FCT – OCBC
Refurbishment works drive down 1Q11 Results
Refurbishment works drive down 1Q11 Results. FCT reported S$23.5m of 1QFY11 revenue, up 18.5% YoY but down 15% QoQ. The YoY increase follows the acquisitions of Northpoint 2 and YewTee Point on 5 Feb 2010. The QoQ decline was primarily the result of asset enhancement works at Causeway Point (CWP), which has caused CWP’s gross rent income to dip 24% YoY and 22.8% QoQ. On a quarterly basis, we also noted that 1Q11 gross revenue income1 for YewTee Point and Northpoint (aggregated income) were down 9.9% and 14.7% respectively. We understand from FCT that there is typically a one-month accounting lag for computing tenant’s gross turnover. Thus, one should expect to see the Dec festive retail sales figures boosting the variable component of retail leases subsequently in Jan 2011. Overall portfolio occupancy was down 6pp YoY and 6.5pp QoQ to 92.1% due to the refurbishment works. Distributable income was also up 25% YoY but down 9.2% QoQ at S$15m, and noticeably 24% above 1Q11 operating cash flow2 . DPU amounts to 1.95 Scents, which trades ex-date on 27 Jan. FCT’s gearing ratio stands at 30.6%, with a weighted average cost of debt of 3.76% and interest cover of 3.69x as at 31 Dec 2010. It has recently also secured a five-year loan facility to pay down a $260m commercial mortgage-backed security expiring in July 2011.
CWP’s AEI update. As at Dec 2010, 13% of the construction works at CWP have been completed, with all works scheduled for completion by Dec 2012. Retailers have pre-committed 92% of the space on level one, where most of the work is currently taking place. FCT has projected an incremental annual NPI of S$9.3m for CWP’s enhancement, which is expected to contribute to the group’s bottom-line by 2013, with an overall ROI of 13%. The average rent is also expected to increase from S$10.20 psfpm before AEI to S$12.20 psfpm post-AEI.
Cautious on Outlook. We remain cautious on the outlook for suburban malls, on the back of new supply of retail space to be added in 2011-2012, which is expected to depress rental growth at the neighbourhood malls. In fact, CBRE forecasted that suburban rents are likely to see a maximum 3% upside in 2011 as tenant’s resistance sets. FCT continues to trade at a tight FY11F yield of 5.4%, and 18% premium to book value. We thus maintain our HOLD rating for FCT, with an unchanged fair value of S$1.58, on rental cap grounds. Further re-rating catalyst, in our view, would stem from the manager announcing further acquisitions or development projects opportunities.
FCT – DBSV
Making the right moves
• 1Q11 earnings in line with expectations
• Positive rental renewals, lower financing cost and potential acquisition to underpin profit growth
• Maintain Buy with TP $1.73
Results in line. 1Q11 gross revenue increased by 18.5% yoy to $27.6m, while NPI rose 16.8% to $18.6m benefiting from the acquisition of NP2 and Yew Tee Point. However, on a sequential basis, gross revenue and NPI fell by 15% and 16.2% respectively due to the AEI works at Causeway Point (CP). Portfolio occupancy fell from 97.2% in the preceding quarter to 86.1% with the withdrawal of space at CP to facilitate the ongoing AEI activities. On a yoy basis, distribution income rose 2.0% to $15.0m, translating to a DPU of 1.95cts.
Leveraging on strong retail performance. A remaining 130,218sf of NLA (c17.7% of total), largely from CP, will expire in FY11. The group has renewed 27,169sf of NLA (c3.4% of total) in Q1 with leases contracted at 11.6% above the previous period. We believe similar performance for the remaining expiring leases this year would be achievable given the still low occupancy cost of 13.1% vs industry benchmark of 16-17%. Meanwhile, we expect portfolio occupancy to trough in Q2 and trend up from 3Q11 as Phase 1 AEI works at CP completes progressively. As at end 1Q11, 12.8% of the AEI is completed and 92.2% of Level 1 has been pre-committed. The group targets to achieve a 20% improvement in CP’s average rents when the exercise is fully completed. Apart from organic growth, potential acquisition of Bedok Point, recently completed, could provide further upside to earnings and valuation. Gearing remains healthy at 30.6%.
Proactive debt management FCT secured a $264m five-year loan facility in Nov 2010 to refinance its CMBS expiring in July 2011 at lower interest cost of 3% (95bps above 5-year SOR) vs 4.12% currently. The impact of interest savings will likely be felt from FY12.
BUY call retained, TP S$1.73. Maintain our Buy call with TP of $1.73. The stock offers FY11/12 yields of 5.5-5.8%, translating to a total return of 20%. No new acquisitions have been factored in, which could provide future catalysts.
PLife – BT
PLife Reit Q4 distributable income up 16.6%
Trust also acquires another nursing home property
PARKWAY Life Reit (PLife Reit) has registered $14.4 million in distributable income for the fourth quarter ended Dec 31, 2010. This is a 16.6 per cent increase from $12.4 million a year ago.
Accordingly, distribution per unit (DPU) for the period increased to 2.38 cents, from 2.05 cents.
This is despite higher financing costs due to 100 per cent debt funding of Japanese properties acquired in 2010.
Net property income rose 19.5 per cent to $19.68 million and gross revenue increased 21.1 per cent to $21.49 million.
Parkway Trust Management Limited (PTML) puts the positive results down to its ‘yield-accretive acquisitions, interest cost savings from a refinancing exercise and higher rent from the existing properties’.
The full quarter revenue contribution from 19 Japan nursing home properties acquired in 2009 and 2010 was $3.4 million.
The re-pricing of a five-year 5.3 billion yen (S$84.0 million) loan facility maturing in H2 2014 resulted in total interest cost savings of about $3.45 million for the remaining loan term.
‘With the re-pricing, the weighted average all-in cost of debt for PLife Reit has been reduced from 2.13 per cent to 1.94 per cent,’ said PTML chief executive Yong Yean Chau.
For the financial year ended Dec 31, 2010, gross revenue increased 20 per cent to $80 million. Distributable income grew 13.8 per cent to $53.17 million. The DPU for 2010 is 8.79 cents, compared with 7.74 cents in 2009.
The DPU for Q4 is payable on Feb 28.
Commenting on the results, Mr Yong said: ‘Building on our solid fundamentals, we are delighted to have grown from strength to strength, with DPU registering an increase of 49.7 per cent since IPO.’
PTML also announced the acquisition of another nursing home property in Fukuoka, Japan for 564 million yen.
This represents an 8.2 per cent discount to its 614 million yen valuation by Colliers Halifax, said PTML.
The acquisition is expected to be completed by Jan 31, 2011, and will be fully funded by a long-term unsecured committed term loan facility due June 2015.
The property will have a fresh 20-year master lease and has an expected net property yield of 8.0 per cent.
The counter gained two cents yesterday to close at $1.80.
FCT – BT
Frasers Centrepoint Trust’s Q1 DPU up 2.1%
FRASERS Centrepoint Trust (FCT) yesterday announced improved results for the first quarter ended Dec 31, 2010, even as portfolio occupancy slipped with one of its malls undergoing refurbishment.
Gross revenue in Q1 rose by 19 per cent year-on-year to $27.6 million, largely due to the acquisitions of Northpoint 2 and YewTee Point.
Net property income grew 17 per cent to $18.6 million. This pushed distribution to unitholders up 25 per cent to $15 million. Distribution per unit (DPU) in Q1 increased by 2.1 per cent to 1.95 cents.
FCT’s portfolio occupancy rate was 92 per cent as at Dec 31, down from 98 per cent a quarter ago, as refurbishment works at Causeway Point drove up vacancies there.
The makeover is ‘proceeding smoothly’, FCT said. As at December, 13 per cent of construction had been completed and retailers had committed to lease 92 per cent of space on the first level, where most of the works are taking place.
The refurbishment should be completed by December next year and FCT expects Causeway Point’s net property income to increase.
‘Although income is expected to be affected in the short term, the rejuvenated Causeway Point will provide enhanced income sustainability and growth prospects in years to come,’ said Chew Tuan Chiong, CEO of FCT’s manager.
FCT is also aiming to acquire Bedok Point in this calendar year. Retailers have committed to leasing around 97 per cent of space there, and some are in advanced negotiations to take up another one per cent.
As at Dec 31, FCT’s gearing ratio was 30.6 per cent. In November last year, it inked an agreement with several banks for a $264 million secured five-year loan facility, and will use that to pay down a $260 million debt expiring in July.
FCT closed unchanged on the stock market yesterday at $1.52.
Suntec – OCBC
Lower retail revenue eats into 4Q10 results
4Q10 DPU of 2.316 S-cents. Suntec REIT’s 4Q10 gross revenue of S$61.41m fell 0.56% YoY and 2.9% QoQ. NPI was stagnant YoY but dropped 6.7% QoQ to S$47.2m. Office revenue contributed 47% of total 4Q10 gross revenue, while retail revenue constituted the rest. Gross office revenue was S$28.7m, comprising Suntec City office revenue of S$26.8m and Park Mall’s S$1.9m. Gross retail revenue was S$32.7m, comprising Suntec City retail revenue of S$26.8 and revenue from Park Mall and Chijmes of S$5.9 m. Distributable income declined 6% YoY and 2.8% QoQ to S$44.9m, amounting to a 4Q10 DPU of 2.316 S-cents. The declines were mainly due to lower retail revenue achieved for the quarter, which fell 0.9% YoY and 1.5% QoQ, reaffirming our initial concerns about the looming retail slide for Suntec properties, following the ‘rejuvenation of Orchard Road’ 1. Chijmes, Park Mall and Suntec City Mall all saw a drop in revenue of 11.8%, 6.5% and 1.5% QoQ respectively. The income contribution from One Raffles Quay (ORQ) also saw a decline because of lower income support and lower interest income, following the repayment of the ORQPL shareholder’s loan.
Portfolio Performance. Following the MBFC1 acquisition, which was completed on 9 Dec, Suntec has surpassed CCT as Singapore’s 2nd largest REIT, with total assets of S$6.7b. As of 31 Dec, its aggregate leverage stands at 40.4%, with total debt of S$2.58b and weighted average debt term-to-expiry of 3.3 years. Office portfolio occupancy rose to 98.8% from 96.8% a year ago. However, retail portfolio occupancy declined marginally by 0.1 pp to 98.0%.
Maintain HOLD. We are overall positive on the office sector recovery, and confident of the manager’s expectation that negative rental reversions for Suntec’s office portfolio will bottom out by end 2011. However, we continue to have lingering concerns about Suntec’s retail portfolio, given that we do not expect retail rents to pick up as much as office rents, and there may be more “hollowing out” of shoppers’ traffic (precluding its immediate office catchment and traffic from large convention shows, such as the IT Show, PC Show etc.) to Orchard road or even suburban malls, if there is no further traffic boost to Suntec properties. In addition, 25.5% of retail portfolio NLA is expiring in 2011, followed by 30.3% in 2012 and 27% in 2013. We still think that the MBFC1 acquisition will help to boost the proportion of office to retail mix for Suntec, and help mitigate some of the top-line effects of thinning retail traffic, but this is, nonetheless, still a temporary fix. Maintain HOLD with a revised fair value of S$1.60.