CCT – DBSV
Looking for more catalysts
• In line performance, meeting 54% of our FY2012F DPU
• Rents and occupancy continue to be firm
• Downgrade to HOLD on valuation grounds, TP raised slightly to S$1.40
In line performance. Gross revenue and NPI for 2Q12 grew by 5-8% y-o-y largely due the additional contribution from the acquisition of Twenty Anson, as well as higher rental income from HSBC Building and Raffles City Singapore (RCS). Lower property tax, interest cost, as well as interest income from Twenty Anson also helped lift DPU by 7.3% to 2.06 Scts after retaining S$1.3m tax income from Quill Capita Trust (QCT). This brings 1H DPU to 3.96 Scts or 54% of our FY2012 forecast. The trust took in a small revaluation surplus of S$65.8m (+1.07%).
An active leasing quarter. Despite softer leasing activities, portfolio occupancy held steady at 96.21%. In total, the group secured about 180,500 sf, of new leases (50%) and renewals (50%). Monthly signing rents at One George Street was stable at S$9.50 psf and 6 Battery Road at >S$10 psf. The S$92m upgrading works at 6 Battery Road is on track with c.200,000 sf to be upgraded in 2012. Of which, 100,000 sf has been completed and 70% pre-leased. Meanwhile, CCT will be embarking on an asset enhancement initiative (AEI) exercise for Golden Shoe Car Park in 3Q12. The S$0.6m AEI exercise will generate incremental income of S$83,000 or 14% ROI upon completion.
Downgrade to HOLD on valuation grounds. While we like CCT for its strong balance sheet and pro-active leasing strategies, the stock is trading close to our target price, thus we downgrade our call to HOLD. We have nudged up our FY12/13F DPU by c.4 % and TP by 3% to S$1.40 as we lowered the risk free rate while also taking into account higher contribution from the hotel component at Raffles City Singapore, as well as higher takings from Golden Shoe Car Park. Upside risks will hinge on potential acquisitions or better than expected portfolio performance.
MLT – DBSV
Still going strong
• Resilient results backed by strong cashflows
• Operational strength intact; 37% gearing is within management’s comfortable range
• Maintain BUY, TP S$1.14
Highlights
Quarter to June12 – in line. Gross revenues and net property income grew by 17.1% and 18.4% y-o-y respectively to S$77.1m and S$67.5m. Performance remained relatively stable q-o-q, underscored by a resilient portfolio. The stronger y-o-y performance was largely brought about by the contribution from new acquisitions – 7 properties in Japan and a further 4 in Korea and Malaysia that were completed in recent months. Borrowing costs increased by 19.4% due to an enlarged portfolio coupled with marginally higher average interest costs (2.4% vs 2.2% a year ago). As a result, distributable income increased by 18% to S$45.8m. Distributable income to unitholders (after perpetual security holders) amounted to S$41.1m (+5.9% y-o-y), translating to a DPU of 1.7 Scts.
Our View
Operational strength continues. Occupancy rates remained firmed at 99% due to strong take-up in Singapore, with rental reversions averaging at 10% higher vs preceding levels (largely in Singapore but is expected to normalise in the coming years as more supply comes on stream). To date, MLT has renewed close to 42% of total NLA that is due to expire in the current financial year, further boosting its strong income visibility.
Gearing relatively stable at 37%. Compared to a quarter ago, gearing inched up to 37% due to additional debt taken to finance recent Korean acquisitions. We estimate that gearing would have been higher at c40% after adjusting for the treatment for the perpetuals (in accordance to Moody’s guidelines). Nevertheless, metrics are healthy, with interest cover at 5.8x, and an average debt duration of 4.4 years.
Recommendation
BUY, TP S$1.14 based on DCF. Stock offers a potential yield of close to 7%, which is higher than average peers and is attractive given its resilient earnings stream. The manager continues to look at opportunities to optimise portfolio performance through potential redevelopment or asset enhancement. Acquisitions will likely continue to feature supported by the sponsor’s pipeline as an avenue for growth in the medium term.
CCT – Kim Eng
Boost From Property Tax Savings
1H12 earnings stronger than expected. CCT’s 2Q12 net property income rose by a better-than-expected 7.8% YoY to SGD75.2m, while the distributable income increased by 7.5% YoY to SGD58.5m, mainly attributable to lower property tax and the addition of Twenty Anson. DPUs for 2Q12 and 1H12 grew by 7% and 5% to 2.06 cents and 3.96 cents respectively. We think this is a creditable showing despite the challenging leasing market. We upgrade our recommendation to HOLD.
Retrospective tax savings. Property tax in 2Q12 was SGD1.7m (or 23.6%) lower than a year before, due to vacancy refund and successful appeal of annual value assessment. For 1H12, the tax savings amounted to SGD4.2m, or about 0.15 cents/unit. Management said that they will continue to work with the tax authorities to ensure the annual value assessment remains fair.
Positive leasing activity in 1H12. In 1H12, CCT signed new office and retail leases and renewals of ~180,500 sq ft, with demand still mainly from financial services companies, although demand is still restricted to small and mid-sized office space. New tenants and existing ones seeking additional space for expansion accounted for approximately half of those spaces. Compared with 1Q12, the average office portfolio rent slid marginally from SGD7.45 to SGD7.39 psf. With another 5.7% of its office NLA up for renewal for the rest of this year, the impact from any potential negative rental reversion is likely to be limited.
Balance sheet’s sound as a pound. On the back of a marginal 1% growth in its portfolio valuation, CCT’s gearing edged down to 30.1% this quarter from 30.5%. There are no refinancing needs for the rest of this year, and the debt maturing in FY13 is a very manageable SGD197m. CCT’s average cost of debt stayed low at 3.1%.
Upgrade to HOLD. We raise our forward DPU forecasts by an average of 4% per annum, mainly due to lower property tax estimates, as well as a slight upward revision in our rental assumptions. We have also raised our terminal growth rate assumption to 1.5%, resulting in a new DDM-derived target price of SGD1.24. We expect the forward average DPU yields to remain fairly stable at 5.7% based on the current share price, but CCT is fairly valued now, in our view. Upgrade to HOLD.
Fortune – OCBC
HIGHEST DPU GROWTH IN NINE YEARS
•Record-breaking growth
•Strong rental reversions
•Recently acquired malls improving
Impressive growth and strong financial position
FRT achieved a record-breaking 1H12, with revenue and net property income climbing by 20.3% and 19.6% YoY to historic highs of HK$537.4m and HK$382.1m respectively. 1H12 DPU rose by 23.6% YoY, the highest growth in FRT’s nine-year operating history, to 15.82 HK cents, slightly better than our expectations. As of 30 Jun, FRT’s gearing is healthy at 24.5%. The weighted average effective cost of borrowing was brought down to 2.77% for 1H12 versus 4.44% for 1H11.
Good rental reversion and occupancy
FRT’s private housing estate shopping mall portfolio saw rental reversion of 20.6% for the enlarged portfolio, with passing rent for the original portfolio rising 11.5% YoY. Portfolio occupancy was healthy at 96.5% as at 30 June 2012. There are vacancies due to ongoing AEIs at Fortune City One (FCO) and Jubilee Square.
Ongoing AEIs to deliver returns
Over 70% of the planned AEI at FCO is completed and the remaining works are to be completed by end 2012. The capex is expected to total HK$100m and target ROI is 15%. FRT has started AEI at Jubilee Square in 2Q12 to capitalise on the growth in the immediate catchment. Capex is estimated to be HK$15m with a target ROI of 15%. The expected completion is in 1H13.
Newly acquired malls are improving
Since Feb, a few retail shops and a F&B outlet have been introduced at Belvedere Square. With over 30% of its leased area expiring in the rest of 2012, the management seeks to broaden the tenant and trade mix. Provident Square’s occupancy has been significantly boosted to 99.6% as of 30 Jun, versus 92.3% in Sep 2011.
Maintain BUY
Fortune is trading at a P/B of 0.6x (NAV per unit of HK$8.34) and an estimated FY12 dividend yield of 6.5%. We maintain our BUY rating and raise our fair value from HK$5.22 to HK$5.33.
MLT – OCBC
ROBUST 1QFY13 PERFORMANCE
•Results within expectations
•Continued improvement in leases
•Focus on active management
Stable 1QFY13 results
Mapletree Logistics Trust (MLT) delivered NPI of S$67.5m (+18.4% YoY) and distributable income of S$45.8m (+18.0%) for 1QFY13. Expectedly, the strong performance came chiefly from its recent overseas acquisitions and enhanced operational performance. A total of S$4.7m from distributable income will be paid to perpetual securities holders, leaving S$41.1m for unitholders. As a result, DPU for the quarter came in at 1.70 S cents (+6.0% YoY). This is largely in line with both our and consensus expectations, as it formed 24.2% and 24.6% of the respective full-year forecasts.
Expecting positive FY13 performance
During the quarter, we note that MLT’s portfolio occupancy rate improved from 98.7% as at 31 Mar to 99.0% amid strong take-up rates in three of its Singapore multi-tenanted assets. In addition, the REIT continued to enjoy positive rental reversions of 10% on average (albeit lower than 12% achieved in prior quarter). We understand that 12.7% of its leases by NLA are due for renewal in FY13, of which ~42% has been successfully renewed/ replaced to-date. Hence, we remain positive on its full-year financial performance.
Maintain BUY
Going forward, MLT expects business sentiments to remain cautious in view of the slowing growth in Asia and concerns over the Eurozone debt crisis. While it is expecting its portfolio assets to stay resilient, management intends to focus on strengthening its fundamentals through active asset and lease management and prudent capital management. In our view, MLT is certainly in a favourable position, having a strong weighted average lease to expiry (WALE) of 6 years, still healthy aggregate leverage ratio of 37% and no immediate refinancing needs (long debt duration of 4.4 years). Maintain BUY with unchanged fair value of S$1.19 on MLT.