VIT – Lim & Tan
We are “Neutral” on VIT despite its 8.8% dividend yield for 2014 and 9% for 2015 due to the following reasons:
- the average occupancy rate for its key properties (UE Bizhub East) and Technopark @ Chai Chee is only in the 60-70% range, hence requiring income support from United Engineers (for 5 years) and Capitaland (for 2 years) to meet the projected yields;
- excluding the income support, the actual yield would be 6+%, which is about in line with that of more established industrial REITs such as AREIT (6+%) and Mapletree Industrial Trust (7%) and inferior to that of Cache Logistics (7+%), Cambridge Industrial (7+%) and Soilbuild Biz Space REIT (8+%);
- VIT’s gearing of about 40% is amongst the highest in the sector, making it difficult (or potentially more fund raising ahead) for future acquisitions;
- VIT’s high gearing would also make it vulnerable to the potentially higher interest rate environment amidst fears of “tapering” of bond purchases by the US federal reserve next year;
- compared to the existing industrial REITs in the market, VIT’s portfolio of only 3 properties has the highest concentration risk;
- while VIT has right of first refusal for 6 properties in Singapore, Korea and China, its high yield of 9% makes accretive acquisitions difficult to achieve; and
- Soilbuild Biz Space REIT has not done well post listing (despite offering an attractive yield of 8+%), having tanked from its IPO price of 78 cents to a low of 69 cents at the end of Aug’13 before rebounding to 75 cents currently.
Suntec – CIMB
Post-results luncheon feedback
We recently hosted a post 3Q13 results investor luncheon for SUN. Key issues discussed were 1) progress of the Suntec City AEI , 2) the long-term competitiveness of the mall, 3) office outlook and 4) acquisitions. We came away with our positive view on the stock intact.
We maintain our Outperform rating with an unchanged target price of S$1.91. Targeted returns from the Suntec City AEI continues to show incremental progress and we expect successful execution to underpin a DPU CAGR of 6.5% in FY14-16. At a FY15 DPU yield of 6.3% and P/BV of 0.85x (widest discount among peers), we think the market has yet to fully appreciate this potential.
What Happened
We hosted a post-results investor luncheon with SUN. Several main issues discussed include: 1) Suntec City’s Phase 2 AEI and its progress; 2) its plans in the repositioning of the Suntec City Mall; 3) Suntec’s office occupancy and room for the possibility of further positive rental reversions and 4) its plans to conduct further acquisitions amid a compressed cap rate market.
What We Think
The discussion reaffirms our belief that although Phase 2 of the AEI is on track to be completed by 4Q13, Phase 2 areas could potentially command less than its guided S$12.59 psf/month as 40-45% of the total NLA in Phase 2 is taken up by anchor tenants. In Phase 1, the general trade occupancy currently varies between a healthy 16% and 18%. Although Suntec City is still largely a ‘weekday mall’ that is highly dependent on the office crowd, with the completion of Phase 2, anchor tenants such as Golden Village and Toys ‘r’ Us are expected to draw crowds from both the family and young adult segments which could potentially boost weekend traffic.
Suntec’s office is currently generating positive rental reversions with 3Q13 at S$8.55 psf/mth (+1.5% qoq). With FY14 expiring leases at below S$8.55 psf/mth, management indicated its confidence in recording a positive rental reversion. Given the challenging acquisition environment in Singapore, we expect SUN to consider seeking acquisitions overseas. Timely of this prospect is still unclear and is unlikely to drive SUN’s share price in the near-mid term, in our view.
What You Should Do
SUN remains our top pick within the SREIT space. Maintain Outperform.
StarHill Global – CIMB
Limited growth expected
Although SGREIT continues to report a stable performance, we believe the upside to this stock is capped as a result of foreign exchange risks and, more importantly, the lack of clear, meaningful growth catalysts.
The 3Q13 results are in line, with DPU accounting for 24% of our full-year forecast and 9M13 DPU at 75%. In view of a lack of meaningful near-term growth catalysts, we maintain our Neutral rating and DDM-based target price (discount rate 8.1%).
Growth constrained by rising expenses and forex
3Q13 revenue grew by 5.5%, mainly due to i) the increase in base rent (+6.7%) for master tenant Toshin at Ngee Ann City Property, stronger performance of Wisma Atria Property post-AEI and the additional contribution from the newly acquired Plaza Arcade. However, this growth was partly affected by rising operating expenses in Singapore, Australia and Japan. Together with weaker JPY and RM, NPI for the quarter grew slower at 4.4%. During the quarter, portfolio occupancy stood at a firm 99.7%.
Strong balance sheet
The balance sheet continues to remain strong with asset leverage reported at 30.6% (vs. average of 34% in the SREIT space), leaving ample debt headroom for future accretive acquisitions or AEIs. During the quarter, SGREIT completed the drawdown of new unsecured loan facilities to finance its matured debts. With this completed, there will be no refinancing requirement until Jun 2015. Currently, with an average debt maturity of 3.4 years, coupled with 94% of total borrowings hedged as fixed rate, SGREIT’s exposure to rate hikes are relatively well sheltered.
Defensive portfolio with limited growth
Although SGREIT’s portfolio continues to be anchored by stable master leases with expected positive rental reversion from its office portfolio, the lack of meaningful growth catalysts limits upsi
AscottREIT – CIMB
Stability in extended-stay model
ART’s 3Q revenue grew 11% yoy, mainly contributed by acquisitions as same-store revenue growth remains subdued. While there is stability from the extended-stay model and master leases, we expect to growth from acquisition to slow given gearing of 41%. Remain Neutral.
3Q/9M13 DPU met expectations at 26%/78% of our FY13 forecast and 27%/81% of consensus number. We adjust FY14-15 DPU upwards to account for revenue uplift from asset enhancement initiatives (AEI) completion, slightly offset by the reduced contribution from the potential divestment of Somerset Grand Fortune Garden. Our DDM-based target price (discount rate 8.5%) inches up to S$1.31. Remain Neutral based on lack of growth.
Stability in extended-stay model and master leases
Rental income contributed by more than 12 months stay increased from 17% to 21% qoq due to the acquisition of 11 rental housing in Japan in June 2013. The extended-stay model, coupled with the 31% gross profit from master leases, provides stability but could limit growth for the portfolio in the long term.
Leverage limits acquisition
Asset leverage is currently at 41%. ART’s recently announced sale of Somerset Grand Fortune Garden is estimated to provide c.S$85m of capital, but we estimate leverage to only decrease slightly to 38% upon the sale. This is still high compared to peers of 32%, making acquisitions of c.S$300m per year, such as that in 2011 and 2012, unlikely without further capital raising.
AEI as avenue for growth
ART undertook c.S$24m of AEI in FY13, which has translated into 20-35% higher average daily rate for the renovated apartments. Additional revenue from the refurbished rooms should contribute to FY14 earnings as most AEIs have been completed, but effect on distributions should be less than 1%. With most of the portfolio assets being at least 10-20 years old, we see AEI as the driver for ADR uplifts.
AscottREIT – OCBC
3Q13 ahead of expectations
- Acquisitions drive growth
- JPY depreciation
- Raise FV to S$1.39
3Q13 beats expectations
ART announced 3Q13 results that were ahead of ours and the street’s expectations. Revenue climbed 11% YoY to S$86.1m, chiefly due to additional revenue of S$14.1m from the properties acquired in second half last year and on 28 Jun 2013. The increase was partially offset by the decrease in revenue of S$4.7m from the divestment of Somerset Grand Cairnhill in Sep 2012 and lower contribution of S$0.7m from the existing properties, mainly properties in Philippines (lower corporate demand and ongoing renovation of Ascott Makati) and Japan (due to the depreciation of the JPY against SGD). Gross profit climbed 10% YoY to S$44.8m, although on a same store basis gross profit fell S$0.9m YoY. Unitholders’ distribution increased 17% YoY to S$30.0m. In 3Q12, unitholders’ distribution included a S$2.0m reversal of over-provision of prior years’ tax expense. Excluding this, YoY growth would be 27%. DPU rose 6% YoY to 2.37 S cents, bringing 9M13 DPU to 7.07 S cents, versus full year estimates of ours and the street of 8.9 S cents and 9.0 S cents respectively.
Weaker performance in Philippines and Japan
The group achieved a RevPAU of S$133 in 3Q13, a decrease of 10% as compared to 3Q12. The decrease in RevPAU was mainly due to divestment of Somerset Grand Cairnhill Singapore and weaker performance from Philippines and Japan (due to depreciation of the JPY).
AEI progressing according to plan
The first phase of refurbishments at Citadines Toison d’Or Brussels and Somerset Xu Hui Shanghai have been completed as at end 3Q13. Citadines Ramblas Barcelona, Ascott Jakarta, Ascott Makati Philippines, Somerset St Georges Terrace Perth and Citadines Toison d’Or Brussels (Phase two) are undergoing refurbishment.
Maintain BUY
Adjusting our assumptions, our FY13F DPU forecast increases from 8.9 S cents to 9.1 S cents and our FV increases to S$1.39 from S$1.37. We maintain our BUY rating on ART.