a-iTrust – DBS
Simply Outstanding
• Results above expectations
• Attractive growth pipeline – 35% portfolio NLA growth over 2 years
• Buy for strong growth prospects, TP S$1.03
Results above expectations. Gross revenues were in line with expectations at S$30.4m (+13% yoy, 3% qoq) as a result of stable operational performance. The outperformance was due to higher than expected net property income (NPI) margins- 63% vs our estimated 57%. This was mainly because of lower operational costs through repackaging and renegotiation of its maintenance/security contracts and lower utilities expenses from lower oil prices. Distributable income came in at S$14.1m (+3% yoy), translating to a DPU of 1.85 Scts. For 1H10, AIT delivered a DPU of 3.91 Scts.
Moving NPI assumptions higher. We are adjusting our NPI margins higher to take into account the better than expected performance. As such, FY10F-11F DPU forecasts are adjusted upwards by 22% and 14% respectively.
Clear growth pipeline. Development of its 3 properties remains on track for completion by 2011, which will expand its portfolio by about 35% and result in a strong DPU CAGR of 9% over the next 2 years. In addition, its low gearing of c.13% as of 1H10 provides the trust with cS$180m (till 35% gearing limit) for opportunistic acquisitions.
Buy for growth, TP S$1.03. We find a-itrust’s DPU CAGR of 9% over FY10-12 to be attractive. In addition, opportunistic acquisitions that the trust could undertake, which are currently not factored into our forecasts, will remain further upside catalyst for stock price performance. Upgrade to BUY.
CMT – CIMB
High capex needs
• Maintain Underperform; target price raised to S$1.74 (from S1.54). 3Q09 results were in line with Street and our expectations. Revenue was up with increased contribution from more assets. We remain confident in the resilience of its suburban assets, but expect high capital expenditure for Jurong Entertainment Centre and Atrium@Orchard to strain distribution growth in the medium term. High capex needs and higher-than-peers valuations cause us to maintain our Underperform rating.
• DPU in line, despite retention of S$2.5m. YTD DPU of 6.45cts forms 75% of our full-year forecast. Distributable income of S$74.9m was up 23% yoy on contributions from Atrium@Orchard, the completion of asset enhancement work at Sembawang Shopping Centre and moderate growth (1.8%) in renewed rentals. This excludes S$2.5m of distributable income received from CRCT retained for distribution in the last quarter. (YTD, CMT has retained S$7.3m, which it has committed to distribute by 4Q09.) Nonetheless, DPU for 3Q09 (2.35cts) was down 35% yoy due to increased units after its rights issue.
• Reducing lumpiness in debt expiry, before acquisitions. The credit market is improving. Management says there have been increasing offers for longer debt tenures ranging from five to 10 years vs. only three years earlier. Indicative spreads are 175bp (5-year debt) and 210bp (10-year debt). CMT believes that its overall cost of debt will remain stable, with expectations of declining loan spreads offsetting a rising SOR.
• We raise our growth assumptions for 2009 (from no growth to moderate) for CMT’s key assets, impressed by its ability to achieve positive rental reversions. We are also assuming: 1) 20% growth for its hotel business in Raffles City in 2010, in line with our bullish expectations for CDLHT; and 2) much stronger contributions from CRCT in view of its positive YTD performance. Our DPU estimates consequently rise by 2-8% for 2009-11. Rolling our target price forward lifts our DDM-derived target price (discount rate 8.4%) to S$1.74 (from S$1.54).
FCT – CIMB
Factoring in acquisitions
• Maintain Outperform with higher target price of S$1.64 (from S$1.21). 4Q09 results were in line with Street and our expectations. Full-year DPU of 7.51cts forms 103% of our full-year forecast. We are assuming that Northpoint 2 and Yew Tee Point will be injected in the near future at an estimated purchase price of S$326m, and raise our rental growth estimates to 3-5% (from 2%). Following our adjustments, our DPU estimates for FY10-11 rise by 6-18%, while our DDMderived target price (discount rate 8.1%) rises to S$1.64 from S$1.21. We also introduce FY12 estimates. We remain confident that FCT’s rents will stay resilient, backed by limited supply and tenants catering to non-discretionary spending.
• Good performance. 4Q09 DPU of 2.04cts, which includes income retained from previous quarters, deviated marginally from the 2.05cts declared in 4Q08. However, if retained income were stripped away, underlying DPU for 4Q09 (1.95cts) would have grown 23% yoy. Net property income for the full year
(S$59.9m) was up 5.8% yoy, driven by a strong performance from Causeway Point and the refurbished Anchorpoint. Notably, there were positive rental reversions of 15% in FY09, led by the largest asset Causeway Point. Occupancy rose 4.1% pts to 97.3% with the completion of asset enhancement work in Northpoint in the quarter.
• Asset enhancement update. Asset enhancement at Northpoint has been fully completed, in August. Some 97% of the space has been leased although physical occupancy was lower at 89.9%, as some tenants were still fitting out. Projected rents on completion average S$13.20psf, up 20% from before the refurbishments. Plans for Causeway Point’s refurbishment are on the cards and are likely to be carried out in phases to minimise disruptions to business.
• Expect equity for acquisitions in the near future. We believe FCT will use equity and debt to fund its acquisition of Northpoint 2 and Yew Tee Point in a bid to increase its stock liquidity. We have assumed 25% debt and 75% equity for the acquisition.
MLT – CIMB
No surprises
• Downgrade to Underperform from Neutral; but target price raised to S$0.75 (from S$0.68). We downgrade to Underperform despite results meeting our expectations as share price has run, leaving limited upside near-term upside.
• 3Q09 results in line. 3Q09 results were in line with consensus and our expectations. YTD DPU of 4.44cts forms 79% of our full-year forecast. Distributable profit of S$28.8m grew 13.2% yoy with full contributions from 81 properties vs. 76 properties a year ago. However, DPU shrank 22.6% yoy due to additional units issued in a rights issue in Aug 08.
• Portfolio occupancy stable at 97%. Occupancy slid 1.2% pts qoq to 97.1%. To date, the manager has renewed 80% of the leases expiring this year.
• Expect growth via acquisitions soon. The manager is ready to acquire again. With less competition from buyers in the region, it believes that sellers will be less demanding. Deals at about 9% cap rates in Singapore are possible, and at about 200-250bp above the valuation of MLT’s properties as at 31 Dec 08. It is currently in advanced negotiations for some deals, and plans to fund acquisitions with debt and equity. Taking into account the redemption of a S$60m medium-term note on 19 Oct, MLT’s asset leverage could be 38.1%, giving it debt headroom of about S$380m, assuming a gearing of 45%.
• Changes to assumptions. We reduce our cost-of-debt assumptions in view of lower-than-forecast interest expenses YTD. Our DPU estimates rise by 5-6% for FY09-11. We also roll forward our DDM-based valuation (discount rate 8.6%), which produces a higher target price of S$0.75 (from S$0.68). We have not factored in acquisitions due to a lack of clarity on their timing and size. Without acquisitions, MLT is likely to have limited growth potential. With acquisitions, even DPU-accretive ones, its NAV could be diluted, particularly if equity were issued below NAV.
FCT – DMG
Strong earnings; BUY on defensive strengths
Maintain BUY for its defensive strengths. FCT reported 4QFY09 results DPU of 2.04¢ (-0.5% YoY) and 7.51¢ for FY09, 6% above our estimate. Net property income rose 24.9% due to Northpoint’s enhancement initiative and cost management measures. The better-than-expected earnings were largely due to the strong rental reversion from Northpoint following its AEI. FCT will trade ex-4QFY09 distribution on 29 October 2009. We raise our FY10 DPU estimate by 7.6% to 8.26¢, providing an implied yield of 6.6%. Maintain BUY, DDM-based TP of S$1.53.
3.5% capital value gains. FCT reported a 3.5% YoY gain in capital values to S$1.1b despite the 50bp increase in cap rate to 5.75-5.90%. This was largely due to the strong increase in its net property income. Management alluded that cap rates are unlikely to rise further under the current economic environment. We project NPI from the existing assets to rise by 7% in FY10, bringing about a corresponding increase in capital values, and a fall in gearing. We expect FCT’s gearing to hover below 30% in FY10.
Acquisition in the works? With its strong balance sheet, FCT has substantial debt headroom to acquire new assets. We expect Northpoint 2 and YewTee Point to be acquired within the next 12 months. We value both assets at ~S$300m, with NPI yields between 5.7-6.1%, above its WACC cost of 5.2%. With the acquisitions, FCT’s AUM will grow by 28% to S$1.4b by end-2010. Our valuation assumes the acquisition of these assets by mid-FY10.
Expanded AUM may address liquidity and compress yields further. With a low cost of equity, we expect the above acquisitions to be accretive, strengthening FCT’s retail oligopoly status in the northern region of Singapore. With an expanded AUM and equity base, concerns over FCT’s poor stock liquidity will be addressed. We expect a further re-rating on the stock as yields could compress closer to its 5% heyday levels seen in 2006-08. At our TP, FCT trades at 5.4% FY10 yield, a reasonable peg, in our view. Note that FCT traded at 4.6% during heydays of 2006 and 2007, suggesting that the stock has further legs to ride up the economic recovery.