Suntec – OCBC
Starting to shine brightly
- Strong contribution from Phase 1 AEI
- Recent acquisition to boost earnings
- Expect continued improvement ahead
Significant recovery post Phase 1 AEI
Suntec REIT’s 4Q13 results exceeded both market and our expectations. NPI came in at S$49.8m, representing a 62.9% jump YoY, due to the opening of Phase 1 retail space of Suntec City Mall (SCM) and Suntec Singapore post AEI. Distributable income from operations also saw a 3.4% increase YoY to S$54.2m. Amid the recovery in performance, management utilized a smaller amount of S$4.0m from CHIJMES sale proceeds for capital distribution (3Q13: S$4.5m, FY13: S$19.0m). Nevertheless, this helped to boost the quarterly DPU up by 10.1% YoY to 2.562 S cents. As such, FY13 DPU amounted to 9.328 S cents, just a tad lower than FY12 DPU of 9.49 S cents but ahead of both ours and consensus forecast of 9.1 S cents.
Continued improvement in operational metrics
Contribution from the retail segment continued to climb, reaching 39% of gross revenue in 4Q13 versus 34% seen a quarter ago. However, the retail revenue was still 10.2% lower YoY due to the ongoing AEI of Phase 2 SCM. Suntec Singapore, we note, contributed S$18.2m from just S$0.5m in 4Q12. In addition, office segment registered a sustained growth of 3.8% YoY due to positive rental reversions, consistent with our positive view on the office market. Notably, rental rate for leases secured at Suntec City Office again improved QoQ at S$8.65 psf pm (3Q: S$8.55). Going forward, we understand that management will continue to focus on forward renewal of its office leases. With only 12.5% of its office leases due to expire in 2014, we thus believe the office segment will remain robust.
Maintain BUY
Suntec REIT also updated that Phase 2 AEI is
on track for completion in 1Q14, and that pre-commitment for the retail space has reached 97.0%, up from 83.7% in 3Q. While bottomline may experience a dip in 1Q as Phase 3 tenants vacate for the last phase of AEI, we continue to be overall positive on its longer-term potential, arising from 1) strong rental uplift at Suntec City, 2) earnings accretion from 177-199 Pacific Highway acquisition and 3) potential interest savings post refinancing of its S$773.5m club loan due in 2014. We maintain BUY with unchanged fair value of S$1.90 on Suntec REIT.
CCT – OCBC
Poised to benefit from CBD office recovery
- FY13 within expectations
- To benefit from CBD rental recover
- S$1.2b of debt headroom
FY13 figures within expectations
4Q13 distributable income increased 3.3% YoY to S$60.2m. This cumulates to a distributable income of S$234.2m for FY13, which is up 2.5% YoY mainly due to higher revenue contributions across portfolio properties and a full-year contribution from Twenty Anson. FY13 distributable income constitutes 102.1% of our annual forecast and we deem this this performance to be within expectations. The group reported 4Q13 DPU at 2.09 S-cents, adding up to a total FY13 DPU of 8.14 S-cents – a 5.6% distribution yield based on the traded price of S$1.45 per unit.
Poised to benefit from recovering CBD office market
Portfolio occupancy came up to 98.7% as of end 4Q13 versus 97.2% a year ago. In particular, we highlight that management has successfully addressed the issue of weak occupancies in Capital Tower and One George Street over FY13, bringing the occupancy rate up from 90.6% and 94.4% as at end FY12 to current levels of 100% and 99.5%, respectively. As a result of continued rental reversions, CCT’s average committed office portfolio rentals increased over the year from S$7.64 (end FY12) to S$8.13 (end FY13). Finally, greenfield-asset CapitaGreen remains on track to attain TOP by end FY14; recall that this is the only asset completing in the core CDB sub-market over FY14-15. The group also completed its S$86m enhancement program at Six Battery Road, resulting in an estimated 8.6% ROI from incremental rentals and savings in operating expenses.
Significant dry powder – debt headroom of S$1.2b
We continue to like CCT for its exposure to the relatively attractive CBD sub-market. With its low gearing of 29.3%, there is significant dry powder for accretive acquisitions with a debt headroom of S$1.2b (40% gearing). We believe this puts CCT in an advantageous position to capitalize on the sector, particularly if the recovery should surprise on the upside given its valuable call option to purchase the remaining 60% of CapitaGreen within three years after TOP.
Maintain BUY with an unchanged fair value estimate of S$1.61.
CCT – MayBank Kim Eng
In-line results; eyes on CapitaGreen
- FY13 results are in line with our and market expectations. Reiterate HOLD and TP of SGD1.50.
- No pre-commitments signed to-date for CapitaGreen. CCT still in active talks to lease ~350k sq ft of space (50% of total NLA).
- FY14E NPI decline for One George Street estimated to be no more than SGD4.5m vs FY13’s.
Results in line with expectations
CCT saw a 3% YoY rise in FY13 revenue to SGD387m, bolstered by higher income from most properties and full-period contribution from Twenty Anson, which was acquired in Mar 2012. Though full-year revenue formed 101% of our and 102% of consensus estimates, it was dented by lower revenue from Capital Tower and the loss of yield protection from One George Street since Jul 2013. Full-year DPU grew 1.3% to 8.14 SGD cts, in line with our expectations. Balance sheet remains strong with a low gearing of 29.3% and 80% of borrowings on fixed rates. CCT has debt headroom of SGD1.2b, assuming a gearing of 40%. Portfolio occupancy edged up to 98.7% from 97.2% thanks to a mix of new and renewed leases (tenants include CapitaLand/CMA, JPMorgan and Royal Bank of Scotland).
All eyes on CapitaGreen
CapitaGreen, with 700,000 sq ft of net lettable area, is on track to complete by 4Q14. CCT has a 40% stake in this development but has yet to announce any pre-commitments. It is in active talks with prospective tenants to lease ~350,000 sq ft of space, with asking rents of SGD12-14 psf per month for smaller tenants and below that for the first few large floor-plate anchor tenants (loss-leader strategy). We see CCT’s pre-leasing activities coinciding with those of the 782,000-sq-ft Asia Square Tower 2 (TOP 3Q13; 60% pre-committed) and 527,000-sq-ft South Beach Development. We expect the next significant uplift in DPU to occur only in FY15 after the completion of CapitaGreen. Reiterate HOLD with an unchanged DDM-derived TP of SGD1.50 (discount rate of 8.5%).
Suntec – MayBank Kim Eng
Suntec continues to deliver
- FY13 results in line with our and market expectations. Highest quarterly DPU since 4Q09.
- FY13 DPU of 9.328 SGD cts includes a 0.839 SGD cts top-up (total SGD19m) from the sales proceeds of CHIJMES for capital distribution.
- Pre-commitments for Phase 2 leases for Suntec City AEI hit 97% and opens in early 2Q14. Phase 3 works will start next month.
Results in line with expectations
Following the massive SGD410m AEI on Suntec City, Suntec’s FY13 revenue contracted by a modest 10.6% YoY to SGD234m, forming 96.5% of our and 98% of consensus estimates. Full-year DPU declined 1.7% YoY to 9.328 SGD cts, constituting 101% of our and 102.5% of consensus forecasts. The amount included a top-up of 0.839 SGD cts (total SGD19m) from the sales proceeds of CHIJMES for capital distribution. Stripping out the top-up, FY13 DPU would have been 8.489 SGD cts (-10.5% YoY). Aggregate leverage inched up to 39.1% from 38.6% last quarter following new borrowings. Net financing costs for FY13 averaged 2.5% with an average term of 2.44 years.
AEI making good progress
Committed occupancy for Phase 1 leases hit 99.6% with average passing rent of SGD13.09 psf per month. Suntec also said that 97% of Phase 2 NLA has been pre-committed (previous quarter: 83.7%). Among the brands that have signed up are Marche, McDonald’s, Andersen and Etude House. Phase 2 works will complete in April while Phase 3 AEI will commence next month. Our investment thesis on Suntec remains intact. In this growth-limited environment, Suntec is one of the very few S-REITs that has a DPU CAGR of 4.2% from 2013-2016 (13.3% over three years), following the rental reversions from the major overhaul at Suntec City. Maintain BUY with an unchanged DDM-derived TP of SGD1.75 (discount rate of 8%).
SB REIT – AmFraser
Exceeding expectations. For the period from listing date of 16 Aug to 31 Dec 2013, Soilbuild REIT recorded a DPU of 2.27c, exceeding our forecast of 2.1c. This continued strong showing largely stems from positive rent reversions, 100% retention of leases and a low all‐in interest rate of 3.12%.
A showcase of stability. Since listing, Soilbuild REIT has retained 100% of its leases expiring and recorded portfolio occupancy of 99.9% as at Dec 2013. With expiring rents below current market rents, Soilbuild REIT continues to revert positively on its expiring rents, witnessing rent reversions of 7.9% post‐listing.
Mitigating its interest rate exposure. 100% of Soilbuild REIT’s borrowings are currently hedged into fixed rates through interest rate swaps of 1 to 4 years in duration. Thanks to its conservative capital management initiatives, Soilbuild REIT achieved an all‐in interest rate of 3.12%, noticeably lower than its forecasted interest rate of 3.28% in the Prospectus.
A visible acquisition pipeline. Boasting an aggregate leverage of 29.3%, Soilbuild REIT has an additional debt headroom of S$79.9mil. We believe this provides considerable ammunition for Soilbuild REIT to carry out acquisitions. With regards to acquisitions, Soilbuild REIT could potentially tap on its Right of First Refusal (ROFR) pipeline of four properties in Singapore, that could contribute an estimated GFA of 2,335,694 sq ft.
Maintain BUY on FV S$0.87. Soilbuild REIT’s DPU of 2.27c translates into an annualized yield of 7.8%, which is compelling in our view given the quality of its assets, longest weighted average land lease and diversified lease expiry profile.