A-REIT – DBSV
Growth story remains intact
• Management at post-results luncheon meeting affirms healthy operational outlook
• Investments to bear fruit in coming quarters. Maintain FY13-14F earnings growth of c2-4%.
• Maintain HOLD and DCF-based TP S$2.14
Operational outlook remain healthy. A-REIT’s operational performance in 3Q12 was in line with expectations. 9MFY12 earnings formed 76% of our forecasts. Portfolio occupancy remained steady at 95.6% (multi-tenanted buildings at 92.3%), with a slight sequential dip after the consolidation of recently acquired Corporation Place (79.6% occupancy) and 3 Changi Business Park (95% occupancy). Looking ahead, leasing risk is limited with WALE of 4.1 years and only 16% of topline due for renewal. Renewals are also diversified across various industrial segments. In addition, current market clearing levels are at a healthy 18-34% margin above expiring rent levels.
Investments to kick-start earnings growth over FY13-14F. Having invested c.S$712m (S$238.4m yet to be deployed) in growing and enhancing its portfolio, A-REIT is expected to reap the fruits come FY13-14F as these projects reached completion. The manager is also currently looking at a couple of opportunities to grow the REIT, but maintain disciplined in its acquisition approach. China remains in focus, targeting to grow its exposure to 20% of total asset over the longer term. Property types will be for valued added industries (software, corporate HQs) instead of manufacturing.
Capital management. The manager remains disciplined and kept gearing at comfortable 34.1% (heading towards estimated 38% upon completion of investments). However, management does not rule out equity fund raisings for potential acquisitions, if any that are DPU accretive to unitholders.
HOLD call on valuation grounds, maintain DCF-based TP S$2.14. While we like A-REIT’s defensive and well-diversified portfolio and strong execution track record, upside to our target price appears limited from current level. Forward yields of 6.6-6.9% should limit share price downside.
CMT – OCBC
UPGRADE TO BUY – RESULTS IN LINE
•4Q results mostly in line
•AEI and Greenfield execution spot on
•Upgrade to BUY
4Q11 numbers broadly in line
CMT announced 4Q11 distributable income of S$75.5m or a DPU of 2.30 S-cents. Cumulatively, FY11 distributable income came in at S$301.6m, in line with our forecast of S$300.3m. Net property income for the year increased 4.8% YoY to S$418.2m, driven mostly by contributions from Clarke Quay and Illuma acquired in Jul10 and Apr11, respectively, and positive rental reversions.
Operating expenses tracking higher
Though we saw FY11 revenue increase 8.5% YoY (3.6% on a samestore basis), operating expenses tracked at a faster rate (up 16.7% YoY or 7.9% on a same store basis). We understand that this came mostly from one-time expenses and also utilities and maintenance costs. Management indicated that they are actively curtailing operating expenses and we expect less aggressive margin pressure in FY12-13.
Lower valuations at IMM and Sembawang Shopping Centre
In terms of fair value adjustments – IMM’s valuation was lowered by S$53m to reflect lower rentals and margins as it transitions further into a bargain outlet mall; and Sembawang Shopping Centre’s valuation was lowered by S$19m to reflect lower rentals expectations.
Management executing well on AEIs and Westgate
JCube is currently 90% committed and we expect asset enhancement initiatives (AEI) at Atrium@Orchard and Illuma to keep on schedule (completion in 4Q12 and 2Q12 respectively). Management also proposed AEI plans for Clarke Quay, recovering space from the anchor tenant at Block C (1/4 of the NLA) to refresh the tenant mix.
Upgrade to BUY
Management’s execution remains solid with new projects tracking closely to schedules. We also like that a substantial portion of income is derived from resilient suburban malls, given an uncertain economic outlook. Upgrade to BUY with a lower S$2.02 fair value (versus S$2.06 previously) with a 12m DPU forecast of 10.0 S-cents.
CLT – OCBC
ON CLEAR GROWTH TRAJECTORY
•4Q results spot on with our estimates
•Sound fundamentals intact
•Strong position for growth
4Q11 results well within expectations.
Cache Logistics Trust (CACHE) delivered a good set of 4Q11 results, with DPU growing 8.5% YoY to 2.102 S cents. This brings the total DPU for FY11 to 8.235 S cents, implying an attractive yield of 8.3%. The strong performance was mainly attributable to a 11.8% YoY growth in NPI to S$16.0m, driven by incremental rental income from acquisitions since Mar 2011. Both the quarterly NPI and DPU were spot on with our estimates, though they were slightly ahead of the consensus numbers.
Portfolio fundamentals remain strong.
CACHE remains one of the most resilient REIT in the industrial subsector. Portfolio occupancy as at Dec 2011 was maintained at 100%, with a weighted average lease to expiry (WALE) at 4.65 years. For FY12-13, in particular, we note that less than 2% of its leases (by GFA) are due for renewal. Moreover, its master leases encompass locked-in annual rental escalation of 1.5-2% and a triple-net lease structure for the contracted lease term. This not only provides strong earnings and cash flow visibility, but also limits the downside risks from a market slowdown, in our view.
Maintain BUY.
Looking ahead, we believe CACHE will continue to perform. While its master lease arrangements may appear to limit its growth potential, we expect the REIT to continue to benefit from full-year contributions from its 2011 acquisitions. CACHE is also certainly in a comfortable position to seek growth via asset injection, with its aggregate leverage at a healthy 29.6%. We are keeping our FY12 forecasts largely unchanged for now, as the results were within our expectations. However, as we roll over our valuation to the new fiscal year, our fair value is raised to S$1.19
FCT – CIMB
Festive cheer
Stronger rental reversions and occupancy characterised 1Q12.Backed by resilient suburban retail exposure and a refurbished Causeway Point, FY12 looks like another strong year.
1Q12 DPU meets consensus and our estimates, at 24% of our FY12 estimate notwithstanding retained earnings of S$1.6m. We keep our DPU estimates and DDM-based (disc. rate: 8.4%) TP. Maintain Outperform.
Festive cheer
We expect a strong FY12 on the back of improved occupancy at Causeway Point, with refurbished space progressively coming on stream. 1Q12 NPI was flat qoq as a higher topline was negated by higher operating expenses. Broad trends appear favourable for FCT. Rental reversions were strong at 9.6% over preceding rates (4Q11: 7.9%), led by Northpoint and Causeway Point. Occupancy at all malls except newly-acquired Bedok Point improved, up 2.4% pts overall to 97.5%.
Causeway Point on track
To allow tenants to tap the festive season, we believe that some renovation work had been pushed back at Causeway Point, resulting in a higher 96% occupancy in 1Q12 and in part a 15% increase in NPI qoq. Occupancy should dip to about 90% after Chinese New Year as FCT embarks on its next phase of work. The impact, however, will not be major since work will be on the higher levels (where rentals are lower) with the progressive commencement of business in the refurbished sections. With 80% of the work completed, AEI is on track for completion by end-2012.
Cost of borrowing should drop
Cost of borrowing crept up to 3.1% from 3.0% after FCT refinanced its short-term acquisition facility with a secured loan at a fairly attractive margin of 85bp. We expect interest cost savings when it refinances its S$75m MTN (14% of total debt) in Jun 12, given a high cost of 4.8%. Asset leverage remains a healthy 31%.
CLT – DBSV
Waiting to strike
At a Glance
• 4Q11 DPU of 2.102 Scts in line
• Strong balance sheet for acquisitions
• Maintain BUY and S$1.11 TP
Comment on Results
4Q11 results in line. Rental income and net property income (NPI) rose 14.5% and 11.7% yoy to S$16.9m and S$16.0m, respectively. The higher performance was mainly acquisition driven and from the annual 1.5% rental reversions on its IPO portfolio. 6 Changi North Way APC Districentre and 4 Penjuru Lane in Singapore, and Jinshan Chemical Warehouse in China were purchased in 1H11. Interest expenses were 27% higher due to increased borrowings to fund the acquisitions (all-in rate of 3.89%). Distributable income of S$13.4m (+9.2%) translates to a DPU of 2.102 Scts.
Slight uptick in asset valuations. Cache reported a S$23.1m net increase in valuation of its portfolio, largely from a compression of cap rates taken by valuers. Gearing as a result, decreased slightly to 29.6%.
On the look out for assets, focusing on China and Singapore. Balance sheet remains solid, with a headroom of S$80m before hitting gearing of 35%. Management is keen to grow its portfolio – targeting 3rd party opportunities in the Asia Pacific region namely Singapore & China as key markets. In addition, sponsor CWT and C&P can potentially offer another avenue of growth – 3.5m sqft (81% of current NLA) worth of warehouse space that could be injected in the medium term.
Recommendation
Maintain BUY and S$1.11 TP. Backed by a healthy and stable stream of cashflows, Cache offers attractive FY11-12F yields 8.6-8.7%. Target price of S$1.11 translates to a potential 18% total return.