Author: kktan
OUE C-REIT – OCBC
Building operational traction
- Results ahead of IPO forecasts
- Broadly in line with our expectations
- Continued positive rental reversions
4Q14 results within expectations
OUE Commercial REIT’s 4Q14 distributable income and DPU came in at S$12.6m and 1.44 S-cent, respectively, which is 5.5% and 5.1% higher than forecasted in its IPO Prospectus. We judge these results to be within our expectations as FY14 (27 Jan 2014 to 31 Dec 2014) NPI of S$53.8m and distribution income of S$45.9m constitute 100.6% and 97.7% of our forecasts, respectively. In terms of the topline, FY14 gross revenue of S$71.5m was 3.6% ahead of the IPO forecast but was marginally below our expectations (only 96.7% of our forecast) due to a weaker than anticipated contribution from Lippo Plaza. This was negated through effective cost controls by the REIT manager which brought the NPI line back within expectations. The trust pays its distributions on a semi-annual basis, and the book closure for its 2H14 distribution of 2.84 S-cents per unit will be on 3 Feb 2015.
Manager expects positive rental
reversion to continue Overall portfolio occupancy was firm at 98.0% as at end Dec-14, up QoQ versus 97.2% as at end Sep-14. 19.8% of the portfolio, by gross rental income, is up for renewal in 2015 and management expects overall occupancy rates to stay in the healthy mid-90% range over the year ahead. OUE Bayfront remained 100% occupied as at end 4Q14, with average passing rents increasing from S$10.40 psf at IPO to S$10.58 psf. Newly committed rents over FY14 for OUE Bayfront ranged from S$11.22 to S$15.50 psf which is, on average, 14.9% higher than preceding rentals. Lippo Plaza’s occupancy rate increased QoQ to 96.0% as at end Dec-14 from 94.4% as at end Sep-14, and renewal rents in FY14 also showed a respectable 6.0% increase versus preceding rents. Looking ahead, management expects positive rental reversion at Lippo Plaza to continue at a 3.0%-5.0% rate. Maintain BUY with an unchanged fair value estimate of S$0.88.
CMT – OCBC
Had a good run; downgrade to HOLD
- 4Q14 DPU increased 5.1% YoY
- 6.1% rental reversions achieved in FY14
- Valuations no longer compelling
4Q14 results within our expectations
CapitaMall Trust (CMT) reported its 4Q14 results which came in within our expectations. Gross revenue increased 2.2% YoY to S$165.2m, while DPU grew at a stronger pace of 5.1% to 2.86 S cents. This was driven by contribution from the completed phase 2 AEI at Bugis Junction, distribution of taxable income retained in 1H14 (S$11.2m) and one-off other gain distribution amounting to S$4.5m. For FY14, gross revenue came in at S$658.9m (+3.3%) and matched our forecast. With the exception of JCube, all of CMT’s assets recorded positive revenue growth in FY14. DPU grew 5.6% to 10.84 S cents and formed 98.6% of our estimate.
Improvement in shopper traffic and tenants’ sales in 4Q14
Although shopper traffic dipped 0.9% and tenants’ sales psf pm fell 1.9% in FY14, we note that this was an improvement from the 1.5% and 3.0% decline recorded in 9M14, respectively. We estimate that this translated into positive growth of 0.9% and 1.4% in footfall and tenants’ sales psf pm in 4Q14, respectively, an encouraging sign amid ongoing industry headwinds. CMT also managed to record rental reversions of 6.1% for its portfolio in FY14. This was the fifth consecutive year in which CMT delivered positive rental uplifts of at least 6%. While management acknowledged that this figure is under pressure this year, as was the case in FY14, it will continue to enhance the positioning of its malls and make them relevant to shoppers.
Downgrade to HOLD
We switch our valuation methodology from a RNAV model to a dividend discount model (cost of equity assumption: 7.4%; terminal growth rate: 2%), which is the more commonly used valuation metric within our S-REITs coverage. Our fair value is revised marginally from S$2.20 to S$2.21. CMT was highlighted as one of OIR’s top picks in our Singapore Strategy report dated 2 Dec 2014. Since then, its share price has appreciated 13.6%. FY15F distribution yield has now been compressed to 4.9%, which is below its%. FY15F distribution yield has now been compressed to 4.9%, which is below its 10-year average 12-month forward distribution yield of 5.3%. We believe valuations are no longer compelling, and thus downgrade CMT to HOLD.
FCOT – OCBC
Robust start to FY15
- 1QFY15 DPU jumped 20% YoY
- Growth driven by Singapore
- Raise FV and reiterate BUY
1QFY15 results met our expectations
Frasers Commercial Trust (FCOT) made a positive start to FY15, with 1QFY15 revenue and DPU increasing by 23.3% and 20.0% YoY to S$35.5m and 2.46 S cents, respectively. This was within our expectations, as the former and latter formed 25.6% and 26.0% of our full-year forecasts, respectively. The strong set of results was driven by higher income contribution from the underlying leases of Alexandra Technopark (ATP), with NPI surging 66.2% YoY to S$8.9m, following the expiry of the master lease in Aug 2014 and higher occupancy and rental rates at China Square Central (CSC) and 55 Market Street (55 MS). This was partially offset by softness in its Australian properties. Portfolio occupancy stood at 96.6% (Singapore: 97.5%; Australia: 94.9%), relatively stable from the 96.5% achieved in 4QFY14.
Expect rental reversions trend to remain robust
FCOT attained positive weighted average rental reversions of 1.2% for CSC, 16.9% for ATP and 7.1% for 55 MS in 1QFY15. CSC's rental reversion would have been closer to 10% if not for one lease which was renewed at a lower rate. The passing rents for leases expiring in FY15 for CSC, 55 MS and ATP are approximately 22%-27%, 15%-20%, and 20% below current spot rents, respectively, based on our estimates. Hence, we expect FCOT's robust rental reversions trend to continue in FY15. Although the situation in Australia remains challenging, we note that current passing rent of AUD610 psm per annum at its Central Park asset is still below the Perth premium Grade office average net face rents of AUD715-AUD810 psm per annum. In addition, only 0.7% of Central Park's NLA is up for renewal for the remainder of FY15.
Maintain BUY
We believe FCOT has managed its FX and interest rate risks well, having hedged 100% of its net AUD exposure and 73% of its total borrowings. It has no refinancing needs until FY17 (S$180m) and gearing ratio of 37.2% remains manageable, in our view. Given FCOT's resilient performance and wellhedged strategies put in place, we lower our discount rate assumption from 8.5% to 7.9%. Consequently, our fair value estimate increases from S$1.50 to S$1.65. Maintain BUY.
FCT – OCBC
A resilient start
- 1QFY15 DPU +10% YoY
- Positive rental reversion of 7.7% in 1QFY15
- Lower discount rate and raise FV
1QFY15 results in-line with expectations
Frasers Centrepoint Trust (FCT) started FY15 on a bright note, recording a 10.0% YoY growth in its 1QFY15 DPU to 2.75 S cents on the back of a 18.3% increase in growth revenue to S$47.2m. This constituted 23.3% and 24.1% of our full-year forecasts, respectively. If we include S$1.4m (0.15 S cents per unit) of income retained, which we expect FCT to distribute in 2HFY15, adjusted DPU would have formed 24.6% of our FY15 projection, in-line with our expectations. Growth was driven largely by contribution from Changi City Point (CCP) which was acquired in Jun 2014, as well as organic growth from its other assets, with the exception of Bedok Point (BP). Although revenue and NPI for BP declined 12.5% and 24.2% YoY, respectively, this property contributed only 4.2% of FCT’s 1QFY15 NPI.
Operational metrics highlight resiliency
Management recorded robust rental reversions of 7.7% for its entire portfolio, with growth underpinned by CCP (+10.7%), Causeway Point (+9.1%) and YewTee Point (+8.8%), with a slight drag coming from BP (-1.3%). Management sounded a word of caution, highlighting that lease negotiations at CCP had started several months back and market conditions has since become more challenging. Hence the 10.7% reversion figure should not be used as a benchmark for the remaining leases to be renewed. Nevertheless, only 9.5% of CCP’s NLA is expiring for the remainder of FY15. Portfolio occupancy fell slightly from 98.9% to 96.4%, but this was partly due to transitional vacancies (i.e. space that has already been committed but tenants carrying out fit out works). We thus expect occupancy to improve in the coming quarter. FCT’s gearing ratio was unchanged at a healthy 29.3%, with 87% of its debt hedged or on a fixed rate basis (end FY14: 75%).
Reiterate BUY
We keep our forecasts intact given this set of in-line results. However, we are raising our fair value on FCT from S$2.08 to S$2.27 as we lower our cost of equity assumptions from 7.5% to 7.0%. This is to take into account FCT’s continued resilient and defensive We keep our forecasts intact given this set of in-line results. However, we are raising our fair value on FCT from S$2.08 to S$2.27 as we lower our cost of equity assumptions from 7.5% to 7.0%. This is to take into account FCT’s continued resilient and defensive portfolio performance, and strong financial position. Maintain BUY.
Suntec – OCBC
Mixed outlook
- 4Q14 DPU marginally up by 0.6% YoY
- Office segment outperforming retail
- Valuations unexciting
4Q14 results within expectations
Suntec REIT reported 4Q14 revenue of S$76.8m, an increase of 7.3% YoY. This was largely due to the opening of Suntec Singapore, completion of Phase 2 of the AEI at Suntec City mall and stronger contribution from its office segment. DPU was up marginally by 0.6% to 2.577 S cents and was in-line with our expectations. For FY14, revenue rose 20.6% to S$282.4m, or 2.4% above our forecast. DPU of 9.4 S cents translated into a growth of 0.8% and formed 100.9% of our FY14 projection.
Leasing progress for Phase 3 of Suntec City mall still muted
Management updated us that the committed occupancy for Phase 3 of Suntec City mall’s AEI came in slightly above 70% as at end FY14, as compared to 60% in 3Q14. This is a concern to us as TOP is expected to happen soon. We believe progress has been hampered by the tough leasing environment due to retail sector headwinds. Overall committed occupancy for all phases of the Suntec City AEI was 91.3%, with a committed passing rent of S$12.27 psf pm. On the other hand, Suntec REIT’s office segment continued to drive its growth, clocking in a committed occupancy rate of 100%. Average rental rates of S$8.92 psf pm were secured for leases signed in 4Q14, a healthy level, in our view, as Suntec REIT is still delivering positive rental reversions for its new office leases. Outlook for its office segment remains robust in 2015.
Maintain HOLD
We lower our FY15 DPU forecast by 5.9% and introduce our FY16 estimates. As we roll forward our valuations, our fair value estimate is lowered from S$1.90 to S$1.86. With a forecasted FY15F distribution yield of 5.1%, we believe valuations do not excite, as this is close to 1.5 standard deviations below Suntec REIT’s 5-year average forward yield of 6.2%. We thus maintain our HOLD rating on the stock.