FCT – DBSV
Stronger performance at Causeway Point and Northpoint offset weaker Bedok Point
- Organic growth to be driven by positive rental reversions at Causeway Point and Northpoint
- Growth catalyst: acquisition of Changi City Point
- Maintain BUY, TP S$2.14
Highlights
1QFY14 results in line. Gross revenue grew 5% y-o-y to S$39.9m, while NPI rose 4.4% to S$28.3m due to higher marketing, maintenance and property tax expenses. After retaining S$2.1m (0.25cts), distribution amounted to S$20.6m or 2.5cts/unit, up 4.3% y-o-y. Overall occupancy slipped to 96.7%, but topline was lifted by an average 2.5% hike in average rents compared to preceeding rates, with the strongest reversion of 15.4% at CP, post AEI, and 7.3% at NP. This more than offset weaker rental income from Bedok Point, which saw negative reversions (-16%) and a lower occupancy rate of 80% as a result of competition from new malls nearby.
Our View
Organic growth from positive rental reversions. The Trust has about 20% of NLA expiring in FY14 and 40% expiring in FY15. The bulk of the leases to be renewed are in NP and CP, and Bedok Point. We believe CP and NP should continue to enjoy positive rental reversions with robust shopper footfalls that are growing sequentially. Ongoing adjustments to tenant mix at Bedok Point to reposition the mall implies still high frictional vacancy of 5-10% in the short term, and lower average rents (high single digit vs low double digit currently) when stable. This could drag the value of Bedok Point in the longer run, although it accounts for only 7% of portfolio revenue and 6% of AUM. Next catalyst will be new acquisitions, namely Changi City Point. Application for strata sub-division for this mall is on track and when completed, can be acquired, likely in FY14. With gearing at 28% post-repayment of the S$60m MTN, FCT’s balance sheet is well positioned to take on more acquisitions to drive growth.
Recommendation
Maintain Buy, TP $2.14. FCT is trading at 6.4% FY14F and 6.9% FY15F yield. Our TP offers 27% total return.
MCT – CIMB
Stronger than expected
MCT’s 3QFY13/14 revenue rose by 22.4% yoy and DPU rose by 11.9% yoy. 9MFY14 DPU was slightly better than expected at 78% of our FY14 forecast due to strong rental reversion and rising occupancy. With further room to grow through rental reversions and, in part, riding on the recovery trend in the office market, we raise FY14-16 DPU by 2% and upgrade our rating on MCT to Add from Hold. Our slightly higher DDM-based (discount rate: 8.4%)
target price is S$1.31.
Strong organic growth
Mapletree Commercial Trust (MCT) reported 3QFY14 revenue of S$68.4m (+22.4% yoy) and DPU of 1.865 Scts (+15.5% yoy), mainly driven by the 38.7% rental uplift in leases renewed at VivoCity. Similarly, the rising occupancy in the PSA Building office to 100% and in the Alexandra Retail Centre (ARC) to 97.4% has attributed to the strong earnings growth. With 1.8% of retail space and 1.2% of office space up for renewal in FY13/14, we are confident that the high portfolio occupancy of 98.7% will be maintained as we step into the new financial year. In addition, with 15.4% of retail space and 7.3% of office space up for renewal in FY14/15, we expect MCT to benefit from the strong positioning of VivoCity and the recovery in the office market.
Well-shielded from the rising interest rates
During the quarter, MCT secured term loan facilities of S$397.6m to refinance all of its debts (S$338.6m) due in FY14/15 and some of its debts due in FY17/18. Although its gearing is relatively high at 40.8%, 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 2.18% (unchanged from a quarter ago), with 74.5% 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 upgrade to Add
On the back of a stable balance sheet, room for further organic growth and the avenues to tap into the recovering office market, we raise FY14-16 DPU by 2% and upgrade MCT to an Add rating with a higher DDM-based target price of S$1.31.
FCOT – CIMB
A stable REIT
Frasers Commercial Trust (FCOT) has just announced its 1QFY14 results, posting a drop of 3.1% yoy in revenue, but a gain of 29.7% in DPU. Its 1QFY14 earnings were in line, with both revenue and DPU accounting for 24% of our full-year estimates. The higher DPU was mainly attributed to the savings from the buyback of the 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 expected to come from organic growth and the potential sale of the hospitality site at China Square Central.
Stable portfolio slightly dampened by forex losses
During 1QFY14, both gross revenue and NPI decreased to S$28.8m (-3.1% yoy) and S$22.1m (-3.5% yoy), respectively. Although its topline was lower, DPU grew by an impressive 29.7% yoy. The stronger DPU was mainly attributed to higher income from the additional 50% interest in the Caroline Chisholm Centre, higher rental rates, lower interest costs and the redemption of CPPU. The weaker revenue, a result of the weaker Australian dollar and the slightly lower occupancy for Central Park, was partially offset by the stronger Singapore portfolio performance which achieved a higher gross revenue of 7.5% yoy.
Good organic growth built in
For FY14, we expect additional contribution from China Square Central as the property benefits from the completed AEI and the new Telok Ayer MRT station, which in turn could boost the attractiveness of this office property. The NPI contribution from China Square Central rose by 15% yoy in 1QFY14, while occupancy has risen steadily from 74% in 4QFY13 to 92.9% committed occupancy in December 13. Although Alexandra Technopark is expected to post good organic growth, we believe that the bulk of growth will only be seen in FY15 as the masterlease expires in Aug 14.
We maintain an Add rating
FCOT currently offers 6.8% FY14 dividend yield and 5.0% NPI yield. Compared to the sector average of 6.3% 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. Further upside surprises may come from the potential divestment of the hospitality site at China Square.
FCOT – OCBC
Cranking up further growth
- 1QFY14 DPU up 29.7% YoY
- Positive reversions up to 20.7%
- Well-positioned for rental uplift
1QFY14 results met expectations
Frasers Commercial Trust (FCOT) delivered 1QFY14 NPI of S$22.1m, down 3.5% YoY due to a weaker AUD, lower occupancy at Central Park and absence of contribution from its divested Japan properties. However, the softer NPI was more than offset by a realized gain from its cashflow hedges, lower interest expenses and savings in the convertible perpetual preferred unit (CPPU) distribution following the net conversion/redemption of the CPPUs. As such, distributable income to unitholders jumped 33.4% YoY to S$13.7m, while DPU climbed 29.7% to 2.05 S cents. This falls within market expectations, as the quarterly DPU constitutes 22.9%/23.3% of our/consensus full-year DPU projections.
Portfolio continued to exhibit resilience
China Square Central (CSC) and 55 Market Street were the key performers for 1Q, raking up NPI growth of 15.4% and 9.6% respectively on the back of higher secured rental and occupancy rates. As a result, Singapore portfolio contributed 50% of FCOT’s NPI, up from 47% in the prior quarter. Domestic leasing demand remained relatively buoyant in our view, as positive rental reversions ranging from 10.7% to 20.7% were achieved during the quarter. On the portfolio front, occupancy rate was also stable at 97.1% (4QFY13: 97.9%), while weighted average lease to expiry was largely unchanged at 4.4 years (4QFY13: 4.6 years).
Maintain BUY
Looking ahead, management continues to maintain its positive tone, highlighting that its under-rented portfolio assets and current occupancy rate provide room for further income growth. Specifically, FCOT shared that the opening of the Downtown Line nearby CSC is expected to improve its connectivity and boost its attractiveness. At Alexandra Technopark, we also note that FCOT is currently receiving S$1.80 psf pm net rent for the master lease (vs. S$3.40 gross rent for underlying leases), and is well positioned for rental uplift upon the lease expiry in Aug. Given that the master lease makes up a significant 21.7% of FCOT’s rental income and strong execution by management, we are thus positive on its performance in FY14. Maintain BUY with unchanged fair value of S$1.45 on FCOT.
CMT – OCBC
Possibly another year of AEI
- 4Q13 DPU up 15.3% YoY
- Positive tenant sales and traffic
- Robust performance expected
Ending FY13 on positive note
CapitaMall Trust (CMT) yesterday reported 4Q13 NPI of S$125.5m and distributable income of S$94.4m, up 11.1% and 18.3% YoY respectively. The strong performance was bolstered by The Atrium@Orchard and IMM Building post asset enhancement initiatives (AEIs) and higher secured rentals on lease renewals. DPU came in at 2.72 S cents, representing an increase of 15.3% YoY. For FY13, DPU amounted to 10.27 S cents, up 8.6%.This is in line with both ours and consensus full-year DPU forecast of 10.1 S cents.
Positive operational performance
As at 31 Dec 2013, portfolio occupancy remained relatively stable at 98.5% as compared to 99.5% seen a quarter ago. The slight decline, we note, was mainly due to the inclusion of Westgate mall, which opened on 2 Dec 2013 with a committed occupancy of 85.8%. For the year, operational performance was largely positive, as evidenced by the positive rental reversion of 6.3% achieved for the 629 new leases/renewals. Moreover, tenant sales psf also increased by 2.5%, while shopper traffic grew 3.1%.
Maintain BUY
Going forward, we believe shopper traffic may improve further at several of CMT’s malls (especially those after completion of development/AEIs), which should sustain the leasing demand currently seen in its portfolio. Management shared that it is seeing a trend of retailers taking up smaller space and that it has tailoring the mall space to make it accessible for them. We think this is positive for CMT as it may command higher rental rates on a psf basis. We also understand that CMT will be embarking on AEI for Tampines Mall and Phase 2 of Bugis Junction to optimise its floor area and yield in 1Q14. On 3 Jan, CMT has granted options to a consortium to purchase Westgate Tower for S$579.4m (up to 24 Jan to exercise options). If the sale materializes, the progressive payments made for the office building will provide CMT with additional resources for its growth plans. We maintain BUY on CMT but revise our fair value from S$2.35 to S$2.20 to reflect higher cost of equity assumptions.