CCT – CIMB
Rich Valuations
4Q12 remained an active quarter of leasing for CCT. In 2013, all eyes are likely to rest on One George Street with the expiry of yield support and departure of major tenant, Wong Partnership in mid-2013. We view CCT’s current valuations as stretched.
4Q12/FY12 DPUs met our and market expectations, at 26%/101% of our full-year forecast. Factoring in 4Q12, we tweak DPUs but keep our DDM-based target price (discount rate: 7.3%) unchanged. We maintain an Underperform on valuations and uncertainty after income support falls off.
Steady leasing
We expect FY13 DPU to be flat as positive rental reversions and potential interest cost savings (with the expiry of a high-cost interest rate swap) mitigate downside from downtime on back-filling and expiry of income support at One George Street. 4Q12 DPU was up 7% yoy on higher contributions from HSBC Building and 20 Anson.
Management remained active in leasing in 4Q, signing 140,000sf of leases. Demand was still mainly from smaller and mid-sized non-financial tenants. With back-filling, occupancy inched up to 97.2% from 97.1% last quarter. Management is targeting an estimated 171k sf of space (86% pre-committed) for upgrading at Six Battery Road. All eyes this year are likely to rest on One George Street with the expiry of yield support (passing rents of S$8+ psf vs. support rents of S$11.5psf) and impending departure of major tenant Wong Partnership in mid-2013.
Lower cap rates
CCT’s asset portfolio was revalued upwards by S$129m (+3%) as a 25bp cap rate compression on its Grade A offices offset lower forward rental projections. Office assets are now valued at 3.75-4.25% cap rates.
Maintain Underperform
Given the flattish DPU outlook and uncertainty with the fall-off in yield support, we see valuations stretched at 1.1x P/BV and forward yields of 4.8%. Upside could also be capped by its two tranches of convertible bonds due 2015 and 2017 which are already in the money, at S$1.23/ shr and S$1.64/shr, respectively.
CCT – DMG
Good Quarter But Not Without Concern
FY12 earnings in line with expectations. CapitaCommercial Trust (CCT) reported its FY12 results with a DPU of 8.04S¢ (+6.9% YoY); largely inline with our estimate of 8.02S¢. Revenue and net property income for the period came in at S$375.8m (+4.0% YoY) and S$295.5m (+6.6% YoY) respectively. Distributable income came in at S$228.5m (+7.4% YoY); mainly attributable to revenue contribution from the acquisition of Twenty Anson and higher rental income from HSBC Building. These results are generally respectable as 2012 has proven to be a challenging market for the office sector. However, the increase in income support, particularly for One George Street, remains a concern as it rises to S$4.2m in 4Q12 (vs S$2.2m 4Q11). Going forward, although CCT’s portfolio is expected to benefit from positive rental reversion, as 28.8% of NLA is due for renewal in FY13, the expiry of income support at One George Street in July 2013 proves to be a concern in the short term. With a forecasted FY13 dividend yield of 4.7% at current share price, we have downgraded our rating on CCT to Neutral with a slightly tuned down DDM based (COE: 8.0%; TGR: 1.0%) TP of S$1.70.
Concern on the ending of income support for One George Street. During 4Q12, it was noted that the income support for One George Street amounted to S$4.2m (S$18.1m for FY12) vs S$2.2m for 4Q11 (S$5.0m for FY11). This was mainly attributed to negative rental reversion in this property coupled with the moving out of several tenants over the year (committed occupancy for this building was 92.5% in 4Q12). As the income support is due to expire in July 2013, the relatively low occupancy and negative rental reversion posts to be a key uncertainty in our valuation of CCT. In view of this, we have tuned down our FY13 DPU estimate by c.1.5% to justify for a probable weaker 2H13.
Well positioned to enjoy positive rental reversion in FY13. Going forward, we believe CCT will remain largely stable on the back of additional contribution from Twenty Anson and positive rental reversion from leases that will expire in 2013 (26.2% of gross rental income). Currently, CCT’s average passing rent for the leases to expire in FY13 is at S$7.64 psf/mth. As compared to the market rate of S$9.58 psf/mth, we believe CCT is currently well positioned to capture potential rental upside when its leases expire in FY13.
Downgrade to NEUTRAL with lower TP of S$1.70. As CCT currently trades at a forecasted FY13 dividend yield of 4.7%, coupled with a possible weaker 2H13 on the back of the upcoming lost in income support as highlighted above, we have downgraded our rating on this counter to NEUTRAL with a slightly tuned down DDM-based TP of S$1.70.
FCT – OCBC
STILL BENEFITTING FROM AEI
- In-line 1QFY13 results
- Occupancy to improve further
- Balance sheet remains robust
Continued growth in 1QFY13
Frasers Centrepoint Trust (FCT) reported 1QFY13 NPI of S$27.1m and distributable income of S$21.8m, up 9.1% and 10.8% YoY respectively. Of the available distributable income, we note that S$2.1m will be retained this quarter, as opposed to S$1.6m in 1QFY12. As such, DPU for the quarter came in at 2.40 S cents, representing a YoY growth of 9.1%. This is largely in line with expectations, given that the quarterly DPU met 22% of both our and consensus FY13F DPU estimates.
Operating indicators largely positive
All the five malls within FCT’s portfolio registered healthy growth in income during the quarter. However, Causeway Point (CWP) and Northpoint remained the key drivers, generating 12.3% and 6.7% YoY increase in NPI. Operationally, we note the overall portfolio occupancy improved from 93.6% in prior quarter to 97.2%. This was boosted by an 8.7ppt QoQ improvement in occupancy at CWP to 96.4% following the completion of its AEI, which cushioned the temporary weakness at Bedok Point amid a reconfiguration of its layout. Overall, a total of 62,341 sqft of NLA (7.1% of portfolio NLA) was renewed at an average positive rental reversion of 5.2% in 1Q (4QFY12: 8.9%). Management also revealed that several new tenants are still in the process of fitting out at CWP and expects the occupancy to trend up further when more tenants commence their operations from Jan onwards.
Maintain BUY
On the acquisition front, we understand that Changi City Point remains a feasible pipeline asset, but the regulatory procedures for the strata division into its retail, business park and hospitality components is a lengthy process. FCT currently boasts a strong aggregate leverage of circa 30.9% and extended debt maturity of 3.6 years following the recent issue of S$70m MTN. This is likely to put it in good stead to take any attractive acquisition opportunities as they arise. Maintain BUY with an unchanged fair value of S$2.13 on FCT.
CLT – DBSV
Going on the offensive
- Acquisitions the key driver in 2013
- Portfolio to remain stable, with minimal renewals over the next 2 years
- Upgrade to BUY, TP S$1.40 based on DCF
Acquisitions the key driver in 2013. Armed with a Pan Asian mandate, the management team continues to see acquisition opportunities in the region but with a near term focus in deepening its Singapore exposure. Targeting yields of 7.0-7.5%, which is higher than current implied yield of 6.0%, acquisitions are likely to mean further accretion to distributions Given the strong visibility of available acquisitions; we have now doubled our acquisition forecasts to S$200m (vs S$100m previously) @ 7.25% initial yield. These are projected to be completed over 2013-14. Gearing level of 31% is comfortable and management is open to obtaining a credit rating (more gearing flexibility) if a large acquisition opportunity arises.
Portfolio with minimal earnings risks. 4Q12 results was in line with estimates, with a higher DPU of 2.139 Scts (+2.5%) owing due to an expanded portfolio. Looking ahead, Cache has minimal lease expiries (8% of income) over 2013-2014, which will shield the trust from any releasing risks given the large completing supply in the warehouse space over the same period. Moreover, given that underlying end-users are largely 3PLs, demand for its warehouse should remain firm.
Upgrade to BUY, TPS$1.40. Cache offers one of the strongest earnings visibility over the coming 2 years with potential upside if management undertakes a more aggressive acquisition stance against our forecasted S$200m. We estimate that an additional S$25m in acquisitions can raise our DPU estimates and TP further by c0.4% and 1 Sct respectively.
a-iTrust – DBSV
In a stronger position to acquire
- 10% rise in S$-INR rate erodes true earnings potential
- Low gearing of 21% opens up debt-funded acquisition firepower
- HOLD Call, TP S$0.81 based on DDM
Highlights
Robust underlying growth. Ascendas India Trust’s (a-itrust) reported revenue and net property income (NPI) of S$31.7m (+4% yo-y) and S$18.6m (+7%y-o-y) respectively. In INR terms, underlying operational performance remained robust, with topline and NPI growing by 14% and 18% y-o-y to INR 1.40bn abd INR 0.8bn respectively. This was due to progressive recognition of rental income from Zenith, Park Square ad Voyager which continues to ramp-up operationally and the acquisition of aVance. Organically, aitrust’s portfolio continues to show stability with occupancy remaining a healthy 96% supported by strong tenant retention rates of c79%, while renewals remained stable. Distributable income was marginally higher y-o-y to S$12.26m. DPU (after 10% retention) amounted to 1.21 Scts. Whilst 19% lower yoy, it is stable on a sequential basis even after accounting for the enlarged share capital post the recent placement exercise.
Our View
Low gearing of 21% opens opportunities for growth. a-itrust has utilized part of the proceeds from the placement exercise to repay its short term MTNs and loans which resulted in its gearing level heading down to 21%. We believe that the manager continues to look for growth opportunities to gear the trust back towards the 30-35% comfort level in the medium term, implying a headroom of up to S$200m. Avenues are from a myriad of acquisition possibilities, from (i) previously alluded potential acquisitions from 3rd party vendors cS$100m or (ii) its sponsor for asset injection opportunities.
Construction of Aviator on track. Construction of Aviator, a 601-630 sqft development in ITPB’s SEZ is on track with pre-commitment of space at 26% (flat q-o-q). The property is expected to complete by end of 2013 (FY3Q14) and is expected to underpin the longer term earnings growth potential for a-itrust.
Recommendation
HOLD, TP S$0.81 maintained. Our HOLD call is premised on limited upside potential but could be hiked depending on acquisitions executed by the manager that we have not factored in at this moment. Stock offers a forward yield of 6.3% which we see as fair.