Starhill Global – OCBC
Healthy rental reversions at Wisma Atria
- 4Q14 DPU up 4.9% YoY to 1.29 S cents
- 17% rental reversion at Wisma Atria (retail)
- Reiterate BUY with higher FV
4Q14 DPU came in within expectations
Starhill Global REIT (SGREIT) reported its 4Q14 results which met our expectations. Revenue slipped slightly by 0.4% YoY to S$48.9 due to weaker contribution from its China and Japan assets (partly due to FX impact), but this was partially mitigated by stronger performance from its Singapore properties. Despite the lower revenue, NPI rose 2.0% YoY to S$39.6m, resulting in an improvement in NPI margin by 1.9 ppt to 81.0%. 4Q14 DPU was up 4.9% to 1.29 S cents. For FY14, revenue fell 2.7% to S$195.1m, forming 98.2% of our full year forecast. DPU of 5.05 S cents represented an increase of 5.0% (excluding a one-off 0.19 S cents Toshin payout in 1Q13) and constituted 99.3% of our FY14 projection.
Robust rental uplift attained at Wisma Atria (retail)
The brightest development during 4Q14 came from the 17% positive rental reversions accomplished for leases committed at Wisma Atria (retail). This was underpinned by the renewals and new leases signed for the prime façade units. Management remains positive on the outlook of rental reversions at Wisma Atria (retail) over the next 3-6 months. Although shopper traffic and tenants’ sales at this mall fell 3.1% and 5.6% YoY to 7.2m and S$139 psf in 4Q14, respectively, which reflects headwinds in the retail sector, we believe assets which are strategically located in prime areas will continue to be a draw for international retailers. SGREIT’s overall portfolio occupancy improved from 99.1% to 99.6% due to recovery in its Japan occupancy rates.
Maintain BUY
SGREIT’s financial position remains healthy, with a comfortable gearing ratio of 28.6%, as at 31 Dec 2014. Its borrowings are 100% hedged via a combination of fixed rate debt and interest rate erivatives. We fine-tune our assumptions marginally and roll forward our valuations, thus deriving a higher fair value estimate of S$0.93 (previously S$0.90). We continue to like SGREIT for its attractive valuations and distribution yields vis-à-vis its peers. The stock is trading at FY15F P/B and yield of 0.88x and 6.3%, respectively. Maintain BUY.
CLT – OCBC
A year in transition
- 4Q14 DPU +0.4% YoY to 2.146 S cents
- Focus on occupancy rates
- Raise FV slightly but maintain HOLD
4Q14 results in-line with expectations
Cache Logistics Trust (CACHE) reported its 4Q14 results which met our expectations. Gross revenue declined 0.4% YoY to S$20.6m due to higher vacancies and tenant rent free period. Nevertheless, DPU climbed 0.4% to 2.146 S cents. For FY14, revenue rose 2.3% to S$82.9m and this formed 96.7% of our full-year forecast. Income available for distribution increased 2.0% S$66.9m, but DPU slipped 0.8% to 8.573 S cents due to a larger unit base. The latter constituted 98.7% of our FY14 projection.
Outlook remains challenging
CACHE is currently undergoing a transition period as it is in the midst of converting some of its assets from master-leased properties to multi-tenanted properties. This had some impact on its occupancy, which declined from 99.5% to 97.5%. Management will continue to step up its efforts to secure forward renewals during this conversion phase. 11% of its lettable area is up for renewal in FY15. Approximately 72% of C&P Changi Districentre and 41% of CWT Cold Hub have been pre-committed by tenants, with a strong pipeline of interest from new tenants, according to CACHE. We expect some near-term pressure on its NPI margins due to expenses related to these conversions. Concerns over the oversupply situation for Singapore’s industrial space also remain as a concern. On a positive front, CACHE managed to renew the master lease of CWT Commodity Hub with its sponsor CWT for a period of three years from Apr 2015, with an estimated initial uplift of 1% in rental rates.
Maintain HOLD
Looking ahead, CACHE will seek to pursue yield accretive acquisitions. Australia is one of its key areas of focus given the institutional-grade warehouses with good credit tenants. China has moved behind Australia in the pecking order as cap rates have narrowed. We lower our FY15 DPU forecast slightly by 1.1% and introduce our FY16 projections. Rolling forward our valuations, our fair value is increased from S$1.13 to S$1.15. Maintain HOLD.
MGCT – OCBC
Limited upside here – downgrade to HOLD
- 3QFY15 DPU rose 9.5% YoY
- Solid operation statistics
- Limited potential returns ahead
3QFY15 results came in within our expectations
Mapletree Greater China Commercial Trust (MGCCT) reported its 3QFY15 results which met our expectations. Gross revenue grew 12.0% YoY to S$73.6m, while DPU jumped 9.5% to 1.662 S cents. This robust set of performance was underpinned by sturdy rental reversions achieved at both Festival Walk (FW) and Gateway Plaza (GP), resulting in YoY gross revenue growth of 9.4% and 20.1% to S$54.1m and S$19.5m, respectively. For 9MFY15, gross revenue of S$204.9m represented an increase of 9.2%, forming 74.5% of our FY15 projection. DPU accelerated 10.6% to 4.815 S cents and constituted 76.1% of our full year forecast.
Underlying trends exhibit strength
Positive rental uplift of 21% and 32% was achieved at FW’s retail and GP’s office segments, respectively, as at 31 Dec 2014. 90% of MGCCT’s expiring leases (by lettable area) in FY15 have already been renewed or re-let. Overall portfolio occupancy stood at a healthy 99.4%, as at end Dec-2014, with full occupancy maintained at FW. Other encouraging signs include an estimated 4.4% and 5.1% YoY improvement in FW’s footfall and tenants’ sales to 11.9m and HK$1,597m, respectively, in 3QFY15. This was accomplished despite the challenging Hong Kong retail scene. We believe this exemplifies the solid positioning and resilience of FW.
Downgrade to HOLD on valuation grounds
Since our initiation on MGCCT with a ‘Buy’ rating in 3 Oct last year, its share price has jumped 13.3% (total returns of 16.8% if we include 1HFY15’s 3.162 S cents distribution). At current price level, we see limited potential total returns ahead. Hence, we downgrade MGCCT to HOLD on valuation grounds, with a marginally higher fair value estimate of S$1.01 (previously S$1.00) due to a slightly smaller unit base assumption. The stock still offers a decent FY15F and FY16F distribution yield of 6.2% and 6.4%, respectively.
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.