UOB Kay Hian Research 2015-07-23: REIT Sector - 2Q15 Results Of AREIT, ART, CMT, FCT In Line With Expectations.

2Q15: Results Of AREIT, ART, CMT, FCT In Line With Expectations 


  • Maintain HOLD on AREIT with an unchanged target price of S$2.73. The moderation in rentals and substantial lease expiries due should cap upside from backfilling. 
  • We maintain HOLD on ART with an unchanged DDM-based target price of S$1.42. 
  • HOLD on FCT with an unchanged target price of S$2.23. Management retains its disquiet over slowing retail sales, and growth is likely to result from acquisitions. 
  • Maintain HOLD on CMT with an unchanged target price of S$2.17. 
  • Maintain MARKET WEIGHT on the sector.  


WHAT’S NEW 



Ascendas REIT (AREIT), Ascott Residence Trust (ART), CapitaLand Mall Trust (CT) and Frasers Centrepoint Trust (FCT) reported their quarterly results. 



ACTION 


Ascendas REIT (AREIT SP) MAINTAIN HOLD (Target:S$2.73) 


• Results in line; maintain HOLD with an unchanged target price of S$2.73. 

  • 1QFY15/16 DPU of 3.841 S cents is in line with expectations at 24.5% of full-year estimates. 1QFY16 DPU saw an increase of 5.5% yoy, on the back of contributions from the newly-acquired Hyflux Innovation Centre, Aperia and The Kendall. 
  • We maintain HOLD with an unchanged DDM-based target price of S$2.73 (required rate of return: 6.9%, terminal growth: 1.8%). 

• Operational highlights. 

  • Portfolio occupancy saw an improvement of 1.1ppt to reach 88.8% in the latest quarter (Aperia up 4.2ppt to 83.9%). 
  • Gearing on the other hand climbed 1.2ppt, at 34.7% in 1QFY16. Borrowing costs also inched up 6bp qoq to hit 2.76% during the quarter. 
  • Rental reversions saw growth of 6.6% qoq in the latest quarter. 
  • High specs industrial leases are a mere 1.3% below market rents, while business park passing rents are 5.5% below market. 

• Interest in sponsor pipeline likely to remain domestic for now. 

  • The fruition of the merger between parent company Ascendas and JTC subsidiary Singbridge in June should yield little in the way of potential ROFR pipeline acquisitions. 
  • In our view, management is unlikely to acquire Singbridge assets in China, except perhaps in the logistics sector. 
  • Substantial debt headroom estimated at S$715m should see inorganic growth from acquisitions, likely from third-party acquisition in target market China. 

• AEI update. 

  • The company will be carrying out asset enhancement works on Honeywell Building (due for completion 3Q15), Cintech I to IV (slated to complete in 1Q16), and Acer Building (due for completion 2Q16). 

• Gloomy prospects within the industrial sector. 

  • Management has highlighted the increased likelihood of muted rental growth in the near term, citing the challenging leasing environment to contend with. 
  • 1Q15 JTC figures supported the case for an occupier’s market as vacancy rates crept up 1.8ppt qoq and 1.1ppt yoy to hit 10.0% in 1Q15. 


Ascott Residence Trust (ART SP) HOLD (Target:S$1.42) 


• Results in line; maintain HOLD with an unchanged target price of S$1.42. 

  • 2Q15 DPU at 2.09 S cents was 5% higher than the adjusted DPU of 2.00 S cents for 2Q14 which excluded a one-off item of approximately S$3m related to realised exchange gain arising from the repayment of foreign currency bank loans. 
  • The results are in line with our expectations accounting for 48.6% of our full-year estimates. 
  • We maintain HOLD with an unchanged DDM-based target price of S$1.42 (required rate of return: 8.1%, terminal growth: 2.0%). 

• Operational highlights. 

  • Overall RevPAU was down 6% yoy to S$129 per day mainly because of weaker performance from Singapore and the Philippines properties and lower average daily rate from the China properties acquired in 2014. 
  • On a same-store basis, excluding the acquisitions, RevPAU remained the same as 2Q14. 
  • Borrowing rate stood at 2.9%. The group plans to use a Euro MTN programme to refinance S$150m due in 2015 that could potentially save 50bp. 

• Acquisitions galore. 

  • Ytd the group has announced acquisitions amounting to half a billion dollars that includes ART’s foray into the USA with the purchase of a prime property in Times Square, New York (S$220.7m, yield: 6.2%) and seven other properties in Melbourne and Osaka (S$,298.3m). 
  • ART targets to gradually increase the US exposure to about 15-20% of assets in the medium to long term. Including the acquisition of the Cairnhill development in Singapore which is expected to see completion in 2017, ART’s asset size will grow to S$5b. 

• Ongoing AEI in China, Philippines, and London. 

  • The AEIs at Tianjin and Shanghai are slated for completion by 4Q15 and 2Q15 respectively, which should see RevPau in China improve in the coming quarters. 
  • Ascott Makati and Citadines Barbican London should both see completion by 4Q17 and 2Q16 respectively. 

• Gearing approaching uncomfortable levels, factoring in perpetual securities. 

  • Headline gearing is expected to increase to 39.5%. However, if we classify the S$401m perpetual securities as half debt and half equity owing to the hybrid characteristics between these two classes, it would result in a gearing of 44.2%, which is on the high side relative to peers’. 



(Vikrant Pandey, Derek Chang)

Source: http://research.uobkayhian.com/




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