MLT – OCBC
Delivering steady growth
- 2QFY14 DPU up 6.4% YoY
- Positive reversion of 24% achieved
- New redevelopment project in early FY15
2QFY14 results within expectations
Mapletree Logistics Trust (MLT) reported a 1.3% YoY drop in 2QFY14 NPI to S$66.6m, as its Japan portfolio saw lower translated income on weaker JPY. Stripping out the forex impact, NPI would have increased by 3.4% due to positive rental reversions and contributions from its past three acquisitions. Total amount distributable to unitholders grew at a faster pace of 7.5% to S$44.5m, as MLT substantially hedged its income streams from Japan, benefitted from lower financing costs, and distributed S$0.6m (0.025 S cents/unit) in divestment gains from 30 Woodlands Loop. For the quarter, DPU came in at 1.82 S cents, representing a 6.4% growth YoY. We deem the results to be in line with our expectations, as 1HFY14 DPU of 3.62 S cents have met 49.9% of our fullyear DPU forecasts (consensus: 51.0%).
Firm leasing demand at MLT’s portfolio
While the global economic outlook remains murky, leasing demand at MLT’s logistics facilities has held firm. Starting with 15% of its leases due for expiry in FY14, MLT has managed to renew/replace ~62% of the leases. Portfolio occupancy also improved 50bps QoQ to 98.7%, boosted by higher take-up rates at MLT’s China, Hong Kong and Korea portfolios. More importantly, positive rental reversion of 24% was achieved, higher than the 17% growth seen in previous quarter. This is somewhat more positive than management’s previous guidance for a moderating rate going forward.
Continued focus on yield optimization
MLT reiterated that it will continue to optimize the portfolio yield through repositioning, enhancement and redevelopment opportunities. We understand the redevelopment of Mapletree Benoi Logistics is on track for completion in 3QFY14, while pre-commitment is unchanged at 94%. Following this, MLT will be embarking on its next redevelopment project at 5B Toh Guan Road in early FY15, which will see the site transform from a 3-storey warehouse to a 6-storey modern ramp-up facility (GFA up 2.7x). We make minor adjustments to our forecasts but lower our fair value marginally to S$1.11 (S$1.15 previously) on higher risk-free rate assumptions. Maintain HOLD.
CCT – OCBC
Resilient to absence of OGS income support
- 3Q13 numbers within expectations
- Resilient DPU despite loss of OGS support
- Expect Grade A turning point in FY14
Distributable income up 1.6% YoY
Distributable income for 3Q13 increased 1.6% YoY to S$58.8m mostly due to lower interest expenses and the distribution of S$1.7m in tax-exempt income from Quill Capita Trust (QCT), which offset the loss of income support from One George St (OGS). Note that, going forward, CCT can still draw from S$10.9m of retained tax-exempt income from QCT, and also S$0.9m of retained taxable income from RCS Trust to be released in 4Q13. 9M13 distributable income cumulated to S$174.0m, up 2.2% YoY, which made up 75.9% of our FY13 forecast and is judged to be mostly within expectations. 3Q13 DPU is 2.04 S-cents which translates to a 5.7% distribution yield based on the last closing price of S$1.44.
Overall portfolio occupancy edged up to 97.6%
Over 2Q13, CCT’s overall portfolio occupancy edged up QoQ to 97.6% from 95.8% with ~347k sq ft of space being renewed or signed under new leases. In particular, we note that leasing activity was fairly positive at OGS as the group managed to backfill the bulk of the 9.4% in NLA vacated over 2H13 to maintain the asset’s occupancy level at 94.2%. Committed rents at OGS are in the range of S$8.6-S$10.0 psf pm and we understand management expects OGS occupancy to further improve ahead. Due to continued positive reversions, average committed office portfolio rentals increased QoQ to S$8.03psf from S$7.96psf. AEIs at 6BR and Raffles City remains on track to complete in 4Q13 and 2Q14, respectively, and we expect CCT to begin its S$40m AEI in Capital Tower in 4Q13. CapitaGreen also remains on track to complete by 4Q14.
Maintain BUY with unchanged S$1.61 fair value estimate
We expect CCT to benefit from an improving Grade A office market in FY14 as rental levels reach a turning point in an environment of resilient absorption and limited supply, with only CapitaGreen (~700k sq ft NLA) coming online in FY14 in the Core CBD sub-segment. Maintain BUY with an unchanged fair value estimate of S$1.61.
CCT – CIMB
Strong but upside capped
Although we expect the office market to improve from here, with only 13% of its office space due for renewal next year, CCT’s upside is likely to be capped, particularly with a lack of acquisition targets.
3Q13 results are in line, with DPU accounting for 26% of our full-year forecast and 9M13 DPU at 76%. In view of a lack of meaningful near-term growth catalysts, we remain Neutral with an unchanged DDM-based target price (discount rate 7.9%).
Active quarter in leasing
During the quarter, CCT largely concluded its long-term lease to CapitaLand Limited at Capital Tower. Together with 40,000 sq ft of space in advanced negotiations with one of CapitaLand’s business units, Capital Tower’s committed occupancy will reach 100%. In addition, CCT signed new leases and renewals for c.347,000 sq ft of space during the quarter. With these, all leases that are due for renewal in FY13 have been renewed. Further out, CCT has 13% and 30% of space (by monthly gross rental income) due for renewal in FY14 and FY15 respectively.
Strong balance sheet
Gearing was up a notch this quarter to 29.5% (28.9% in 2Q13), while average cost of debt dipped to 2.7% (2.8% in 2Q13). Having completed its refinancing last month, CCT will have no refinancing needs until 2015. With 75% of its total debt hedged as fixed-rate debt, we believe CCT is fairly immune to any rate hikes. We estimate a 1% impact on its DPU from a 50bhp increase in cost of borrowing.
Limited upside
Although fundamentals remain solid, we believe upside for this stock is limited, from a lack of meaningful growth catalysts. In addition, convertible bonds due in 2015 (outstanding S$190m) remain an overhang.
KepREIT – CIMB
Another solid quarter
KREIT’s 3Q13 DPU was in line, meeting 25% of our FY13 forecast. Key positives include 1) management’s proactive refinancing of loans due in 2014 and 2015, 2) completion of the acquisition of 8 Exhibition Street, Melbourne, and 3) achieving Temporary Occupation Permit of OFC Phase 2.
KREIT’s 9M13 DPU was in line with consensus and our expectations, forming 76% of our FY13 forecast. In view of a stable outlook, we maintain our Neutral rating on this stock with an unchanged DDM-based target price (discount rate: 8.3%) of S$1.32.
Flattish DPU growth
KREIT continued to exhibit its ability to acquire yield-accretive assets, with its latest acquisition being a 50% interest in 8 Exhibition Street in Melbourne. As highlighted previously, although we were positive about its acquisitions in Australia, we expect its long-term growth to be dampened by 1) lost of income support from its existing properties, and 2) dilution from new units. During the quarter, KREIT issued 95m units to finance its latest acquisition. As a result, 3Q13 DPU was flat qoq. During this period, OFC Phase 2 (comprising a 7-storey retail structure and car-park annexe) received Temporary Occupation Permit. However, due to the rent-free fitting out period, we expect contribution from the retail segment to be minimal in 2013.
Proactive loan management
In 3Q13, management refinanced S$282m and S$60m of loans due in 2014 and 2015, respectively. Thus, the weighted average term to expiry of borrowings has been extended to 3.8 years (from 3.6 years). Currently, KREIT’s all-in interest rate stands at a healthy 2.15% with its aggregate leverage ratio dropping slightly to 43.9%.
Positives factored in
By refinancing its debts early, the overhang of rising interest rates has essentially been removed. However, we believe that these positives have already been factored in its share price. We remain Neutral on this stock as it is currently trading in line with its peers’ valuations.
KGT – AmFraser
An insipid growth story. Q313 remains an unexciting quarter for KGreen Trust (KGT). The only catalyst for growth, that is acquisitions, remains nowhere in sight as we continue to witness KGT’s sliding net asset value (NAV).
Results stable, yet uninspiring. KGT delivered revenue of S$17.1mil and net profit of S$3.8mil in Q313, which are ‐1.7% and ‐4.2% lower than our projections respectively. Operation and maintenance (O&M) income continued to form the bulk of overall revenue at 74.9%, with future increases remaining dependent on annual adjustments of O&M and power tariffs to account for changes in consumer price index and fuel price.
Inching towards its first concession expiry. KGT is now another step closer to facing its first concession expiry on its Senoko Plant in 2024. Remaining concession agreements for the Ulu Pandan Plant and Tuas DBOO Plant are due for expiry in 2027 and 2034 respectively. We understand that these concession agreements are unlikely to be renewed.
Zero NAV the end‐game. We reiterate the declining NAV story of KGT. KGT’s assets are recognized as service concession receivables, that represents the right to receive fixed and determinable amounts of payments from its customers NEA and PUB over the concession period. Naturally, these service concession receivables will gradually decline over time as KGT receives its payments. KGT’s NAV of 99c per
share represents an all‐time low as at 30 Sep 2013.
Reiterate SELL. Since our initiation on 15 Apr 2013, KGT is down 9% and is currently trading at S$1.02. At current levels, we believe investors have yet to fully price in the investment negatives of KGT. With an unchanged fair value of S$0.78, we reiterate our SELL call on KGT.