StarHill Global – DBSV
Only time will tell
At a Glance
• DPU slightly below expectation pending Toshin’s lease rental reversion
• Healthy reversion for Wisma Atria leases despite AEI works
• Healthy balance sheet and ready for acquisitions
• Maintain BUY at lower $0.71 TP
Comment on Results
Slightly below expectations. Gross revenue and NPI posted flat growths in 4Q11. However, DPU fell 2.9% due to higher tax and finance expenses. Full year DPU was 4% below our forecast on the back of higher property expenses and the absence of additional income assumed from Toshin’s rental reversion. Stripping the latter off, DPU will be a marginal 2% lower.
Wisma Atria new look ready in Sep12. Footfall grew by 9% y-o-y but retail sales were down 4% in the same period due to the commencement of asset enhancement works in Jul’11. However, renewal remained robust with some leases locked in higher rates in excess of 20% compared to preceding rents. Occupancy will remain at 95% for the next two quarters before heading up in 3Q after completion of the AEI works in Sep this year.
Toshin’s lease yet to be resolved. The court has dismissed Toshin’s appeal on the rent review in Jan 2012. SGReit has submitted an appeal against that decision and hearing will take place in Feb 2012. We are assuming flat rental growth vs 10% previously till more clarity and guidance are given.
Balance sheet is healthy. Only 3% (S$27m) of its debts are due for refinancing in FY12 and gearing is a healthy 30.8% after the trust took in S$28m revaluation gain, mainly from Wisma Atria Ngee Ann City but was partially reversed by its Japan Properties.
Recommendation
Maintain Buy at a lower TP of S$0.71. We continue to like SGReit for its undemanding valuation at 0.64x P/BV. We have lowered out TP by 7.9% to S$0.71 and reduced our FY12/13 DPU by 8-9% as we revised down our rental forecast, as well as no conversion of the CPUs till 2016 instead of the earlier 2013. Meanwhile, re-rating catalyst will be from possible accretive acquisitions and better than expected rental reversions.
StarHill Global – BT
Starhill’s Q4 DPU falls 2.9%
STARHILL Global Real Estate Investment Trust (SGReit) posted a 4.7 per cent decline in income available for distribution to $22.2 million for the fourth quarter ended Dec 31, 2011, from $23.3 million a year back.
Income to be distributed to unitholders also fell 2.9 per cent during the same period to $19.6 million. Correspondingly, Q4 distribution per unit (DPU) dipped 2.9 per cent to 1.01 cents from 1.04 cents a year earlier. This was mainly attributed to rental disruptions from the asset redevelopment works at Wisma Atria and negative rental reversions in Singapore office space, which also led to a 0.6 per cent decline in net property income (NPI) to $36.5 million for the quarter.
For the full year, SGReit posted NPI of $143.6 million, a 10.1 per cent increase from $130.5 million.
Income available for distribution also rose 10.1 per cent year-on-year to $90.8 million from $82.5 million, while annualised DPU for FY2011 rolled in at 4.12 cents, translating to a yield of 7.3 per cent using the Reit’s closing price of 56.5 cents as at Dec 30, 2011, the last trading day of 2011.
Gearing levels remained at a healthy 30.8 per cent as at the end of the financial year, leaving comfortable debt headroom for future acquisitions, the company said. In addition, a $65 million unsecured revolving credit facility maturing in December 2013 was obtained, enhancing the group’s financial position. Management also highlighted that there will be no debt refinancing till 2013.
Demand for the Reit’s office space also remained healthy, with occupancy levels within the Wisma Atria and Ngee Ann City offices rising to 95.8 per cent and 94.9 per cent respectively as at Dec 31. Take-up for retail space at both assets was also strong as leases expiring last year managed to secure positive rental reversions.
The company said the asset redevelopment of Wisma Atria is ‘on track’ and is slated to be completed in the third quarter of this year. So far, more than 75 per cent of the double-storey facade units fronting Orchard Road have received pre-committed leases and the manager will try to ‘minimise disruptions’ with a ‘two-phase handover’ of the finished units over the first half of 2012.
Yesterday, the counter closed unchanged at 60 cents.
MIT – DBSV
New moves for Dragon Year
• 3Q12 results exhibited strong resilience
• Maiden asset enhancement programs to be embarked over next two years
• BUY, with slightly higher TP of S$1.26
Results in line. Gross rental and net property income of S$65.7m and S$45.6m were 23% and 24% above IPO forecasts respectively. This strong growth was largely due to full quarter contribution from the new acquisitions. Organic performance remained healthy with occupancy at a high c.95.1% (vs 94.5% in 2Q12), while rental rates inched up to est. S$1.56, ex acquisition portfolio. As a result, distributable income beat forecast by 28%, translating to a DPU of 2.16 Scts (+15% due to an enlarged share base).
Operational data still positive. Reversions remained at a strong c26-31% above passing levels for most sub-sectors. However, its business parks saw a slight downward reversion of c10% due to a higher base effect, which we believe is tenant specific.
New asset enhancement plans. MINT will embark on its maiden AEI works (starting 2Q11 till end 2013) to build an additional c200k of GFA as well as enhance the façade of its Toa Payoh North 1 & Woodlands clusters to meet growing demand for space at the respective clusters. The manager targets an IRR of c9% for both AEI projects when completed in 2H13.
BUY with revised TP S$1.26. Supported by strong earnings stream from a diversified portfolio, MINT is expected to deliver a stable set of results in the coming quarters. In view of the new AEI plans, we have raised our
FY14F DPU slightly by 1.1% to 8.6 Scts. As a result we adjusted our target price to S$1.26. Current price offers a FY12-14F yield of 7.5-8.1%.
CRCT – DBSV
Waiting for catalysts
At a Glance
• Full year DPU was 2.4% higher than our forecast
• Rental reversion likely to increase at a more sustainable pace in FY12
• Possible AEI works are key re-rating catalysts
• Maintain Hold and S$1.31 TP
Comment on Results
Slightly ahead of expectations. In SGD terms, 4Q11 gross revenue and NPI grew by c.20% y-o-y to $36.4m and $22.8m respectively, partly due to contribution from Mingzhongleyuan, which was acquired in June 2011. Stripping that off, NPI growth was still a healthy 12% on the back of strong rental reversions, higher tenants sales and stronger RMB vs SGD. Consequently, distributable income came in 21% higher y-o-y at S$15.7m but a smaller 10% on a DPU basis (2.28cts) due to an enlarged unit base. Portfolio occupancy remained robust at 98.1%.
Improving occupancy, strong rental reversions. Post its AEI works in various malls, the trust continued to enjoy higher rental reversion of 11.5% y-o-y over preceding rents. Shopper footfalls at Xizhimen have also risen by c.10% since the opening of the linkway between the mall and subway station in 4Q11. While we still expect positive rental reversion for its FY12 leases (28.3% of the leases in term of revenue), rents are likely to grow at a more sustainable pace of 5-7%. Meanwhile, we see more opportunities to optimize Mingzhongleyuan and Wangjing NPI yields via asset enhancement works and tenant re-mixing. The trust could tweak the tenant mix at Mingzhongleyuan and at the 7-storey office tower block at Wangjing to drive footfalls in the medium term.
Gearing is healthy, no major refinancing needs in 2012. Net gearing declined from 31.4% to 28% due to revaluation gain of S$96m. Separately, the trust has also secured refinancing for 88.2% of its loans due in 2012.
Recommendation
Maintain Hold. We like CRCT’s pro-active leasing strategy and ability to drive rental renewals and occupancies. However, we are maintaining our HOLD call till more clarity and guidance are given on the possible AEI works, which are potential re-rating catalysts for the stock. The stock is currently trading at FY12 DPU of 7.5%.
FirstREIT – OCBC
UNDAUNTED BY VOLATILE MACROECONOMIC ENVIRONMENT
•4Q11 results in line
•Acquisitions likely debt funded
•Resilient and robust fundamentals
4Q11 results within expectations.
First REIT (FREIT) reported its 4Q11 results which were within our expectations. Gross revenue surged 82.0% YoY to S$13.9m while distributable amount to unitholders jumped 122.9% to S$12.1m. This was partly due to a special distribution of S$2.2m arising from FREIT’s recent divestment of the Adam Road property. For FY11, gross revenue increased 78.4% to S$54.0m and was just 0.2% higher than our full-year projection. Distributable income to unitholders rose 105.8% to S$43.9m, in line with our forecast of S$41.9m if we exclude the special S$2.2m distribution in 4Q11. DPU for FY11 was 7.01 S cents, versus 6.63 S cents in FY10 due to additional distributions from the asset divestment as highlighted earlier and a 5-for-4 rights issue in Dec 2010. This translates into an attractive yield of 9.1%. We think that the remaining S$4.4m from the S$8.7m gain on the divestment could be distributed to unitholders in two tranches in 1Q12 and 2Q12, although usage of these funds would be at the full discretion of FREIT’s Manager.
Acquisitions likely in FY12.
Management has reiterated its focus on Indonesia, given rising demand for quality healthcare services there and visibility from the strong pipeline of hospitals from its sponsor Lippo Karawaci. We reckon that any acquisitions in the near term are likely to be debt funded, since FREIT’s gearing ratio of 14.8% (end FY11) provides ample debt headroom of S$89.8m-S$143.4m before reaching its comfortable gearing ratio range of 25%-30%.
Maintain BUY.
We opine that FREIT has showcased its resilience amid the current volatile economic environment, underpinned by healthy industry fundamentals and its stable master lease structure. Maintain BUY with a revised RNAV-derived fair value estimate of S$0.89 (previously S$0.84) as we roll forward our valuations and lower our terminal capitalisation rate inputs for some of its properties. We also apply a smaller discount rate to its Indonesian assets given improving fundamentals of the country.