Fortune – OCBC
EXCEEDING EXPECTATIONS
•Beating estimates
•Healthy balance sheet
•AEIs provide good returns
Surpassing forecasts
1Q12 results were above our and the street’s forecasts. Net property income of HK$185m was up 15.1% YoY; 9.9ppt came from organic growth, while the other 5.2ppt was from two properties acquired in mid Feb. Retail continues to remain a bright spot in the HK economy. Average passing rent for the original portfolio rose 11% YoY due to good rental reversions in 2011. Net property income margin declined from 73.6% to 71.5% mainly due to one-off costs associated with the acquisition. DPU climbed 14% QoQ to 7.78 HK cents. With the next three quarters seeing full contributions from the two properties, we raise our FY12 DPU forecast from 29.4 HK cents to 31.7 HK cents, up 20.5% YoY from FY11 DPU.
Strong financial position
As of 31 Mar, Fortune’s effective interest cost is at 2.87%, down by 78bps from 31 Dec 2011. Management believes that it can keep interest cost below 3%. It has an interest cover of 5.3x and a comfortable gearing ratio of 26% and debt headroom of HK$2.6b before reaching the 35% gearing limit. The REIT has no refinancing needs till 2015.
AEIs still on track
By the end of 2012, Fortune City One would have completed its HK$100m asset enhancement initiative (AEI) and looks likely to exceed its ROI target of 15%. Fortune defines ROI conservatively, looking at returns quantifiable within only the first year. Fortune will also undertake a HK$12m AEI at Jubilee in 3Q. We view AEI as a good way to generate returns for unitholders.
Maintain BUY; raise fair value
Fortune is trading at a P/B of 0.5x (NAV per unit of HK$7.81) and an estimated FY12 dividend yield of 7.6%. We maintain our BUY rating and raise our fair value estimate from HK$4.88 to HK$5.22.
MIT – BT
MIT to develop $50m BTS facility
Mapletree Industrial Trust (MIT) will develop a build-to-suit facility for Kulicke & Soffa (K&S), its manager said on Thursday.
The BTS facility will be a five-storey high specification light industrial building with a gross floor area of about 30,800 square metres. Total development cost is estimated to be S$50 million.
MIT said it has sufficient financial flexibility and capacity to fund the development of this BTS facility. Assuming that the development is fully funded by debt, the aggregate leverage ratio is expected to increase marginally from 37.8 per cent to 38.8 per cent.
The facility is expected to be completed in the second half of 2013. K&S will occupy 69 per cent of the net lettable area for a 10-year lease term with the option to renew for two additional 10-year terms.
PLife – DMG
Maintains resilience during challenging times
PREIT achieved 1Q12 DPU of 2.6 S¢ (+8.3%), representing ~26% of our FY12 estimates. NPI was up 5.6% YoY, which was mainly attributed to full-quarter contribution from acquisitions made during 1Q11 and higher rental income from Singapore properties. Lower finance cost, a result of lower rates locked in during refinancing, enabled PREIT to achieve the higher growth in 1Q12 DPU. It recently marked its foray into the Malaysian market, with the acquisition of strata-titled units at the Gleneagles Medical Centre in KL. Going forward, management remains cautiously optimistic with regard to near-term acquisitions, although the longer-term is still positive, backed by growing demand for quality healthcare services and facilities. PREIT is currently trading at 5.3% yield. Maintain BUY with DDM-based TP of S$2.07.
Additional contributions from new acquisitions. PREIT acquired three nursing homes in Japan in end 1Q12. These nursing homes would start making full-quarter contributions to earnings from 2Q onwards, while its Malaysia properties would start contributing from 3Q. PREIT is negotiating to acquire heathcare assets in Australia and/or Malaysia where the demand for quality healthcare services in these two markets remain strong.
Expect higher rental from Singapore properties. Between Jul 11 and Dec 11, the average CPI was 5.5%. From Jan 12 to Mar 12, CPI on average was ~5%. Should the CPI for Apr 12 – Jun 12 be 0%, rental at its Singapore properties can be expected to be ~5% higher (based on CPI+1% formula) for the new lease term (beginning Aug 12). This would contribute to revenue growth.
We like PREIT for its defensive nature. We derive a TP of S$2.07, based on DDM methodology. We also like PREIT for its unique revenue downside protection structure. Maintain BUY.
PCRT – CIMB
Awaiting a turnaround
A strong buffer of earn-out funds protected dividend yields, but operational numbers disappointed with profits from joint entity coming in weak. Repositioning and leasing of Shenyang malls are likely to come to fruition in 4Q12-1Q13.
1Q12 DPU was in line at 24% of our and consensus full-year estimates, backed by earn-out funds. We adjust FY12-14 earnings and lower our RNAV target price (still at 35% discount to RNAV) on longer gestation and lower rents. Maintain Outperform, with pick-up in leasing momentum/retail sales as catalysts.
Weaker operational figures
1Q12 profits from joint entities (contributions from two Shenyang malls) came in below, forming 15% of management’s forecast for the quarter on weaker rental contributions. Occupancies for the two malls inched up, from 56.1% to 60.2% for furniture mall and 67.1% to 69.7% for Longemont mall. The bulk of committed tenants have commenced operations. Construction is on track for properties under development and anchor tenants (supermarket/cineplex) have been secured for Foshan Yicui Shijia and Chengdu Qingyang Guanghua malls, to open in 1Q13 and 2Q14 respectively.
Guidance for gestation period at Shenyang malls
The substantial earnings miss against management forecast was primarily due to the repositioning of 40% of the furniture mall’s NLA. We estimate longer gestation periods for Shenyang malls with slower-than-expected leasing and pockets of rent-free periods. Guidance is for restructuring efforts to be reflected in 4Q12-1Q13. We await a turnaround in mall operations, and a pick-up in shopper traffic with new tenants secured (most recently Carrefour, the anchor tenant at Longemont Mall).
Dividend yields secured
Secured dividend yields tide over a weak quarter. Ample earn-out funds alone are sufficient to ensure the same FY13/14 distributions as FY12, implying 7.6% dividend yields on current share price. Dividend payout ratio remains at 50% from FY13.
Saizen – BT
Saizen Real Estate Q3 net property income slips 10.5%
Saizen Real Estate Investment Trust (Saizen) reported a 10.5 per cent loss for Q3 2012 in its net property income to S$9.14 million (573.25 million yen), from S$9.94 million a year ago, in a press release on Thursday.
Its net income from operations for Q3 showed a bigger loss as it fell by 21.4 per cent to S$4.16 million, from S$5.15 million a year ago.
Earnings per unit were at 0.13 Singapore cents (0.08 Japanese yen), a decrease from 0.65 Singapore cents (0.42 Japanese yen) a year ago.
Net asset value as at March 31 2012 was tagged at 0.31 Singapore cents (20.01 Japanese yen).