Author: kktan
CCT – OCBC
CapitaGreen’s completion on track
- 2Q14 figures within expectations
- CapitaGreen 23% pre-committed
- Call option within 3 years of completion
2Q14 results within expectations
CapitaCommercial Trust (CCT) reported 2Q14 distributable income of S$64.1m – 7.6% higher YoY. This cumulates to an YTD distributable income of S$124.0m, which is within expectations and makes up 51.0% of our FY14 forecast. 2Q13 DPU is 2.18 S-cents, which is 5.3% higher than the 2.07 S-cents paid in 2Q13 and translates to a 5.1% distribution yield as at the last closing price of S$1.67. The growth in distributable income over the quarter was mainly due to stronger contributions from assets, lower interest expenses and the release of retained tax-exempt income distribution (S$2.4m). In terms of the topline, 2Q14 gross revenues increased 3.2% YoY with all properties, except One George Street, clocking higher income over the quarter.
Stable portfolio performance
Portfolio occupancy remained stable at 99.4% as of end 2Q14 versus the previous quarter. As a result of continued rental reversions, CCT’s average committed office portfolio rentals increased marginally QoQ from S$8.22 to S$8.23/sq ft. Over the quarter, the trust signed leases for 97.5k sq ft of space, of which 31% are new leases, and the portfolio WALE (weighted average lease term to expiry) as at end Jun-14 stands at 7.8 years. CCT continues to enjoy a healthy balance sheet, with gearing improving to 28.8% as at end 2Q14 from 30.0% the previous quarter, and an average cost of debt of 2.4%.
CapitaGreen achieved “top-out” and now ~23% pre-committed
CapitaGreen’s structural work has reached the top floor and remains on track to complete by the end of this year. The trust has secured aggregate lease commitments for ~23% (165k sq ft) of total NLA, and expects CapitaGreen to contribute revenue to MSO Trust from 2H15 onwards, and to distributable income from FY16. We also note that CCT has a call option to acquire, from its JV partners, the remaining 60% stake in CapitaGreen at market valuation within three years of completion. Maintain HOLD with an unchanged fair value estimate of S$1.67.
CCT – CIMB
Pricing in bright prospects
CCT posted 2Q14 revenue growth of 3.2% and distributable income growth of 7.6% yoy. At half-time, the group’s results made up c.50% of our full-year estimates. CCT’s growth will be driven by the modest recovery in the office rental market as well as new contributions from CapitaGreen starting FY16. We have tweaked our FY14 DPU by 2% to 8.3cts to reflect a slightly better reversion outlook. While we remain upbeat on the office sector, given CCT’s
current 1x P/bk NAV multiple, we think much of the optimism has been factored in. We maintain our Hold call, with a revised DDM-backed target price of S$1.63 as we roll our numbers forward.
In line
Q2 distributable income was lifted by higher revenue, lower interest expense and the release of S$2.35m in retained tax exempt income. Gross revenue rose 3.2% yoy to S$65.8m, thanks to a 3.4% expansion in average portfolio rent on the back of positive reversions as well as high occupancy of 99.4%. CCT signed 97.5k sf of NLA of new and renewal leases largely from the financial services tenants in Q2. NPI rose 3.5% to $52m from a year ago due to lower ad hoc maintenance and marketing fees. Book NAV rose 1.8% to S$1.67/unit, largely coming from revaluation of CapitaGreen.
Brisk leasing activities
The Singapore office rental market continues to improve modestly amid tight supply in the CBD. CCT has a remaining 19% of portfolio rental income to be renewed in FY14, the bulk of which is pre-committed. Take-up at CapitaGreen has also improved to 23% of NLA to date and we expect the building to be at least 40-50% pre-leased when completed by year end. Another booster to income would come from Capital Tower and Raffles City Tower post completion of AEI works. Potential dilution from the remaining S$43.75m of CBs due FY15 (exercise price at S$1.23) is expected to be a marginal 1% and have been reflected in our numbers.
Maintain Hold
Although we maintain an upbeat view on Singapore’s prime office rental market, at 1x P/bk NAV multiple and an implied FY14 NPI yield of 3-3.5%, we think CCT is fairly priced at present.
SPHREIT – CIMB
Post-results feedback
The key issues discussed during the investor luncheon we hosted following SPH REIT’s 3QFY14 results were: 1) the potential AEIs at Paragon, which could add c.10,000 sq ft of NLA, 2) rental outlook for both the retail mall and medical suites at Paragon, and 3) the potential acquisition of Seletar Mall. We remain confident that SPH REIT will continue to expand, while offering sustainable returns to investors. Maintain Add and target price of S$1.09.
What Happened
We recently hosted an investor luncheon for SPH REIT following its 3QFY14 results announcement.
What We Think
Management highlighted three potential AEIs for Paragon that would add c.10,000 sq ft of NLA. The first AEI (slated for completion in 1QFY16) involves replacing the existing chillers with smaller, more efficient units and relocating them outdoors. This would add c.5,000 sq ft of NLA to level five of the mall. Management did not share any details on the other two AEIs as those projects are awaiting the approval of the board of directors and authorities. However, management guided that upon completion, one of the projects would add 5,000 sq ft of NLA and the other would improve Paragon’s efficiency.
Shopper traffic at both Paragon and Clementi Mall dipped slightly in 3QFY14 due to different reasons. For Paragon, the dip (-1% yoy) caused by the weak Chinese visitor numbers. Management also noted that future rental growth is expected to moderate to c.3% p.a., given the passing rent of S$21.70 per sq ft/month. The rental rates for the medical suites (passing rent of S$11.06 in 3QFY14) are expected to rise at a slower pace than those for the retail segment. As for Clementi Mall, the slower shopper traffic was due to the rising competition in the Western region of Singapore. However, Clementi Mall’s shopper traffic YTD was still higher yoy. Given the passing rent of S$15.90 per sq ft/month, management was confident of maintaining rental income to the supported level of S$18 per sq ft/month, as it reshuffles its portfolio to include stronger tenants, before the end of its income support in FY18. Seletar Mall, which is slated for completion at end-CY14, is likely to be injected into the REIT 1-2 years after the date it first commences operations.
What You Should Do
Maintain Add as SPH REIT continues to deliver stable earnings, while enjoying growth opportunities in the long run.
Sabana – Lim & Tan
The Board of Directors of InnoTek Limited (34 cents, down ½ cent) announced that the company is disposing its investment in Sabana Shari’ah Compliant Industrial Real Estate Investment Trust (SSREIT) which was acquired in November 2010.
Innotek had acquired the 15,000,000 units of Sabana REITs at the IPO price of S$1.05 per unit. It is the intention of management to diversify its investment portfolio into various instruments instead of solely in industrial REITs.
The 15,000,000 units in Sabana REITs would be disposed of over a period of time and a fi nancial institution has been appointed to invest the proceeds from the sale into other fi nancial instruments including dividend stocks, bonds and different sectors of REITs.
Innotek’s decision to dispose their stake in SSREIT could likely be due to the recent downbeat assessment of the industrial sector by several independent research houses as well as sell-side research reports.
It could also be due to the unexpected 22% yoy decline in SSREIT’s DPU in 1Q’14 to 1.88 cents on the back of lower occupancy, higher expenses and larger unit base post private placements in Sept’13. SSREIT’s outlook is also uncertain due to another 3 properties with master leases expiring in 4Q’14. Management also warned that supply side pressures may be faced going forward.
Looking at SSREIT’s average volume traded in the past 6 months of close to 1mln, it could take Innotek at least 15 trading days to sell off their stake in SSREIT.
This could in turn create short term pressure on SSREIT’s trading price.
Assuming Innotek raises $15mln from the sale of its stake in SSREIT, the company’s net cash position will be boosted from the current $16mln to $31mln, accounting for 37% of its market cap of $83mln.
Notwithstanding this, its fundamentals remain challenging with management warning of continuing losses in 2Q’14 due to high start up costs and initial low production volumes for several new programs in their TV business. The successful ramp up in their new TV programs will see a better performance in 2H2014.
We maintain our Neutral call on Innotek and Underweight on SSREIT.
MGCT – AmFraser
MAPLETREE GREATER CHINA COMMERCIAL TRUST
Mapletree Greater China Commercial Trust (“MGCCT”) is a real estate investment trust sponsored by Mapletree Investments. MGCCT’s investment mandate includes commercial income producing real estate assets in the Greater China region, ie Hong Kong and key first‐ and second‐tier cities in China. It currently owns two assets, Festival Walk in Hong Kong and Gateway Plaza in Beijing.
Resilient, best‐in‐class assets with diverse tenant base. Festival Walk is one of the 10 largest and most popular malls in Hong Kong. Its location above Kowloon Tong MTR in an upscale residential area near two large universities, broad range of amenities and excellent connectivity has attracted high‐quality tenants such as Apple, Rolex and TaSTe Supermarket. Unlike other Hong Kong malls, we expect
Festival Walk to remain resilient to current HK‐China tensions as only c.10% of total visitors are Chinese tourists (vs c.40% at other malls). Gateway Plaza is a similarly high‐quality asset: it is one of the largest wholly‐owned Grade A office buildings in Beijing by GFA, with over 50% of its total le