MLT – DBSV
On growth path
At a Glance
• Portfolio strength through stability and diversity
• Evaluating BTS opportunities
• Maintain Buy, TP $0.93
Comment on Results
Results meet street estimates. MLT reported 1Q10 results that were in line. Gross revenue fell 3.5% yoy (+1.2% qoq) to $51.4m while NPI dipped a smaller 0.9% yoy (+1.9% qoq) to $45.8m thanks to successful cost management initiatives. Distribution income grew 7.8% yoy to $30.8m (DPU 1.5cts) thanks to a 25% yoy reduction in interest cost as the group refinanced its borrowings at lower rates. During the quarter, MLT recognized $13.1m of revaluation gain from one of its properties (0.4% of portfolio value), which resulted in book NAV rising to $0.87/unit.
Resilient portfolio. Occupancy at MLT’s portfolio remained steady at 98% supported by a diversified and stable tenant base and long leases. According to management, rental outlook for 2H10 has turned slightly upbeat with increased enquiries for space on the back of economic recovery. This would enable the group to benefit with a remaining 12.5% of NLA to be renewed this year, mostly in HK and Spore.
Acquisitions and new forays into BTS opportunities. One of MLT’s much touted growth drivers is via acquisitions. Apart from third party targets, it can also tap its sponsor’s pipeline in Vietnam, China and Malaysia. Recent tie-up between sponsor and Itochu to develop US$300-500m of logistics projects over the next 3-5 years would further expand this pipeline. MLT’s current balance sheet is healthy with gearing of 38.6% and interest cover of 6.2x.
In addition, MLT is currently looking to venture into built-to-suit (BTS) activities both in Singapore and overseas. It can undertake up to $300m of development properties based on its current $3bn portfolio value. While we see this as taking development risk, this will likely be compensated by better returns on cost.
Recommendation
Buy, TP maintained at $0.93. Despite the recent share price rise, MLT continues to offer investors attractive prospective yield of 6.9-7.3%, backed by secure income streams. In addition, growth drivers such as new acquisitions remain highly visible from its sponsor while potential ventures into the built-to-suit arena are likely to provide further upside to our valuations in the medium term. Our current estimates have factored in only $150m worth of new buys in FY10.
FCOT – DBSV
Looking secured at half time
• DPU of 0.32 Scts in line with expectations
• 89% of FY10F income secured
• Maintain HOLD, TP S$0.16
Stability in results. Frasers Commercial Trust (FCOT) reported a 2Q10 DPU of 0.32 Scts in line with projections. Gross revenues and net property income are 24% and 26% higher by 24% yoy due to (i) impact of stronger AUD vs S$ on its Australian sourced income partially offset by lower incomes from Japan due to the weakening yen, (ii) contribution from Alexandra Technopark which was acquired back in Aug’09. Interest costs declined by 17%due after the draw-down of new loan facilities back in Dec’09. As such, distributable income to unitholders net CPPU holders grew by 82% yoy to S$9.8m.
Majority of FY10F incomes secured, but renewals in Singapore could be challenging. As of 1H10, FCOT have secured c89% of its incomes. For renewals for the remaining 11% in 2H10, we are expecting some pressure on topline from Singapore (comprising c3% of gross portfolio rent) given that current asking rents for 55 market street and Keypoint are lower than expiring monthly rents of S$7.40 psf and S$5.6 psf respectively. Australia’s performance is likely to remain stable given expected stronger rental reversions at Central Park property in Perth, given low passing rents (average of A$345 psm pa), backed by a strong AUD vs S$ exchange rate.
Keeping asset portfolio updated & relevant. Apart from organic growth, FCOT is evaluating enhancement plans at Keypoint and China Square Central, aimed at boosting occupancy levels there. In addition, the manager is also looking at acquisition opportunities in Singapore and Australia and will only execute these plans if it is accretive to the trust.
Maintain HOLD, TP S$0.16. While we acknowledge that FCOT trades at an attractive 0.5 x P/BV with relatively secured FY10-11F yields of 7.9-8.3%, we believe that catalysts to emerge upon more certainty from its operations and its asset enhancement plans.
Cambridge – Phillip
1QFY10 Results
• 1Q10 revenue of $18.6 million, net property income of $16.3 million, distributable income of $11.1 million.
• 1Q10 DPU of 1.27 cents.
• Disposal of assets worth $21.5 million, 10% take-up for 4Q09 DRP
• Maintain hold recommendation, fair value $0.51
Consistent Results
Cambridge registered 1Q10 revenue of $18.6 million (+1.3% y-y, -1.5% q-q), net property income of $16.3 million (+1.2% y-y, -2.7 q-q) and distributable income of $11.1 million (7.8% y-y, -7.2% q-q). DPU for the quarter was 1.27 cents (-1.3% y-y, -7.5% q-q). Stable growth y-y resulted from the annual rent increases. However as the Trust had started divesting assets from 4Q09, q-q results reflected the decrease in income. DPU was higher in 4Q09 compared to 1Q10 due to the dividend income from AIMS AMP Industrial REIT. Contribution in 1Q10 was minimal at $0.1 million. Cambridge has since fully divested its interest. Portfolio occupancy continues to climb and improved to 99.9%.
We continue to see progress on the assets divestment program. Cambridge disposed another 32 strata units of the 48 Toh Guan Road East property for $21.5 million, approximately 7.5% above book value. To-date, it has sold $28.1 million of assets. The Trust has classified on its balance sheet another $70 million of assets for disposal. The Dividend Reinvestment Program (DRP) was carried out for 4Q09 and received an approximate 10% take-up rate, translating to $1.1 million of funds. The proceeds from the divestments and DRP program are earmarked for asset enhancements as well as reducing debt.
Capital management
To recap, Cambridge has total debt of $390.1 million, which is due in 2012. Gearing is at 42.6%. Management has a long term gearing target of 30-35% and this will be achieved through a combination of divesting non-core assets as well as accumulating funds from the DRP.
Forecasts
The sales of the assets above book value bolster our view that industrial capital values are holding up well and should not see further weakening. We also like to see the amount of debt reduced as we feel it is the main overhang on the Trust, with a gearing ratio of 42.6%, it is one of the highest geared REIT. We make some changes to our assumptions, raising our occupancy projection to 99% while incorporating loss of revenue from the divestment assets and also increasing the amortised loan transaction amount to the distributable income. We further assumed that the trust reduced its gearing to 39% at year-end. Our DPU for FY10E is 4.92 cents, which translate to a yield of 9.7%. We raised our fair to $0.51 and maintain our hold recommendation.
FCOT – BT
26% jump in FCOT’s Q2 net property income
FRASERS Commercial Trust (FCOT) yesterday posted a net property income of $23.6 million for the second quarter ended March 31 – up 26 per cent from a year ago.
This helped boost total distributable income, which rose 167 per cent over the same period to $14.5 million. Of this, unitholders’ share was $9.8 million, while holders of Series A convertible perpetual preferred units (CPPU) got a share of $4.6 million.
‘The contribution from Alexandra Technopark together with better performance of the Australian properties and lower financing costs contributed to the increase in distribution income,’ said CEO of FCOT’s manager, Low Chee Wah.
FCOT bought Alexandra Technopark in August last year and the property contributed to earnings for the full second quarter. From Down Under, Central Park and Caroline Chisholm Centre brought in more revenue largely as the Australian dollar strengthened.
Distribution per unit (DPU) was 0.32 cents in Q2. This is 56 per cent less than the 0.72 cents a year ago, as the unit base grew from a rights issue in August last year.
Adjusting for the cash call, DPU in Q2 2009 would have been 18 cents, translating to a 78 per cent year-on-year increase.
Distribution per CPPU in Q2 was 1.36 cents.
For the first half ended March 31, FCOT’s net property income was $47.1 million, rising 27 per cent from a year ago. Total distribution available surged 81 per cent to $26.6 million.
DPU in H1 was 0.56 cents, while distribution per CPPU was 2.74 cents. These distributions will be paid out on May 27.
As at March 31, FCOT’s portfolio had a value of some $1.9 billion. The average occupancy rate was 92.4 per cent, down from 92.9 per cent as at Dec 31 last year.
The trust’s gearing as at March 31 was 40.1 per cent, dropping slightly from 40.4 per cent a quarter ago.
FCOT lost half a cent yesterday to close at 14 cents.
MLT – BT
MapletreeLog DPU rises 2% in Q1
Distributable income climbs 8% on lower property expenses and borrowing costs
MAPLETREE Logistics Trust (MLT) yesterday reported an 8 per cent climb in first-quarter distributable income to $30.8 million from $28.6 million a year earlier.
Distribution per unit (DPU) rose 2 per cent to 1.5 cents from 1.47 cents a year ago.
Distributable income rose as the logistics trust lowered property expenses and cut down its borrowing costs by reducing interest costs and lowering the leverage – even as revenue fell year-on-year as portfolio occupancy dipped.
MLT’s gross revenue fell 3.5 per cent to $51.4 million for the three months ended March 31, 2010 from $53.3 million a year ago. Revenue fell due to lower rental revenue from the trust’s Hong Kong and China properties (mostly due to higher vacancies), although this was offset by higher revenue from Singapore and Japan properties (mainly due to the additional properties). Overall portfolio occupancy dipped slightly to 98 per cent from 99 per cent a year ago.
MLT said that the economic environment has shown signs of improvement – but not across the board in all the geographies in which MLT operates. Sentiments remain cautious, the trust added.
‘We think there is still some time for the absorption of the vacant space, especially in Hong Kong, before the rentals can move up,’ said Chua Tiow Chye, chief executive of the trust’s manager. But this could happen for some markets in the second half of this year, he added.
The trust is already making plans to buy more properties. The trust completed the acquisition of two properties in Q1 2010, one each in Singapore and in Japan.
MLT’s sponsor Mapletree Investments and partner Itochu plan to develop logistics projects of approximately US$300-500 million over the next three to five years, which will be offered to MLT on a right of first refusal basis.
‘We are looking to possibly bring some of these assets over in the course of this year or next year,’ said deputy chief executive officer Richard Lai.
MLT’s portfolio comprises 84 properties with a total book value of $3.0 billion. More than half of the properties are in Singapore, while the others are in Malaysia, Japan, Hong Kong, China and South Korea.
MLT also said in an update that it has $1.2 billion of debt as at end Q1, of which around $145 million is due for refinancing over the rest of the year.
MLT’s shares gained 1.5 cents to close at 87.5 cents yesterday.