 5.7%), we believe this counter is fairly priced at the moment. We maintain our NEUTRAL view on AREIT with a DDM based (COE: 7.3%; TGR: 1.0%) TP of S$2.67.
Consolidation of portfolio in the near term. As highlighted by management previously, given a relatively tight industrial property market in Singapore at the moment, acquisition of good quality industrial properties is becoming more challenging. Going forward, apart from the acquisitions previously announced, AREIT aims to consolidate its portfolio and grow through asset enhancements. Properties in the portfolio to undergo AEIs in the subsequent quarters include 31 International Business Park, Xilin Districentre Building D, Tech Block II, 1 Changi Business Park Ave 1 and 31 Ubi Road 1.
SSD may have limited impact on investors’ interest in industrial space. Singapore government recently introduced a Seller’s stamp duty (SSD) on industrial properties for the first time, as it tries to rein in market speculation that has resulted in doubling in prices over the last three years. However, as the market continues to be flooded by liquidity amid a prolonged low interest rate environment, we believe the capital value of industrial properties will continue to grow in 2013, albeit at a slower rate. In addition, as the jump in industrial capital value was in-part due to a spill-over effects of the ABSD introduced to the residential sector late last year. As more cooling-measures were released recently to control the residential market prices, the effects of this spill-over is likely to continue in 2013.
Fairly valued at this moment. Going forward, although we believe the stable dividend yield from AREIT remains attractive to investors, particularly on the back of high liquidity, prolonged low interest rate environment and a strong Singapore currency; we believe AREIT is currently fair valued at the moment and maintain NEUTRAL with a TP of S$2.67.
A-REIT – Kim Eng
Industrial Landlord – Best in class
3Q-9M FY3/13 results inline. 9MFY3/13 revenue at SGD430.5m, was 75% of ours and 78% of consensus estimate. 3QFY3/13 revenue at SGD145.2m, was 25% of ours and 26% of consensus estimate. 9MFY3/13 DPU at 10.68 SG-cts (+6.2% YoY) was 75% of ours and 76% of consensus estimates. 3QFY3/13 DPU at 3.62 SG-cts (+2.5% QoQ, +4.0% YoY) was 25% of ours and 26% of consensus estimates. Aggregate leverage inched up to 32.8% from 32.5% last quarter, following funding of committed investments. All-in-financing costs for 3QFY3/13 averaged 3.19% (2Q: 3.15%) with an average term of debt of 3.9 years (2Q: 4.2 years).
Stable portfolio continues to deliver. Occupancy rate (same-store basis) for the portfolio and multi-tenanted buildings (MTB) remains flat QoQ at to 96.6% and 93.4% respectively. 3QFY3/13 weighted average lease to expiry was 3.8 years, with only 2.1% of income due for renewal for the remaining FY3/13. Positive rental reversion on renewal range between 5.5%-25.3% throughout all segments of the portfolio boosting QoQ NPI margin (from 71.8% to 72.1%) and yields (from 6.6% to 6.7%). YTD rental reversion of 13.9% was achieved for the portfolio.
Business Park exposure not fatal. AREIT’s business/science park portfolio constitutes 38% of our FY3/14 GAV and gross revenue. We are heartened that A-REIT has secured commitment for about 31% of the lettable space (complete in 3Q12, 223k sqft) at Nexus@one-north last quarter, despite the onslaught of ~7m sqft of new known supply in 2012-2015. We noted that the majority of this supply (~81%) is in the central region (One North and Mapletree Business City), where AREIT has ten out of 23 existing properties. According to our estimates, the central region assets comprises ~40% of AREIT’s business park revenue and NLA. Predominantly, AREITs business park portfolio (~60%) is still concentrated in the east and west region, namely the International Business Park (IBP) and Changi Business Park (CBP). At 94% occupancy for business park with mostly MNC tenants, we think AREIT stands in good stead to weather the impending supply.
New Asset Enhancement Initiative. AREIT has also initiated enhancement work at 31 International Business Park, at a cost of SGD13.2m, to take advantage of prospective future demand in the area. The AEI will complete by 3Q13. We raise our FY3/13-3/15 DPU by 0-0.34% in view of the enhancement. We continue to like A-REIT for its stable DPU yield, healthy lease expiry (<25% of income expiring per annum) and debt maturity profile. Reiterate BUY with an unchanged DDM-derived TP of SGD2.60.