Kep REIT – CIMB
Fine end to FY12
KREIT continued to provide a positive read-through of the office market in 4Q, with management guiding positively for ORQ. Headline yields are compelling but we see this as merely compensating for its higher asset leverage and income support.
4Q/FY12 DPUs were spot-on at 25/100% of our FY12 forecast, but came in slightly above street expectations. We raise our FY13-14 DPUs on stronger ORQ performance and adjustments to income support at OFC. Our DDM-based target price (discount rate: 7.7%) rises accordingly but we maintain our Neutral call. We see rerating catalysts from accretive acquisitions.
Steady quarter
4Q12 DPU was up 40% yoy on acquisitions and positive take-ups, partially inflated by a distorted base in 4Q11 due to a mismatch in the timing of OFC contributions and unit-base expansion. Qoq, DPU edged up 0.6%. Results provided a positive read-through of a stabilising office market. Portfolio occupancy rose to 98.5% from 98.2% on higher take-ups at OFC, where signing rents ranged S$9-11psf. At ORQ, where the market is concerned about the drop-off of income support (ORQ saw the last of its GST rebates in 3Q), management guided that the impact should be mitigated by the strong rental reversions (due to low expiring rents) on its rental reviews at the asset and FY12 acquisitions.
On acquisitions
Thanks to revaluation gains, asset leverage dipped to 42.9% from 44.1% as at end-3Q, albeit still the highest among S-REITs. Although this could warrant some equity fund-raising for sizeable acquisitions, management highlighted the possibility of asset divestment to reduce the quantum of possible cash calls. We understand that management has yet to indicate interest for a potential purchase of MBFC Tower 3.
Maintain Neutral
KREIT currently trades at 1.1x P/BV and forward yields at 5.7%. Headline yields are compelling, but we see this as merely compensating for its higher asset leverage. This should warrant equity-raising for further purchases, which could, in turn, limit accretion.
CMT – DMG
Stable quarter but high valuation
FY12 DPU in line with expectations. CapitaMall Trust (CMT) reported FY12 DPU of 9.46S¢ (+1.0% YoY), inline with our FY12 DPU estimate with a deviation of +0.2%. Revenue for this period grew to S$661.6m (+4.9% YoY) while net property income rose to S$445.3m (+6.5% YoY) mainly due to an increase in contribution from JCube, Bugis+ and positive rental reversion from both new and renewal of leases. Going forward, we expect CMT to continue to register strong numbers on the back of 1) contributions from JCube, Bugis+ and Orchard Atrium which were opened in April, August and October 2012 respectively; 2) additional income contribution from Westgate which is expected to be completed in December 2013 and 3) the repositioning of IMM as a value-focused mall with about 30 outlet brands. Although we like CMT for its bright prospect, defensive play (76% CMT’s revenue contributed from suburban malls) and a better than expected pre-commitment rate in its Westgate property (c.50%), given its current valuation, trading at a P/B of 1.3x and a dividend yield of 4.3% we believe this counter is fairly valued as we downgraded our call on CMT to NEUTRAL with an unchanged DDM based (COE: 7.2%, terminal growth: 2.0%) TP of S$2.27.
New contribution from Bugis+, JCube and Orchard Atrium. At the end of December, approximately 99.5%, 99.6% and 95.3% of NLA for JCube, Bugis+ and Orchard Atrium respectively have been committed. Due to the excellent locations coupled with diversified tenants, Since the re-opening of Orhard Atrium in 4Q12, this mall recorded on average of 1.2m footfall on a monthly basis. As Orchard Atrium continues to gain popularity coupled with higher occupancy in the coming months, we expect CMT to continue to benefit from this AEI going forward.
Westgate on-track for completion in 4Q13. Westgate a JV project being the first greenfield development project of CMT is currently on-track for completion in 4Q13.As revealed previously (November 2012), about half the retail space has been pre-leased at an average rent of S$16-18 psf/month. Concurrently, IMM is undergoing an AEI to reposition it as a value-focused mall. The entire exercise will be completed by May 2013 with a total of 50 outlet brands being repositioned.
Counter fairly priced. Although the outlook of CMT continues to remain strong going forward, we believe most of the positive news have been factored into the share price, giving this counter limited room for upside in the near term. In addition, with the counter trading at 1.3x P/B, coupled with a FY13 forecasted dividend yield of 4.3% , we have downgraded our call on CMT to Neutral with an unchanged DDM based TP of S$2.27.
CLT – AmFraser
Delivering another year of stellar performance
Cache Logistics Trust delivered another year of stellar performance, with its FY2012 revenue and distributable income up by 12.4% and 9.5% respectively. Following our downgrade call to hold on 25 October 2012, Cache witnessed a correction of c.6%. While it has recovered ground in recent months, we believe Cache is now close to being fully valued. We maintain HOLD with fair value of S$1.315.
Forward dividend yield of 6.7% for Cache. We continue to like the sustainability of Cache’s dividend yield, which remains one of its key investment positives. Factors namely its triple‐net master lease structure, 1.25%‐2.5% annual rental escalation rates and strong cash flow generation will continue to underpin the stability of Cache’s distribution yield.
Minimal releasing risks in 2013. We would also highlight that Cache faces negligible releasing risks in 2013. Only 2% of its GFA is up for renewal this year, leaving it well‐insulated against current macroeconomic uncertainties.
Hungry for acquisitions. Cache’s current gearing stands at 31.7%, which provides ample headroom for it to pursue acquisitions in its focus markets of Singapore and China. Should Cache choose to finance its acquisition entirely with debt, it would find itself with an additional debt headroom of S$48.8mil. Given the assumption of a 7.1% yield on acquired properties, this would be 2% accretive to our target price. Alternatively, Cache could finance its acquisition through a mix of debt and equity and take on additional leverage of S$127mil based on a debt‐to‐asset ratio of 45%. Assuming that acquisitions come at a 7.1% yield, we estimate that such a scenario would be 3% accretive to our current fair value.
Assessing the impact of the seller’s stamp duty. From a divestment perspective, the recent imposition of the seller’s stamp duty on industrial properties is unlikely to bear a significant impact on Cache given that its assets are held with a long‐term investment horizon in mind. As its potential acquisition targets are typically under JTC leases, which have to fulfil a minimum lease term before they can be divested, Cache is not likely to face a substantially higher acquisition price tag as well.
Cambridge – DBSV
More surprises in 2013
- 4Q12 results in line; NAV written up by 4.4% with potential for further expansion
- Acquisitions and AEIs to contribute positively in the coming quarters
- BUY, raised to S$0.75
Highlights
4Q12 results in line. Cambridge REIT (CREIT) reported a 15.6% and 20.7% y-o-y rise in topline and net property income to S$24.0m and S$20.8m respectively. Growth was largely attributable to the additional income from the acquisition of five properties, rental escalations and higher reversions from its multi-tenanted properties, which more than offsets the impact of divestments. Portfolio occupancy remained high at 99.2% (vs 98.6% in 4Q11). Distributable income rose 12.4% y-o-y to S$14.9m (inclusive of S$3.3m of capital distribution), translating to a DPU of 1.229 Scts (+9.9% y-o-y).
NAV raised to 4.4% to S$0.64; further expansion possible. Portfolio valuations recorded a net gain of by 4.4%, NAV increased slightly 4.4% to S$0.64. We believe that further NAV expansion is possible with its recent acquisitions (54 Serangoon North Avenue 4 and 3 Tuas South Ave 4), which are purchased at attractive valuations. Gearing levels remained stable at 38.6% (36.0% after bridging loan repayment in the coming quarter).
Our View
Acquisitions and AEIs to contribute positively in the coming quarters. CREIT’s acquisitions of nine industrial properties worth a collective S$280.4m (of which five were completed in 2012) is likely to more than offset the loss of income from SLA’s compulsory acquisition of 30 Tuas Road and 1 Tuas Ave 3. In addition, the completion of various asset enhancement initiatives and development projects over the course of 2013 will mean incremental growth in revenues and distribution in the medium term. In addition, we see further divestment opportunities in the coming year as the management aims to keep its portfolio contemporary and relevant. Rental reversions in 2013-2014 likely to remain stable. A significant 44.6% of its leases are up for renewal (15% in FY13; 29.6%) where close to 2/3 are from its single-tenanted properties. While we note a potential risk that some of these master-leases might not roll over, this is mitigated by (i) expiring rents that are lower than market levels which means that these properties should see a net uplift in rental income eventually if fully let-out on a multi-tenanted basis (ii) seethrough occupancy for those properties are fairly high. Moreover, the manager is in active negotiations with the vendors to renew the leases ahead of their expiry.
Recommendation
BUY call maintained, TP S$0.75. Our target price is nudged up to S$0.75 after taking into account the latest announced acquisitions. CREIT continues to offer an attractive FY13-14F yield of 7.2-7.6%.
CMT – DBSV
AEI came into fruition
- In line with expectations
- FY13 earnings to be driven by full contributions from JCube, Bugis+ and The Atrium
- Low gearing and strong balance can be utilised to drive inorganic growth
- Maintain HOLD at TP S$2.15
Highlights
In line results. CMT reported 4Q revenue and net property income (NPI) of S$173.67m and S$112.9m, +10% y-o-y and +14% y-o-y respectively. The top-line benefitted from the opening of JCube and Bugis+. On a q-o-q basis revenue grew by 1-3% supported by healthy rental reversions of 5.4% to 10.9% p.a for most of its operating malls. The occupancy rate also rose to 98.2% from 94.8% a year ago upon the progressive completion of the asset enhancement initiatives (AEI) work at various malls. 4Q DPU came in at 2.36 cts after retaining CRCT’s S$4m distribution. The management guided that it will retain CRCT’s FY12 (S$15.3m) and future tax-exempted distribution to part fund its capex purpose for various malls which could amount to S$2m per mall per year.
Our View
AEI to drive FY13 earnings. Going forward, the trust should continue to see positive rental reversion of c.6.0% or 2-3% p.a backed by healthy population growth and low unemployment rate. Occupancy for its existing malls should trend up further when the 81,000 sf of space vacated by Carrefour at Plaza Singapura is filled in 1H2013. We expect The Atrium @ Orchard with 87% occupancy to move up progressively as traffic footfall for the enlarged Plaza Singapura gain momentum. The mall attracted a footfall of 1.2m visitors per month post AEI works. The improved portfolio occupancy coupled with the higher contributions from JCube and Bugis will continue to underpin FY13 earnings growth. Meanwhile, the completion of the retail portion of Westgate (currently 50% pre-committed) at the end of 2013 will help to drive earnings in the medium term Healthy financial metrics . The trust refinanced S$783 m loan in Oct’12 and has unencumbered an additional seven properties to 13 out of the 15 properties. In addition, the trust has also secured financing for its 2013 debt with longer term loan with an average debt maturity of 8.8 years. Gearing has moved down to 36.7% post recent placement and revaluation gain of S$69m placing them well to capture acquisition opportunities
Recommendation
Maintain HOLD at S$2.15. We continue to like CMT for its large cap and its conservative balance sheet which we believe can be utilized to drive inorganic growth. Opportunities could come from a visible sponsor pipeline or even through greenfield developments. We have previously factored in $400m worth of acquisitions in our numbers by end of 2013. Trading at 1.3x P/BV, offering a FY13/14 yields at 4.7%-5.0%, we think much of the positives have already been priced in. Upside surprise hinges on CMT delivering higher than expected returns from its completing AEIs or acquisitions.