MIT – CIMB
Decent 3Q performance
MINT bucked trends of slower economic growth and delivered steady rental reversions and occupancy gains in 3Q. However, we think positives are priced in, particularly with a pure-local mandate and lack of pipeline assets likely to hinder meaningful acquisition growth.
3Q/9MFY13 DPUs were slightly above our and street expectations on stronger margins, forming 26/77% of our FY13 forecast. We tweak DPUs higher on stronger margin assumptions, but keep our DDM-based target price (discount rate: 7.5%) of S$1.50 unchanged. We maintain our Neutral rating.
Steady quarter
3QFY13 DPU was up 7% yoy on contributions from acquisitions, positive rental reversions and margin improvement. DPU rose 1% qoq. Positives came from the marginally stronger portfolio occupancy of 95.2% (2Q: 95.0%), while rental reversions remained fairly strong – flatted factories at +24%; business parks at +8%; stack-up/ramp-up at +18%. Also management announced a new AEI (estimated capex of S$4m-5m) at its business park property, The Signature to enhance common areas and competitiveness of the asset.
Capital management
Asset leverage remains a healthy 37.1%, with all FY13 loans refinanced. As part of proactive capital management efforts, management will also introduce the distribution re-investment plan (DRP) for 3QFY13. We are positive on the financial flexibility offered by the programme (proceeds could be channelled toward funding needs of small AEIs such as the one at The Signature), but remain cautious of impact from potential dilution.
Maintain Neutral
The key draw of MINT’s portfolio, we believe, lies in its bond-like income stream, its pure local exposure and positive rental reversions. But we see positives priced in at 1.4x P/BV, particularly with a pure-local mandate and lack of pipeline assets likely to hinder meaningful acquisition growth, till MINT looks at expanding overseas with the expiry of its pure-local mandate in Oct 2013.
Suntec – OCBC
POSITIONING WELL FOR GROWTH
- 4Q12 DPU exceeded expectations
- Office segment stayed resilient
- Good progress on Suntec City AEI
4Q12 DPU above expectations
Suntec REIT posted an encouraging set of 4Q12 results last evening. Despite registering a 41.3% YoY decline in NPI to S$30.6m, DPU for the quarter came in at 2.326 S cents, down only 6.2%. This brings the FY12 to 9.49 S cents (-4.5%), ahead of our full year DPU forecast of 9.28 S cents (consensus: 9.4 S cents). Notably, no proceeds from the divestment of Chijmes were needed to achieve the quarterly performance, which in our view reflects the strong execution by management.
Office segment continues to perform
The drop in 4Q NPI was mainly attributable to the closure of Suntec Singapore in Oct 2012 and Suntec City Mall (Phase 1) in Jun for the asset enhancement works (AEI) and the sales of Chijmes. In particular, Suntec Singapore saw a loss of S$10.9m vs. S$5.8m in 4Q11. However, the office segment continued to perform, raking up 11.1% growth in revenue amid positive rental reversions and consistently high occupancy of 99.7% (99.9% in 3Q). This helped to cushion the softness at its retail segment, which experienced a 27.6% decline in revenue.
More details on Suntec City AEI
Suntec REIT also shed more light on the Suntec City AEI, saying that its Phase 1 AEI is on track for completion by 2Q13 and that its 83% of its NLA had been pre-committed (71.2% in 3Q). For the first time, management disclosed that the Phase 2 AEI will commence on Mar and that 37% pre-commitment had already been secured. Based on the timeline, we believe that 2Q may face the largest impact on its rental income, thereby prompting the REIT to utilise Chijmes sales proceeds to mitigate the fall in DPU. We now tweak our model assumptions to factor in the better-than-expected results and a possible S$10m distribution from the divestment proceeds in FY13. Our fair value in turn is raised from S$1.70 to S$1.94. Maintain BUY.
Kep REIT – DBSV
Fair value for a strong and steady portfolio
- Results in line
- Robust occupancy, long leases provide income stability
- Downgrade to HOLD on valuations
Results in line with expectations. Kreit reported an 80.4% y-oy rise (+1.5% qoq) in its 4Q top-line to $40.8m while NPI grew 84.7% y-o-y and 2.2% q-o-q to $32.8m. The higher jump in NPI was driven by the additional contribution from OFC. Taking into consideration the higher interest income from MBFC Phase 1 and 8 Chifley Square, distribution income improved 45.1% y-o-y to $51.9m translating to a DPU of 1.97cts. NAV rose to S$1.30/unit on the back of revaluation gain of c.S$140m. Cap rates for its Singapore and Australia portfolio are at 4.0% and 6.6%-7.0%, respectively.
Robust occupancy, forward leasing and long leases mitigate downside leasing risks. All local office assets (except Ocean Financial Centre at 95.9%) are 100% occupied. The Reit’s proactive leasing efforts in forward locking its leases have also reduce FY13 lease expiry and rent reviews to 4.4% and 3.0% respectively, which should help to mitigate leasing risk. Meanwhile, Australia properties continue to enjoy high occupancy of 97.4%-100%. Including the recent acquisition of the Old Treasury Building office, weighted average lease expiry tenure is c.7.0 years implying strong income visibility. As for ORQ, the underlying monthly rents of a c.S$9 psf are still below the income support level of c.S$10 psf. We understand that the group is still in the midst of rent review for some of their tenants. Post the review, rents should move up nicely. Going forward, earnings will be driven by (i) the additional contribution of Old Treasury Building, (S&P will likely completes in 1H); (ii) completion of the OFC retail and car park podium and 8 Chifley Square in the 2H13; and (iii) tax savings from the conversion of MBFC Phase 1 to LLP structure.
Downgrade to HOLD on valuations. We continue to like Keppel Reit for its stable and resilient cashflow, the share price is now trading close to our TP. We have downgraded our call to HOLD on valuations. While the next catalyst could come from acquisitions, we think an accretive acquisition could be modest as current physical prime office yields are trading at sub 4%. We see re-rating catalysts from stronger rentals reversions.
Kep REIT – Kim Eng
Building on a Good Year
Results did not surprise. Keppel REIT (KREIT) reported a 4Q12 distributable income of SGD51.9m (+45% YoY, flat QoQ), while full-year distributable income surged by 79% YoY to SGD201.9m. These were due mainly to contributions from Ocean Financial Centre (OFC). Full-year DPU was 7.77 cents, in line with expectations. KREIT’s portfolio occupancy is a healthy 98.5%. Maintain HOLD on valuation.
Portfolio near full-occupancy. With the exception of OFC which has a committed occupancy of 95.9%, the rest of KREIT’s Singapore properties are effectively at full-occupancy. Management continued to cite demand as coming from energy and resources companies, legal firms and corporate services providers. In the fourth quarter itself, nearly 80% of the leases were signed with new tenants, with the remaining 20% coming from existing ones seeking expansion.
FY13 growth drivers. Underpinning DPU growth in FY13 will be rent reviews to be carried out at One Raffles Quay (ORQ), where we expect positive rental reversion as under-rented leases are marked-to-market. In addition, the retail and car park podium at OFC and 8 Chifley Square are on track for completion in 3Q13. Management is also comfortable with KREIT’s current gearing level of 42.9%, considering that the interest coverage ratio is a high 4.8x.
Likely pause in Australian acquisitions. KREIT will be shortly completing the purchase of the Old Treasury Building in Perth, Australia, and management is happy to maintain status quo with four Australian assets, unless a very compelling value proposition comes along. In fact, management alluded that it could possibly consider divesting one or more of its Australian properties at the right price to help fund future acquisitions. In addition, management stated that it has yet to review the possible acquisition of MBFC Tower 3. We reiterate that a likely triggering event would be when the occupancy improves to above 90%, up from the last reported 76%.
Maintain HOLD. We raise our DDM-derived target price to SGD1.25 as we adjust our cost of equity and terminal growth rate assumptions, and maintain our HOLD recommendation base on valuation grounds.
CLT – OCBC
STILL ROOM FOR UPSIDE
- 4Q12 performance in line
- Enhanced financial position
- Valuation remains attractive
4Q12 results met forecasts
Cache Logistics Trust (CACHE) turned in a consistent set of 4Q12 results after market close yesterday. NPI grew 13.9% YoY to S$18.3m, while distributable income rose 12.8% to S$15.2m on the back of contribution from its two acquisitions in 2012 and rental escalations within its portfolio. DPU for the quarter registered a 2.5% increase to 2.154 S cents, notwithstanding an enlarged unit base from the private placement in Mar 2012. For FY12, DPU totalled 8.365 S cents (+1.6%), matching our/consensus full-year DPU forecasts of 8.29/8.3 S cents. This translates to an attractive FY12 yield of 6.4%, higher than the S-REIT sector average yield of 5.8%.
Rock solid lease profile
CACHE’s portfolio occupancy as at 31 Dec 2012 remained at 100% as its leases are predominantly based on triple-net master lease structures. Weighted average lease to expiry also stood resilient at 3.9 years (4.1 years in prior quarter), with only 1.7% of GFA due for renewal in FY13. In addition, its built-in rental escalation for master leases was maintained at 1.25-2.5%. This should give CACHE good earnings visibility and healthy organic growth in our view.
Strong fundamentals triumph
With the major refinancing exercise in Jun 2012, CACHE had successfully increased its loan-to-value over its previous collateral (including an enlarged revolving credit facility), reduced its all-in financing costs by 37 basis points YoY to 3.52% and enhanced its debt expiry profile (no debt will mature until 2015). Aggregate leverage was also healthy at 31.7%, and represented a 0.9ppt improvement QoQ due largely to a S$26.2m revaluation gain on its portfolio assets (+2.8%). This provides CACHE with the financial resources and flexibility to drive its new business initiatives. We now factor in the results into our forecasts. As such, our fair value inches up from S$1.30 to S$1.32. Maintain BUY.