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.
A-REIT – OCBC
Drag from higher property expenses
- 3QFY15 DPU inched up 1.4% YoY
- Expect positive rental reversions to continue
- Lower FV and downgrade to HOLD
3QFY15 DPU slightly below expectations
Ascendas REIT (A-REIT) reported its 3QFY15 results with topline meeting our expectations but DPU fell slightly short due to higher-thanexpected property operating expenses. Gross revenue rose 11.2% YoY to S$171.7m, underpinned by contribution from new acquisitions (Aperia and Hyflux Innovation Centre) and higher occupancy at Nexus@one-north and A-REIT City@Jinqiao. However, property operating expenses spiked up by 24.6% to S$57.1m due to higher property tax and other property expenses incurred following the conversion of certain properties from single-tenanted to multi-tenanted lease structures. As a result, DPU grew by a mild 1.4% YoY to 3.59 S cents. For 9MFY15, revenue increased 9.3% to S$499.7m and formed 75.3% of our FY15 forecast. DPU of 10.89 S cents translated into a growth of 1.9% and constituted 73.6% of our full-year projection.
Rental reversion trend remains positive
During 3QFY15, A-REIT managed to achieve positive rental reversions of 7.7% for leases which were renewed. This was driven largely by its Light Industrial (+13.0%) and HiSpecs Industrial (+11.1%) segments. We believe this trend would likely continue going forward, as the weighted average passing rent for most of A-REIT’s multi-tenanted space which are due for renewal in FY15 and FY16 are still below current spot rents. AREIT’s overall portfolio occupancy rebounded on a QoQ basis from 85.6% to 86.8%, meeting our expectations as we had highlighted in our 2QFY15 results note that its occupancy may trough soon.
Downgrade to HOLD
We trim our FY15 and FY16 DPU forecasts by 1.8% and 2.1%, respectively, as we input lower NPI margin assumptions in our model. This causes our DDM-derived fair value estimate to decline slightly from S$2.45 to S$2.42. A-REIT’s share price has performed well YTD, appreciating 5.9%. We believe valuations are now fair, with the stock trading at 1.24x FY15F P/B ratio. This is approximately half a standard deviation above its 5-year average forward P/B ratio of 1.20x. Hence, we downgrade A-REIT to HOLD.
AscottREIT – OCBC
In-line results, diversified operations
- 4Q14 DPU +12.8% YoY on adjusted basis
- Hedging strategies in place
- Resilient business model
4Q14 results in-line with our expectations
Ascott Residence Trust (ART) announced its 4Q14 results which came in within our expectations. Revenue increased 13.2% YoY to S$95.0m, while DPU jumped 62.4% to 2.16 S cents. Adjusting for one-off items and a rights issue exercise carried out in Dec 2013, ART’s normalised DPU would have increased 12.8% YoY to 1.76 S cents. For FY14, revenue climbed 12.8% to S$357.2m and formed 100.3% of our estimate. DPU of 8.2 S cents represented a slight decline of 2.4% (normalised DPU +5.8% to 7.61 S cents) but was 0.6% above our forecast.
Watching FX risks closely
As 89.9% of ART’s revenue is derived outside of Singapore, management keeps a close watch on its FX risks, especially in key markets such as Europe, UK and Japan. It has already hedged 70% of its estimated income denominated in Euros in 2015 (at a rate of EUR1 to S$1.63). For its Yen exposure, ART has hedged 20% of its estimated income and has the intention to increase this hedge to ~70%. In terms of capital management, 80% of ART’s total debt is on a fixed rate basis.
Maintain BUY
Looking ahead, although the global macroeconomic environment remains challenging, ART expects its operational performance to remain healthy given its resilient extended-stay business model and geographical diversification. It remains positive on its prospects in Japan given robust occupancy rates and ADR growth in excess of 10% in 2014. ART would be keen to acquire more assets in Japan. China, on the other hand, would be slightly challenging in FY15, but we believe this would be mitigated by contribution from new acquisitions made in FY14. As at 31 Dec 2014, ART’s portfolio comprises 90 properties with 10,502 apartment units spread across 37 cities in 13 countries in Asia Pacific and Europe. We fine-tune our assumptions and roll forward our valuations, thus deriving a higher fair value estimate of S$1.49 (previously S$1.37). Maintain BUY on ART, with the stock trading at FY15F P/B ratio of 0.9x and a distribution yield of 6.6%.