MLT – OCBC
STRONG EXECUTION
•Results in line
•Healthy lease profile
•Investment opportunities resurfaced
Consistent set of results.
Mapletree Logistics Trust (MLT) reported its 4QFY121 results last evening. NPI increased by 14.4% YoY to S$61.6m due to contributions from its acquisitions and organic growth (better rental and occupancy rates) from its existing portfolio. Distributable amount similarly grew by 12.2% YoY to S$41.3m, though impacted slightly by higher borrowing costs and other expenses. For the quarter, DPU stood at 1.70 S cents, up 9.7% YoY. This brings the total YTD DPU to 6.54 S cents, representing a yield of 7.6%. The results were within both our and consensus expectations, with YTD DPU forming 103.4%/97.6% of our/consensus DPU estimates.
Healthy portfolio performance.
Portfolio operating performance continues to be healthy, in our view. Overall occupancy rate was maintained at a high level of 98.8% (99.0% in 3Q). In addition, positive rental reversions of 16% for renewal/replacement leases were still seen during the quarter (9% rental reversions if conversion of 7 Tai Seng Drive to multi-tenanted building was excluded). As at 31 Dec, the weighted average lease to expiry was steady at ~6 years, with only 12.8% of its leases by NLA due to expire in FY13.
Reiterate BUY.
Going forward, management guided that MLT’s organic growth is likely to slow as the portfolio is operating at near full capacity and as the economic climate remains murky in the near term. We also note that there was a mild slowdown in the enquiry level, although average occupancy rate is expected to remain stable. On the M&A front, however, MLT revealed that more investment opportunities have resurfaced. Above-than-industry-average leverage of 41.4% remains our key concern, but refinancing risk is a non-issue with MLT’s recent refinancing of its JPY9b loans. Maintain BUY with higher fair value of S$1.10 (S$1.07 previously) after rolling our RNAV valuation to 2012.
ART – CIMB
Proactively strengthening
4Q was a decent quarter. Nonetheless, we believe fairly high asset leverage, threats to growth and forex risks could cast dark clouds over ART. With European exposure and the ongoing turmoil in Europe, ART’s share price could remain range-bound.
4Q/FY11 DPU is in line with consensus and our estimates, at 21%/98% of FY11. We raise DPU and DDM-target price (disc rate 9.1%) to factor in stronger Indonesia and Australia performances, offset by higher borrowing costs. We also introduce FY14. Maintain Neutral.
Decent 4Q
As corporates tighten their belts and cut costs, we expect a slowdown in corporate travel. Nonetheless, ART’s 4Q gross profit was up 4% yoy on a same-store basis. The surprise came from stronger performances in Indonesia and Australia which benefited from stronger oil and gas industries. We raise our DPU to factor this in.
No major stress in Europe yet
In Europe, the UK continues to perform strongly while Belgium, France, Spain and Germany are generally stable. An unresolved eurozone crisis, however, continues to threaten ART’s European portfolio, although downside should be capped by master leases, management contracts with minimum guaranteed income and boosts from AEI.
Capital management
Management refinanced S$145m of debt in 4Q, lowering debt maturing in FY12 to 22% of total borrowings. It also secured S$250m MTN facilities to refinance some loans ahead of expiry to spread out its debt maturity. Through this, loan tenure has been extended to 3.4 years while debt due in 2012 has been brought down to 22% from 35%. While asset leverage has dipped to 41% from 42% on higher asset revaluations, we remain slightly concerned about devaluation risks on a full-blown eurozone crisis.
FCT – OCBC
GOOD START TO FY12
•Results within expectations
•Strong operational performance
•Asset enhancements and acquisitions likely to drive growth
Sturdy results as expected.
Frasers Centrepoint Trust (FCT) reported NPI of S$24.9m (+33.6% YoY) and distributable income of S$19.7m (+31.3% YoY) for 1QFY12, supported by strong uplift from Causeway Point (CWP), full-quarter contribution from Bedok Point and positive rental reversions. The results were consistent with our estimates, with headline numbers forming 23.5-26.7% of our full-year forecasts. We note that ~S$1.6m (c.0.2 S cents) will temporarily be retained, resulting in a quarterly DPU of 2.2 S cents (+12.8% YoY). This will be paid on 29 Feb 2012, together with DPU of 0.28 S cents announced in Oct 2011.
Demand for malls still strong.
Except for Bedok Point whose occupancy was unchanged at 98.3%, all four other malls in FCT’s portfolio continued to register improvements in their occupancies over the quarter. This brought the overall portfolio occupancy to 97.5%, up from 95.1% in prior quarter. In addition, positive rental reversions of 9.3-11.2% (average 9.6% vs. 7.9% in 4QFY11) were seen across its portfolio properties, reflecting still healthy demand for its malls.
Maintain BUY.
Going forward, FCT believes that its portfolio performance is expected to remain stable, with positive growth in overall rental reversions likely in the coming months. Management also guided that the refurbishment works at CWP, now 80% completed, is on track for full completion by Dec 2012. While occupancy is projected to dip slightly from 95.5% to 90% during this phase of work, the impact to rental income is likely to be limited in our view, since it involves mainly the higher levels and mall’s facade. We continue to like FCT for its pure exposure to suburban malls and its growth potential. With the impending completion of the asset enhancement initiatives at CWP, we believe FCT may be more active in seeking investment opportunities to drive growth, possibly asset injection from pipeline or third-party assets. Maintain BUY with unchanged S$1.68 fair value on FCT.
Suntec – CIMB
Preparing for darker days
Management is renewing leases to mitigate risks. However, with job cuts only starting to surface and higher asset leverage, downside risks could outweigh upside potential.
4Q11/FY11 DPU is broadly in line with our forecast and consensus at 26%/102% of FY11. We fine-tune our DPU estimates but keep our DDM TP (disc rate 9.8%). We also introduce FY14 numbers. Maintain Underperform.
Too early to turn positive
While 4Q was decent, we remain negative on offices. Positives came from the leasing of more office space vacated by IDA at Suntec City (taking occupancy from 3Q’s 98% to 99%) and higher achieved rents for leases secured in the quarter (S$8.72 psf vs. 3Q’s S$8.41 psf) though we believe 3Q rentals could have been locked in for bigger space. With proactive lease renewals, office leases expiring in FY12 had dipped to 10% of its office NLA from 13% last quarter. However, given limited expiries at ORQ and MBFC, the bulk of renewals are likely to come from ‘older’ Suntec City offices, which we think could face more leasing difficulties in an office slowdown. With job cuts only starting to surface and upcoming supply, we think it’s too early to turn positive.
Suntec City Mall AEI
Suntec City Mall was stable ahead of AEI. Management has signed leases with a few tenants while in advanced negotiations with others. More colour will be provided in 1Q12 results. Management remains mum on expected disruptions but maintains that it will seek to minimise disruption.
Lower aggregate leverage
Aggregate leverage dipped to 39% from 42% the last quarter, on higher asset revaluation with 6-9% increases for key assets on 0-25bp cap-rate compressions and improved property performances. With this, asset valuations have returned to pre-crisis peaks, implying downside risks in a worse slowdown.
FSL – DBSV
Bracing for more pain
• In a surprise move, DPU was cut by almost 90% from 0.95 UScts in 3Q11 to 0.10 UScts in 4Q11
• This defensive move is aimed at staying within loan covenants and withstanding any potential counterparty defaults in FY12
• Uninspiring asset valuations and DPU outlook. Cut to SELL with TP of S$0.20
Survival strategies. While operating cash flows in 4Q11 were largely in line with estimates, the key surprise was a 90% cut in DPU to 0.10UScts. The Board’s move is aimed to strengthen balance sheet and conserve liquidity amid a tough operating environment.
Declining asset values threaten. The Trust was able to successfully refinance its borrowings last year with a US$479.6m 6-year amortising loan, secured against its current portfolio of 25 vessels. Under this new term loan facility, FSL Trust will make quarterly loan repayments of US$11m and interest margin will be increased to 2.6-3.0% above LIBOR, depending on the value-to-loan coverage. The charter-free valuation of its vessels must not go below 125% of outstanding loans, and the ratio stands at about 130% as of last valuation. This does not leave much room for comfort.
And counterparty risks hover. Management believes that 2012 will be another bad year for the shipping industry. The Trust’s counterparty risks will be considerably higher amid growing risk of defaults and bankruptcies among shipping companies. Indeed, its newest customer, Danish tanker operator TORM is already in negotiations with lenders to restructure its debt to avoid default. Other tanker players are unlikely to fare any better. Thus, we prefer to avoid exposure to these risks and downgrade the stock to SELL, with a reduced DDM-based TP of S$0.20. Without any dividend support, the stock is unlikely to perform in a downturn. If and when the shipping markets turnaround, high-beta pure container operators like NOL will fare better.