Singapore REITs - UOB Kay Hian 2016-01-25: 4Q15 Results Of AREIT And CMT In Line With Expectations


REITs − Singapore 4Q15: Results Of AREIT And CMT In Line With Expectations 

  • AREIT reported healthy reversions although management continues to guide for muted rental growth in the near term, citing domestic headwinds. 
  • Maintain BUY on AREIT with a target price of S$2.64. 
  • CMT reported healthy pick-ups in shopper traffic and tenant sales during the quarter. However, annual rental reversion was the lowest in five years. 
  • Maintain HOLD on CMT with a target price of S$2.05 and entry price of S$1.74. 


  • Ascendas REIT (AREIT) and CapitaLand Mall Trust (CMT) reported their quarterly results. 


Ascendas REIT (AREIT SP/BUY/Target:S$2.64) 

 Results in line; maintain BUY and target price of S$2.64. 

  • Excluding the exceptional S$6.5m distribution of taxable income, 9MFY16 core DPU of 11.67 cents was in line with expectations, coming in at 76.5% of full-year estimates. 3QFY16 DPU of 3.946 cents saw an increase of 9.9% yoy. 
  • Gross revenue grew 6.1% yoy on the back of the newly-acquired Australian portfolio, while NPI expanded 14.8% yoy due to the unwinding of Aperia’s property tax provision, following IRAS’s assessment. 
  • Maintain BUY and target price of S$2.64, based on DDM (required rate of return: 6.9%, terminal growth: 1.5%). 

 Operational highlights. 

  • Overall portfolio occupancy crept up 0.2ppt qoq to 89.2% in the latest quarter, underpinned by healthy occupancy at the Australian portfolio (overall 94.4%), and higher occupancy at Aperia. 
  • Gearing increased 2.7ppt qoq, to 37.3% in 3QFY16 (2QFY16: 34.6%), and should reach 37.8% post completion of the Australian portfolio acquisition in 4Q15. 
  • Rental reversions saw growth of 7.3% qoq in 3QFY16, (2QFY16: +9.1% qoq). 
  • Borrowing costs remained relatively stable at 2.73% during the quarter. 

 Retirement of CEO Tan Ser Ping. 

  • This quarter marks the end of Tan’s 11-year tenure with AREIT. He will be succeeded by current CFO and CCO Chia Nam Toon of the parent Ascendas-Singbridge Group effective 1 Apr 16. Tan will remain as an advisor over the next 12 months post his retirement to ensure a smooth transition. 

 Healthy lease expiry, existential potential for upside. 

  • About 6.2% and 20.1% of leases by rental income are due for renewal in the next quarter and FY17 (ending March) respectively. 
  • In Singapore, we note that in the next quarter, market rents are 2-17% above the portfolio average passing rent. 
  • In FY17, the hi-specs industrial, light industrial, and logistics buildings which collectively account for 55% of the expiring leases are significantly below market rates. 
  • Market rents are 17.7% above logistics’ (17% of expiring leases in FY17) passing rents, 8.5% above FY17 passing rents for light industrial space (19%) and 4.0% above passing hi-specs industrial (19%) FY17 rents. 

 Acquisition/AEI update. 

  • AREIT announced the A$76.6m acquisition of freehold 6-20 Clunies Ross, which is fully occupied with a WALE of 6.1 years. 
  • The Kendall is set to undergo a S$1.6m façade uplift which should culminate in 3Q16. 40 Penjuru Lane’s S$35.7m asset enhancement was completed in Oct 15, adding approximately 259,000sf of space (new block). The asset’s occupancy stands at 66.9%, which somewhat offset the higher occupancy of the Australian portfolio. 
  • The AEI at 2 Senoko, previous slated for completion in 4Q15, is now due in 1Q16. Rounding up the pack, Cintech I to IV (originally slated to complete in 1Q16), and Acer Building should their respective AEI complete in 2Q16. 

 Challenging industrial sector outlook despite healthy reversions. 

  • Although rental reversions of 7.3% were seen this quarter, management has guided for single-digit reversions in the near term, remaining cautious on the sector outlook, citing the challenging leasing environment to contend with. 

CapitaLand Mall Trust (CT SP/HOLD/Target:S$2.05) 

 Results in line; maintain HOLD and target price of S$2.05. 

  • 4Q15 DPU of 2.88 cents was up 0.7% yoy. Gross revenue and NPI increased 9.2% and 18.6% respectively, mainly due to contributions from Bedok Mall which was acquired in Oct 15. 
  • FY15 results are within our expectations, accounting for 101.7% of our full-year forecast. 
  • Maintain HOLD and target price of S$2.05, based on DDM (required rate of return: 6.8%, terminal growth: 1.5%). Entry price is S$1.74. 

 Operational highlights. 

  • Shopper traffic increased 4.9% yoy with new leases/renewals achieving 3.7% yoy positive rental reversion in 2015. Tenants’ sales psf increased 5.3% yoy. 
  • Overall occupancy rate shed 1.2ppt yoy to 97.6% for 2015 (2014: 98.8%)) mainly attributable to ongoing AEI and reconfiguration work at Funan DigitaLife mall, Clarke Quay and JCube. 
  • Gearing increased 1.6ppt qoq to 35.4% while borrowing costs remained relatively stable at 3.3%. 

 Sustained pressure on rental reversions showed no signs of easing since 1Q15, with full-year 2015 reversions at 3.7%. 

  • We reckon that pressure on rentals is unlikely to ease, with management hinting at possible negative rental reversions on a portfolio basis, in the next few quarters ahead. This is likely due to significant leases coming off at poorer performing malls like JCube (28.9% by NLA expiring) and Sembawang Shopping Centre (40.9% by NLA). 

 AEI updates. 

  • 94% of the reconfigured space at Clarke Quay’s Block C have been precommitted with six new F&B concepts (the likes Ramen Keisuke, Prive Clark Quay), with Zouk slated to open in 2H16. 
  • Phase Two of IMM’s AEI has been completed with its shopfronts revamped and 85 outlets in operation (previously 50), with new tenants like Club 21, Juicy Couture and British India. 
  • Meanwhile, the S$38m revamp of Plaza Singapura (expected completion: 4Q16) is still underway. 

 Funan DigitaLife Mall redevelopment. 

  • Slated for closure in June this year, we note that the mall contributed about 4.8% to portfolio NPI in 2014. We reckon the acquisition of Bedok Mall in Oct 15 should offset the potential impact of Funan’s closure. Management has highlighted that monthly promotional events have been planned, leading up to the date of closure. 

 Management expects the retail environment to remain challenging...

  • ... from the increased supply, rising costs and threat from alternative retail channels. 
  • Portfolio rental reversion was at its lowest since 2009, underpinned by negative reversions from JCube (-14.5%), and Sembawang Shopping Centre (-0.1%).

Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2016-01-25
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.64 Same 2.64
HOLD Maintain HOLD 2.05 Same 2.05