MCT – CIMB
VivoCity remains the Star
Positive rent reversions from previously negotiated leases at VivoCity kicked in in 3Q, which together with stronger GTO rentals, drove a 10% qoq jump in VivoCity revenue in 3Q. We remain positive on VivoCity, MCT’s largest asset, underpinned by its healthy operating stats.
3QFY13/9M13 met our expectations but was above street, forming 26/75% of our FY13 forecast. We tweak FY13 DPU but retain FY14-15 DPUs. We maintain Outperform with an unchanged DDM-based target price (discount rate: 6.9%). We see catalysts from stronger-than-expected rental reversions.
Strong showing at VivoCity
3QFY13 NPI was up 17% yoy as margin improvements added to a 12% rise in revenue. NPI growth was driven mainly by VivoCity, as positive rental reversions booked in previous quarters, coupled with stronger GTO rentals in 3QFY13 drove a 10% qoq jump in VivoCity. MCT had booked a 33% uplift in fixed rents at VivoCity. We estimate that passing rents at VivoCity edged closer to S$12psf in 3Q. Operating stats remain healthy, with yoy growth in shopper traffic (+3.8%) and tenant sales (+3.1%) still a tad above peers despite fit-outs by some tenants, auguring positively for future rental reversions.
Progress at ARC; Mapletree Anson acquisition approved
Alexandra Retail Centre (ARC) made further leasing progress in 3Q, as committed occupancy rose to 80.4% from 75.9% last quarter. The proposed acquisition of Mapletree Anson was approved by unitholders at the EGM on 23 Jan. Asset leverage should creep up from 35% as at end-3Q (on a revalued book during acquisition) to 41% after the deal.
Maintain Outperform
MCT is currently trading at forward yields of 5.3% and 1.2x P/BV, which appear undemanding relative to other retail REITs given room for further rental growth at a bustling VivoCity. We maintain Outperform as we see catalysts from stronger-than-expected rental reversions at VivoCity and the newly-acquired Mapletree Anson.
FirstREIT – OCBC
ON THE LOOKOUT FOR MORE ACQUISITIONS
- FY12 yield of 6.8%
- Indonesia remains the bedrock for growth
- HOLD; but FV raised to S$1.00
4Q12 results within expectations
First REIT (FREIT) reported 4Q12 results which were within our expectations. Gross revenue rose 10.7% YoY to S$15.4m, driven by maiden contributions from two new properties which were acquired in Nov 2012 and higher rental income from its remaining portfolio. Distributable amount to unitholders declined 8.7% YoY to S$11.1m, but this was due to a special distribution of S$2.2m in 4Q11. Excluding this, distributable amount to unitholders would have increased by 11.3% instead. For FY12, gross revenue rose 6.7% to S$57.6m and was just 0.2% below our full-year projection. Distributable income to unitholders rose 4.8% to S$46.0m, and formed 98.8% of our FY12 forecast. DPU for FY12 was 7.26 S cents, versus 7.01 S cents in FY11, and translates into a yield of 6.8%.
An eye for inorganic growth opportunities
Following FREIT’s recent acquisitions, its gearing (debt-to-assets) ratio increased from 15.0% in 3Q12 to 25.7% in 4Q12. We believe this is a manageable level as it is still one of the lowest in the S-REITs space. Looking ahead, we expect FREIT to aggressively seek inorganic growth opportunities, which are likely to be financed by both debt (leverage on low interest rate environment) and equity (trading at 30% premium to NAV), in our view. Indonesia would remain as its key market, given the nation’s robust healthcare dynamics and visible pipeline of acquisition targets from its sponsor Lippo Karawaci. Management has identified five potential targets in areas such as Bali, East Kalimantan and East Sumatra and will assess the feasibility of each potential investment. We expect acquisition terms to be largely similar to the two assets purchased in Nov last year.
Maintain HOLD
We make some minor adjustments to our estimates and also incorporate lower discount rate assumptions for FREIT’s Indonesian assets in our model, given improving economic fundamentals in Indonesia. This lifts our fair value estimate from S$0.98 to S$1.00. But we maintain our HOLD rating as we view FREIT’s valuations as expensive, with the stock trading at 1.3x FY13F P/B, a rich premium to its peers’ average.
CCT – DBSV
Looking for growth catalysts
- Full year DPU of 8.04 cts in line with expectations
- Steady occupancy, positive rental reversion, higher contributions from 6 Battery Road to drive FY13 earning.
- Low gearing and strong balance sheet can be used to drive inorganic growth
- Maintain HOLD at a higher TP of S$1.54
Highlights
In-line results. On a year-on-year basis, gross revenue and NPI rose by 8.0% and 1.6% respectively. The uplift in income was driven by the higher revenue from HSBC Building, the additional contribution from Twenty Anson and the higher income support from One George Street (OGS). NPI margin held steady at 77% as nonrecurring property tax refunds offset higher operating costs. DPU came in at 2.05cts, representing a +6.8% after retaining the $0.2m tax exempt income from QCT. NAV rose 2.5% to $1.62 upon a revaluation gain of S$154m. This largely led by cap rate compression of 25bbp to 3.75% -4.25% for its offices, alongside more moderated rental assumptions, resulting in a revaluation gain of S$154m.
Our View
Moving in the right direction. Occupancy continued to hold steady at 97.2% with average portfolio monthly rents moving up to S$7.64 psf from S$7.53 psf a quarter ago. Positive rental reversion is expected to continue as the average monthly rents for the 26.2% (gross rental income) leases expiring this year are at S$7.44 psf – S$7.53 psf vs Grade A market rents of S$9.58psf. Pre-commitments at 6 battery road are coming in strong. 91% and 86% of the 200,000 sf of space completed in 2012 and the final 171,000 sf scheduled for upgrading works in 2013 have been taken up respectively. Meanwhile, OGS’s occupancy held up pretty well at 92.5% despite the exit of a few large tenants. Underlying rents of S$8.50 – $9.50 psf have moved up closer to the income support rents of S$11.20 psf, which partly mitigate the income vacuum post the expiry of income support in July 2013.
Prudent capital structure. Gearing remains low at 30.9% and the trust only has about $50m or 2% of its debt due for refinancing in 2013. That would give the trust up to S$1b debt headroom (40% gearing) to undertake AEI work for some of its older projects or to capture accretive acquisition potential.
Recommendation
Maintain HOLD. We have nudged upwards our TP and FY13/14DPU by 3% to adjust for the better rents achieved at HSBC. Upside risk will hinge on potential accretive acquisitions or better-than-expected leasing performance at CapitaGreen and OGS
ART – DBSV
An eye on high growth Asia
- 4Q12 results in line
- Moderate outlook with bright spots in Asia
- An eye on growth, TP raised to S$1.49
4Q12 DPU of 2.0 Scts in line. Ascott Residence Trust (Ascott REIT) reported 4Q12 distributable income of S$22.8m (DPU of 2.0 Scts) which was 10% higher y-o-y on the back of a 1% growth in topline to S$75.9m. This was due to the income contribution from its 4 newly acquired properties while portfolio RevPAU saw a slight dip of 5% to S$139/night. Translation impact on gross profits remains manageable at -3.3%.
Moderate outlook but with bright spots within Asia. While there is a general cautious mood amongst corporate clients, Ascott REIT will be taking a more active management role in starting refurbishment programs in order to refresh their product and raise room rates to optimise returns. There were bright spots noted in operations like China, Philippines, Indonesia and UK (combined forms c37% of FY13F topline), which are seeing improved demand while the remainder of its operations are expected to remain fairly stable, except for Vietnam, where there is increased competition.
An eye on growth, BUY TP S$1.49. We maintain BUY with a higher TP of S$1.49 after tweaking our forward RevPAU estimates and ascribing a lower discount rate. Looking ahead, management remains focused on growing its presence in growth markets in Asia and is reviewing opportunities to acquire in the region. Assuming a target initial yield of 6.0%, a debt cost of 3.5% and keeping gearing constant, we estimate that acquisitions of up to S$500m could boost DPU by up to 10.1% and add a further S$0.10 to our TP.
Suntec – DBSV
AEI growth priced in
- Results in line
- Focusing on delivering AEI, strong precommitment.
- Positives from AEI priced in, downgrade to HOLD at an unchanged TP of S$1.70
Suntec 4Q results are in line. NPI on a year-on-year and qo-q basis recorded a decline of 41.3% and 20.5%, respectively, which is in line with expectations. The was largely led by the lower contribution from Suntec Mall as the reit executed its AEI plans, as well as the income vacuum from the divestment of CHIMJES, which was partly mitigated by the strong office occupancy (99.7%) and positive rental reversions at Suntec offices (rents secured at $8.98 psf). Accounting for the higher contribution from MBFC phase 1, DPU came in at 2.326cts, representing a slight 6.2% drop. Full-year DPU of 9.49 cts is in line with our forecast. NAV rose by 5% to S$2.044 on the back of a revaluation gain of c.S$117m.
Executing Suntec retail AEI. Looking forward, AEI at its Suntec retail mall is likely to be its main focus on the back of a subdued acquisition outlook. Execution of Phase 1 AEI at Suntec City Mall is on track for completion in 1Q. Precommitments came in strong at 83% and 37% for Phase 1 and 2, respectively. While Phase 2 AEI spanning over 380,000 sf will commence by end-Feb, we expect the rental vacuum to be partly mitigated by (i) the incremental income from the completion of P1 AEI work; (ii) the additional 125,000 sf of space created at L1/2 of the conventional centre; (iii) positive rental reversions at Suntec offices.
Downgrade to HOLD on valuations. While we like the reit for its proactive leasing strategies, we believe the positives of the Suntec Mall AEI work have already been priced in. Given the lack of positive catalysts in the near term, we downgrade our rating for Suntec Reit to HOLD, but maintain the target price at S$1.70. Upside risks to our call will hinge on better-than-expected execution of its enhancement initiatives and the topping up of distribution from the sale proceeds of CHIJMES, which we have not yet factored in.