Author: kktan
OUE C-REIT – OCBC
A firm set of 2Q14 results
- 2Q14 numbers ahead of IPO forecast
- Positive rental reversions
- Maintain BUY at S$0.88 FV
2Q14 numbers looking firm
2Q14 distributable income and DPU came in at S$12.5m and 1.43 S-cent, respectively, which is 5.5% and 5.1% higher than forecasted in its IPO Prospectus and in line with our expectations. 2Q14 gross revenues were S$18.7m, marginally lower (-0.3%) versus the forecast, while NPI of S$14.3m is 4.6% ahead of the forecast. The trust pays its distributions on a semi-annual basis, and the book closure for its first distribution of 2.43 S-cents per unit will be on 7 Aug-14.
Positive rental reversions seen at both assets
Overall portfolio occupancy remained fairly healthy at 96.8% as at end Jun-14, and management indicates that only 2.9% of the portfolio, by gross rental income, is up for renewal over 2H14. OUE Bayfront remains 100% occupied as at 2Q14, with average passing rents for the office component increasing to S$10.66 psf from S$10.61 psf last quarter. Management reports that newly committed rents over the quarter for OUE Bayfront ranged from S$11.50 to S$15.20 psf which is, on average, 6.1% higher than preceding rentals. Lippo Plaza saw its occupancy rate dip QoQ to 92.9% as at end Jun-14 from 95.9% due to some tenants not renewing their leases, though renewal rents in 2Q14 still showed a 4.3% increase versus preceding rents.
Maintain BUY
OUE-CT’s aggregate leverage dipped slightly to 39.5% (versus 40.8% as at end Mar-14) while average cost of debt edged up to 2.59%. Management has indicated that they are focused on executing and stabilizing existing portfolio assets in FY14 and will only expect their first acquisition to come in FY15 and after. We continue to believe that OUE-CT shows attractive relative value versus peers. Despite providing one of largest exposure to the premium office space in Singapore, OUE-CT offers a consensus forward yield of 6.7% – the second highest in its peer group (average: 6.0%). Its price-to-book ratio of 0.77 is also lowest amongst peers. Maintain BUY with an unchanged fair value estimate of S$0.88.
OUE C-REIT – CIMB
Riding the wave
OUE Commercial REIT’s (OUE CREIT) 2Q14 results were in line with expectations, with 2Q14 DPU accounting for 27% of our full-year forecast. Given that the REIT has room for further growth and its relatively attractive valuations, we maintain our Add rating, with a higher DDM-based (discount rate: 7.6%) target price of S$0.93 as we roll forward our valuation to FY15 earnings.
Stable portfolio
OUE CREIT reported a stable quarter of earnings and achieved positive rental reversion of 6.1% for OUE Bayfront (OUEB) and 4.3% Lippo Plaza (LP), lifting the passing rent at these properties to S$10.66 psf/mth and Rmb9.11 psm/day. During the quarter, occupancy for OUEB remained full while LP registered a slight dip in occupancy to 93.6% as some tenants did not renew their leases. However, management guided that as at July, occupancy at LP has crept back to >94% and it is confident that occupancy will exceed 95% by year end.
Continues riding the rental growth in Singapore
With Singapore’s office market maintaining its rental growth (+3.4% yoy in 2Q14), we expect OUE CREIT to continue riding this upward cycle, particularly with 23.7% (by gross rental income) of its leases due in FY15. In addition, with the recent committed rents at OUEB varying between S$11.50 and S$15.20 psf/mth, we remain confident that a blended gross supported rent of c.S$11.80 psf/mth is achievable before 2018. On the other hand, we expect rental growth in the Puxi area of Shanghai to remain subdued due to the impending office supply. However, with the locality of LP and the fact that leases in this property tend to be popular among tenants that require a smaller floor area, we believe LP will be able to maintain a high occupancy through FY15 as the market digests the new supply.
Maintain Add
The stock is currently trading at 6.4%/6.5% of FY14/15 dividend yield and 0.8x FY14 P/BV vs. its peers’ valuations of 5.7%/6.0% and 0.9x P/BV. In view of this, and its stability and room for growth via positive rental reversions for OUEB, we maintain our Add rating, with a higher TP of S$0.93.
SB REIT – OCBC
Positive tone on outlook
- 2Q14 DPU above prospectus forecast
- Continued focus on lease management
- Financial position remains robust
2Q14 results within expectations
Soilbuild Business Space REIT (Soilbuild REIT) reported a firm set of 2Q14 results, with gross revenue of S$16.7m coming in 0.9% higher than its prospectus forecast and NPI of S$14.0m 3.4% above forecast. The positive topline performance was due to new revenue stream from Tellus Marine (acquisition completed in May), while NPI was boosted further by lower maintenance costs incurred for both Eightrium and Tuas Connection. Distributable income and DPU, on the other hand, stood at S$12.1m and 1.50 S cents, both at 1.3% ahead of the respective forecasts. Together with 1Q distribution, 1H14 DPU amounted to 3.062 S cents and formed 49.8% of our full-year DPU projection. This is in line with our expectations, as Tellus Marine will make full-quarter revenue contribution for the rest of year.
Outlook remains sanguine
We note that management remains confident in delivering its forecast distribution for FY14, notwithstanding the current challenges in the industrial market and upcoming supply in industrial space in the year ahead. To achieve this, Soilbuild REIT will continue to focus on early renewals or re-leasing of space that expires in 2H14. We understand that over 85% of all lease expiries due in 2014 has already been renewed, re-leased or pre-committed, which should provide a high degree of certainty to its income stream. For 2Q14, leasing activity appears healthy in our view, as leases secured/renewed all saw positive rental reversions ranging from 3.6% to 31.7%. Only the portfolio occupancy dipped slightly from 100% in 1Q to 98.5% due mainly to a non-renewing lease expiring in Tuas Connection.
Maintain BUY
As at 30 Jun, Soilbuild REIT’s aggregate leverage also remained robust at 30.3% (1Q: 29.1%), providing it good debt headroom for future acquisitions. All-in interest costs dropped slightly from 3.12% in 1Q to 3.08% as Soilbuild REIT drew down debt facility on floating rate to fund the acquisition of Tellus.
Tellus Marine in 2Q. While its fixed interest rate exposure is reduced 5ppt to 95%, this is still higher than the sector average. We maintain BUY and S$0.88 fair value on Soilbuild REIT.
A-REIT – Maybank Kim Eng
On solid footing
- 1QFY3/15 results in line with market expectations.
- Development and asset enhancement works worth SGD153.9m due for completion by end-2015 to buffer downside risks.
- Preferred for its well-diversified revenue; reiterate BUY with an unchanged DDM-derived TP.
No surprises; operating metrics remain steadfast
AREIT’s 1QFY3/15 revenue grew 8.1% YoY to SGD163.2m, bolstered by acquisitions, positive rental reversions and income support for A-REIT City @Jinqiao. DPU rose 2.5% YoY to 3.64 SGD cts. An 11.8% positive rental reversion was achieved for leases renewed in 1QFY3/15. Management expects mid- to high single-digit overall positive reversions for FY3/15E. Portfolio occupancy stayed high at 88.1% and 15.4% of its property income is due for renewal this year. AREIT’s financing cost remained flat QoQ at 2.70% with an average term of debt of 3.7 years (4QFY3/14: 3.3 years). Based on disclosed interest rate sensitivity analysis, DPU would decline by ~1%, or 0.15 SGD cts, for every 50bps increase in interest rates.
Well-diversified revenue
The AEI at 5 Toh Guan Road East was completed last quarter. The building is now 96% occupied. AREIT has also embarked on two new AEIs at a capex of SGD25.6m at The Gemini-Aries and the Science Hub. AREIT still has SGD153.9m worth of development and asset enhancement works, which are scheduled for completion in 2H14-4Q15. This should buffer downside risks in the event that property prices correct.
With a tenant base of around 1,330 in a portfolio of 105 properties, with no single asset accounting for more than 4.4% of monthly gross revenue, AREIT is well diversified in terms of rental income. Reiterate BUY with an unchanged DDM-derived TP of SGD2.65 (cost of equity = 7.0%; Tg = 1%).
HPH-Trust – OCBC
Persistent headwinds from cost pressures
- 2Q14 figures in line
- Continued cost pressures
- FV unchanged at US$0.68
1H14 interim DPU at 18.70 HK-cents
2Q14 PATMI came in at HK$368.4m (EPU: 4.23 HK-cents), which decreased 12.4% YoY mostly due to continued cost pressures and lower contributions from ACT given the divestment of a 60% stake last quarter. Accounting for divestment gains, we estimate that 1H14 PATMI constitute 47.1% of our full year forecast, which we judge to be mostly within expectations. In terms of the topline, the trust reported 2Q14 revenue of HK$3063.9m, up 1.0% due to higher container throughput at HIT and YICT, offset by the absence of ACT contributions as it become an associated company after the stake sale. The trust declared an interim DPU of 18.70 HK cents for 1H14.
Higher throughput at group’s deep-water ports
The trust reported that outbound cargoes both to the US and EU continued their uptrends in 2Q14. The throughput of HPHT’s deep-water ports in 1H14 increased ~6%, with throughput at HIT and YICT growing 3.7% and 4.9%, respectively. YICT’s throughput growth was driven by transshipment and US cargoes, while HIT’s higher throughput was due to higher transshipment volume, partially offset by weaker intra-Asia cargoes. The average revenue per TEU for HK and China was mostly flat YoY; fewer concessions were granted to some liners for China which was offset by a higher proportion of transshipment throughput handled.
Maintain HOLD with unchanged US0.68 FV
Over the quarter, we continue to see upward pressure in terms of cost of services rendered, which increased 9.8% YoY due to higher external contractor costs and inflationary pressures while staff cost also increased 7.7%. 1H14 capex is up 64% to HK$643m, as management continues its expansionary plans at Yantian to add one berth each year from 2015. Maintain HOLD with an unchanged fair value estimate of US$0.68. While conditions remain mixed due to an uncertain outlook and persistent cost pressures, we see the downside to be limited here due to an attractive FY14F dividend yield of 7.4%.