FortuneREIT – OCBC
Robust performance continues
- 4Q14 DPU rose 8.0% YoY
- Solid FY14 rental reversion of 23.8%
- Stock appears fairly priced
4Q14 results met our expectations
Fortune REIT reported another good set of results, with 4Q14 revenue and DPU increasing by 8.4% and 8.0% YoY to HK$425.7m and 10.5 HK cents, respectively. For FY14, revenue jumped 25.7% to HK$1,655.8m, due to robust rental reversion of 23.8% and a full year of contribution from Fortune Kingswood (rental reversion in excess of 30%). Its portfolio passing rent increased by 8.7% to HK$36.4 psf pm. FY14 DPU of 41.68 HK cents translated into a growth of 15.8%, and formed 99.8% of our full year forecast. Results were within our expectations. All of Fortune REIT’s assets recorded an increase in their valuations ranging from 2.7% (Rhine Avenue) to 13.9% (Fortune City One).
Contribution from Laguna Plaza to further boost growth
Fortune REIT recently completed the acquisition of Laguna Plaza on 9 Jan 2015 for HK$1,918.5m (4.7% passing initial yield). This was fully funded by debt and the asset is expected to form synergies with Fortune REIT’s Centre de Laguna which is located at close proximity. We expect Fortune REIT’s gearing ratio to reach 33% at end FY15, versus 29.4% as at 31 Dec 2014. This is still a healthy level, in our view. Following this acquisition, Fortune REIT’s total debt hedged will ease from 55% to 46%.
Maintain HOLD
We raise our FY15 DPU forecast by 5.4% to take into account the acquisition of Laguna Plaza and also introduce our FY16 projections. Rolling forward our valuations, we bump up our fair value estimate from HK$7.29 to HK$8.05. While we like Fortune REIT for its resilient portfolio as 57% of its gross rental income is derived from the nondiscretionary retail sector, we believe the stock appears fairly priced, having appreciated 7.4% YTD. Our forecasted FY15F distribution yield of 5.4% is more than one standard deviation below its 5-year average forward yield of 6.4%. Maintain HOLD.
CCT – OCBC
Downgrade to SELL
- 4Q14 results in line
- CapGreen now 69% precommitted
- Downgrade to SELL on valuation
4Q14 results within expectations
CapitaCommercial Trust (CCT) reported 4Q14 distributable income and net property income of S$63.6m and S$50.6m which increased 5.7% and 3.0% YoY, respectively. DPU for the quarter is an estimated 2.15 S-cents, up 2.9% YoY versus 2.09 S-cents for 4Q13. We judge this set of results to be within expectations, as FY14 distributable income and net property income forms 102.7% and 100.4% of our full year forecast, respectively. In terms of the topline, the trust’s 4Q14 revenue similarly increased 3.1% YoY to S$66.4m mostly due to higher rentals and occupancy rates across its office portfolio.
Average portfolio rents up 5.9% YoY to S$8.61 psf
Excluding the newly completed CapitaGreen, the trust reports a healthy overall occupancy rate of 99.4% and positive rental reversions for its Grade A office leases committed over the quarter. Over the year, the trust signed leases for 900k sqft of NLA, of which 15% are new leases and management reports a tenant retention rate of 86% in 2014, significantly higher than 67% in 2013. Mainly due to positive rental reversions and the inclusion of CapitaGreen, CCT’s average portfolio rents continued its uptrend, rising 5.9% from S$8.13 psf as at Dec 13 to S$8.61 as at Dec 14. The group’s balance sheet remain healthy with gearing at 29.3% as at end 4Q14 and an average cost of debt of 2.3%.
CapitaGreen achieves 69% commitment
As at end 4Q14, CapitaGreen (which achieved TOP status on 18 Dec 2014) was valued at S$1,526m and CCT’s 40% interest held through MSO Trust is S$610.4m. The asset is now 69.3% committed, above the trust’s target occupancy of 50%. We note that the trust has a debt headroom of S$1.3b assuming a 40% gearing, and is holding a call option to buy the 60% remaining interest in CapitaGreen from 2015-17. Our fair value estimate remains unchanged at S$1.67 but we downgrade our rating to SELL on valuation grounds.
SB REIT – OCBC
A good showing
- FY14 DPU above prospectus forecast
- 100% occupancy rate
- FY15F distribution yield of 8.2%
4Q14 results within our expectations
Soilbuild Business Space REIT (Soilbuild REIT) reported its 4Q14 which met our expectations. Revenue rose 8.3% YoY to S$17.7m, underpinned by contribution from new acquisitions and higher rental revenue from Solaris, West Park BizCentral and Tuas Connection. DPU grew 5.0% to 1.585 S cents (ex-dividend on 27 Jan). For FY14, Soilbuild REIT’s revenue came in at S$68.1m, forming 100.6% of our estimate but was 2.8% higher than its projection stated in its IPO Prospectus. DPU of 6.193 S cents translated into a distribution yield of 7.8%, and was 0.7% and 3.8% higher than ours and the REIT Manager’s forecasts, respectively.
Healthy operational statistics
Soilbuild REIT’s portfolio occupancy stood at 100%, as at 31 Dec 2014. It achieved an average rental reversion of 9.8% in FY14. 18.2% of Soilbuild REIT’s leases (by rental income) are expiring in FY15, and management will increase its focus on securing renewals on these leases. Negotiations for renewals of over 20% of FY15 expiries (~200,000 sq ft) have already been completed. Approximately 81.9% of Soilbuild REIT’s total debt has been hedged with interest rate swaps.
Maintain BUY
While there is an impending court case regarding a dispute over the amount of land rent payable to JTC Corporation for its Solaris property, Soilbuild REIT believes it has a strong case based on the advice of its legal counsels. Moreover, the property is leased under a triple net lease. Hence all the land rent has to be borne by the lessee. This means that there would be no impact on the distributable income of Soilbuild REIT up to 15 Aug 2018 even if it loses the court case. Taking into account the recent completion of acquisitions made by Soilbuild REIT, we raise our FY15 and FY16 DPU forecasts by 3.6% and 3.9%, respectively. Rolling forward our valuations, we derive a higher fair value estimate of S$0.93 (previously S$0.88). Coupled with an attractive FY15F distribution yield of 8.2%, we maintain our BUY rating on Soilbuild REIT.
MLT – DBSV
Acquisitions to drive earnings
- Resilient 3Q15 results
- Meaningful acquisition prospects in medium term
- Downgrade to HOLD, TP S$1.27
3Q15 results in line. Mapletree Logistics Trust (MLT) continued to deliver a sustainable set of results in 3Q15. Revenues and net property income came in at S$82.9 m (6% y-o-y, 2% q-o-q) and S$62.5m ( 3% y-o-y, 1% q-o-q). The stronger performance was mainly due to contribution from the acquisitions of six properties and positive rental reversions of c.9% which more than offset (i) the lower portfolio occupancy rates (c.96.9% vs 97.2% in 2Q15) due to newly converted multi-tenanted properties, and (ii) loss of income from 5B Toh Guan road as it undergoes AEI. Distributable income grew 3% y-o-y to S$46.2m, translating into a DPU of 1.87 Scts. YTD DPU of 5.65 Scts forms 75% of our forecast.
Moderating prospects dampened by conversions of singleuser properties. Faced with a competitive operating outlook, MLT has done well in managing its leases and maintaining a high occupancy rate of c.96.9% with average reversions of 9.0%. Looking ahead, we expect downward pressure on occupancies from (i) downtime due to further conversions of multi-tenanted properties (estimated that half of the 16 single-tenanted properties will be converted) to increase inFY16 across its major markets. Rental reversions are expected to further moderate owing to heighted supply completions. In terms of inorganic growth, pipeline from sponsor remains highly visible but we note that meaningful growth is likely to come only in the medium term. In the meantime, MLT might look at recycling its assets through divestments to maximise value and redeploy proceeds to higher yielding assets.
Downgrade to HOLD on valuations, TP of S$1.27 as we roll forward valuations. We believe that at a P/Bk NAV of 1.3x, a forward yield of 6.1-6.4% reflectsinvestors’ high confidence in MLT’s earnings resilience and management execution ability on growth. However, it is near our revised TP of S$1.27 as we roll forward valuations. Given limited upside to our price objective, we downgrade our call to HOLD.
MIT – DBSV
Completion of Equinix to drive growth
- DPU of 2.65 Scts in line
- Development projects completing in 2015
- Maintain BUY, TP S$1.66
Highlights
DPU of 2.65 Scts in line
- Gross revenues and net property income grew steadily at 3.3% and 5.4% higher y-o-y to S$78.1m and S$58.0m respectively and was mainly due to (i) higher portfolio rent achieved (S$1.83psf) while occupancy rates remained stable at 90.8%, and (ii) contribution from completed development projects. NPI margins improved to 74.2% due to utility savings from lower tariffs and is expected to continue. MINT also increased its hedge ratio to 86% during the quarter.
Outlook
Development projects to drive earnings growth; back-filling of Signature space a positive
- Occupancy rates at properties post-asset enhancements at Toa Payoh (98% occupied) and Woodlands (80% occupied) continue to improve. We note that Signature has also backfilled a substantial part of its vacant space (occupancy 63% vs 43% in 2Q15) and will contribute to earnings in the subsequent quarter. Looking ahead, the development project for Equinix is on track to complete by Mar’15 and will contribute fully in FY16.
Conservative gearing as MINT undertakes its most extensive development project for HP (TOP in 2017)
- Current gearing is conservative at c.32%; implying that the manager has the capability to take on debt-funded acquisitions when the opportunity arises. Gearing is estimated to inch up slowly to c.38% as the Trust starts on the redevelopment of Telok Blangah project for HP in 1Q15.
Rental reversions to moderate but still positive
- We note that average passing rates are near market rental reversion levels and are expected to moderate further to <10%. That said, earnings should remain stable.
Valuation
We maintain our BUY call and raise our DCF-based TP to S$1.66. At its current price, MINT offers investors a dividend yield of c6.5-6.7%, an attractive level given its strong credit backing and quality name.
Risks
Rising interest rates
- An increase in refinancing rates will negatively impact distributions. However, MINT looks to minimise the impact by having c.77% of its interest costs fixed with a duration of > c.2 years.
Economic risk
- A deterioration in the economic outlook could have a negative impact on industrial rents and occupancies as companies cut back on production and require less space. Industrial rents have a strong historical correlation with GDP growth.