StarHill Global – OCBC
Delivering as promised
- 3Q13 DPU up 9.0% YoY
- Strong results from Singapore and Australia
- No refinancing needs till 2015
3Q13 results within view
Starhill Global REIT (SGREIT) reported 3Q13 NPI of S$38.0m and distributable income of S$27.1m, up 4.4% and 9.7% YoY respectively. DPU similarly increased by 9.0% YoY to 1.21 S cents, after retaining S$0.7m (c. 0.03 S cents) in distribution amount. For 9M13, NPI and distributable income were up 7.3% and 17.2% to S$119.0m and S$83.6m respectively. 9M13 DPU came in at 3.77 S cents, translating to a robust growth of 15.6%. This is in line with expectations, given that the DPU has met 76.6%/76.9% of our/consensus FY13F DPU.
Further improvement in operational performance
SGREIT’s Singapore portfolio continued to benefit from Wisma Atria (WA) redevelopment and upward rent reviews at Ngee Ann City (NAC). Over the quarter, WA saw its retail NPI grow by 5.9% YoY as a result of ongoing asset repositioning and higher rentals. Tenant sales at WA, we note, improved 11.8% YoY, giving rise to a better sales efficiency of S$134 psf. At NAC’s retail segment, NPI also registered a strong 14.5% growth following the 6.7% rental uplift from Toshin master lease. In addition, the office segment at Singapore portfolio achieved 11.2% NPI growth on the back of positive rental reversions of 13.7% for leases committed between Oct 2012 and Sep 2013. More notably, Singapore portfolio occupancy reached 100%, up from 99.7% in 2Q. For its overseas properties, Australia portfolio was the key performer, raking up a 25.7% increase in NPI due to incremental income from Plaza Arcade. As a result, this more than offset the lower contributions from the other overseas properties due to unfavourable forex movements and increased competition.
Maintain BUY
On the capital management front, we note that SGREIT has completed the drawdown of new unsecured loan facilities to refinance its debts due in 2013, leaving it with no refinancing needs until Jun 2015. As at 30 Sep, gearing stood largely unchanged at 30.6% (30.3% in 2Q), while the fixed/hedged debt ratio improved to 94.0% from 81.0% seen in 2Q. We continue to like SGREIT for its clear growth drivers, robust financial standing and compelling valuation. Maintain BUY and S$0.95 fair value on SGREIT.
FirstREIT – OCBC
3Q13 DPU below expectations
- 3Q13 DPU rises 16.7% YoY
- Largely unaffected by weakening IDR
- Lower FV to S$1.18
Revenue in-line but DPU came in below expectations
First REIT (FREIT) reported 3Q13 revenue of S$22.8m, representing an increase of 60.7% YoY. This was driven by contribution from four new Indonesian properties, of which two were acquired in Nov 2012 and the remaining two in May 2013. DPU rose 16.7% YoY to S$0.0196, and is payable on 29 Nov 2013. For 9M13, revenue jumped 43.1% to S$60.4m and was within our expectations (72.6% of our FY13 projection). After stripping out exceptional distributions paid out in 1Q12 and 2Q12, distributable amount to unitholders and DPU rose 24.6% and 14.2% to S$38.1m and S$0.0555, respectively, with the latter forming 70.4% of our full-year forecast. We view this as below our expectations due to higher-than estimated expenses. On a positive note, FREIT’s financial performance was largely unaffected by the recent weakening of the IDR, given that the base rental for its ten Indonesian properties are denominated in SGD.
Will continue to seek quality asset acquisitions
FREIT highlighted that it will continue to seek opportunities at expanding its footprint in Indonesia, given her growing healthcare market and the strong pipeline of possible acquisition targets from its sponsor Lippo Karawaci. Following Siloam International Hospital’s successful IPO recently in Sep 2013, we believe proceeds raised would allow it to embark on a more aggressive hospital development programme, thus further providing FREIT with assets that may be purchased in the medium to long term horizon. FREIT will also look out for healthcare assets in other parts of Asia to expand its portfolio.
Maintain BUY
We maintain our revenue estimates but tweak our DPU forecasts for FY13 and FY14 downwards by 4.4% and 1.9%, respectively. This correspondingly lowers our DDM-derived fair value estimate from S$1.20 to S$1.18. Given a decent FY14F dividend yield of 7.5%, we maintain our BUY rating for FREIT.
Suntec – CIMB
One step back, two steps forward
Although earnings continued to be weak in 3Q13, we remain confident of the smooth execution of Phase 2 of the AEI which is slated for completion by 4Q13. A drop in earnings is expected to be mitigated by a full quarter’s contribution from Phase 1 in the near term.
3Q13 results were largely in line with our and consensus estimates. 3Q DPU accounted for 25% of our FY13 forecast while 9M13 DPU met 75% of our forecast. We roll forward our DDM-based target price (discount rate of 7.9%), raising it by 14%. We reiterate our Outperform rating in view of the stellar execution of the AEI at Suntec City as we anticipate respectable growth through it.
AEI continues to affect earnings
Suntec REIT’s 3Q13 DPU dropped by 2.6% yoy, mainly because of Phase 2 of the asset enhancement initiative (AEI) at Suntec City. This includes a DPU top-up of 0.199 S¢ (S$4.5m total) from the Chijmes proceeds. During 3Q, Suntec Singapore began contributing to earnings. The bulk of earnings from Phase 1 AEI is expected to come through only in 4Q13. However, by then, c.249,000 sq ft of retail space will be closed in preparation for Phase 3 of the AEI which is scheduled to start in 1Q14.
Phase 2 AEI on track
Phase 2 AEI remains on track for completion by 4Q13. Pre-commitment stands at an impressive 83.7% though achieved rents for this phase are expected to be a tad lower than in Phase 1 as a result of fewer fashion anchors. We continue to anticipate double-digit growth from Phase 2 as Suntec REIT targets to achieve 10.1% ROI, which translates into S$12.59 psf/mth.
Maintain Outperform
We continue to favour the REIT for its stable portfolio occupancy (99.8% for office, 98.3% for retail) and strong rental reversion post AEI. In addition, with leases secured during the quarter at S$8.55 psf vs. S$8.42 psf in 2Q13, we are confident that Suntec REIT will be able to achieve positive rental reversion when 17.6% of its office NLA comes up for renewal in FY14.
MCT – CIMB
Growth expected to slow
Although the results are slightly better than expected, in view of 1) a lack of meaningful catalysts; 2) only 16% of retail leases up for renewal in FY15and 3) relatively high valuations, we believe that the high valuations are not justified in this environment.
2QFY3/14 results were slightly above with 2Q DPU at 28% and 1HFY14 DPU at 54% of our full-year forecast. As a result, we raise FY14-16 DPUs by an average of 5.5%. However, with a lack of meaningful growth catalysts coupled with its high valuation in a rising interest rate environment, we downgrade to an Underperform from Neutral with a slightly higher DDM-based target price (discount rate: 7.9%) of S$1.28.
Good growth in 1HFY14
2QFY14 gross revenue was 27.1% higher than a year ago. This was mainly attributed to positive contributions from VivoCity, PSAB and additional revenue from Mapletree Anson (accounts for c.57% of total growth). As a result, the income available for distribution grew by 29.1% yoy. During the quarter, MCT renewed/re-let 87% of the leases expiring in FY14, with a positive rental reversion of 37.1% and 23.4% for retail and office space, respectively.
Limited room to grow
Although rental reversions have played an important role in MCT’s stellar performance, we expect growth within the REIT to taper off considering only 1.6% of retail leases will be renewed in FY14 and 16% in FY15, while the portfolio occupancy rate stood at 98.9%. Furthermore, with a gearing of 40.8% coupled with compressed cap rates within the commercial property space, we believe that it will be challenging to find yield-accretive acquisitions in the near term.
Downgrade to an Underperform
On the back of limited room to grow through rental reversions, a tight M&A market coupled with a P/BV of 1.2x and compressed FY14 and FY15 yields of 5.5% and 5.6%, respectively (against a rising interest rate environment), we believe that major AEIs and acquisitions are required to re-rate the stock.
Suntec – OCBC
Poised for strong harvest
- 3Q13 DPU up 1.8% QoQ
- Assets high on demand
- ROI for Suntec City AEI on track
Firm recovery as expected
Suntec REIT posted an encouraging set of 3Q13 results last evening. As we have previously expected, NPI saw a strong recovery of 44.0% QoQ (+4.7% YoY) to S$40.3m following the opening of Phase 1 retail space and Suntec Singapore post enhancement works. Distributable income was also lifted up by 10.0% QoQ (-10.4% YoY) to S$47.3m. As a result, a smaller capital distribution of S$4.5m (S$7.8m in 2Q) from CHIJMES sales proceeds was needed to mitigate the dip in distribution payout. This led to a DPU of 2.289 S cents, up 1.8% QoQ (-2.6% YoY). Consequently, 9M13 DPU amounted to 6.766 S cents (-5.6%), meeting 73.4% of both consensus and our FY13F DPU.
Positive portfolio performance
The retail segment contributed ~34% of gross revenue, marking a rise from 2Q level of ~28%. However, on a YoY basis, retail revenue was still down 30.1% due to Phase 2 asset enhancement initiatives (AEI) at Suntec City Mall. Suntec Singapore was the top performer in 3Q, raking up 125.3% growth to S$16.5m. In addition, the office segment continued to perform, delivering a growth of 4.1% YoY on the back of positive rental reversions. We understand that ~160,000 sqft of leases was signed in 3Q, leaving only a balance of 1.7% of office NLA due for renewal in 2013. At Suntec City office, average signing rent also improved from S$8.42 psf pm to S$8.55. As at 30 Sep, both the office and retail portfolio occupancy rates were maintained at high levels of 99.8% and 98.3%, respectively. As such, its portfolio performance is expected to stay relatively steady, despite potential weakness in 4Q13/1Q14 as Suntec REIT prepares for Phase 3 AEI.
Maintain BUY
Management also updated that precommitment at Phase 2 retail space has improved from 70.1% in 2Q to 83.7%. While there are a few anchor tenants (which may command lower rents), Suntec REIT reiterated that ROI of 10.1% remains on track. In 4Q, we can reasonably expect revaluation gains of the portfolio assets, which may improve Suntec REIT’s gearing and P/B ratios (currently at 37.2% and 0.84x respectively). Maintain BUY with higher fair value of S$1.85 (S$1.80 previously) as we roll our valuation to FY14.