MLT – MayBank Kim Eng
Seeking growth drivers
- 9MFY3/14 results in line with our and market expectations.
- Japan portfolio continues to languish; the aggregated revenue and NPI for the past four quarters fell 16% YoY.
- Capital value still at risk. FY3/14E-16E DPU CAGR of 1% is unexciting. Maintain contrarian SELL with TP lowered to SGD0.98.
Takeaways from conference call
Reasonable debt headroom. With gearing at 33.9%, MLT has a debt headroom of SGD450m before hitting the 40% leverage ratio. But it has not had much luck with acquiring assets from its sponsor, Mapletree Investments Pte Ltd (MIPL) in the past year despite MPIL having 13 sizeable logistics developments in Asia.
Weak yen a concern. The weakening Japanese yen remains a concern because Japan is home to about 25% of MLT’s assets and accounted for 21% of its revenue in 3QFY3/14. Moreover, its forex hedging has been concentrated mainly in FY3/14 and management did not disclose the swap rates for future years.
Eye on growing rental market. MLT said it has converted two single-user assets (SUAs) into multi-tenanted buildings (MTBs) in FY3/14, with another two to be converted by Mar 2014. It plans to progressively shift its SUA-to-MTB ratio from 59%:41% currently to 50%:50%. This would shorten its weighted average lease expiry periods in the coming years (3QFY3/14: 4.8 years), as MTBs have shorter three-year leases vs at least five years for SUAs and are better able to capture the upside of a growing rental market.
What’s Our View
We forecast DPU to grow at an unexciting 1% CAGR over FY3/14E-16E. MLT said active lease and asset management will remain a key management priority, especially in Singapore in view of the upcoming supply of 3.9m sq ft of warehouse space in 2014. In terms of acquisition, we are still waiting to see if MLT will target sponsor injections such as Mapletree Shah Alam Logistics Park in Malaysia and Mapletree Zhengzhou International Logistics Park in China. We cut our FY3/14E-16E DPU forecasts by 0.3-0.5% in anticipation of lower growth prospects and higher borrowing costs. The stock has corrected by 6% in the previous quarter. Maintain SELL with a lower DDM-derived TP of SGD0.98.
CLT – MayBank Kim Eng
Valuations look rich; risks ahead
- FY13 results in line with our and market expectations.
- We see industrial REITs facing major downside risks from the impending hike in interest rates and possible recalibration of over-inflated property prices.
- CACHE’s properties have been revalued upwards by at most 12-13% since its IPO, but the stock currently trades at 14% premium to book, which is still rich in our view. Maintain SELL with an unchanged DDM-derived TP of SGD1.05.
Results in line with expectations
CACHE’s FY13 revenue grew 11.4% YoY to SGD81m, constituting 101% of our and consensus estimates. The increase was attributable to rental contribution from the acquisition of Precise Two in Apr 2013 as well as built-in rental escalation within the portfolio. Full-year DPU grew 3.3% to 8.64 SGD cts, achieving 100% of our and 101% of market forecasts. Weighted average lease term to expiry (WALE) of the portfolio is around 3.1 years, with 65% of the leases due to expire in 2015-2016. CACHE’s aggregate leverage was 29.1%, down slightly from 29.2% in the previous quarter due to revaluation gains of SGD6.7m.
Remain negative on industrial REITs
We see industrial REITs facing major downside risks from the impending hike in interest rates and possible recalibration of over-inflated property prices – both of which can drag NAV down. Other challenges include a fragile global macroeconomic outlook and ample supply in the pipeline. Iskandar Malaysia will also pose competition in the medium term, especially for lower value-added industrial activities within Singapore. We note that CACHE’s properties have been revalued upwards by at most 12-13% since its IPO, but the stock currently trades at a 14% premium to book, which is still rich in our view. Maintain SELL with an unchanged DDM-derived TP of SGD1.05 (Discount rate of 7%).
KepREIT – OSK DMG
KREIT Portfolio Going Strong
Keppel REIT (KREIT) FY13 results were in-line with our forecasts (distributable income SGD214m vs SGD212m DMG estimate). 4Q13 saw KREIT achieved full occupancy in Singapore and official opening for 8 Chifley Sq in Sydney, Australia. Maintain FY14 forecasts and BUY on K-REIT (top pick in REIT sector) with TP of SGD1.66 or potential 43% upside.
KREIT’s assets under management (AuM) increased 10.4%, NAV raised to SGD1.38 due to largely to addition of Australian assets (Old Treasury Building in 1Q13, 8 Exhibition Street in 3Q13) as well as higher capital values (cap rates decreased from 7% in 2012 to 6.7% for Australia whilst Singapore portfolio remained at 4%). This is reinforced by the improved occupancy and positive rental reversion (recent leases signed between SGD12-13psf) across KREIT’s portfolio.
KREIT faces no debt refinancing risks until 2015, has current debt duration of 3.6years, 70% on fixed rates and Interest Coverage Ratio of 5.5x. This should offset concerns regarding its relatively higher than sector aggregate leverage of 42.1%. Portfolio weighted average lease to expirty (WALE) at 6.5years and 41.4% of portfolio on long term leases (more than 5 years) should further assuage concerns on higher interest rate impact /debt servicing capabilities of KREIT.
We like KREIT’s exposure to Grade-A office in Singapore (88% of portfolio). With an expected FY14E distribution yield of 7.5% and currently trading at 0.84x NAV, we maintain our BUY rating on KREIT (our top pick in the REIT sector) with TP of SGD1.66 or potential 43% upside.
CLT – AmFraser
Building a resilient platform for growth. Cache’s full‐year results are in line, with FY13 DPU of 8.64c representing 101.4% of our full‐year estimate. Driven by built‐in rent escalations and the addition of new properties to the portfolio in FY12 and FY13, distributable income is up by 14.1%. In FY13, Cache also clocked in a revaluation gain of S$6.7mil. We note that this is primarily driven by an improved market valuation of CWT Commodity Hub ‐ bearing testament to its asset quality.
We laud Cache’s proactive efforts on the capital management front. Cache’s aggregate leverage currently stands at 29.1%, translating into a comfortable debt headroom of S$98mil (assuming a target leverage ratio of 35%). Notably, Cache does not face any debt refinancing needs till 2015. Meanwhile, all‐in financing cost is at 3.48%, of which 70% has been hedged into fixed‐rate, and this would considerably mitigate its interest rate risks.
Against the odds. Despite a relatively muted near‐term outlook for warehouse rents, we continue to view Cache’s rental prospects positively. Expiring rents in FY15 are estimated to be below market rents and only 3% of Cache’s portfolio is due for renewal in FY14. We are currently factoring in positive rent reversions of approx. 5% in FY15.
Acquisition pace likely to pick up steam. Owing to heightened competition among S‐REITs and a tougher regulatory environment, the hunt for yield‐accretive assets in Singapore is undeniably proving to be a daunting task. As such, Cache is broadening its acquisition focus to overseas markets such as China and Malaysia.
Conservatively, we factor in S$80mil of acquisitions in FY14 at a NPI yield of 7.5%. This raises our FY14 and FY15 DPU by 2.3% and 7.9% respectively.
An attractive yield opportunity. With an annualized yield of 7.7%, Cache ranks highly amongst the industrial S‐REITs in terms of distribution yields (average: 7.4%). We note that this also represents a 519 basis point spread over the 10‐year Singapore Government
Bond yield ‐ a comfortable level in our view.
MLT – CIMB
Another stable quarter
MLT’s 3QFY14 results were in line with consensus and our expectations, with this quarter’s DPU accounting for 26% of our full-year forecast and 9MFY14 for 76%. Revenue for the quarter grew 1% yoy, mainly a result of the weakening of the yen. During FY13/14, MLT hedged/derived more than 95% of its distributable income in SG$. We maintain our Hold rating with an unchanged DDM-based (discount rate: 8.1%) target price of S$1.11, as the REIT continues to seek opportunities to boost its earnings.
Growth softened by weak yen
Mapletree Logistics Trust (MLT) reported its 3QFY14 results, with revenue coming in at S$78.1m (+0.9% yoy) and DPU at S$1.82 (+5.5% yoy). The feeble revenue growth was mainly attributed to the weaker yen. Excluding forex losses, gross revenue would have increased by S$3.7m (+5.0% yoy) due to positive rental reversions in Singapore and Hong Kong and additional income from the acquisition of Box Centre in South Korea (acquired in Jul 2013) and Mapletree WuXi Logistics Park in China (acquired in Jan 2013). Lower borrowing costs (-23% yoy) mitigated the weakness in the JPY.
Depend on development projects for growth
Although rental reversion was impressive, posting an average of 23% during the quarter, a large part of it was the result of converting two single-user assets to multi-tenanted buildings. Excluding these assets, rental reversion would be at 13% instead. Looking ahead, with 8.1% of NLA to be renewed in FY13/14 and 16.2% in FY14/15, we expect rental reversion to have a minimal impact on MLT’s growth. Instead we expect its DPU to grow by 4.9% next year as a result of the recent completion of the redevelopment project at Mapletree Benoi Logistics Hub (100% pre-committed) and the recently announced S$34.3m acquisition in Iskandar.
Maintain Hold
Although poised to grow in FY14/15, we believe the positivity of MLT may be dampened by the continual weakness in the yen. We maintain Hold with unchanged DDM-based target price of S$1.11 as we wait for more impactful acquisitions/redevelopments.