A-REIT – OCBC
Expecting further upside
- 4QFY14 DPU up 16.0% YoY
- Positive revision of 14.8% achieved
- Aggregate leverage robust at 30.0%
Closing FY14 on positive note
Ascendas REIT (A-REIT) delivered a firm set of 4QFY14 results last evening. NPI grew by 12.2% YoY to S$112.3m, driven mainly by contribution from The Galen, Four Acres Singapore, Nexus@one-north and A-REIT City@Jinqiao. We note that no performance fee was payable for the quarter (versus S$7.0m fees registered in previous year), while a S$4.9m gain was clocked for the divestment of Block 5006 at Techplace II. In addition, A-REIT gained from distribution of income relating to its Ascendas Z-Link property in China. As a result, distributable amount and DPU increased by 23.9% and 16.0% YoY to S$85.3m and 3.55 S cents, respectively. This brings the full-year DPU to 14.24 S cents (+3.6%), largely in line with our projection of 14.13 S cents (consensus: 14.2 S cents).
Portfolio performance remained sturdy
We understand from management that there was a slowdown in leasing activity for the business/science park segment, while performance within the other property segments was generally stable. However, rents have been holding up well. Despite the impending increase in supply of industrial space in 2014, A-REIT expects the demand to remain healthy on the back of a tentative global recovery. As at 31 Mar, portfolio occupancy held steady at 89.6% (3Q: 89.7%). For FY14, positive rental reversion averaging 14.8% was also achieved. Going forward, A-REIT guided that positive reversion in the mid-to-high single digit is still anticipated, given that passing rents are below market rates.
Maintain BUY
A-REIT also announced two new asset enhancement initiatives (AEIs) this quarter, with the objective of maximising the plot ratio and improving the marketability of the properties. To date, total cost of committed AEIs amounted to S$106.5m. We also note that the acquisition of Kallang Ave development (~40% space committed) may happen soon as TOP is expected in 2QCY14.
We roll our valuation to FY15, while tweaking our assumptions to factor in potentially higher operating costs. Our fair value now increases to S$2.45 from S$2.40 previously. Maintain BUY.
A-REIT – Maybank Kim Eng
Steady as she goes
- FY3/14 results in line with market expectations.
- AREIT still has SGD135.3m worth of development and asset enhancement works due for completion in 2Q14-4Q15, which should help buffer downside risks.
- Reiterate HOLD with a DDM-derived TP of SGD2.31.
Results in line with expectations
AREIT’s FY3/14 revenue grew 6.6% YoY to SGD613.6m, bolstered by rental income from The Galen, which was acquired at end-FY3/13, Nexus@one-north and A-REIT City@Jinqiao. Full-year DPU rose 3.6% YoY to 14.24 cts. Although AREIT achieved 14.8% positive rental reversion for leases renewed in FY3/14, management expects the trend to moderate in FY3/15E, with demand slowing and new industrial space supply coming up. About 21.3% of its property income is due for renewal this year. The all-in-financing cost for 4QFY3/14 averaged 2.7% (4QFY3/13: 3.3%) with an average term of debt of 3.3 years. According to AREIT’s interest rate sensitivity analysis, its DPU would decline ~1%, or 0.16 cts, for every 50bps increase in interest rate.
Buffered downside
AREIT still has SGD135.3m worth of development and asset enhancement works, which are scheduled for completion in 2Q14-4Q15. We believe this would help buffer the downside risks should property prices be recalibrated due to the impending hike in interest rates. Management also announced redevelopment works for C&P Logistics Hub and Techlink/Techview, costing SGD61.9m. The works will complete by 4Q15, adding another 25.9k sq m to its GFA. We adjust our FY3/16E-17E DPU marginally to factor in the enhancement works. We forecast 3.9% DPU CAGR for FY3/14-17E. Maintain HOLD with a DDM-derived target price of SGD2.31 (previously SGD2.30).
CCT – CIMB
Prospects bright but fairly valued
CCT posted 1Q14 revenue growth of 3.2% and DPU growth of 7.2% yoy. The topline and DPU account for 25% and 26% of our quarterly estimates, respectively. CCT’s next phase of growth is expected to be driven by the upcoming CapitaGreen, which is scheduled for completion in 4Q14. We lift our FY14 DPU estimate but tune down our FY15/16 forecasts by 3% to account for the slight dilution from the potential conversion of its CB due in FY15. We keep our Hold rating, but with a higher DDM-based (discount rate: 7.7%) target price of S$1.55 on the back of relatively good take-up for CapitaGreen which we believe will negate the potential dilution from the CB conversion.
Another stable quarter
CCT’s 1Q13 topline was S$64m (+3.2% yoy) while DPU was 2.1 Scts (+7.2% yoy). The growth in revenue was mainly attributed to higher revenue contribution from all the properties within its portfolio, with the exception of One George Street, which was affected by the cessation of income support. During the period, CapitaGreen (scheduled to be completed in 4Q14) secured pre-commitments for 12% of its total NLA of 700,000 sq ft, with an average rental rate of c.S$9 psf/mth. We believe CapitaGreen should be able to achieve a pre-commitment rate of c.60% prior to its completion in 4Q14, with an average rent of S$9.75 psf/mth. Portfolio occupancy for the quarter continued to creep up to 99.4% (vs. 98.7% a quarter ago).
Convertible bonds expected to be converted
Gearing stayed stable at 30.0% in 1Q14 (29.3% in 4Q13) while the average cost of debt dipped slightly to 2.4% (2.6% in 4Q13). Having completed all its FY14 financing needs, we believe CCT will continue to look at its refinancing needs for 2015 in the coming quarters. In our view, the S$190m CB due in FY15 (conversion price at S$1.23) is likely to be converted, in turn resulting in a DPU dilution of c.3.3%. Currently, with 80% of its total debt hedged as a fixed-rate debt, we believe CCT is fairly immune to any rate hikes.
Maintain Hold
Although we maintain a positive view on Singapore’s Grade-A office rental market, we believe CCT is currently fairly valued at 0.96x P/BV as it offers the lowest implied NPI yield of 3.1% vs. 3.5-6.2% for the office REIT space.
Sabana – Lim & Tan
Sabana Shariah Compliant REIT ($1.04, down 4 cents) 1Q’14 distribution per unit declined 22% yoy to 1.88 cents, coming in below expectations.
The weaker than expected DPU refl ects the lower net property income as their Lorong Chuan property was converted into a multitenanted lease arrangement and straight-lining adjustments on rental income for a major tenant given rent-free period in 1Q’14.
Net profi t fell 29% yoy in 1Q’14 to $9.4mln due to lower property income, higher property tax, land rent, maintenance and lease admin expenses, as well as 39% increase in fi nance costs due to an early re-fi nancing exercise in 1Q’14.
If not for new contributions from 508 Chai Chee Lane which was acquired in Sept’13, performance would have been even weaker.
Looking ahead, management will continue to intensify their marketing and leasing efforts to improve their portfolio occupancy and also look for opportunities to recycle their capital by divesting underperforming assets and use the sale proceeds to re-invest in new acquisitions, pare down debt and distribute capital gains from divestments.
According to DTZ research, rents for conventional industrial space was held up on the back of expansion in the manufacturing sector, although that may face supply side pressures going forward.
Capital values were stagnant for the 3rd consecutive quarter due to cooling measures having been implemented (sellers stamp duty and total debt servicing ratio).
Annualizing Sabana’s latest DPU would translate to a forward yield of 7.2%. This would put it on par with much stronger peer such as Mapletree Industrial Trust’s (MIT) 7.1%. We prefer MIT given its expected 11% DPU growth in 2014 (against Sabana’s 22% declined) as well as stronger parentage and tenant base.
CCT – OCBC
Looks fairly valued here
- 1Q14 figures within expectations
- CapitaGreen 12% pre-committed
- Downgrade to HOLD
Good start to the year
1Q14 distributable income increased 7.6% to S$59.9m mostly due to stronger contributions from portfolio assets and lower interest expenses. 1Q figures were mostly within expectations and YTD distributable income now constitutes 25.6% of our full year forecast. Topline for the quarter came in 8.5% higher YoY at S$57.1m versus S$52.6m in 1Q13 (restated due to the adoption of FRS 111 which reclassified income from RCS Trust and MSO Trust under “share of results of JV”). We note that the Trust enjoyed higher revenues from all properties due to a mix of stronger occupancies and positive rental reversions, except for One George St which was impacted by the cessation of yield protection income. 1Q14 DPU of 1.94 S-cents translates to a 5.2% yield as at the last closing price of S$1.635.
CapitaGreen now 12% pre-committed
Portfolio occupancy came up to 99.4%, up 70 bps from 98.7% as of end 4Q13. We continue to see positive rental reversions across CCT’s portfolio assets, with average committed office portfolio rentals increasing to S$8.22 psf as at end 1Q14 from S$8.13 as at end 4Q13. Management highlights that more than two thirds of leases expiring in FY14 has been renewed. Greenfield asset CapitaGreen remains on track to complete by end FY14 and the Trust has already pre-leased 12% of the 0.7m sq ft net lettable area to Cargill, Bordier & Cie and an international gym operator. Management expects to achieve commitment levels of ~50% by completion.
Downgrade to HOLD on valuation grounds
As our top pick in the REITs sector, CCT has outperformed significantly YTD, appreciating 12.8% versus the STI’s 2.7% movement over this period. We update our model for latest rental assumptions, and our fair value increases marginally to S$1.67 from S$1.61 previously. At this juncture, however, we believe CCT is almost fully valued; downgrade to HOLD on valuation grounds.