FrasersCT – DMG
Recession Times Calls For Resilient Dimes
FY08 DPU in line with estimates. Frasers Centrepoint Trust (FCT) posted an 11.3% YoY jump in FY08 DPU to 7.29¢, which hit our estimates and the Street’s. For the quarter, 4Q08 DPU headed up by 22.9% YoY to 2.05¢ (+9.3% QoQ), aided by a kicker of 0.46¢ from the release of S$2.9m in distributable income retained during the preceding three quarters. FY08 Gross Revenue gained 9.2% YoY to S$84.7m, accompanied by a similar 9.4% increase in NPI to S$56.6m, underpinned by positive rental reversions, improved turnover rents and rental boosters from AEIs. NAV was up 6.9% YoY to S$1.24, aided by S$51.6m of revaluation gains, with utilised cap rates estimated to be between 5.0 – 5.5%.
Northpoint 2’s injection put on hold. Despite Northpoint 2 attaining TOP just last Thursday, FCT has delayed its targeted injection date, which was slated to enter its portfolio somewhere between 4Q08 – 1Q09. Attributable factors for the delay include the difficulty in both debt/equity raising due to the ongoing credit squeeze, as well as higher expected funding costs (management cited spreads of 200 – 250 bps over SIBOR presently). Further, we understand that the possibility of yield accretion via an acquisition is not conceivable, judging from FCT’s high current implied yield of 11 – 12% against an estimated property yield of 6 – 6.5% for the asset. As such, we have removed Northpoint 2 from our forecasted numbers until further clarity on the injection date is provided, as such leading to a fall in FY09F DPU of 0.88¢. Injection plans for two other prospective assets – YewTee Mall and Bedok Mall – have also been delayed.
Organic boosters drive near-term growth. Looking ahead, FCT will have to bank on organic boosters in the shape of positive rental reversions (18.0% and 12.2% in NLA up for renewal in FY09 and FY10 respectively). This is on top of higher contribution from its 31%-owned Hektar REIT, as a result of a stipulated fall in withholding taxes (from 20% to 10%) paid by foreign institutional investors of Malaysian REITs. For FCT, we estimate a 12.5% increase in distribution income from associate, implying a quantum of S$4.7 – 4.8m for FY09 – FY10 (previously S$4.2 – 4.3m).
Maintain BUY at lower fair value of S$0.86. Given the current macroeconomic concerns and weak investor sentiments plaguing property-related counters, we have taken on a more conservative stance. For FY09F and FY10F, we are assuming portfolio-wide occupancy levels of 96% (previously 99 – 100%), and pegging rental reversion rates (previously 5 – 10%) to a bear-case forecasted GDP growth rate of -1% and 2% respectively. As such, FY09F and FY10F DPU falls 4.6 – 7.4% to 7.0¢ and 7.2¢ respectively. However, we continue to believe in the resilient business model of pureplay heartlander-driven suburban rental malls, where people will still have to shop for non-discretionary items and rents being less volatile during periods of economic slowdown. FCT’s investment case is further strengthened by a dearth of new supply of retail malls within the close vicinity of its malls, as well as it trading at a lower beta than most other strong sponsor-backed REIT, thus limiting volatility. At 28.1%, FCT is also one of the lower-geared S-REITs, with its next major chunk of loan only due in 2011. At current levels, the stock is trading at FY09F – FY10F yields of 10.9 – 11.3%. Maintain BUY at lower fair value of S$0.86. Key risks include more macroeconomic dampeners and prolonged credit crunch.
FrasersCT – OCBC
Good 4Q results despite works at Northpoint
Good 4Q results despite asset works. Frasers Centrepoint Trust (FCT) announced a 6% QoQ gain and a 11% YoY gain in 4Q08 revenue to S$22.1m. Gross revenue rose despite asset enhancement works at Northpoint, where revenue fell 25% YoY to S$4.3m. The results were better than our expectations due to a strong revenue showing from Causeway Point. FCT was able to distribute S$12.8m for the quarter, up 10% QoQ and 24% YoY, thanks to the inclusion of S$2.9m retained from prior quarters. Unitholders will enjoy 2.05 S cents per share.
Solid defensive position. We continue to like FCT’s suburban assets and their mass-market consumer focus. The malls are strategically located adjacent to MRT stations and bus interchanges, and enjoy captive markets with strong population catchments and limited alternative shopping choices. The primary focus is on non-discretionary spending and both Northpoint and Causeway Point have had a good track record in previous crises. FCT is geared at 28.1%, with 80% of its outstanding debt expiring only in July 2011. We also like that FCT will see only 23% of its leases (in terms of gross rental income) expire over FY09 and FY10. Asset enhancement works are going on track in Northpoint, and the manager is guiding that average rents will increase 20% post-works.
Portfolio expansion on hold. FCT was in the process of building a scale portfolio on the back of a clearly defined sponsor pipeline. In our last report, we highlighted the lack of clarity on the execution of these plans – the timing, pricing, financing and consequently, accretion. Moody’s cited a similar execution focus when it announced earlier this week that its A3 rating on the trust was under review. Our concerns were justified – FCT announced that it is now indefinitely postponing its expansion plans in view of credit market conditions. In our view, any actualization of the pipeline would have to be supported by a fresh equity issue.
Since our last report two months ago, FCT’s share price has fallen 47% and it is trading at a 10.7% FY09F (vs SREIT avg 16%) yield. This is however an overall S-REIT phenomenon – the FSTE ST REIT index has declined 42% over the same period. We continue to find the pricing expensive relative to FCT’s peers. Mindful of the current economic environment, we increase our cap rate assumptions by 50 basis points and have refined our discount rate, rental growth and occupancy assumptions. We adjust our fair value estimate down from S$1.20 to S$0.72. Maintain HOLD.
CCT – BT
CCT Q3 distributable income rises 46.1%
Results boosted by higher gross rental income and income from 1George St
CAPITACOMMERCIAL Trust (CCT) has reported distributable income of $43.2 million for the third quarter ended Sept 30, up 46.1 per cent from $29.6 million a year earlier and 3.8 per cent above the Reit manager’s forecast.
The strong result was attributed to higher gross rental income from CCT’s portfolio and income from 1 George Street from July 11. Q3 net income from 1 George Street was $11.09 million.
The trust’s distribution per unit (DPU) of 3.1 cents for Q3 is 44.9 per cent more than in Q3 2007 and 4 per cent above forecast.
Its gearing ratio rose to 36.3 per cent in Q3, from 29.1 per cent previously. Total debt increased to $2.54 billion, from $1.83 billion.
Lynette Leong, CEO of the Reit manager, said: ‘We have always employed a pro-active approach in the execution of our capital and risk management strategies. CCT’s current gearing is at a prudent level of 36.3 per cent and the interest cost for 2008 is 100 per cent fixed.’
The trust’s interest service coverage ratio at end September was 3.1 times and its average cost of debt was 3.6 per cent.
Ms Leong said that for $580 million of debt maturing next year, CCT is evaluating refinancing proposals received from banks and the cost is expected to be competitive. ‘We intend to finalise the refinancing well in advance of the debt maturity,’ she said.
Property operating expenses of $25.8 million rose $8.4 million or 48 per cent in Q3 due to the acquisition of 1 George Street, as well as higher property tax, utility costs and maintenance costs for other properties.
The trust’s expenses of $2.4 million rose $1.1 million or 83.7 per cent, due to higher professional fees and unit-holders’ expenses.
Borrowing costs of $25.5 million rose $12.8 million or 101.5 per cent, due mainly to an increase in borrowing from the issue of $335 million of fixed-rate notes, a $650 million term loan and $370 million of convertible bonds and amortisation cost on upfront fees and expenses incurred on the convertible bonds.
CCT said its office properties are likely to perform well for the rest of the year as it expects positive rental reversions for leases expiring in the current Q4.
‘This is because the average passing rent for CCT’s office portfolio is only $7.20 psf per month and is significantly below market,’ it said.
CCT also expects rental declines to be mitigated by low new office supply for the rest of 2008 and in 2009.
Q3 earnings per unit on a fully diluted basis were 1.51 cents, down from 1.69 cents a year ago.
CCT’s unit price closed unchanged at $1.02 yesterday.
FrasersCT – BT
Frasers Centrepoint Trust’s Q4 DPU up 23%
Strong performance by Causeway Point and Anchorpoint
FRASERS Centrepoint Trust (FCT) has announced distribution per unit (DPU) of 2.05 cents for its fourth quarter ended Sept 30, a 23 per cent increase from Q4 last year, manager Frasers Centrepoint Asset Management (FCAM) said yesterday.
Full-year 2008 DPU rose 11 per cent to 7.29 cents.
FCAM chief executive Christopher Tang said Q4 capped a successful year for FCT – ‘another consecutive year of sustained growth’.
A strong performance by Causeway Point and the reinvigorated Anchorpoint continued to drive gross revenue and net property income growth, according to FCT.
Q4 gross revenue grew 11 per cent to $22.1 million, while net property income increased 10 per cent to $14.1 million. FY2008 gross revenue and net property income were both up 9 per cent to $84.7 million and $56.6 million respectively.
Q4 leases at Causeway Point were renewed at 15 per cent above preceding rates, reflecting strong demand and tight supply situation in the suburban retail sector.
Anchorpoint’s Q4 2008 gross revenue more than tripled to $2.4 million from the year earlier. Rents increased more than 40 per cent as the mall reverted to full occupancy after the completion of enhancement work.
Overall portfolio occupancy declined to 87.7 per cent at Sept 30 from 94.6 per cent a year earlier, as a result of planned vacancies associated with enhancement work at Northpoint.
FCT said it has a conservative gearing level of 28.1 per cent and faces no refinancing pressure, It has no material refinancing and interest rate risks as its term loan amounting to $260 million only expires in July 2011, and its associated interest rate is fully hedged.
Asset enhancement works at Northpoint are on schedule for completion by June next year, the trust said. Rents at Northpoint are projected to increase 20 per cent to $13.20 per sq ft per month, translating to a 30 per cent increase in net property income to $18 million.
With close to 90 per cent of its post-enhancement net lettable area already committed, Northpoint is set to provide a substantial boost to FCT’s income from the second half of FY2009 onwards.
AscottREIT – DBS
Challenging outlook
Story: Ascott Residence Trust (ART) performed well in 3Q08, in line with our expectations. Gross revenues and profits grew by 25% and 49% to S$53m and S$27m respectively. China contributed to 55% of the increase, on the back of higher occupancies and room rates during the Beijing Olympics. Performances from other countries were mixed, with Singapore, Vietnam and Australia continuing to show growth while Philippines was affected by softening room demand. On a portfolio wide basis, average RevPAU posted a 21% increase yoy to S$163.
Point: Moving forward, uncertain economic outlook and slowing business activities is likely to dampen demand for rooms. Hence, we have assumed a 10% decline in RevPAU in FY09, staying steady in FY10. ART has a healthy balance sheet with a projected net gearing at 35.7% as at end-08, backed by its strong credit standing and sponsor. In addition, 73% of its total debt is locked in fixed rates.
Relevance: Valuations remain attractive at 0.3x P/BV coupled with a FY08 – FY10 DPU yield ranging 16.6 – 18.3%. However, we do not expect any positive newsflow in the near term clouded by the economic uncertainty. Due to the lack of catalyst for the sector moving forward, we maintain our HOLD call, TP $0.57 based on 30% to our RNAV estimate.