CLT – DBSV
Accelerating growth trajectory
- Under-rented portfolio to enjoy significant reversionary prospects come 2015
- Robust earnings CAGR of 8% over 3 years
- Maintain BUY, TP raised to S$1.37
Under-rented portfolio to be marked-to-market in 2015. Cache continued to deliver consistent results in 2Q14, with DPU of 2.147 Scts (flat y-o-y) backed by a portfolio of master-leases. However, in the next 2 years (FY15-16), these master leases will be rolling off from their initial lease terms. Lessees (CWT and C&P) would be winding down their exposure by 50% and we see strong reversionary prospects when that happens. We estimate close to c69% of its income will be up for renewal in the next 2 years with a majority (4 out of 6 properties or c60% of revenues) in April’15.
Strong earnings CAGR of 8% over FY14-16F.
Annual rental escalations of its initial portfolio grew by 1.5% p.a., which means that on a cumulative basis after 5 years, Cache’s rents would have only grown by c.8% by April’15. We have seen industry average warehouse rentals growing by 43% over the same period, implying a significant spread of close to 37%. While we expect rents to dip by c.5% over 2014-15 due to increasing competitive supply, there is still sufficient buffer for Cache to raise rents and we conservatively forecast a 10% rise. With our revised estimates, Cache is expected to deliver robust 8% CAGR in DPU over FY14-16F.
Maintain BUY, TP raised to S$1.37. We have raised our TP by c.10% to account for the estimated earnings hike from its initial portfolio. Despite trading at P/Bk NAV of 1.3x, we believe that the strong reversionary prospects will underpin further upside in NAVs, and be catalysts for further re-rating from current levels. Maintain BUY.
A-REIT – OCBC
Outlook remains healthy
- 1QFY15 DPU up 2.5% YoY
- Rental reversion at 11.8%
- Embarking on two new AEIs
No surprises for 1QFY15 results
Ascendas REIT (A-REIT) reported a consistent set of 1QFY15 results last evening. NPI grew by 7.7% YoY to S$116.3m, while distributable income increased 2.8% to S$87.6m. The improved performance was mainly due to the recognition of rental income from Nexus@one-north, A-REIT City@Jinqiao and higher secured rentals within portfolio. DPU for the quarter stood at 3.64 S cents, up by a similar 2.5% YoY. This is in line with expectations, as the interim DPU formed 24.0% of both ours and consensus FY15 distribution forecasts. However, as A-REIT has changed its distribution frequency to semi-annual basis with effect from FY15, no payout will be made this quarter.
Portfolio operating metrics largely stable
For the quarter, we note that positive rental reversion averaging 11.8% (FY14: +14.8%) was achieved for leases renewed, as passing rents were still below the current market levels. Portfolio occupancy, on the other hand, eased from 89.6% in Mar to 88.1% as a result of the expiry of leases of two single-user assets. We understand that one is 61.2% occupied while the other is vacant. Nonetheless, management guided that the latter is expected to be fully occupied by Aug, which should bring the overall occupancy above the 90% level. Notably, the percentage of A-REIT’s rental due for renewal has been reduced from 21.3% at the start of FY15 to 15.4%, thanks to A-REIT’s proactive marketing and negotiation efforts. Looking ahead, management expects reversions to stay positive at mid-to-high single-digit rates in FY15.
Maintain BUY
A-REIT announced two new asset enhancement initiatives (AEIs) at the Gemini-Aries and Science Hub with an aggregate estimated value of S$25.6m to maximise the plot ratio and improve the
marketability of the assets. We note that the acquisition of Hyflux Innovation Centre and AEI at 5 Toh Guan Road East was completed in 1Q, and both properties are expected to start contributing to A-REIT’s income. We maintain BUY with an unchanged fair value of S$2.45 on A-REIT.
CMT – CIMB
No surprises
CMT’s results were within expectations, with 1H14 DPU making up c.48% of our full-year forecast. Although sequentially better, 2Q’s tenant sales and shopper footfall continued to dip yoy. This moderated outlook would mean that organic rental growth potential remains anaemic going forward. In the absence of details any makeover plans at Funan Mall and with only a small new AEI planned at Bukit Panjang Plaza, we think the drivers for share price
performance would have to come from new acquisitions. The balance sheet is strong with a gearing of 34.3%. We maintain a Hold rating with earnings projections unchanged. Our DDM-backed target price is slightly higher at $2.11 as we roll forward our numbers.
Rental renewal growth sustaining at more than 6%
2Q14’s gross revenue grew 2.5% to S$164.3m, lifted by a 6.6% positive rental reversion for its renewal leases and high occupancy of 98.6%, while NPI rose a higher 4.4% on lower property tax and better cost management. The 30%-owned Westgate contributed another S$5.6m of NPI. Distribution income of S$93.4m was up 6.5% yoy and represents a 97% payout ratio, translating to a DPU of 2.69Scts. At half time, the group achieved c.48% of our full-year DPU estimate. The group enjoyed a slight boost in valuation (with the exception of JCube) bringing book NAV to S$1.79/unit.
Cautious consumer spending still
Consumer spending remained cautious, with shopper traffic and tenant sales down 2% and 3.3% yoy respectively, although a tad better than in 1Q14. This modest spending scene would mean that rental reversion upside for the 6.4%/29% of its gross rental income due to be re-contracted in 2H14/FY15 is likely to remain anaemic. CMT plans to start an $18.5m AEI at Bukit Panjang Plaza to free up 18ksf of commercial GFA. This exercise should span over 3Q14-3Q16 with a projected ROI of 8%. Meanwhile, the creation of a 25ksf trendy cluster at J Ave, is underway and 2/3s of the space has been taken up.
Inorganic growth could be catalysts
Catalysts for stock upside would likely have to come from new acquisitions. With a gearing of 34.3% and proceeds from the sale of Westgate Office Tower, its balance sheet is in a strong position.
A-REIT – CIMB
Stable within an out-of-favour sector
AREIT’s 1QFY3/15 revenue rose 8.1% while DPU increased 2.5% yoy. 1QFY15 DPU was in line at 24% of our full-year forecast. As the industrial market in Singapore remains challenging on the back of tight governmental policy, we maintain our Hold rating, with an unchanged DDM-based (discount rate: 7.7%) target price of S$2.40.
Stable operations
Ascendas REIT’s (AREIT) 1QFY15 earnings were in line with estimates, with revenue and distributable income both accounting for 24% of our full-year estimates. Positive rental reversion of 11.8% was achieved during the quarter. AREIT’s portfolio occupancy dipped slightly to 88.1% (from 89.6% in 4QFY14) as the leases of two single-tenanted buildings expired during the quarter. Since then, one of the properties has achieved an occupancy rate of 61.2% while the other fully pre-committed. With these leases, overall occupancy will climb back to 90.1%.
Strong balance sheet
During the quarter, AREIT acquired the Hyflux Innovation Centre for S$191.2m, completed its asset enhancement works at 5 Toh Guan Road East, divested 1 Kallang Place for S$12.6m, and fully refinanced its CMBS due in 2014. As a result, leverage ratio stayed strong at 31.6% (vs. 30.0% in 4QFY14) while debt maturity extended from 3.3 years to 3.7 years. All-in borrowing costs remained steady at 2.7%. As at end-1QFY14, c.70% of total debt is hedged under a fixed rate for an average of 3.5 years.
Maintain Hold
Of the leases due to expire in FY15, the spread between existing rates to average market rates is estimated to vary between <2.8% and c.15%. On this basis, we believe AREIT can achieve management’s guidance of a positive mid to high single-digit rental reversion for these leases, which account for 15.4% of its revenue. However, with JTC further tightening its subletting rule recently, we believe this sector is not attractive at the moment. Maintain Hold.
FCT – OCBC
Boost from Changi City Point
- 3QFY14 DPU up 6.0% YoY
- Rental reversion at 7.8%
- Further growth expected
Strong 3QFY14 results as expected
Frasers Centrepoint Trust (FCT) reported a promising set of 3QFY14 results last evening, with gross revenue growing 3.1% YoY to S$41.2m and NPI improving 2.4% to S$29.1m. The better performance was mainly due to higher revenue from Causeway Point and maiden contribution from newly-acquired Changi City Point. Distribution to unitholders of S$25.5m (+8.6%) was further boosted by the release of S$2.1m cash retained in 1HFY14. As such, DPU for the quarter came in at 3.022 S cents, up 6.0% YoY. This brings the 9MFY14 DPU to 8.402 S cents (+5.7%), meeting 75.9%/76.4% of our/consensus full-year DPU projections.
Improvement in operating metrics
Noteworthy in 3Q was the significant improvement in FCT’s portfolio occupancy to 98.5% from 96.8% in preceding quarter. We understand that Bedok Point’s occupancy rose to a strong 99.3% from 77.0% in Mar, after several new tenants including anchor tenant Harvey Norman commenced operations in the quarter. On the portfolio basis, positive rental reversion of 7.8% was also achieved (2Q: +9.3%), with only Bedok Point registering a mild 2.9% negative reversion. Overall shopper traffic in 3Q14 picked up 2.7% QoQ, led by Causeway Point which saw a 9.0% robust growth.
Maintain BUY
While management cautions that more retail space alternatives and labour shortages are likely to pose challenges to retail landlords going forward, it expects its portfolio occupancy and rental rates to remain sustainable. We maintain our view that Causeway Point and Northpoint will continue to underpin organic growth in the year ahead, while Changi City Point will provide further boost to FCT’s income. We make minor adjustments to our forecasts as the interim results were mostly consistent with our expectations. Our fair value is unchanged at S$2.08. Maintain BUY on FCT as upside potential remains attractive.