Month: February 2013
PCRT – DBSV
Continues to execute
- Results lifted by earn out deed support
- Operations ramping up, new development assets to extend earnings and RNAV growth visibility
- Maintain BUY, TP $0.84
Highlights
Results in line. PCRT reported 2H12 DPU of 1.96Scts. Together with the 1.90Scts recorded in 1H12, the group posted FY12 DPU of 3.86Scts, in line with expectations. Underpinning the results was also the inclusion of S$10.7m of earn out deed support (S$21.5m for FY12). At the same time, the group booked in a net portfolio revaluation gain of S$91.2m (Rmb2.9bn) despite taking a 10% writedown for Shenyang Red Star Macalline Furniture Mall (RSMFM), lifting its book NAV to S$0.70.
Slight improvement in operations. Operations-wise, the RSMFM saw higher commitment in occupancy to 71.7% as the master lease for Red Star kicks in while the take up at Shenyang Longemont Shopping Mall (SLSM) remained at 70%. Meanwhile, the committed leases at Perennial Jihua Foshan climbed up to 60% while the Perennial Qingyang Chengdu has 33% of its space taken up in advance. The former is expected to commence operations in 2Q13 while the Chengdu property is expected to open ahead of schedule, in 4Q13 or 1Q14.
Our View
Execution is key. Looking ahead, with 90% of the initial portfolio now completed, the group can focus on ramping up occupation of its properties. It is currently evaluating leases from wholesale tenants for the West Wing of the RSMFM. If successful, this will fully fill the RSMFM. Meanwhile at the SLSM, the group is targeting to lift occupancies, currently at 70%, as well as shopper foot traffic of 40-50k/day. Rental rates have been maintained at Rmb3.72psm/day. At the Shenyang Office component, about 16% of the space has been taken up or committed, at Rmb90+psm/mth. The group would continue to look to boost take up at this property in coming months.
New developments to boost RNAV in the medium term. In addition, the group recently added the Beijing Tongzhou development (10% stake) as well as a ROFR for the retail portion of the Tongzhou project to its development portfolio. This is in addition to the option for the Xian HSR project. This will continue to extend the visibility of earnings and RNAV growth into the medium term. Gearing remains healthy at 19.9%.
Recommendation
Maintain BUY. We continue to like PCRT for its attractive valuations, at 6% yield and 0.9xP/bk NAV. Earnings visibility has improved as the development assets are completed and generating cashflow. Maintain Buy with TP of $0.84.
Religare – DBSV
A positive start
- DPU of 1.66 Scts vs forecast of 1.63 Scts; distributions are paid semi-annually with first payment expected in May 2013
- Net property income margins tracking above forecast
- Despite rising 14% since our initiation on 28 Nov 12, RHT still offers c.9% yield
- Maintain BUY, S$0.97 TP for c.16% total return
Highlights
DPU of 1.66 Scts, marginally higher than IPO forecasts. RHT reported a distributable income of S$9.4m. This translates into a DPU of 1.66 Scts for the period from 19 Oct 12 to 31 Dec 12, which is marginally above the projected DPU of 1.63 Scts disclosed in its IPO Prospectus. This was achieved on the back of higher hospital income and lower expenses as a result of tighter cost management. Distributions will be paid semi-annually, hence the first distribution will be made sometime in May 13, post its FY13 results announcement.
Net property income margins tracking above forecast. Margins came in at 57.5%, c.1ppt above the forecast. This was due to lower operating expenses from a lower variable fee and tighter cost control. The variable fee recorded was S$4.12m, about 5% lower compared to its IPO forecast of S$4.3m. This was mainly due to lower operating income recorded by Fortis during the festive period in Oct and Nov.
Our View
Yield still attractive at c.9% despite share price rise. Despite share price appreciating by c.14% since our initiation on 28 Nov12, RHT still offers attractive yields of 8.8%/ 9.1% for FY13F (annualized)/ FY14F. Over the medium term, we continue to believe DPU could be further enhanced as its greenfield clinical establishments come onstream, coupled with inorganic growth through acquisitions to leverage on its current low gearing (c.7%).
Recommendation
Maintain BUY, TP: S$0.97. We maintain our DDM-backed TP at S$0.97 (cost of equity: 11.8%; t=3%). Coupled with a prospective yield of c.9%, RHT still offers a total return of c.16%.
PCRT – CIMB
Looking towards monetisation
Traditionally a weaker quarter,4Q12 was saddled by pre-operatingcosts for Foshan and Chengdu malls too. Management expect leasing improvements. Of greater interest is a clear direction towards asset trading and strata titling to boost near-to mid-term returns.
4Q/FY12 was in line with consensus and our expectations at 25%/100% of full-year estimates, supported by earn-out structures. Our target price rises as we cut our RNAV discount from 30% to 20% as >90% of the IPO portfolio is now completed. We raise FY13 DPU by 4% and lower FY14 by 6% for balance earn-out structures. Maintain Outperform, with accretive divestments as the catalyst.
Expect weak earnings
Underlying core earnings from JVs were up a marginal 1.5% qoq in 4Q12, bringing FY12 to S$5.4m, below our expectations. Core net profit was also hit by higher-than-expected pre-operating costs for Foshan and Chengdu Qingyang malls. We expect the weak earnings to persist but project the trust to turn profitable in FY13, boosted by revenues from Foshan mall (to commence with target 90% occupancy) and Shenyang office. On the leasing front, pre-commitments stand at 16% for Shenyang office, 60% for Foshan mall and 33% for Chengdu Qingyang mall, with more progress to come in the next few months.
Strategy articulated
Management has reiterated its confidence in the long-term value of its properties but articulated the need for short-term gains to grow the business, through monetising completed assets (recycling capital) and strata sale of non-block retail and office components. FY12 valuations, at 6.5% cap rates (unchanged from FY11), are up to 58% above the purchase price of assets – divestment gains could be substantial.
6.3% yield for FY13-14
Based on management’s target Rmb227m distribution for FY13 and balance earn-out for FY14, we estimate 6.3% yield for the next two years in addition to 10-15% NAV/share growth from FY12’s S$0.70. Valuations are still attractive at 25% discount to RNAV and 0.9x P/BV. Maintain Outperform.
CLT – OCBC
NEW RAMP-UP WAREHOUSE ADDITION
- Acquisition at attractive yield
- Stronger market position post acquisition
- Higher debt headroom with credit rating
Acquires ramp-up warehouse from third party
Cache Logistics Trust (CACHE) has signed an option agreement to acquire a three-storey fully ramp-up warehouse known as Precise Two from Precise Development Pte Ltd (PDPL) for S$55.2m, or S$194 psf GFA. The purchase price includes the upfront land premium amount of S$6.2m based on JTC posted land premium rate and adjusted for the duration of the remaining land lease. The transaction is expected to complete in Apr, subject to JTC approval. Upon completion, PDPL will enter into a master lease arrangement to lease the whole building for six years with an option to renew for another six years. A built-in rental escalation every two years is expected to be incorporated, but the quantum will be only disclosed after the deal is finalised.
Investment to be earnings accretive
Precise Two is strategically located in the Jurong Industrial Precinct at 15 Gul Way and has modern and attractive technical specifications such as heavy floor loading, making it attractive for end-users who require storage space for heavy products and equipment. The property has just received its TOP on 12 Dec 2012 (land lease tenure of 30 years starting from 1 Oct 2003). According to management, the initial NPI yield is ~8.7%, higher than CACHE’s FY12 implied portfolio yield of 7.1%. Hence, we expect the acquisition to be earnings accretive. The acquisition will increase its market share of ramp-up warehouses in Singapore (currently at 22.9%) and bring its portfolio asset value above S$1.0b.
Increased flexibility with new credit rating
CACHE also announced that it has received its maiden corporate family rating from Moody’s Investors Service (Baa3 with stable outlook). We have previously anticipated CACHE to fund any sizeable investment opportunities using debt and equity. However, with this development, we believe CACHE may finance the acquisition wholly by debt, since it is now able to exceed its previous regulatory debt ceiling of 35%. Based on our estimates, the new asset is likely to contribute 0.23 S cents (+2.7%) to its FY13 DPU. We raise our fair value to S$1.34 from S$1.32 after factoring in the investment. Maintain BUY.
Religare – CIMB
Maiden DPU delivery
RHT’s maiden DPU came in slightly above management’s forecast, thanks to higher operating hospital income and lower operating expenses. Yields remain compelling at 9%, offering total return of 18%, with downside mitigated by fixed base fees and FX hedges till Mar 14.
3QFY3/13 DPU (19 Oct-31 Dec) was broadly in line with consensus and our estimates, at 21% of our FY13 forecast. We tweak DPUs and DDM target price higher for a lower discount rate of 12.1% (prev. 12.4%) in-line with lower Indian bond yields. Maintain Outperform, with earnings delivery, execution and acquisitions being the catalysts.
Higher hospital income; lower expenses
RHTs 3QFY13 (19 Oct-31 Dec) DPU of 1.66 Scts was slightly above management’s DPU forecast of 1.63 Scts. The operational performance of its clinical establishments in 3Q was disrupted by the festive season in Oct and Nov, which affected variable fees pegged at 7.5% of revenue. But this was made up by lower operating expenses and higher hospital income from its two operating hospitals. Net of straight-lining, actual net operating income was 1% above forecast.
More upside in coming quarters
No operational stats were provided for 3Q though we note that its parent, Fortis saw 20% yoy growth in Indian hospital revenue (across assets within and outside RHT) on occupancy and ARPOB gains. The addition of beds at Gurgaon (soft-launched in Nov 12), Ludhiana and Chennai should contribute in the coming quarters.
Management, meanwhile, remains on the lookout for acquisitions, supported by debt headroom offered by its low gearing of 6.7%. With its parent in deleveraging mode, we believe that future acquisitions could increasingly be undertaken by RHT.
Maintain Outperform
Stability remains anchored by fixed base fees (>70% of fee revenues) while upside comes from revenue sharing through variable fees. Our Outperform call is supported by the 9% headline yields and the catalysts of earnings delivery, execution and acquisitions.