Month: April 2013
FCT – DBSV
Cause to remain positive
- 2Q13 results ahead
- Organic growth to remain stable; acquisition of Changi City Point to provide catalysts for earnings upside
- BUY, TP raised to S$2.33
Highlights
2Q13 results ahead. Frasers Centerpoint Trust (FCT)’s 2Q13 topline grew 8.4% to $39.8 million, and NPI saw a 9.7% growth to $28.7 million, attributable to higher contributions from Causeway Point and Northpoint, with other malls remaining stable. Rental reversion for the quarter was 10.1%. Causeway Point saw higher lease commencements and rental reversions upon completion of AEI works. Average gross rental was $13.52, exceeding our estimates of S$13.10. Occupancy achieved a high of 99.6%, bringing FCT’s average portfolio occupancy to 98.2%. Property expenses grew 5.5% to $11 million, attributable to higher property management fees and property taxes at Causeway Point and Northpoint. DPU grew 8% to 2.70 cents.
Our View
Organic growth to remain strong. Looking ahead, with only 7.6% of NLA due to expire for the remainder of the year, earnings in the 2HFY13 looks resilient. Management expects growth to be driven by Causeway Point (CWP) and Northpoint (NP), where close to c.37% and c.16% of the property’s leases will be up for renewal. Monthly pedestrian footfalls for CWP and NP are high at c.2m and 3.5m respectively. Although shopper traffic at Causeway Point has yet to reach pre-AEI levels but is a y-o-y increase of 22%. Management mooted for a possible re-launch, which is expected to increase the mall’s traffic. In addition, occupancy costs remaining in the midteens, we continue to expect upside during rent renewals in the coming quarters.
Changi City Point (CCP) acquisition to materialise? Management believes that the asset has stabilised and is ready for injection. FCT would like to acquire it prior to the start of its first rental cycle come FY14 where the mall is expected to see an uplift in rentals coupled with a more stabilized tenant mix.
Recommendation
BUY maintained, TP raised to S$2.33. We have tweaked our estimates for CWP upwards to account for the strong rental performance and have forecasted a CCP acquisition by end of FY13, assumed at S$400m at a yield of 5.25%, funded by a mix of debt and equity. TP is thus raised to S$2.33 based on DCF. BUY.
FE-HTrust – DBSV
Rendezvous in town
- Value accretive acquisition in Rendezvous Grand Hotel Singapore and Rendezvous Gallery
- Capital structure remains at sustainable level, FY13-14F DPU raised by 1-2%
- BUY, TP raised to S$1.21
Proposed acquisition of prime hotel in downtown Singapore. Far East Hospitality Trust (FEHT) announced the proposed acquisition of 298-room Hotel Rendezvous Grand Singapore Hotel and Rendezvous Gallery, its accompanying retail wing. The combined acquisition price is S$264.5m (all in cost of S$268m) for a 70-year leasehold interest in the property and represents a c.2-5% discount to the appraised valuation by independent valuers.
Value accretive deal for unitholders. Given the hotel’s prime location, we believe this is an attractive deal and will cement the trust’s position as one of Singapore’s largest hotel owners. Post acquisition, FEHT will sign a master lease arrangement with its sponsor Far East Organization (FEO), who will manage the hotel. FEHT will earn a return that is pegged to underlying hotel performance but with a fixed rent that offers earnings protection.
New equity issued to vendor; capital structure remains sustainable. FEHT will issue new equity (S$136m or 51% of total acquisition price) to the vendor, Straits Trading Company Limited (STC) and FEO to part fund the purchase, which will result in its gearing level remaining fairly stable at c.32%, which we believe to be a sustainable structure going forward. We view that the willingness of the vendor, STC, taking a stake in FEHT as part payment consideration as signal of the group’s positive stance in the sector going forward.
BUY, TP S$1.21 based on DCF. Our DPU estimates are raised by c.1-2% to account for this acquisition. TP is raised to S$1.21, offering a total return of 11%. Maintain BUY.
KepREIT – DBSV
Continues to deliver
- Results within expectations
- Resilient portfolio underpinned by long leases and strong income visibility
- Maintain HOLD, TP raised slightly to S$1.43
Highlights
Results in line with projections. Keppel REIT reported a 13% y-o-y increase in property income to S$41.4m in 1Q13 while NPI rose a better 21% to S$34.4m. The higher jump in the latter is due to the better performance at OFC as well as increased contributions from 77 King St. Portfolio occupancy rose to 98.8%. Distributable income was 7.6% better y-o-y at S$52.2m (DPU 1.97Scts), eroded marginally by higher borrowing costs. Effective interest rate was 2.17% vs 2.03% a year ago.
Our View
Stable portfolio supported by long leases, medium term growth from completion of non-speculative developments.
Looking ahead, all of its Singapore assets continued to enjoy robust occupancy and there is only a remaining 3.5% of NLA to be renewed and another 3% to undergo rent review this year. With a smaller anticipated supply of new space in the CBD this year, we believe occupancy should remain relatively high and newer buildings should experience lesser pressure on rent rates compared to older buildings. This should mitigate any leasing risk. The expected completion of the OFC retail and carpark podium by 3Q13 should also boost bottomline. Meanwhile, in Australia, earnings should be driven by additional contribution from Old Treasury Building in Perth in the medium term and completion of 8 Chifley Square in 2H13. The latter is 56% pre-committed to date. Recent refinancing exercise also extended the trust’s debt maturity profile to 3.2 years.
Recommendation
Maintain Hold. We continue to like Keppel Reit for its stable and resilient cashflow that is underpinned by a long WALE, which currently stands at 5.7 years. However, share price has outperformed and the stock is trading just 1% below our TP of S$1.43. Hence, maintain HOLD call. At the current level, the trust offers a potential total return of 7%.
16 Apr 2013
Singapore Result Snapshot
Keppel REIT
Bloomberg: KREIT SP | Reuters: KASA.SI Refer to important disclosures at the end of this report
A-REIT – DBSV
Valuations hitting a new peak
- 4Q13 results in line
- Developments, acquisitions to drive earnings growth in FY14-15F
- HOLD, TP raised to S$2.60
Highlights & Our views
Stable operational performance. A-REIT’s 4Q13 results were in line, with topline and net property income growth of 8.2% and 5.2% to S$145.4m and S$100.1m, respectively. This was largely due to contributions from its new investments, supported by an organic 2.7% uplift in its portfolio rents. Rental reversions remained robust, at c.14.5% (14% for FY13) due to low passing rents while occupancy rates were stable at c94%. Distributable income came in c5.5% lower after accounting for performance fees of S$68.8m. DPU for the quarter was 3.06 Scts. Rental reversions in the coming year are expected to remain decent due to positive spread between passing and market rents, which currently stands at c9-35%.
Developments, acquisitions to drive earnings growth in FY14-15F. A-REIT continues to keep an active pipeline of development and asset enhancement projects (AEI). As of Dec’12, the trust has an additional S$201.5m in investments (new and uncompleted projects) that have yet to be funded. We see opportunities to extract further growth from its existing assets, especially from various AEIs. In addition, contribution from recently acquired “The Galen” property will start contributing in the coming quarters. Phased completions of its various development and AEI projects in the subsequent quarters will see growth momentum picking up from end of FY14F. Our estimates have been updated for the recent placement and acquisitions and in addition, we have assumed an additional S$150m of acquisitions @ 6.5% yield by the end of FY14F.
Recommendation
Valuations hitting a new peak, HOLD, TP raised to S$2.60. Given its size, liquidity and established track record, we believe AREIT will continue to benefit from the liquidity-driven inflows into the S-REIT sector. The counter typically trades at a premium to S-REIT peers but is now at an historical high, which we believe is fair. Our TP is raised to S$2.60 due to higher acquisition assumptions and slightly lower discount rates. However, given that the total return is <10% to our TP, our call remains a HOLD.
FirstREIT – OCBC
NO MAJOR IMPACT FROM POSSIBLE SILOAM HOSPITALS IPO
- FREIT crucial to Lippo’s asset-light strategy
- EGM to be held on 29 Apr
- Retain HOLD and S$1.31 FV
Lippo Karawaci’s Siloam Hospitals unit may seek an IPO
News agency Reuters reported that Lippo Karawaci (Lippo), which is First REIT’s (FREIT) sponsor, is seeking to raise at least US$200m in an IPO of its Siloam Hospitals healthcare division1. Should this IPO materialise, we believe that proceeds would be used to fund Lippo’s aggressive healthcare expansion plans, which includes the construction of a large number of hospitals. Lippo has a target to operate 27 hospitals by 2015 (currently operates ~13), with expected total revenue of US$500m in 2015. We also expect Lippo to retain a strong majority of the controlling stake of the listed entity, given that it has earmarked its healthcare division as one of its core growth drivers.
No major impact to FREIT’s prospects
We expect FREIT to remain as an important vehicle for Lippo to implement its asset-light strategy. As the Siloam Hospitals entity would likely continue to be consolidated in Lippo’s financial statements, we believe that future hospitals will still be injected into FREIT. Moreover, FREIT has a right-of-first-refusal for the purchase of healthcare assets from its sponsor and/or any of its subsidiaries. Lippo also has a deemed interest of ~28.7% in FREIT. Hence, we believe that both parties’ interests would remain aligned. Having a separate listed entity to operate and carry out the healthcare operations of Lippo may in fact lead to a better focus and thus could be beneficial for FREIT.
To obtain unitholders’ approval at upcoming EGM
FREIT has dispatched the Circular (dated 12 Apr 2013) to its unitholders in relation to its proposed acquisition of Siloam Hospitals Bali (SHBL) and Siloam Hospitals TB Simatupang (SHTS) from Lippo. An EGM has been scheduled on 29 Apr to obtain unitholders’ approval for the aforementioned acquisitions, issuance of new units to Lippo as partial payment for SHTS and proposed whitewash resolution for a waiver of a mandatory offer from Lippo. As we expect the acquisitions to be DPU accretive and value-enhancing to unitholders, we expect unit-holders to vote in favour of the proposed conditions. Meanwhile, we retain our HOLD rating and S$1.31 fair value estimate on FREIT.