FirstREIT – OCBC
3Q11 results within expectations
3Q11 DPU of 1.92 S cents. First REIT (FREIT) reported a set of 3Q11 results which were within our expectations (excluding any one-off distribution). Gross revenue surged 79.2% YoY to S$13.7m due largely to new contributions from three of its recently-acquired properties; while distributable amount to unitholders jumped 125.7% YoY to S$12.1m. The latter was boosted by a one-off gain distribution of S$2.2m arising from the total gain on divestment of the Adam Road property amounting to ~S$8.7m. The balance will be distributed to unitholders at the discretion of the manager of FREIT in future periods. Sequentially, gross revenue and distributable amount rose 3.4% and 22.2% respectively. DPU of 1.92 S cents represented a decline of 1.0% YoY due to an enlarged unit base from the effects of the 5-for-4 rights issue in Dec 2010 but increased 21.5% QoQ due to the one-off distribution highlighted earlier. For 9M11, gross revenue increased 77.2% to S$40.1m and formed 74.3% of our full-year projection. Excluding the special non-recurring distribution of 0.34 S cents per share, 9M11 DPU of 4.74 S cents constituted 75.0% of our FY11 forecasts.
New acquisitions could occur soon. First REIT has a strong pipeline of possible acquisition targets from its sponsor Lippo Karawaci (Lippo), of which it has a right of first refusal. Lippo has placed strong emphasis on its Hospitals segment due to the rising demand for quality healthcare services in Indonesia. Media reports have also stated that the group is aiming to sell some of its hospital assets by this year or in 2012 while FREIT said that it is already engaging in preliminary discussions with Lippo on the possibility of acquiring some these assets.
Likely to be debt funded. We believe that these acquisitions, should it occur, would likely be funded by debt given its low gearing ratio of 15.1% as at 30 Sep 2011. This leaves FREIT with ample debt headroom of S$86.0m-S$138.4m before reaching its comfortable gearing ratio range of 25%-30%.
Defensive qualities in times of uncertainty; upgrade to BUY. We expect FREIT’s long master leases with downside revenue protection to provide resilience and stability to its income stream, which would provide an attractive investment merit in times of global uncertainties. FREIT also offers a good proxy to the growing healthcare scene in Indonesia. With a pull-back in its share price since our downgrade to HOLD, we believe that value has re-emerged again. Our RNAV-derived fair value estimate is unchanged at S$0.84, but as this represents a total return of 14.0%, we upgrade the stock to BUY.
FirstREIT – BT
First Reit’s amount distributable for Q3 rises to $12.08m
FIRST Real Estate Investment Trust (First Reit) saw the amount distributable for the third quarter ended Sept 30 rise to $12.08 million, up from $5.35 million in the previous corresponding quarter.
This was helped by other gain from the distribution of a portion of the total gain on divestment of the Adam Road property which was sold in Q1 this year to Fortis Global Healthcare. The distribution per unit (DPU), payable Nov 29, is 1.92 cents, compared to 1.94 cents in 3Q10.
Meanwhile, gross revenue rose 79.2 per cent to $13.67 million while net property income also rose 79.2 per cent to $13.47 million. Earnings per unit were 1.23 cents for 3QFY11, compared to 1.25 cents in 3QFY10.
Results were lifted partly by maiden contributions from its three new properties: Mochtar Riady Comprehensive Cancer Centre and Siloam Hospitals Lippo Cikarang in Indonesia, and South Korea’s Sarang Hospital.
The gain on divestment from the Adam Road property is about $8.7 million, of which a portion (0.34 cent per unit) will be distributed this quarter as a special non-recurring distribution. The balance will be distributed to unitholders at Bowsprit Capital Corporation’s (First Reit’s manager) discretion in the future, it said in a press release.
In an update on the new five-storey extension block at The Lentor Residence, First Reit expects this to be completed by the second half of 2012.
‘With a visible pipeline from our sponsor PT Lippo Karawaci Tbk, we believe we will be able to strengthen our property portfolio in Indonesia by tapping the sustained demand for quality healthcare services as well as leveraging our sponsor’s long-term expansion plans to develop over 25 hospitals over the next five years,’ said Bowsprit CEO Ronnie Tan. ‘We have been engaging in preliminary discussions with our sponsor to acquire some of its upcoming properties to which we have a first right of refusal.’
Meanwhile, First Reit expects the demand for nursing homes and community hospitals to increase in Singapore as the government lobbies for better tertiary care. Given First Reit’s debt-to-property valuation ratio of 16.4 per cent, Bowsprit said it will continue to look for valuable, yield-accretive healthcare-related assets in the region.
First Reit shares closed at 79.5 cents yesterday, up half a cent.
FCT – BT
Causeway Point helps FCT post record quarterly, full-year DPUs
Q4 DPU rises 8.8% to 2.35 cents, taking FY11 DPU to 8.32 cents; Q4 NPI jumps 13.7%
FRASERS Centrepoint Trust (FCT) yesterday posted record quarterly and full-year distributions per unit (DPUs), helped by the strong performance upswing of Causeway Point.
For the fourth quarter ended September, FCT’s DPU was 2.35 cents, an 8.8 per cent year-on-year increase from Q4 2010’s 2.16 cents.
This brings the total DPU for the financial year ended September (FY 2011) to a record 8.32 cents, up 1.5 per cent from FY 2010’s 8.20 cents. FCT said this represents the fifth consecutive year of DPU growth since its listing.
Distribution to unitholders for the quarter rose 10.8 per cent to $18.3 million. Net property income (NPI) climbed 13.7 per cent to $25.3 million.
Causeway Point, FCT’s largest asset, posted a strong quarterly performance, following the re-opening of its revamped sections (basement and first two levels of the mall).
It posted revenue of $17.3 million, 61.7 per cent higher than the preceding quarter. Similarly, its NPI improved 95.6 per cent over Q3 2011 to $13.3 million.
As at Sept 30, 65.5 per cent of Causeway Point’s refurbishment works were completed, with full completion expected end next year, said FCT. The next phase of work is shifted to higher levels, where any disruption to revenue will be more muted.
A sharp recovery in occupancy at Causeway Point – from 78.3 per cent the previous quarter to 92.0 per cent – also contributed to an overall improvement in FCT’s portfolio occupancy, which as at end September stood at 95.1 per cent, up from 87.6 per cent the previous quarter.
FCT’s total assets grew 17.9 per cent year on year to about $1.79 billion, on higher property valuation and the acquisition of Bedok Point. FCT recognised a revaluation surplus of $97.2 million (after adjustments), with Causeway Point contributing $59.2 million.
In the acquisition pipeline is Changi City Point and The Centrepoint, which will feed an additional 602,794 sq ft of net lettable area (NLA) into FCT’s portfolio of 879,780 sq ft NLA.
Following the private placement of 48.0 million new units issued on Sept 23 to part finance the Bedok Point acquisition, pre-existing unitholders will receive an advance distribution of distributable income for the period of July 1 to Sept 22.
The books closure date for the advance distribution is Sept 22 and it will be paid on Nov 8. New units will not be entitled to this advance distribution.
The next distribution will comprise distributable income from Sept 23 to Dec 31. Quarterly distributions will resume thereafter.
FCT ended trading on the stock market yesterday at $1.47, gaining 1.5 cents.
Sabana – Phillip
3Q FY11 Results
•3Q11 revenue $17.4m, NPI $16.6m, distributable income $13.6m
•3Q11 DPU of 2.14 cents
•Incorporated new acquisitions and raised DPU by 1.5-1.8% for FY12-15
•Increased cost of equity to 10% to account for heightened macro-economic risks
•Maintain Buy recommendation but trim target price to $1.080
3Q FY11 results
Sabana REIT reported slightly higher gross revenue and net property income, with an increase of 0.1% q-q to $17.4m and $16.6m respectively in 3Q11. Distributable income was $13.6m, 1.5% q-q lower than previous quarter due to higher other trust expenses. With a dip in distributable income, DPU pared down to 2.14 cents. The cumulative DPU for the reporting period between January and September was 7.36 cents, forming c.72% of our FY11 DPU estimates. Sabana’s portfolio was revalued to $901.3m, up 5.9% from $851.0m last year. Owing to the revaluation surplus, NAV per share inched up to $1.08 inclusive of distributable income as at end-September 2011, from $1.00 as at end-June 2011.
Hit $1 billion asset value set forth in IPO
Four industrial properties were acquired in 3Q11, with a combined GFA of 634,085 sq ft and worth approximately $132.3m. Coupled with the existing property portfolio, the asset value marginally surpasses the $1 billion target and uplifts the aggregate GFA to 3.9 million sq ft. The purchases were wholly funded by debt and therefore DPU accretive. With the incorporation of the purchases, DPU for FY12-15 rose in the range of 1.5-1.8%. While the gearing ratio is expected to increase to c.32.2% upon completion based on our model. This leaves Sabana REIT with a debt headroom of c.$130m given 40% leverage.
Brace for economy slowdown
Singapore’s PMI New Orders and New Export Orders contracted four months in a row, putting a brake on manufacturing sector. The anticipated repercussion will weigh on the demand as industrialists will be more cautious in their expansion plans given the grim global manufacturing data. On the back of heightened recession risk, some industrialists may choose to give up some spaces to save on occupancy costs. 2012 will be challenging year as about 15 million sq ft of industrial space is expected to come on stream. Capital and rental values for industrial property market are likely to stall by the end of 2011. Mild correction in industrial property prices and rents could be on the cards if negative feedback loop in the global economies continued to prevail.
Valuation
All 19 properties except 9 Tai Seng Drive are signed under master lease agreement, with next renewal still a distance (2013) from now. This will bring along income stability to the unit holders. On a side note, we assume occupancy to drop in 2013 as the head tenant may not renew the contract when the bulk of the master leases are to expire. Hence, FY13 DPU will slide down but recover in FY14 and FY15. Another takeaway is that Sabana REIT will keep refinancing risk at bay as loan will only mature in 2H 2013. However, we raised the cost of equity to 10% to take into consideration of escalating macro-economic risks. This trims our target price to $1.08 and it still warrants a buy call with a potential upside 19.3%.
ART – OCBC
Defensive master leases
3Q results in line. Ascott Residence Trust (ART) announced a 3Q11 distribution of S$25.3m, up 112% YoY. The distribution per unit amounted to 2.23 S-cents. This came in broadly in line with our expectations as 3Q11 distribution income made up 26.3% of our FY11 forecast. 3Q11 topline of S$72.9m, up 57% YoY, was also in line and constituted 25.7% of our annual estimates. We saw revenue improve YoY mainly due to an additional S$31.7m contribution from 28 properties acquired in Oct 10, partially offset by the divestments of Ascott Beijing and Country Woods. We continue to see YoY expansion in gross margin to 55% in 3Q11 from 45% in 2Q11 on the back of higher margins for master leases and higher rental rates.
Portfolio performance buffered by master leases. The 28 properties on master leases and management contracts with minimum-guaranteed income (out of 64 portfolio properties) contributed 46% of 3Q11 gross profit. We continue to believe that the longer weighted average tenure of these leases (~7 years) will inject stability into earnings and buffer ART against potential macro volatilities in the UK and France where the bulk of exposure is. For properties on management contracts, we continued to see pressure on a YoY same-store basis in China, Indonesia and Vietnam. As a result, 3Q11 revenues on a same-store basis decreased 1.2% YoY to S$41.3m. Group 3Q11 REVPAU increased 11% YoY, however, fueled by improved performances in Singapore and the UK.
S$393m to be refinanced in FY12. As of end 3Q11, ART’s gearing was stable at 41.4% with a relatively well spread-out maturity profile. We expect about 35% (S$393.1m) and 11% (S$123.2m) of ART’s debt to be rolled over in FY12 and FY13, respectively. The bulk of the group’s debt is denominated in Euros (48%) and Japanese Yen (25%) and evenly distributed between floating (54%) and fixed debt (46%), which puts ART in a relatively neutral position in terms of currency and interest rate exposure.
Maintain BUY at revised S$1.13 fair value. We continue to see value in ART given defensive earnings from master leases and management contracts with minimum-guaranteed income. In addition, its portfolio is diversified across geographically which would buffer earnings somewhat against region-specific weaknesses. We also expect redevelopment details for the Somerset Grand Cairnhill Singapore to be a potential upside catalyst. Given heightened macro uncertainty, however, we lower our REVPAU assumptions for management contracts and update our country-specific discount rates to reflect increased macro-risks. Hence we revise our fair value estimate to S$1.13 from S$1.35 previously but maintain BUY.