RHT – CIMB
Stable growth continues
3Q DPU was largely in line at 26% of consensus and our full-year forecasts. 9MFY3/14 DPU formed 77% of our FY14 forecast. We factor in the updates on various project developments and a lower long-term exchange rate of Rs52:S$ (previously Rs51:S$), lowering FY14-16 DPUs by 1-4%. Stability of RHT’s rupee revenue is supported by its base service fee which we estimate to make up c.70% of FY14-15 revenue, but forex remains a key concern. We maintain our Add rating with a slightly reduced DDM-based target price of S$0.91. Potential catalysts include surprises in ARPOB and earnings delivery.
ARPOB grew qoq
Total revenue grew by 1.3% qoq due to higher hospital income. Operationally, the average ARPOB in rupee terms improved by 5.1% qoq despite a lower occupancy of 78% compared to 86% in 2QFY14. Mulund’s price increment and Kaylan’s Cardiology income and bypass surgeries contributed to the growth. We view this as a return to the norm as 2QFY14 occupancy and ARPOB were affected by increased common communicable diseases which require longer stays but generate lower income.
Update on project developments
Aside from the 3QFY14 results, RHT provided an update on the status of various projects within its portfolio. In 2013, the launch of Gurgaon and the completed expansion works at selected clinical establishments increased its installed bed capacity by 574 beds. The BG Road and Ludhiana projects are targeted to complete and commence operations in 2016, and expected to increase its installed bed capacity by 549. The Amritsar and Noida expansion works were put on hold and selected greenfield projects were delayed. The net impact on its FY14-16 DPU is expected to be c.-1%.
We maintain an Add rating
The anticipated Mohali acquisition was announced in the quarter, but we believe its net impact will be reduced by higher-than-expected funding costs. We expect RHT’s underlying assets to continue generating healthy ARPOB, and organic growth in FY15 as Gurgaon starts to contribute variable service fees and its first full-year base service fee. RHT’s FY14 dividend yield of c.10% remains high compared to S-REIT’s/BT’s simple average of 7.3%.
CCT – OCBC
Limited Core CBD supply pipeline ahead
- Limited Core CBD pipeline ahead
- Grade A rentals likely to recover
- Firm operational traction
To benefit from limited pipeline in Core CBD sub-market
We expect CCT to benefit from an improving Grade A office market in FY14 as rental levels reach a turning point in an environment of resilient absorption (9M13: 671k sq ft) and limited supply pipeline, with only CapitaGreen (~700k sq ft NLA) coming online in FY14 in the Core CBD sub-segment. After CapitaGreen, the next large set of Core CBD office supply in the pipeline will only come in 2016 with Marina One by M+S Ltd (1,880k sq ft), 5 Shenton Way by UIC Land (290k sq ft) and the redevelopment of International Factors Building and Robinson Towers by Tuan Sing (215k sq ft).
Grade A office rentals likely to recover ahead
Looking ahead to 2014, we are keeping our optimistic stance on the Grade A office rental market. The subsector has weathered through a cycle of changing fortunes over the past few years, with office rentals in a downturn since 3Q11. However, we note that the rate of decline has moderated over the past few quarters, and 3Q13 Grade A office rents are now flat QoQ at S$9.55 psf pm respectively. In addition, the Grade A office space continues to see steady net absorption of 235k sq ft in 3Q13.
Firm operational traction
Over 3Q13, CCT’s overall portfolio occupancy edged up QoQ to 97.6% from 95.8% with ~347k sq ft of space being renewed or signed under new leases. In particular, we note that leasing activity was fairly positive at OGS as the group managed to backfill the bulk of the 9.4% in NLA vacated over 2H13 to maintain the asset’s occupancy level at 94.2%. Due to continued positive reversions, average committed office portfolio rentals also increased QoQ to S$8.03psf from S$7.96psf. AEIs at 6BR and Raffles City remains on track to complete in 4Q13 and 2Q14, respectively, and we expect CCT to begin its S$40m AEI in Capital Tower in 4Q13. Maintain BUY with an unchanged fair value estimate of S$1.61.
Suntec – OCBC
En route to sustainable recovery
- Suntec City AEI a success
- Recent acquisition to boost earnings
- Potential risks addressed
Poised for multi-year growth
Suntec REIT has essentially locked in robust growth over the next few years with its strong asset management and execution. First started its Phase 1 rejuvenation works at Suntec City in Jun 2012, Suntec REIT has recently reopened Suntec Singapore and the retail space in 2Q13 with a strong committed occupancy of 99.6%. In addition, passing rent of S$13.09 for Phase 1 space was significantly above the rent of S$10.34 achieved at the rest of the mall, proving the success of the asset enhancement initiative (AEI). We understand that Phase 2 AEI is on track for completion in 4Q13, and that leasing interest has been equally optimistic (pre-commitment of 83.7% in 3Q13). While we may potentially see some weakness as Suntec REIT prepares for Phase 3 AEI in the immediate term, we believe it has laid the foundation for sustainable growth in the years ahead.
Overseas foray likely to be earnings accretive
In mid-Nov, Suntec REIT also made its first overseas investment with the acquisition of 177-199 Pacific Highway, a Grade A freehold office tower under development in Australia. We see several strong merits in the transaction. First, the deal is expected to be earnings-accretive, as Suntec REIT will receive coupon payments at a yield of 6.32% p.a. during the construction, and a NPI yield of 6.89% upon completion of the property. Second, the property is 100% pre-committed, and Suntec REIT will enjoy an annual rental escalation of c. 3.5% for its head lease and rental guarantee for four years for any vacant space upon completion. Thirdly, all-in borrowing cost (including interest rate hedge) is expected to be below 3%, hence giving Suntec REIT a positive yield spread.
Maintain BUY
While we have earlier voiced our concerns on Suntec REIT’s gearing and exposure to forex following the acquisition, management said that it will perform currency hedge on the property’s income stream, and that gearing is not expected to breach 40% even if expected revaluation gain on its existing portfolio does not materialize. In view of Suntec REIT’s growth potential and current compelling valuation, we maintain our BUY rating and S$1.90 fair value.
Starhill Global – OCBC
Still among our top picks
- Strong results from Singapore and Australia
- Loan rates substantially hedged or fixed
- Poised for further growth
Clear growth drivers
We continue to be positive on Starhill Global REIT’s (SGREIT) performance in 2014. SGREIT has recently delivered a strong set of 3Q13 results on the back of strength from its Singapore portfolio and new income stream from Plaza Arcade in Australia. We believe the full potential has yet been unleashed, as SGREIT has continued to make significant progress on its portfolio occupancy and rents over the year. For one, the office segment in Singapore has continued to see positive rental reversions and improved occupancy. Post redevelopment and asset repositioning of Wisma Atria, the property has also seen its rental rates and sale efficiency rise steadily. In Jun, SGREIT secured another 6.7% increase in base rent for the Toshin master lease at Ngee Ann City and a 7.2% rental uplift for its Malaysia assets. This positive momentum is likely to flow through positively into 2014, given that the retail rental market in Singapore is expected to stay positive in the next 6-12 months.
Significant improvement in debt profile
On the capital management front, SGREIT has been consistently maintaining a robust gearing level of ~30.0%. However, noteworthy was SGREIT’s recent drawdown of new unsecured loan facilities to refinance its debts due in 2013. As a result, SGREIT does not have any refinancing needs until Jun 2015, while its unencumbered asset ratio improves to 79.0% from 42.0% previously. As the new loans were also substantially hedged, its fixed/hedged debt ratio also increased to a significant 94.0% from 81.0% in 2Q13. This will limit its exposure to rising interest rates and provide unitholders greater certainty on its cash flows.
Maintain BUY
We continue to like SGREIT for its clear growth drivers, robust financial standing and compelling valuation. We are keeping our forecasts and fair value of S$0.95 intact as the recent developments have panned out according to our expectations. However, we do not rule out new investments/asset enhancements and capital recycling by SGREIT in 2014, which may provide further catalysts for growth. We maintain BUY on SGREIT.
HPH-Trust – OCBC
4Q13 one-off items hit P&L
- Misses expectations
- Cost pressures in FY14
- Reduce FV to US$0.63
PATMI nearly halves
HPHT reported 4Q13 earnings results that were lower than ours and the street’s expectations due to one-off items: (1) concession to shipping lines (translating into lower average revenue per TEU for HK) after previous industrial action at HIT, (2) write-off of upfront fee after US$3.6b bank loan refinancing, and (3) exchange loss from the conversion of USD to HKD for repayment of bank loan for the ACT acquisition. 4Q13 revenue fell 0.8% YoY to HK$3.12b. Total operating expenses increased by 10.9% to HK$2.17b. PAT dropped 34% to HK$644m. PATMI fell 47% to HK$335m. 4Q13 throughput volume for HIT was down 10.1% YoY, but HK throughput was down only 2% for FY13 due to the acquisition of ACT in Mar 2013. 4Q13 throughput for Yantian (Shenzhen) was up 4.7% YoY, translating into a 1% growth for FY13. The portfolio as a whole registered a 1% decline in FY13.
FY14 guidance
Management anticipates mid-single digit growth in volume for its HK and Shenzhen ports, with 1-2% increase in ASP. Due to the expiry of tax holidays for some phases of Yantian, management foresees a tax rate of 19-20% for FY14, versus the 12% in FY13. There will also be the full year impact of the 9.8% wage increase for port workers decided on in early May 2013. Capex delayed in FY13 will be pushed over to FY14 (HK$1.5b-2.0b). FY13 DPU is 41 HK cents, and management’s internal target is to reach a similar figure for FY14. While FY13 operating profit had contracted by 9.5%, cash generated from operations expanded by 10.2%, and management says there will continue to be a gap between profitability and cash flows in FY14.
Maintain HOLD
Lowering our DPU forecasts, we reduce our FV on HPHT from US$0.74 to US$0.63. We maintain a HOLD rating on HPHT. HPHT is trading at a FY14F dividend yield of 8.0%.