Suntec – OCBC
Pure operational boost in 1Q14
- 1Q14 DPU steady at 2.229 S cents
- Strong execution on leasing activities
- Refinancing needs in 2014-15 addressed
Encouraging set of 1Q14 results
Suntec REIT posted a strong recovery in its 1Q14 results, with NPI and distributable income rising 42.7% and 7.0% YoY to S$43.8m and S$50.9m respectively. The increase was due mainly to the opening of Suntec City Phase 1 and a S$1.9m contribution from its recent acquisition in Sydney. DPU was flat YoY at 2.229 S cents. However, we note that no capital distribution was made in 1Q14, as compared to S$2.7m a year ago. Excluding the capital distribution, DPU would have been up 5.7%. We judge the results to be within expectations, as the DPU constitutes ~24% of ours and consensus FY14F DPU.
Leasing activities progressing well
Suntec REIT continued to make significant progress on its lease management. Within the office segment, over 100,000sqft of leases due to expire in 2014 was renewed, leaving only 9.6% of office space due for expiry for the rest of the year. Notably, average secured rents at Suntec City office continued to trend upwards to reach S$8.97 psf pm (4Q13: S$8.65). At Suntec City retail component, management also disclosed that Phase 1 space has achieved 100% committed occupancy. Given the positive response for Phase 2 AEI, Suntec REIT has brought forward ~32,000sqft from Phase 3 and has achieved 95% pre-commitment for the enlarged area. While retail passing rents at the mall eased from S$13.09 to S$12.69 with the inclusion of Phase 2 space (comprises few anchor tenants), we believe the rates would improve with the leasing of Phase 3, which is the crown jewel of the mall. Thus far, construction costs were within budget, with Phase 2 space expected to open shortly and Phase 3 AEI to complete by 4Q14.
Maintain BUY
On its capital management, Suntec REIT announced that it has signed a S$800m five-year unsecured loan facility to refinance the outstanding balance of its S$1.1b loan facility due in 2014 and 2015. Together with the Together with the recent private placement to pre-pay its S$350m debt due in 2015, Suntec REIT no longer has any refinancing needs till 2016. Gearing is also expected to drop to 33.9% from 37.3% currently, while average debt term will be extended to 4.2 years. We maintain BUY with unchanged S$1.85 fair value on Suntec REIT.
MLT – DBSV
Ample acquisition firepower
- 4Q14 results slightly above estimates; NAV rises to S$0.97
- Gearing falls to 33%; ample firepower to execute on inorganic opportunities
- Maintain BUY, TP raised to S$1.20
Highlights
Strong end to FY14. Mapletree Logistics Trust (MLT) reported a DPU of 1.89 Scts in 4Q14, bringing its full-year DPU to 7.34 Scts, slightly beating our estimates. Operational performance continues to remain resilient with topline and net property income rising by 5.7% and 4.3% to S$80.1m and S$68.3m respectively. This is despite translation losses from JPY vs SGD, which was mitigated by strong underlying operational performance through: (i) Rental uplifts of c.17% mainly from its Singapore and Hong Kong properties, (ii) Contribution from two recently completed properties and the completion of its development of Mapletree Benoi Logistics Hub (MBLH). Portfolio occupancy levels also maintained steady at 98.3%. Distributable income came in 10.1% higher at S$46.3m, boosted by a lower interest rate of 1.9%.
NAV up by 5.4% to S$0.97; gearing down to 33%. This was mainly driven by higher rental income, with portfolio cap rates remaining stable. A majority of the uplift in NAV came from MBLH in Singapore. Meanwhile, gearing dipped slightly to c.33%.
Our Views
Foreign currency volatility substantially hedged. MLT maintains a conservative strategy to mitigate income volatility by hedging a substantial portion of its foreign-sourced income. As at 4Q14, c.95% of its distributions derived has been hedged. MLT has substantially hedged out its JPY exposures over the next two years, and the impact of a weak JPY/S$ has been mitigated in the immediate term.
Selective on acquisition opportunities. The lower gearing empowers MLT with significant capacity to execute its various development projects or pursue acquisition opportunities. Looking ahead, we see growth coming from: (i) Selective development opportunities within its portfolio (i.e. started on Toh Guan @ total cost of S$107m, target IRR of >7% and to complete by 1HCY16); and (ii) Acquisitions; the manager sees most opportunities in China/Korea/Singapore. In addition, we believe that the manager could tap on its sponsor for opportunities in the medium term. We are maintaining our S$100m acquisition estimates (35% met).
Recommendation
Attractive yields, BUY with S$1.20 TP. We raised our earnings upwards to account for lower–than-expected interest rates. Our TP is raised to S$1.20 as we roll forward our valuations. Maintain BUY.
FCOT – CIMB
Room for further organic growth
Frasers Commercial Trust (FCOT) has just announced its 2QFY9/14 results, posting a drop of 3.7% yoy in revenue but a gain of 3.2% in DPU. Its 2QFY14 earnings were in line, with both revenue and DPU accounting for 24% of our full-year estimates. 1H DPU made up 48% of our full-year forecast. The higher DPU was mainly attributed to the savings from the buyback of convertible perpetual preferred units (CPPU) in FY13. We maintain our Add rating, with an unchanged DDM-based (discount rate: 8.8%) target price of S$1.39. Positive catalysts could come from organic growth and the potential sale of the hospitality site at China Square Central.
Weak Australia portfolio vs. strong Singapore assets
During 2QFY14, both gross revenue and NPI decreased to S$28.6m (-3.7% yoy) and S$21.7m (-5.8% yoy), respectively. Although FCOT’s topline was lower, DPU continued to grow by 3.2% yoy. The stronger DPU was mainly attributed to the redemption of CPPU and the better performance in China Square Central, which was partially offset by the weaker Australian dollar, lower occupancy for Central Park and higher expenses for the Caroline Chisholm Centre due to painting works undertaken. During the quarter, its Singapore portfolio continued to achieve better performances with a higher NPI of 5.7% on the back of strong rental reversion ranging from 6.4% to 18.2%.
Stable portfolio with potential organic growth
The occupancy for the trust grew to 97.5% (vs. 95.3% a year ago) while the leverage ratio remained at a manageable level of 37.8%. For FY14, we expect additional contribution from China Square Central as the property continues to benefit from the completed AEI and the new Telok Ayer MRT station. In addition, Alexandra Technopark is expected to post good organic growth when the master lease expires in Aug 14. With only 3.9% of leases (as a percentage of gross rental income) up for renewal in FY14 and 7.0% in FY15, we expect the occupancy to remain stable while earnings continue to grow organically on the back of built-in step-up rents (2.9-4.7% p.a.) for more than 41% of total leases.
We maintain an Add rating
FCOT offers a 6.8% FY14 dividend yield and a 5.1% NPI yield. Compared to the sector average of 6.0% and 4.2%, respectively, we continue to see value in FCOT and maintain our Add rating with an unchanged target price of S$1.39.
MCT – CIMB
Continue to impress
MCT’s 4QFY3/14 revenue rose by 12.9% yoy and DPU rose by 12.4% yoy. FY14 DPU was slightly better than expected at 104% of our forecast due to strong rental reversion and the acquisition of Mapletree Anson. We raise FY15-16 DPU by 3-5% on the back of the strong results, coupled with the expectation of further room to grow through rental reversions and, in part, riding on the recovery trend in the office market. We maintain an Add rating on MCT with a slightly higher DDM-based (discount rate: 8.4%) target price of S$1.33.
Another stellar quarter
Mapletree Commercial Trust (MCT) reported 4QFY14 revenue of S$68.6m (+12.9% yoy) and DPU of 1.953 Scts (+12.4% yoy), mainly driven by the 37.6% rental uplift in leases both renewed and re-let at VivoCity. Meanwhile, the occupancy for the retail portfolio grew to 98.6% (from 97.5% in 4QFY13), mainly attributed to the higher occupancy at ARC. During the year, both shopper traffic and tenant sales grew by 1.4% and 5.6%, respectively. The occupancy cost at VivoCity remained largely unchanged at 17%. Similarly, the office portfolio also posted good rental reversion of 19%, with occupancy of the office remaining steady at 97.9%.
Well shielded from rising interest rates
Compared to a year ago, the leverage ratio dipped slightly to 38.7% (from 40.9%). Although this is higher than the industrial average of 31.8%, we seek comfort in MCT’s accessibility to loans and the fact that the next tranche of debt is only due to be refinanced in FY15/16. The all-in interest cost at the moment stands at 2.17% (2.18% in 3QFY14), with 64.3% of its total debt under a fixed rate. With these structures in place, we expect MCT to be well shielded from any hikes in interest rates.
We maintain an Add rating on a stable outlook
Looking ahead, with 16.3% of retail space and 7.5% of office space up for renewal in FY14/15, we are confident that the high portfolio occupancy of 98.2% will be maintained, particularly on the back of the strong positioning of VivoCity and a stronger office rental market outlook. We maintain our Add rating with a slightly higher target price of S$1.33.
CLT – CIMB
Slow and steady
CACHE’s 1Q14 distributable income expanded 5.5% yoy and its DPU was in line with expectations, accounting for 25% of our and consensus full-year forecasts. While DPU declined 4.2% yoy due to the dilution effect from its placement in Mar 13, we expect this to be mitigated as the trust deploys proceeds into its BTS project. Operationally, CACHE’s properties remain stable, with 100% occupancy and in-built rental escalation of 1.25-2.5%. We
expect growth to come from its recently-announced S$105m BTS project and stabilised NPI yield of c.7%. Maintain our Add rating, with an unchanged DDM-based target price (discount rate: 8%) of S$1.33.
1Q14 results highlight
CACHE’s 1Q14 NPI expanded 8.2% yoy and distributable income rose 5.5% yoy. During the quarter, it renewed the master lease at Kim Heng Warehouse with its existing tenant and announced that it will develop a build-to-suit (BTS) logistics warehouse for DHL.
Stable portfolio with growth from BTS
Operationally, CACHE’s portfolio remains stable, with a 100% occupancy rate, in-built step-up within master leases of 1.25-2.5% p.a., and minimal lease expiries due in 2014. With only 2% of leases (as percentage of leased area) due to be renewed for the rest of the year, we note that potential rental downside in the near term is limited. Respectable growth should come from its BTS project which is set to start contributing in 4Q15, with a stabilized NPI yield of c.7%.
Balance sheet is healthy, with a gearing of 29.1%. We expect its balance sheet to remain healthy at c.34.8% post the BTS project, largely in line with the S-REIT average of 32.5%.
Maintain Add
We maintain our Add recommendation in light of its stable portfolio and growth from the BTS project. CACHE’s FY14/15 dividend yield of 7.4%/7.6% is above the S-REIT average and in line with its industrial peers. While trading at a premium to book value at 1.18x P/NAV, we believe its stability is valued and that the BTS project will be NAV-accretive upon completion.