FCT – CIMB
Strongly centred
FCT’s 1QFY9/14 results were largely in line, with DPU coming in at 23% of our FY13 number. Revenue growth of 5% yoy and NPI growth of 4.4% yoy enabled 1Q to achieve 24-25% of our full-year forecasts. Thanks to strong performances from its malls, FCT is fundamentally solid and, in our view, resilient to any external headwinds. We expect the acquisition of Changi City Point to contribute to the next stage of growth. We maintain our Add rating
with an unchanged DDM-based target price (discount rate: 8.4%) of S$2.05 as we await further acquisition news.
Strong portfolio
1QFY14 revenue came in at S$38.9m (+5.0% yoy) while DPU was 2.50 S¢ (+4.2%). The strong showing was mainly attributed to the good performance of the two larger malls in the portfolio, namely Causeway Point and Northpoint which accounted for 79% of total earnings in 1QFY14 and showed rental growth of 15.4% and 7.3%, respectively. YewTee Point also performed better, with occupancy improving to 97.1% from 92.7% in 4Q13. However, Bedok Point’s occupancy declined to 80.2% from 96.7% a quarter ago as a result of the ongoing renovation of shop spaces for incoming tenants.
Expect next growth driver from acquisition
With 19.7% and 39.9% of leases (as % of total NLA) due to be renewed in FY14 and FY15, respectively and most of these leases concentrated at Northpoint and Causeway Point, we believe that FCT will continue to post positive rental reversion for years to come. Apart from rental reversions, we expect the next growth driver to come from the acquisition of Changi City Point, which we speculate will be completed in FY14.
Maintain Add
Although the occupancy at Bedok Point may seem worrying on the surface management remained confident that its occupancy will rebound to above 90% by May when the fittings are completed. On the back of a solid portfolio, room for further rental reversions, a potential acquisition deal and strong balance sheet, we continue to favour FCT. We maintain our Add rating and DDM-based target price of S$2.05.
AscottREIT – CIMB
2013: acquisition-led growth
ART’s results were in line with expectations, with FY13 results forming 97% of our forecast and 95% of consensus’s. We maintain our Hold rating, but raise our DDM-based target price (discount rate unchanged at 8.5%) to S$1.20. Our target price and DPS increases c.4% as we adjust for higher AEIs and ADR growth post their completion.
Acquisition-led growth
Growth in 2013 was largely acquisition-led and we expect the same for 2014. Properties worth a total of S$287m in China and Japan were acquired in 2013 at 5.4% annual EBITDA yield. These properties will make their first full-year contribution in 2014 and should continue to generate revenue growth. Given the rights issue and management’s guidance, we expect 2014 growth to be underpinned by acquisitions as well. The first acquisition should happen in the next three months and is likely to be located in China, Japan, Malaysia and Australia.
Same-store growth remains subdued on refurbishments
ART carried out about S$27m in refurbishments on selected properties in 2013, which contributed to lower gross profits in Australia, Indonesia and China on a same-store basis. Refurbishments for 2014 are likely to be about S$50m, largely targeting Vietnam, China Tianjin and Indonesia. Despite the larger scale of asset enhancement initiatives (AEIs), we expect the disruption to gross profit to be mitigated as properties in Vietnam and China Tianjin have lower occupancies. With several AEIs set to complete in 1Q2014, we expect same-store growth in refurbished properties to improve in 2014.
Maintain Hold
ART has rebounded about 6% since plummeting to a low of S$1.17 after its rights issue in Nov 2013. Given the lack of meaningful catalysts, we suspect this is partly due to speculation on its acquisition. We maintain our Hold rating as the stock is currently trading at 7.0% FY14 dividend yield, below its peer average of 7.4%.
FCT – OCBC
Turning to acquisition for growth
- 1QFY14 DPU up 4.2% YoY
- Bigger malls continued to perform
- Possible acquisition in 2014
1QFY14 performance within view
Frasers Centrepoint Trust (FCT) released its 1QFY14 results last evening, with no surprises on its performance. NPI grew by 4.4% YoY to S$28.3m, while distributable income rose by 4.0% to S$22.7m due to improvement in revenue from Causeway Point (CWP) upon completion of its addition and alteration (A&A) works. About S$2.1m or 0.25 S cents in cash was retained for the quarter, similar to that in 1QFY13. As such, DPU increased by 4.2% to 2.50 S cents. This formed 24.4%/25.0% of our/consensus full-year DPU projections, which we deem to be consistent with expectations.
Portfolio stable despite movements within assets
CWP continued to shine in 1Q, turning in a robust 8.6% growth in NPI to S$14.1m. Northpoint also registered a 1.4% growth to S$8.8m. In addition, both malls saw robust rental reversions of 7.3%-15.4%, while occupancy rates were kept at high levels of 98.5%-99.1%. As management has previously guided, occupancy rate at YewTee Point improved by 4.4ppt QoQ to 97.1% as
new tenants started their leases during the quarter. However, its portfolio performance was somewhat dampened by Bedok Point, which saw negative reversions of 16.0% and occupancy dropped from 96.7% in the preceding quarter to 80.2% due to on-going fitting of incoming tenants and impending A&A works at the basement.
Maintain BUY
Going forward, FCT disclosed that it will continue to fine-tune the tenant mix at Bedok Point, and is willing to lower rents to keep incumbents and entice new tenants for sustainable performance. Hence, pressure on base rents and fluctuations in occupancies (possibly within 80%-95% range) are expected going forward. However, management maintains that CWP and Northpoint are likely to continue to deliver in FY14, as higher secured rentals are expected upon lease renewal. With the completion of the A&A works at CWP, FCT is also looking to acquisitions to boost growth. We understand that the strata title division of One@Changi City is on target for completion, and an acquisition of Changi City Point may happen in 2014. Maintain BUY with unchanged fair value of S$2.02.
AscottREIT – OCBC
Awaiting acquisitions
- 4Q13 in-line with expectations
- Acquisitions probably in Asia
- Maintain BUY
No surprises in 4Q13
ART announced 4Q13 results that were in-line with ours and the street’s expectations. Revenue climbed 11% YoY to S$83.9m, chiefly due to additional revenue of S$8.3m from the properties acquired in Nov 2012 and on 28 Jun 2013, and better performances from properties in Belgium and France. The increases were partially offset by lower contribution from properties in the Philippines and Japan (weak yen). Gross profit rose 8% YoY to S$41.6m. Unitholders’ distribution increased 15% YoY to S$26.3m. DPU fell 34% YoY to 1.33 S cents due to the Dec 2013 rights issue. Excluding the rights issue, the DPU would be at 1.96 S cents, down 2% YoY.
Outlook for 2014
Management is of the view that on a same-store basis, Singapore SRs will do slightly better than last year, with good occupancies supporting possible ADR increases. However, management notes that the Singapore hospitality sector as a whole will be affected by the new hotel room supply due to come onboard in 2014 and 2015. ART’s properties in Indonesia and Australia which have recently finished renovations should see positive contributions going forward. The key area of concern is still Vietnam, although management believes that the performance of its Vietnam’s properties is bottoming out in local currency terms.
Acquisitions likely in 1H14
We believe that a possible upcoming announcement of acquisitions, e.g. the purchase of Asia-based assets, could serve as a positive price catalyst for ART. Management indicates that it is in advanced negotiations for acquisitions. We assume that around S$350m worth of property yielding ~5.5% will be acquired at the start of 2Q14; ART’s leverage will go back up to around 40%. ART has stated that it is looking for properties in the gateway cities of China, Japan, Malaysia, Australia and Europe. We believe that likely purchases would include Ascott Kuala Lumpur and properties in second-tier cities in China and Japan.
Maintain BUY
We maintain our FV of S$1.33 and BUY rating on ART.
CLT – OCBC
As steady as ever
- FY13 DPU increased 3.3%
- Portfolio metrics remained robust
- Continued focus on growth
4Q13 results within expectations
Cache Logistics Trust (CACHE) announced its 4Q13 results last evening. Gross revenue rose by 8.2% YoY to S$20.7m, while NPI saw an increase of 7.1% to S$19.6m. The growth was due to contribution from acquisition of Precise Two and built-in rental escalation within the portfolio. Distributable income, on the other hand, registered a stronger 9.6% growth to S$16.6m on lower financing costs. However, DPU eased marginally by 0.8% to 2.137 S cents as a result of an enlarged unit base. Nonetheless, FY13 DPU still raked up a 3.3% growth to 8.644 S cents. This is in line with both our and consensus full-year DPU forecasts of 8.59 S cents and 8.7 S cents respectively.
Maintaining its strong form
CACHE continued to maintain a 100% occupancy rate for its portfolio and healthy weighted average lease to expiry of 3.1 years (3.4 years in 3Q). For 2014, only 3% of its GFA are due for renewal, thus giving CACHE strong earnings stability. Management also revealed that CACHE is currently in advanced negotiations with its Sponsor and end-users for the lease renewals coming in 2015 (34% of portfolio GFA), which we view positively in light of the upcoming supply of warehouse space. In the area of capital management, we understand that CACHE is still discussing with banks on the refinancing of its maturing debts in 2015. Aggregate leverage stood at 29.2%, unchanged from that seen in 3Q, while all-in financing costs improved to 3.48% in FY13 from 3.82% in FY12. In addition, 70% of CACHE’s interest exposure is hedged, thereby reducing the uncertainty over its funding costs.
Maintain BUY
On the acquisition front, CACHE shared that Singapore, China and Malaysia continue to be its key markets, but did not shed any details on the timeline or specific assets. Management also reiterated that it will seek redevelopment opportunities and built-to-suit projects. We are keeping our forecasts largely intact pending any development.
However, in view of impending Fed tapering, we reduce our fair value to S$1.20 from S$1.30 to reflect higher equity risk premium and risk free rate. But maintain BUY as upside remains compelling.