FCT – DBSV
Next step: Changi City Point acquisition
- 4Q13 DPU of 2.98Scts in line.
- AEI-driven reversion rates to moderate from FY14
- Acquisition of Changi City Point in FY14 to drive earnings
- Maintain BUY, TP S$2.14
Highlights
4Q13 results in line. FCT’s 4Q13 gross revenue grew to S$40.2m (+3% y-o-y), while NPI fell slightly to S$27.3m (-5% y-o-y). Revenue growth was attributable to higher contributions from Northpoint and Causeway Point, which together contributed c.80% of earnings, while, the decline in NPI was due to higher maintenance expenses, as well as the backdating of property tax for the Trust’s assets, which is expected to be one-off. The 4Q13 DPU of 2.98Scts includes S$2.9m in cash retained from 1H13.
NAV per unit increased 16% on revaluation gains. FCT recorded S$196m of revaluation gains, driven partly by cap rate compression of 15-25bps for all assets to 5.2%-5.6%, which is in line with other major retail malls across Singapore. NAV per unit increased to S$1.77 (vs. S$1.53 previously), and gearing decreased 2.5ppts to 27.6% correspondingly.
Our View
Strong AEI-driven reversions to moderate from FY14 onwards. In FY14, FCT will renew 32% of its income, out of which 75% will be derived from Causeway Point and Northpoint. We expect positive rental reversions from these two malls, given the strong shopper traffic and tenant sales. However, we expect more moderate reversion rates compared to previous years, as a significant amount of upside from the AEI works have already been captured. Bedok Point is likely to face increasing difficulty in operations, with competition from the larger Bedok Mall nearby. As 51% of its leases will be up for renewal in FY14, the Manager expects more tenant churn at the property going forward. Strategies that the Manager has put in place include: (i) bringing in a new anchor tenant (electronics and appliances shop) to pull in the crowd; and (ii) to reconfigure its lease structure to lower the fixed rent base with a higher turnover component, to ride out the uncertain outlook.
Acquisition of Changi City Point to be key earnings driver in FY14. According to the Manager, application for strata-subdivision at Changi City Point (CCP) ‘is progressing well’, and it is optimistic about acquiring the mall in FY14. We expect the acquisition to be completed by 2Q/3Q14.
Recommendation
Maintain BUY, TP S$2.14. Post-portfolio revaluation, the Trust is currently trading at 1.05x P/BV, which we believe is attractive, given its visible acquisition pipeline. We maintain our BUY rating, with TP unchanged at S$2.14 based on DCF.
FCOT – OCBC
Laudable set of results
- 4QFY13 DPU up 18.9% YoY
- Portfolio maintaining its resilience
- Robust growth essentially locked in
No surprises in 4QFY13
Frasers Commercial Trust (FCOT) released its 4QFY13 results last evening. NPI fell by 17.4% YoY to S$21.9m due mainly to continued weakness in AUD and divestments of KeyPoint and Japan properties. However, the decline in NPI was more than offset by realized gains from currency hedges, lower interest costs and savings in the Series A convertible perpetual preferred unit (CPPU) distribution following the net conversion/redemption of the CPPUs. As a result, distributable income to unitholders jumped 20.9% to S$13.7m. DPU for the quarter came in at 2.08 S cents, up 18.9% YoY. This brings the full-year DPU to 7.83 Scents (+17.0%), largely in line with both consensus and our DPU forecasts of 7.9 Scents.
Robust underlying performance
The direct management and rejuvenation works at China Square Central (CSC) has proven to be a great success, as it saw a robust YoY growth in NPI of 26.8% amid higher rental and occupancy rates. 55 Market Street also delivered 10.8% growth in NPI over the quarter. This helped to cushion the lower translated income from the Australia properties. We note that portfolio occupancy has remained healthy at 97.9%, compared to 98.1% a quarter ago. Positive rental reversions ranging from 4.4% to 23.2% were also recorded for the leases commenced in 4Q, demonstrating the resilience and quality of FCOT’s assets.
Maintain BUY
Looking ahead, we maintain our view that FCOT will continue to perform as its transformation initiatives over the past year are likely to underpin growth. We also understand that the Telok Ayer MRT station, which is just at the doorstep of CSC, is expected to open in Dec 2013. Coupled with the completion of enhancement initiatives around CSC, this is likely to boost its competitive position and growth potential. In addition, management noted that FCOT is receiving a net rent of S$1.80 psf pm at Alexandra Technopark, significantly lower than the underlying passing gross rent of S$3.50. As such, income uplift is expected upon the expiry of the master lease in Aug 2014. We maintain BUY with unchanged fair value of S$1.45 on FCOT.
CMT – OCBC
Another quarter of value creation
- 3Q13 DPU up 5.8% YoY
- AEI works on track for completion
- Strong retail leasing demand
3Q13 performance within view
CapitaMall Trust (CMT) turned in a firm set of 3Q13 results last evening. NPI grew by 12.9% YoY to S$126.5m, driven chiefly by The Atrium@Orchard following the completion of asset enhancement initiatives (AEI) in Oct 2012. All other malls, we note, also contributed positively during the quarter due to higher secured rentals, except for Bugis Junction which recorded lower contribution as a result of ongoing refurbishment works since Apr. While CMT had to pay a 9.31% premium on its outstanding convertible bonds due in Jul, it benefited from lower finance expenses and released S$8.5m taxable income retained in 1H13. This boosted the distributable income up by 9.7% to S$88.8m, and DPU up by 5.8% to 2.56 S cents. Hence, 9M13 DPU tallied 7.55 S cents, representing a robust growth of 6.3%. This is in line with our expectations, given that the DPU has met 75.1% of FY13 distribution forecast (consensus: 73.3%).
Steady operational metrics
Management noted that its tenants’ sales increased by 2.8% for 9M13, while its shopper traffic grew by 4.0%. Positive rental reversion of 6.3% was also achieved for the 528 leases renewed over the period, roughly consistent with growth of 6.4% attained in 1H. As at 30 Sep, portfolio occupancy stood at 99.5%, slightly higher than 99.1% level seen in 2Q. CMT updated that it has received strong leasing at Bugis Junction, and over 95% of new retail space has been precommitted for Phase 1 AEI. With the refurbishment works on track for completion in 4Q (Phase 2 to commence in 1Q14), we expect CMT’s portfolio performance to remain sturdy.
New AEI at Tampines Mall
CMT also announced a new AEI at Tampines Mall in 3Q, gelling well with the lease expiry at the mall (23.3% by mall income). Enhancement works are expected to start in 1Q14, and involve increasing its NLA, reconfiguring its retail units and rejuvenating its facade. CMT guided a capex of S$36.0m and an ROI of 8.0% on the project. As CMT looks set to meet our forecasts, we keep our projections intact. Maintain BUY and S$2.35 fair value on CMT.
CLT – AmFraser
Revenue up 8.4% YoY, Distributable income up 9.6%. Cache Logistics Trust reported growth of 8.4% YoY in its Q313 revenue to S$20.7mil, which was in line with our projections. Meanwhile, distributable income for the quarter was up by 9.6% ‐ approx. 2.2% lower than our forecast. Factors behind the revenue and distributable income growth include annual rent escalations of 1.25‐2.5% and rental contribution from new acquisitions in FY12 and FY13.
Enjoying resilient growth. Cache’s overall portfolio occupancy is maintained at 100%, reflecting the resilient nature of its master leases across the majority of its portfolio assets. Further underscoring its resilience, Cache notably has no renewal risk for the remainder of FY13 and has only 3% of its portfolio by GFA that is due for lease expiry in FY14. We also note that lease renewal progress for Jinshan chemical warehouse is well ahead of its June 2014 expiry, reflecting Cache’s commitment to engage in active re‐leasing to minimize renewal risks.
Larger influx of warehouse supply not a major concern. A record supply of warehouse space is expected to come on‐stream in FY14 and FY15. We note, however, that the bulk of the upcoming supply includes committed and owner‐occupied space as well as non‐competing strata‐titled and Jurong Island industrial space, thus mitigating competition risks for Cache.
Minimal refinancing risks. Cache’s leverage currently stands at 29.2%, with 70% of its borrowings already hedged into fixed rates through interest rate swaps. We believe both refinancing risk and interest rate risk are negligible for Cache. Notably, Cache will not be facing any debt refinancing till FY15. In terms of its exposure to rising interest rates, we estimate that a 1% increase in interest rates would lower our projected FY14 DPU by 1.5%.
Maintain BUY on FV S$1.36. Cache declared a DPU of 2.13c in Q313, bringing its YTD DPU to 6.5c. This forms 76.5% of our full‐year DPU forecast of 8.5c. As mentioned in an earlier update on 11 Oct 2013, we believe there is greater valuation comfort at current FY13‐14 yield levels of 7.1‐7.2% and maintain our BUY recommendation on a higher FV of S$1.36.
MLT – DBSV
Developments to take front seat
- Weak JPY impacting performance; DPU of 1.82 Scts in line
- Tapering acquisition assumptions; more development projects unveiled to extract value
- Maintain BUY with S$1.16 TP based on DCF; attractive yields of 6.5%-6.7%
Highlights
Weak JPY affecting performance. The depreciation of the JPY against the SGD resulted in Mapletree Logistics Trust (MLT) reporting a 0.6% and 1.3% decline in gross revenue and net property income to S$77.1m and S$66.6m respectively. Excluding the forex impact, topline would have increased by 3.6% instead. The stronger performance was largely attributable to contribution from the acquisition of Big Box in South Korea, supported by positive rental reversions of c.24%, coming mainly from its properties in Singapore/Hong Kong. Portfolio occupancy levels also improved sequentially to 98.7% (vs 98.2%). Distributable income came in 7.5% higher at S$44.5m (DPU of 1.82 Scts, 0.02 Scts from divestment gains), supported by lower interest rates of 1.9% achieved upon refinancing activities , while its JPY exposures are substantially hedged out for this financial year.
Our Views
More development projects to extract value. MLT continues to execute strongly through its development arm – the completion of its new 1m sqft ramp-up warehouse at Benoi Sector is on track to complete by 3QFY14 and will start contributing soon. In addition, the Manager has unveiled a new development project at 5B Toh Guan Road East, involving maximizing of the site’s plot ratio to 2.5x (from 0.93x), thereby creating an enlarged c600 sqft warehouse (the Manager expects to spend cS$100m on this development which we have factored in). In addition, the manager alludes to more of such value-enhancing redevelopment opportunities that can be executed upon in the medium term.
Tapering acquisition expectations. Acquisitions (3rd party and sponsor-related) are likely to remain more selective but the manager is understood to be working closely with the sponsor to tap its pipeline. Given a moderate acquisition outlook, we have tapered our acquisition assumptions to S$100m (from S$250m) over 2 years.
Recommendation
BUY; TP S$1.16. Despite a moderated growth outlook, we like the strategy of extracting value within its portfolio for growth which enables the portfolio to remain contemporary. Acquisitions from sponsor are likely to be re-rating catalysts for MLT. Maintain BUY, with a TP of S$1.16 based on DCF.