FCOT – OCBC
EXPECT FURTHER DPU ACCRETION
- In-line 1QFY13 results
- Fundamentals strengthened
- Expects DPU uplift
Consistent 1QFY13 showing
Frasers Commercial Trust (FCOT) released its 1QFY13 results last Friday. NPI fell by 6.9% YoY to S$22.9m due mainly to the disposal of KeyPoint and three properties in Japan. However, higher contribution from additional 50% interest in Caroline Chisholm Centre and lower interest costs helped to offset the loss of income from the divestments. As a result, distributable income and DPU grew by 6.9% and 4.6% YoY to S$10.3m and 1.5832 S cents respectively. The results were congruent with our expectations, as NPI and DPU met 25.2% and 22.2% of our respective full-year projections.
Healthy portfolio performance
Australia properties surpassed Singapore properties as the biggest income driver in 1Q, contributing 53.7% to NPI (Singapore: 45.1%). Portfolio occupancy remained stable at 94.6% compared to 4QFY12 occupancy of 94.9%. ~95k sqft of space was contracted, reflecting healthy tenancy activities within the office space. For the rest of FY13, we note that 13.7% of its leases (by gross rental income) are due for renewal, with China Square Central (CSC) forming the bulk of lease expiry (8% of total income). As the average passing rent at CSC (S$6.20 psf pm) is lower than the spot market rents, we believe positive rental reversions may be achieved upon renewal.
Further improvements expected; maintain BUY
Management updated that the Precinct Master Plan initiatives and asset enhancement works for CSC office tower are on track for completion and are expected to rejuvenate the area and make CSC an even more attractive office accommodation. FCOT now boasts a healthy gearing of 29.2% and improved financing costs of 3.3% (3.5% in 4QFY12) following the partial prepayment and refinancing of its debts. Together with the successful 47.6% redemption of CPPUs on 2 Jan, we maintain our view that FCOT’s DPU will get further uplift going forward. We keep our forecasts unchanged but bump up our fair value to S$1.48 from S$1.31 on lower cost of equity of 7.0% (7.8% previously) as we factor in an anticipated increase in investor risk appetite and the current low interest rate environment. Maintain BUY.
PLife – Phillip
Poised to build on its past successes
Company Overview
PLife REIT is one of the largest listed healthcare REITs in Asia by asset size. Its mandate is to invest in income producing real estate and/or healthcare-related assets primarily used for healthcare and/or healthcare-related purposes in Singapore and Asia.
- 4Q12 (FY12) revenue S$24.0mn (S$94.1mn), NPI S$22.1mn (S$86.4mn), distributable income S$16.3mn (S$62.4mn)
- DPU for 4Q12 (FY12) at 2.69 cents (10.31 cents)
- Maintain Accumulate with revised target price of $2.450
What is the news?
PLife REIT turned in a strong set of results for 2012. DPU grew 7.4% from 9.60 cents in FY11 to 10.31 cents in FY12. The increase was largely due to the purchase of three Japan properties, higher rent collected from Singapore properties and cost-savings on financing. The portfolio asset was revalued at S$1.4bn and recognized revaluation gains of 3.1% compared to last year.
How do we view this?
FY12 DPU exceeded our estimates by 3.8%, principally due to lower-than-expected finance and trust expenses. It is encouraging to see FY12 DPU continued to grow at 7.4% after five years of portfolio expansion since the IPO in 2007. Marching towards 2013, the trust is poised to repeat and build on its past successes on account of (i) potential rental increase for Japan properties under the “Refurbishment AEI” concept (ii) CPI+1% rental revision for Singapore properties owing to elevated inflation rate in Singapore, and (iii) enlarged debt headroom of S$173.5mn to drive inorganic growth.
Investment Actions?
We fine-tuned our assumptions and rolled over our estimates to FY13 and included FY17 to our model. With the adjustments, our price target is raised from S$2.33 to S$2.45, indicating a total return of 11.1% for FY13. As our model does not take into account of potential acquisitions and asset enhancement, further DPU upsides could be expected. Given our conservative projections, we maintain our Accumulate call in view of potential DPU growth.
Fortune – OCBC
EXCELLENT FY12 RESULTS AS EXPECTED
- Record DPU growth rate
- Portfolio valuation up 5%
- Maintain BUY
Rental reversions likely to be in mid-teens
FRT’s had a solid FY12, with revenue climbing 22.5% YoY to HK$1.11b and NPI rising 22.8% YoY to HK$788.3m. The two properties acquired on 17 Feb 2012 accounted for 12.4% of NPI growth. The remaining 10.4% of NPI growth from the original portfolio of 14 properties was from strong reversion and AEI results. Passing rent for the original portfolio was up 8.3%. Overall rental reversion was high at 19.8%, partially because of the low base in 2009. Management indicates that 2013’s rental reversions are likely to be in the mid-teen percentages. FY12 DPU of 23.35 HK cents was up 23.0% YoY, representing the highest growth trend in the REIT’s 9-years history. The results were in line with ours and consensus.
More AEI opportunities
Portfolio occupancy climbed from 96.1% as of 30 Sep 2012 to 97.7% as of 31 Dec 2012, reflecting good recovery upon AEI completion. Significant portions of GRA for FRT’s three largest assets by valuation, i.e., Fortune City One (FCO), Ma On Shan Plaza (MOSP) and Metro Town, will expire (43.1%, 41.4% and 69.9% respectively) in 2013. For FCO, 2013 will see the first reversion of leases from the AEIs that were completed in 2010. Following the completion of HK$100m AEI in 4Q12 (ROI of over 20%), management is considering a HK$10-20m AEI at FCO to improve the wet market and increase occupancy. At MOSP, FRT will explore getting back some space from the supermarket to bring in some higher yielding trades (e.g. another AEI at HK$10-20m). At Metro Town, there is mark-tomarket upside because of improvement in foot traffic. One of the Feb acquisitions, Belvedere, may see a ~HK$80m AEI starting end 2013.
Solid balance sheet
The portfolio valuation increased by 4.9% to HK$20.2b between Jun to Dec 2012; capitalisation rates stayed the same. The valuation of the original portfolio climbed 5.0% to HK18.0b. FRT has a low gearing of 23.4% and no refinancing needs till 2015.
Maintain FV
We are maintaining our fair value of HK$7.28 and a BUY rating on FRT. FRT is one of our top REIT picks and has an attractive P/B of 0.75x.
MIT – DBSV
Sailing along just fine
- 3Q13 results in line with expectations
- Positive rental reversions but growth moderating
- Maintain HOLD and S$1.43 TP
Highlights
3Q13 DPU of 2.29 Scts in line. Mapletree Industrial Trust (“MINT”) reported gross revenue and net property income of S$69.2m and S$49.1m, higher by 6% and 8% y-o-y respectively. The stronger performance was largely organic-led with positive rental reversions portfolio wide, while occupancy levels remained fairly stable at close to 95.2%. As a result, distributable income came in 7% higher at S$37.7m, translating to a DPU of 2.32 Scts. On a sequential basis, 3Q13 was an improvement with moderate rises of 1.5% and 1.4% in topline and net property income, respectively.
Positive reversions seen; strong retention rate. Portfolio retention rate was high at 85%, despite average rental hikes for new leases and renewals of 8%-24%, which implies the stickiness of the tenants in their portfolio. As a result, portfolio average rental inched up higher to S$1.61 psf/mth (vs S$1.59 in 2Q13).
Our View
Cautious outlook and pressure points in 2013. Looking ahead in the next financial year, MINT will be renewing close to 30% of its revenues, of which a majority are from its flatted factory space. Given pressure from new competing supply of new industrial space, coupled with a tougher operating environment for SMEs due to cost hikes on the labour front, we expect reversionary gap to compress in the coming quarters and retention rate to fall. In addition, management is expecting to see net property income margin of 70.9% to be under pressure – owing to expected cost increases from maintenance, utilities and security contracts expected to be renewed in the coming year.
Asset enhancement initiatives and development projects completing end of 2013 to lead growth initiatives. MINT is currently embarking on 3 asset enhancement projects (Woodlands Central, Toa Payoh North 1 and The Signature) and 1 development project (Built-to-suit for Kullicke & Soffa) which are on track for completion by the end of FY13. These properties should contribute positively to the trust performance in the medium term. For this quarter, MINT has instituted a dividend reinvestment scheme (DRP) of which proceeds can be channeled towards capex and maintenance needs.
Recommendation
HOLD Call maintained, TP S1.43. While FY13-14F yields of 6.5%-6.7% are attractive vs peers, we believe positives of its resilient portfolio are priced into the stock. Maintain HOLD and DCF based TP of S$1.43.
ART – CIMB
Headwinds persist in 2013
We see more headwinds in 2013, with Asia facing margin pressure and currency fluctuations across the board, albeit mitigated in part by downside protection on >40% of portfolio earnings. Acquisitions and pick up in demand for serviced residences are re-rating catalysts.
4QFY12 met our and consensus expectations at 23%/100% of our full year estimates. We lower FY13-14 DPUs on lower margins and introduce our FY15 estimates. DDM-based target price inches down slightly (disc rate: 8.2%). Maintain Neutral.
Lower margins and revaluation deficit
4Q12 gross profit dipped by 4% yoy (3Q: +2%) on higher staff costs and commission expenses. The European portfolio held up operationally. UK’s refurbishment and acquisition of the Hamburg asset boosted its European revenues, but forex movements again eroded the positives. Gross profit for Europe dipped 1% yoy. In Asia, performance was unexpectedly weak as higher operational costs, VND/SGD depreciation and divestments offset contributions from acquisitions and uptick in demand. Weaknesses in Vietnam and Indonesia led to 5% yoy decline in RevPAU to S$139.
Forex fluctuation dipped below -3% limit
Forex fluctuation exceeded internal +/-3% limit, hitting -3.3% on a portfolio basis (-2.8% in 3Q12) led by foreign currency weakness across the board since Dec 2011. While cashflow hedging of Euro and GBP may be considered, management expects forex impact to be mitigated by more stable European economies in 2013.
Expect acquisitions
We continue to expect growth from acquisitions and refurbishments this year, offset by lower margins in Asia and more negative forex fluctuations. A revaluation deficit of S$27.9m was recognised in 4Q12 due to Vietnam, France and Philippines. Management is most concerned about Vietnam (c.15% of gross profit) given cost pressures and slower corporate travel.