KepREIT – CIMB
Awaiting catalysts
KREIT’s 4Q13 DPU was inline with our estimates at27% of our FY13 forecast. Together with the previous 9M’snumbers, FY13’searnings came in at 100% of our full-year estimate. The higher revenue was mainly attributed to the newly-acquired office tower at8 Exhibition Street in Melbourne, and the improved performance of Ocean Financial Centre and 77 King Street. We maintain our Hold rating and keep unchanged our DDM-based (discount rate: 8.5%) target price of S$1.25 as we await more meaningful growth catalysts.
From strength to strength
Keppel REIT (KREIT) just announced its 4Q13 results, with revenue and DPU of S$47.5m (+16.4% yoy) and 1.97Scts (unchanged yoy) respectively. During the year, KREIT completed two acquisitions, namely Old Treasury Building in Perth and 8 Exhibition Street in Melbourne, refinanced all its loans due in 2013 and 2014, completed the construction of OFC Phase 2, and officially opened 8 Chifley Square in Sydney in the last quarter of the year. In 4Q13, occupancy for its Singapore portfolio rose to a respectable 100%, while its Australia portfolio enjoyed occupancy of 99.8%. In addition, gearing improved slightly to 42.1% on the back of a 10.4% yoy increase in AUM, mainly due to the addition of new buildings, and higher capital values in the portfolio.
Positive outlook on the office market
With Singapore’s Grade-A office market expected to perform better on the back of limited supply (0.8m sf a year in the next three years) and global recovery, we are positive on this segment of Singapore’s office market. In addition, with prime grade-A spot rent creeping up to S$9.75 psf/mth in 4Q13 (from S$9.55 psf/mth in 3Q13), we expect to see further positive rental reversions from the 9.7% of NLA (3.4% due for renewal and 6.3% due for rent review) due in FY14. Also, with the completion in 3Q13 of OFC Phase 2, additional income from this property should boost earnings by 0.7% in FY14.
Maintain Hold
Although the outlook for KREIT is positive, these factors have largely been factored into its share price. As such, we maintain our Hold rating and keep unchanged our DDM-based target price as we await more meaningful catalysts, like the potential acquisition of MBFC Tower 3, to come through.
MLT – OCBC
Strong but priced in
- 3QFY14 DPU rose by 7.0% YoY
- Focus on lease and asset management
- Initiatives in place to sustain performance
3QFY14 results met expectations
Mapletree Logistics Trust (MLT) reported a consistent set of 3QFY14 results last evening. NPI saw a marginal drop of 0.2% YoY to S$67.4m, dragged down by weaker JPY. Excluding the forex impact, NPI would have
grown by 3.6% on the back of higher renewal rents in Singapore and Hong Kong, and new income streams from Mapletree Wuxi Logistics Park and The Box Centre. Impact of depreciating JPY on bottomline, however, was mitigated as contributions from Japan are substantially hedged. Together with a 22.9% decrease in borrowing costs and divestment gain of S$0.6m, amount distributable to unitholders rose by 7.7% to S$45.0m. As such, DPU similarly grew by 7.0% to 1.84 S cents. This brings the 9MFY14 DPU to 5.46 S cents, meeting 75.2%/76.9% of our/consensus full-year projections.
Portfolio metrics remained sturdy
Portfolio occupancy stood at 98.4%, representing a slight QoQ drop of 0.3ppt. This, we note, was due to the conversion of two single-user assets into multi-tenanted buildings in Singapore. That aside, operational performance remained sturdy, as evidenced by robust rental reversions of 23% and healthy leasing activities (84% of FY14 leases renewed to-date vs. 62% a quarter ago) achieved at its portfolio. Management reiterated that active lease and asset management will be a key priority going forward in light of the supply of warehouse space in 2014 and impending conversion of more single-user assets into multi-tenancies (which may result in occupancy dip).
Maintain HOLD
MLT also confirmed our view that competition for acquisition of logistic assets is becoming increasingly intense. Nevertheless, given that MLT’s recent initiatives, such as 1) completion of redevelopment of Mapletree Benoi Logistics Hub and Phase 1 solar panel installation at its Japan assets, 2) upcoming redevelopment of 5B Toh Guan Road East and Phase 2 solar panel installation, and 3) proposed acquisition of warehouse in Iskandar Malaysia, are like to contribute positively to MLT’s income, we believe MLT’s performance will remain robust in FY15. Maintain HOLD with unchanged fair value of S$1.06.
FirstREIT – OCBC
Ends FY13 with 7.52 S cents DPU
- 4Q13 DPU rises 14.5% YoY
- Healthy pipeline of acquisition targets
- FY14F distribution yield of 7.9%
FY13 results in-line with our expectations
First REIT (FREIT) reported a 48.2% YoY increase in gross revenue to S$22.8m and a 14.5% growth in DPU to 1.97 S cents in 4Q13. This culminated in FY13 gross revenue and DPU growth of 44.5% and 14.3% (excluding exceptional gains distribution of 0.68 S cents in FY12) to S$83.3m and 7.52 S cents, and closely matched our revenue and DPU forecast of S$83.2m and 7.54 S cents, respectively. This growth was driven by contribution from new acquisitions (two hospitals acquired each in Nov 2012 and May 2013) and organic growth. On the flipside, FREIT’s Sarang Hospital in South Korea registered a net property loss of S$297k in FY13 due to rental provisions made. Nevertheless, we believe this situation has now been resolved as FREIT has agreed to a lower rental structure to ensure the sustainability of Sarang Hospital’s operations. In addition, this asset contributed only 2.4% of FREIT’s FY13 revenue and we do not expect this event to adversely impact its business.
Exchange rate stability will be key priority
According to FREIT, its sponsor Lippo Karawaci has a strong pipeline of 24 hospitals to which FREIT has a right-of-first-refusal. In our view, this provides FREIT with a stream of acquisition targets to tap on the growing demand of private healthcare services in Indonesia. Given the sharp volatility in the IDR exchange rate, we believe FREIT’s key priority in any lease terms negotiation would be to maintain its base rental denomination in SGD.
Maintain BUY with slightly higher S$1.19 fair value
FREIT’s debt-to-assets ratio stood at 31.9% as at end FY13. With little debt headroom available given FREIT’s 35% gearing limit, we believe any future acquisitions would have to be financed partly by equity. We trim our FY14 and FY15 DPU forecasts marginally by 1.5%, on lower revenue and higher finance costs assumptions. But as we roll forward our valuations, our DDM-derived fair value estimate inches up from S$1.18 to S$1.19. Maintain BUY on FREIT as FY14F distribution yield remains attractive at 7.9%.
KepREIT – MayBank Kim Eng
Expect stable distributions
- FY13 results are in line with our and market expectations.
- No news on MBFC Tower 3 acquisition from sponsor; equity fund-raising remains on the horizon.
- Maintain HOLD. Forecast DPU CAGR of 0.8% over FY13-15E is unexciting in our view.
4Q13 – no surprises
KREIT’s FY13 revenue grew 11% YoY to SGD174m, constituting 97% of our and consensus estimates. We would attribute the increase to improved performance from Ocean Financial Centre and 77 King Street, as well as the additional income from the acquisition of 8 Exhibition Street in Melbourne. Full-year DPU rose 1.4% YoY to 7.88 SGD cents, meeting 99.6% of our and 98.5% of consensus forecasts. Portfolio occupancy strengthened from 99.4% in 3Q13 to 99.8% in 4Q13, with all Singapore properties fully leased. 8 Chifley Square officially opened on 29 Oct 2013, and is ~95% committed. The average cap rate for Singapore properties was maintained at 4%, while the average cap rate for Australian properties was 6.7%. The aggregate leverage improved from 43.9% in 3Q13 to 42.1% in 4Q13 on the back of SGD389m of property revaluation gains.
Uninspiring DPU growth prospects
We forecast DPU CAGR of 0.8% over FY13-15E since portfolio occupancy is almost full and lease expiry by net leasable area (NLA) is relatively long at 6.5 years. MBFC Tower 3 is more than 90% occupied, but KREIT said it has yet to approach its sponsor for acquisition. Nonetheless, the likelihood of more equity fund-raising remains on the horizon. KREIT has 3.4% and 6.4% of portfolio NLA due for lease expiry and rent review, respectively, in 2014. We expect a modest 1% rise in passing rents this year, given that CapitaGreen and South Beach Development will come on-stream in 4Q14. Maintain HOLD with the DDM-derived TP unchanged at SGD1.25.
Cambridge – OSK DMG
Growth Strategy Intact Despite Change of CEO
Last Friday, Cambridge Industrial Trust reported 4Q13 results that were in line, as well as the disappointing – although unsurprising – resignation of CEO Christopher Calvert. Its portfolio’s performance as a result of recent acquisitions and AEIs are expected to maintain its strong DPU growth going into FY14F. We maintain our FY14F DPU of 5.4 cents, for an implied 7.7% yield. Maintain BUY on CREIT, with our
SGD0.81 TP offering a potential 16% upside.
Outgoing CEO Christopher Calvert has delivered strong shareholder returns over the last 5 years by re-modelling and re-sizing the portfolio he inherited into one of the best performing industrial REIT in recent years. CREIT has posted total shareholder returns (including distribution) of 300% since the beginning of 2009, outperforming its peers and the wider STI market index. We wish Calvert well as he moves on to the next phase of his professional career in Australia to be closer with his family. Calvert has agreed to remain on board pending regulatory clearance with regard to the incoming CEO and subsequent disclosure. We have no doubt that the strong team which Calvert has nurtured will continue to manage the
portfolio with a view of maximizing asset returns with a reasonable risk profile.
4Q13 results broadly in line with expectations. The group’s revenue of SGD23.3mil (-3.1% y-o-y) brought its FY13 gross revenue to SGD96.5mil (8.4% higher y-o-y), just below our SGD98mil estimate. Net property income for the full year came in at SGD80.4mil (+5.5% y-o-y), 4% below our expectation, but the overall FY13 DPU of 4.976 cents (+4% y-o-y) is in line with our forecast of 5 cents
No changes to our FY14F earnings and DPU estimate of 5.4 cents. This is in view of the ongoing asset enhancement initiatives as well as full year contribution of CREIT’s four acquisitions last year. Going into FY14 and FY15, the group’s growth strategy appears to be well supported by its low gearing of 28.7% with all-in interest expense of 3.6% and 83% fixed, and a further 31% of its portfolio unencumbered (SGD350mil). Maintain BUY on CREIT, with a target price of SGD0.81.