MLT – Kim Eng
Looks fairly valued; Catalyst limited
3Q & 9M FY3/13 results inline. 9MFY3/13 revenue at SGD232m (+13% YoY) was 73% of ours and 76% of consensus estimate. 3QFY3/13 revenue at SGD77m (flat QoQ, +8% YoY), was 24% of ours and 25% of consensus estimate. 9MFY3/13 DPU at 5.13 SG-cts (+3% YoY) was 73% of ours and consensus estimates. 3QFY3/13 DPU at 3.53 SG-cts (+0.6% QoQ, +1% YoY) was 25% of ours and consensus estimates. Aggregate leverage inched down to 35.9% from 37% last quarter. Interest rate for 3QFY3/13 averaged 2.40% with an average term of debt of 4.1 years.
Portfolio review. Portfolio occupancy remains stable at 99.2%. MLT garnered 17% positive rental reversions from leases renewed/replaced in 3QFY3/13, mainly contributed by leases in Singapore and Hong Kong. To-date, of the 12.7% of leases (by NLA) due for renewal in FY3/13, the Manager has successfully renewed/replaced 85% of these. We also noted that the Japan portfolio suffered a 4.7% QoQ dip in revenue and 4.6% QoQ decline in NPI. This was attributed to the weakening of Yen against SGD. Nonetheless, management maintained that its impact on DPU is offset by its existing forex hedges.
Acquisition hotspots. For inorganic growth, MLT opined that it will focus more on acquiring assets in China, South Korea Malaysia or even Australia, but less in Japan. The recent Mapletree Wuxi Logistics Park (MWLP) acquisition (completed on 11 Jan) attests to this strategy. We understand that there is a scarcity of modern logistics facilities in China but with only seven properties (including MWLP), we doubt that MLT can scale fast enough to stand against big boys like Global Logistic Properties, which thrive on “network effect” and operational synergies.
Trading yield looks tight for further compression. From our estimates, the implied cap rate for MLT (based on 3QFY3/13 results) is 6%. The counter currently trades at 6.2% FY3/13 DPU yield, which we believe is almost near the end of its yield-compression cycle. We have factored in the completion of the MWLP acquisition. Pending further acquisitions and asset enhancement initiatives, we see limited near-term upside for now. Maintain HOLD with a TP of SGD1.16. We prefer A-REIT (TP: SGD2.60) which has more room for yield compression and DPU growth.
MLT – DBSV
Steady growth profile
• Stable 3QFY13 result
• Resilient portfolio; 17% positive rental reversion led by robust demand in Singapore and Hong Kong
• Future acquisitions are re-rating catalysts; BUY, S$1.22 TP offers 12% total return
Highlights
3QFY13 result in line with expectations. Gross revenues grew 7.7% y-o-y to S$77.4m and net property income 9.7% to S$67.5m. This was attributed to contribution from a larger portfolio (7 Japan properties, 4 in Korea and Malaysia), which also offset lost income from two properties in Iwatsuki Centre, Japan, that were destroyed by a fire in 2011. Organic growth remained fairly modest at 0.5% y-o-y. NPI margin inched up to 87.3%, driven by savings in property maintenance expenses in Singapore. Distributable income inched up 1.1% y-o-y to S$41.8m (after distributions to perpetual securities holders), translating into 1.72 Scts DPU (+1.2% y-o-y); the increment would have been higher at 3% if we exclude divestment gains paid out a year ago.
Our View
Resilient portfolio; Singapore and Hong Kong seeing strong rental reversions. Portfolio occupancy remained healthy at 99.2% and the trust continues to record positive rental reversions to the tune of 17%, largely from Hong Kong and Singapore. Looking ahead, given the relatively sticky nature of warehouse space and only 14.7% of its income up for renewal in the coming financial year, we expect reversions to still remain positive and thus earnings should continue to remain firm.
Future acquisitions could re-rate stock. Recently acquired Wuxi Logistics Hub (@ 8% yield) will start to contribute positively in the coming quarter. And with an implied yield of 5.8%, we expect MLT to remain on the hunt for more acquisitions regionally with a focus on growth regions like China, South Korea, Malaysia and even Australia (sponsor or 3rd party). We continue to believe that future acquisitions will occur in the immediate term and will re-rate the stock.
Recommendation
Maintain BUY rating and S$1.22 TP. We continue to like MLT for its resilient earnings and a visible pipeline of acquisitions that when acquired is likely to lead to higher distributions.
CMT – Kim Eng
AEI Plans Under Wraps For Now
Tip of the iceberg. CapitaMall Trust (CMT) reported a 4Q12 distributable income of SGD79.8m (+6% YoY; -1% QoQ), for a full-year distributable income of SGD316.9m (+5% YoY). This translates to a 4Q12 DPU of 2.36 cents and FY12 DPU of 9.46 cents, in line with expectations. We expect the recently completed AEIs to contribute more meaningfully in FY13, with a high possibility of announcements on new AEIs to be made in the 1Q13 results. Maintain BUY.
Growth driven by completed AEIs. On a comparable basis, CMT’s FY12 gross revenue inched up by barely 1.0% YoY, tracking its tenants’ sales growth of 1.6% YoY. Revenue and NPI contributions from JCube and Bugis+, two malls that have completed their AEIs in FY12, amounted to SGD44.9m (6.8% of total revenue) and SGD24.5m (5.5% of total NPI) respectively. AEI works at The Atrium@Orchard were completed in end-October, but since opening, the property has attracted 1.2m visitors a month on average.
Not ready to announce new AEIs. Besides looking for yield-accretive acquisitions and greenfield sites possibly from the Government Land Sales programme, management alluded that it is reviewing the options and evaluating the costs of potential AEIs at Funan and Tampines Mall to take advantage of the unused GFA. However, it is not ready to provide more details until the plans are firmed up.
Other works ongoing. For now, CMT’s project pipeline comprises the repositioning of IMM to house up to 50 outlet stores, as well as the construction of Westgate Mall, which is on track to open before Christmas this year. Tenants that have already committed to space at Westgate include Isetan, Food Republic and Fitness First gym. Westgate office tower will be completed around a year later, with the CapitaLand group already announced as an anchor tenant.
Attractive as it is. We raise our DDM-derived target price to SGD2.36, without factoring in the potential AEI works at Funan and Tampines Mall or any yield-accretive acquisitions. With its strong track record of delivering DPU growth via successful AEIs, we maintain our BUY recommendation.
Sabana – Phillip
Above our expectation!
Company Overview
Sabana REIT is a Singapore-based REIT with a mandate to invest in income-producing industrial real estate and real estate-related assets in Singapore and Asia with compliance to Shari’ah investment principles.
- 4Q12 (FY12) revenue S$21.5mn (S$81.8mn), NPI S$20.2mn (S$76.9mn), distributable income S$15.4mn (S$59.4mn)
- 4Q12 (FY12) DPU of 2.41 cents (9.28 cents)
- Maintain Neutral with revised target price of $1.190
What is the news?
Sabana REIT reported another credible set of results for 4Q12. Fourth quarter DPU was 2.41 cents (+11.1% y-y and +3% q-q), bringing the total FY12 DPU to 9.28 cents (-2.6% y-y). Gross revenue and net property income (NPI) came in at S$81.8mn (+6.3% y-y) and S$76.9mn (+5.3% y-y) for FY12 respectively. The increase in revenue and NPI stemmed from the six properties acquired over the period between Nov-11 to Oct-12. The property portfolio was revalued at S$1.1bn, registering ~S$25.3mn revaluation gains. Portfolio occupancy was maintained at 99% level.
How do we view this?
FY12 DPU exceeded our estimates by 5%, partly due to lower-than-expected finance expenses. The revaluation surplus boosted the debt headroom to ~S$50mn for future acquisitions. Occupancy level will be tested this year subject to the renewal of master leases expiring in end of 2013. On the brighter spot, we do see significant positive rental reversions from the expiring master leases to partly offset the possible drop in occupancies.
Investment Actions?
We fine-tuned our assumptions and rolled over our estimates to FY13 and include FY17 to our model. These raised our price target from S$1.150 to S$1.190. We reckon the renewal and replacement risks may suppress the price to grind higher until a clearer picture can be painted on the expiring master leases. We will then re-rate Sabana REIT when relevant updates stream in. Nevertheless, attractive FY13 yield of 8.0% will support the stock price.
A-REIT – DBSV
Delivering as promised
• Stable operational performance
• Active pipeline of developments, asset enhancements, to sustain growth
• HOLD, S$2.30 TP is based on DCF metric
Stable operational performance. A-REIT’s 3QFY13 result was in line. Topline and net property income grew 14% and 11%, respectively, driven by a larger portfolio, while organic growth remained steady at 4.8%. Rental reversions remained strong (+18.5%) and outpaced the slight dip in portfolio occupancy rate to 94%. Operational outlook remains stable as the portfolio will continue to benefit from positive spreads between expiring and market rents (currently 24-50%), which should more than offset weaker occupancy rates amid a more subdued demand outlook. But cost hikes continue to threaten margins.
Active development pipeline, asset enhancement projects to supplement growth. At end Dec12, A-REIT had committed to S$430m worth of investments, of which S$217m is yet to be funded. We see opportunities to extract further growth from existing assets, especially through asset enhancement initiatives (AEI) to convert single-tenant buildings to multi-tenanted buildings, to enable A-REIT to lift underlying rents closer to market rates which are c.40% higher. The completion of AEI projects will support sustained growth in distributions.
HOLD, TP S$2.30. We like A-REIT for its defensive portfolio and strong execution track record. Our HOLD call is based on valuation grounds: A-REIT offers <10% upside to our revised TP of S$2.30 (rolled-forward valuation base).