170109_insights_gree_shoots_in_luxury_and_office_properties (1).pdf
This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA
Overview
Download & View 170109_insights_gree_shoots_in_luxury_and_office_properties (1).pdf as PDF for free.
More details
- Words: 115,224
- Pages: 299
Singapore Industry Focus
Singapore Developers & REITs Refer to important disclosures at the end of this report
DBS Group Research . Equity
6 Jan 2017
Rocky Road, Take me home
STI : 2,880.76
Analyst Derek TAN +65 6682 3716 [email protected]
Mervin SONG CFA +65 6682 3715 [email protected]
Rachel TAN +65 6682 3713 [email protected]
Singapore Research Team [email protected]
Luxury residential and office subsectors to bottom out ahead of other subsectors in 2017
Diversification remain a key strategy for most real estate companies, cheap valuations could spark M&A
Deleveraging trend to kick in from 2017
Luxury residential and office are our sector picks in 2017. While the Singapore property market is expected to remain on a declining trend (suburban residential homes, industrial, retail and hospitality), we see green shoots in the office and luxury residential subsectors. This is mainly coming from expected higher transaction volumes and take-up rates for new buildings in 2017. Continued focus on diversification while cheap valuations could spark M&A. We see continued interest from S-REITs and developers to invest overseas but see fewer completed deals given higher currency volatility. In Singapore, land-hungry developers are likely to turn towards the En-bloc market given limited sites in the public land tenders. S-REITs are likely to seek asset recycling in order to fund growth as cost of equity edge higher. Fueled by strong capital flows and attractive valuations of listed firms, we also see a sector consolidation as larger players look to gain access to land banks and income-producing properties at attractive prices. Deleveraging trend in 2017 and beyond. With higher rates on the horizon, we expect selected developers and REITs to pare down debt over time when the opportunity arises. Of focus is close to c.S$6.3bn worth of bonds expiring in 2017-2018, where refinancing could prove difficult for some given investor risk aversion post recent defaults in the oil & gas space. Developers – too cheap to ignore. We see a myriad of catalysts for developers especially from M&A activities which will lift investor sentiment for the sector. Our picks are CDL and UOL. A wildcard could be a potential unwinding of government policies. Singapore REITs – capital preservation is key. We prefer those with good earnings visibility and minimal downside to our/consensus estimates. Picks are K-REIT, A-REIT and MCT. Small cap picks are FLT, KDC REIT and Croesus.
ASIAN INSIGHTS ed: TH / sa:JC, PY
STOCKS Price S$
Mkt Cap Target Price Performance (%) 3 mth 12 mth US$m S$
Rating
Developers City Developments UOL Group REITs Ascendas REIT Keppel REIT Mapletree Commercial Trust Frasers Logistics & Industrial Trust Keppel DC REIT Croesus Retail Trust
8.39 6.12
5,341 3,448
9.90 7.20
(8.5) 7.5
11.8 1.2
BUY BUY
2.31 1.02
4,597 2,315
2.65 1.23
(6.1) (8.0)
3.1 11.3
BUY BUY
1.42
2,800
1.62
(8.0)
10.6
BUY
0.94
925
1.10
(5.0)
N.A
BUY
1.20 0.85
938 452
1.33 0.99
2.5 (1.2)
20.4 3.9
BUY BUY
Closing price as of 4 Jan 2017 Source: DBS Bank, Bloomberg Finance L.P.
VICKERS SECURITIES Page 1
Industry Focus Singapore Developers & REITs
The DBS Asian Insights SparX report is a deep dive look into thematic angles impacting the longer-term investment thesis for a sector, country or the region. We view this as an ongoing conversation rather than a one-off treatise on the topic, and invite feedback from our readers, and in particular welcome follow-on questions worthy of closer examination.
Table of Contents 1. Investment Summary
3
2. Peer Comparisons
5
3. Key Charts
7
4. Developers – Catalysts abound to lift valuations from multi-year lows
10
4.1 Attractive valuations with upcoming catalysts. 4.2 Diversification to remain a key strategy for developers. 4.3 Improved transactions in the luxury end of the market to continue. 4.4 Looming ABSD deadlines not a precursor for a significant price cuts. 4.5 Potential land-banking opportunities in Singapore. 4.6 More En-bloc transactions in 2017. 4.7 Merger and Acquisition (M&A) activities could pick up. 4.8 Will Developers need to deleverage?
5. Singapore REITs – Déjà vu
31
5.1 Impact of higher interest rates on prices and distributions 5.2 Modest DPU growth. 5.3 Potential risk to property values in the industrial and hospitality sectors. 5.4 Acquisitions may be difficult to execute with redevelopments an attractive option.
6. Residential Subsector Outlook: Luxury home prices to bottom out in 2017
47
6.1 Trends, demand and supply outlook 6.2 Scenarios where government could relax policy measures
7. Office Subsector Outlook: Grade A office space to bottom by end 2017
55
7.1 Trends, demand and supply outlook
8. Retail Subsector Outlook: Hampered by weakening retail sales
63
8.1 Trends, demand and supply outlook
9. Industrial Subsector Outlook: Year of consolidation post supply spikes
67
9.1 Trends, demand and supply outlook
10. Hospitality Subsector Outlook: No turnaround in sight yet
74
10.1 Trends, demand and supply outlook
11. Charts: S-REIT yield and P/Bk NAV Charts: Developers P/Bk NAV Stocks Profiles
83 102
Note: Prices used as of 04 Jan-2017
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 2
Industry Focus Singapore Developers & REITs
Investment Summary 2017 remains a tenants' market as heightened supply completion poses a risk for most real estate sectors. It will be another year of moderation for the Singapore property market as we believe that most real estate subsectors will continue to see downside in rents and/or prices on the back of soft demand given the current economic slowdown. Meanwhile, heightened supply completion in 2017 means that it will remain a tenants' market. Key Themes 1.
Luxury-end of residential market and office sectors bottoming out
Luxury residential and office sectors the brighter spot. However, among the real estate sectors, we see brighter prospects in the luxury end of the residential market and office subsectors. We believe that luxury residential prices in Singapore are attractive on a relative basis compared to home prices in the region which we expect higher investment transaction volumes in 2017. The office sector is projected to see slower rental declines of (5-10%) mainly due to betterthan-projected take-up in upcoming new office buildings and see the sector bottoming out by end of 2017. However, the retail, hospitality and industrial sectors are still expected to feel the pressure from projected negative net absorption, given excess supply outlook.
2.
Developers and REITs to continue seeking overseas opportunities; en-bloc deals to pick up in 2017
Diversification remains a key strategy but opportunities limited as currency volatility arises. We believe that property developers and REITs will continue their strategy to diversify overseas for growth but expect the acquisition momentum to taper on the back of increased currency volatility, coupled with higher cost of funds. Countries that we believe remain attractive on a currency-adjusted basis are London, Australia (Melbourne and Sydney) and selected Tier 1 cities of China like Shanghai. Apart from acquisitions, REITs could also capitalize on the increased development limits (25% cap vs 10% previously subject to conditions) accorded by Monetary Authority of Singapore (MAS) to take on more asset enhancements to rejuvenate their portfolios and boost returns. Developers are hungry for land in Singapore, more en-bloc deals in 2017. We expect continued increased participation from developers in the upcoming first half 2017 government land sales program (GLS) as developers look to replenish diminishing land banks which will mean that land prices are likely to remain firm. In addition, we expect to see more enbloc deals for opportunities, especially in the luxury end of the market. These activities in our view, likely signal expectations that home prices should remain fairly stable in the coming years.
Singapore Property Clock 3.
Privatisations, mergers and acquisitions to pick up
Privatizations, mergers and acquisitions (M&A) in the developer space to pick up. We believe that more listed property developers will take the delisting route along with the wave of privatizations that we saw in recent years. This puts valuations for property developers again in the spot light. Developers are trading at an attractive average 0.75x P/NAV, close to the -1SD of their historical trading range. Reasons that drive this trend could be (i) sea of capital looking to deploy in Asian real estate, and (ii) strategic capital partners or major shareholders looking to recalibrate their strategies given the lacklustre capital markets and thus capturing the upside in the medium term. Source: DBS Bank
ASIAN INSIGHTS
We believe that such M&A activities highlight the attractive valuations of listed developers, namely City Developments, CapitaLand, Global Logistics Properties and UOL which are trading at close to -1 standard deviation (SD) to their 5-year historical trading range.
VICKERS SECURITIES
Page 3
Page 3
Industry Focus Singapore Developers & REITs
4.
Deleveraging a focus as interest rate risks loom
Balance sheet deleveraging a major wildcard; spike in bond expiry in 2017-2018 a key data-point to watch. In view of the uncertainty of the pace of interest rate hikes in 2017, we believe that the early refinancing and hedging of interest rates will be a key focus for developers and REITs going forward. Of noteworthy is close to S$6.3 worth of bonds (S$4.0bn among developers) expiring over 2017-2018 where issuers will need to source for refinancing or alternative means to repay the bonds. While we believe that refinancing for REITs are likely to be more straight forward given that credits are backed by consistent recurring cash flows, we believe that certain developers, especially those in the mid-cap space which have been more opportunistic in tapping the bond market in recent years could face more hurdles. The recent bond defaults in 2016 among the oil & gas firms have cooled investors’ interest in bonds and we believe that investors will be more selective on the credit for future bond issuances. As such, the inability to refinance these expiring bonds could mean that issuers (developers or REITs) might seek alternative financing sources such as banks or even issuance of equity. Strategies for:
Our picks are Ascendas REIT (A-REIT), Keppel REIT (K-REIT), and Mapletree Commercial Trust (MCT). Among the mid-cap space, we like Croesus Retail Trust (CRT) , Keppel DC REIT (KDC REIT) and Frasers Logistics Trust (FLT). Singapore Developers – Catalysts abound to re-rate Potential policy relaxation and M&A could lift sentiment on developer stocks. Our call on the developers is mainly due to valuations supported by an improved outlook. Firstly, we view current trading levels of (P/Bk NAV of 0.75 and 0.65x P/RNAV) as attractive given that developers are trading at close to historical -1SD level. We believe that re-rating opportunities will come from the following data-points: (i) improved sell-through rates for existing developments on the back of improved transaction momentum, (ii) potential relaxation of selective government policy in 2017 driving higher demand for homes and investors’ sentiment, and (iii) potential privatization, M&A activities among developers or value-locking events like asset divestments which will provide a lift for NAVs and thus share prices for developers. Our picks are City Developments and UOL. Risks 1.
Faster-than-projected rise in shorter-term interest rates which will negatively impact earnings and potentially capital values in the medium term.
2.
External shocks impacting on GDP outlook and unemployment rates in Singapore which will have an overhang on demand/supply dynamics.
Singapore REITs – Capital preservation a key strategy Projected more hawkish four FED hikes to limit upside performance. We see increasing road-bumps to further outperformance for Singapore REITs (S-REITs) going into 2017, especially faced with a slowing DPU growth profile of 1.0% amidst a rising interest rate environment. DBS economist projects four FED rate hikes over the course of the year and as a result, the Singapore 10-year yield is expected to increase another 0.7% to a normalized c.3.0%. Forward FY17F yield spreads of 4.0% are already at historical mean levels which indicate that valuations for REITs are fair. Capital preservation is key. In an environment of low growth and rising interest rates, we believe that investors will look at stock-specific catalysts to maintain relative outperformance with the sector. These are S-REITs that provide (i) higher confidence in earnings sustainability and visibility, (ii) stronger relative growth, and (iii) lower gearing which limits impact of rising rates on distributions.
ASIAN INSIGHTS
VICKERS SECURITIES
Page 4
Page 4
Industry Focus Singapore Developers & REITs
2.
Peer Comparison
Singapore REITs Peer Comparisons REIT
FYE
Price
Rec
(S$) Office CCT FCOT KREIT OUECT Suntec Retail CRCT CMT CRT FCT SPH REIT MCT MAGIC SGREIT Industrial a-itrust A-REIT Cache CREIT FLT MINT MLT SBREIT Hospitality ASCHT ART CDREIT FEHT FHT OUEHT Healthcare P-Life Others IREIT KDCREIT Manulife US REIT Sector Average
Dec Sep Dec Dec Dec Dec Dec Jun Sep Aug Mar Mar Dec Mar Mar Dec Dec Sep Mar Mar Dec Mar Dec Dec Dec Sep Dec Dec Dec Dec Jan
Target Price (S$)
Mkt Cap S$'Bn
Total Return (%)
4.5 1.0 3.5 0.9 4.3 1.2 6.9 0.6 1.8 2.4 4.1 2.7 1.6 1.0 6.7 0.7 0.7 1.3 2.9 2.5 0.7 0.8 1.9 1.3 1.1 1.2 1.2 1.5 0.4 1.4 0.7
18% 25% 26% 15% 9%
1.505 1.270 1.020 0.695 1.650
BUY BUY BUY HOLD HOLD
1.70 1.49 1.23 0.74 1.71
1.385 1.930 0.850 1.930 0.955 1.415 0.945 0.755
BUY BUY BUY BUY HOLD BUY BUY BUY
1.60 2.25 0.99 2.29 1.00 1.62 1.11 0.87
1.010 2.310 0.815 0.540 0.940 1.645 1.020 0.655
BUY BUY HOLD HOLD BUY BUY BUY BUY
1.13 2.65 0.93 0.54 1.10 1.90 1.15 0.75
0.700 1.155 1.360 0.595 0.645 0.685
BUY BUY BUY HOLD BUY BUY
0.84 1.32 1.59 0.62 0.75 0.72
2.390
BUY
2.75
0.720 1.200 0.835
HOLD BUY BUY
0.75 1.33 0.93
22% 21% 26% 23% 9% 19% 24% 21% 18% 19% 22% 6% 23% 23% 19% 22% 27% 21% 23% 10% 15% 13% 20% 1% -3% 19%
DPU (S Cts)
CAGR
FY16/ 17F
FY17/ 18F
FY18F/ 19F
9.0 9.8 6.5 5.3 10.0 10.3 11.2 7.5 11.8 5.5 8.7 7.2 5.2 5.9 15.7 7.9 4.1 6.6 11.3 7.2 6.1 5.5 8.2 9.4 4.3 5.2 4.3 12.1 6.3 6.8 5.6
9.3 9.8 6.5 5.2 10.0 10.5 11.2 8.2 11.8 5.7 8.9 7.3 5.2 6.4 15.6 7.5 4.2 6.6 11.5 7.4 6.1 5.4 8.1 9.0 4.0 5.0 4.5 12.2 6.4 7.2 6.0
9.2 9.8 6.5 5.0 10.0 10.3 11.3 8.5 12.1 5.7 9.1 7.4 5.4 6.2 15.7 7.5 4.2 6.8 12.0 7.6 6.2 5.6 8.3 9.3 4.2 5.3 4.6 12.3 6.3 7.5 6.1
FY16/ 17F
Yield (%) FY17/ 18F
FY18F/ 19F
(x)
1%
5.9% 7.8% 6.3% 7.7% 6.0% 6.4% 7.4% 5.8% 8.8% 6.0% 5.8% 6.0% 7.5% 6.8% 6.3% 5.8% 6.7% 9.6% 7.5% 7.0% 6.9% 7.0% 9.2% 7.1% 7.8% 7.1% 6.9% 7.1% 8.0% 6.4% 7.2% 5.1%
6.1% 7.8% 6.3% 7.6% 6.0% 6.3% 7.6% 5.8% 9.6% 6.0% 5.9% 6.2% 7.7% 6.8% 6.4% 6.3% 6.6% 9.2% 7.6% 7.0% 7.0% 7.2% 9.3% 7.1% 7.6% 7.0% 6.6% 6.6% 7.7% 6.7% 7.1% 5.1%
6.1% 7.8% 6.3% 7.3% 6.0% 6.4% 7.4% 5.8% 10.0% 6.2% 5.9% 6.3% 7.8% 7.1% 6.5% 6.1% 6.7% 9.2% 7.6% 7.2% 7.3% 7.3% 9.4% 7.2% 8.0% 7.2% 6.8% 7.0% 8.2% 6.8% 7.4% 5.1%
0.87 0.83 0.74 0.71 0.78 0.80 0.78 1.01 0.88 1.02 1.00 1.11 0.77 0.81 0.97 1.52 1.14 0.81 0.79 1.10 1.18 0.99 0.80 1.07 0.81 0.81 0.84 0.62 0.85 0.78 0..80 1.47
0% 5% n/a
8.7% 5.6% 6.7%
8.8% 5.8% 7.2%
8.7% 6.1% 7.2%
1.16 1.33 1.06
6.8%
6.8%
6.9%
0.95
1% 0% 0% -3% 0% 0% 0% 7% 2% 2% 2% 1% 2% 3% 0% -2% 1% 1% 3% 3% 1% 1% 1% 0% 0% 2% 3%
P/NAV
Note: Prices used as of 04 Jan-2017 Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 5
Page 5
Industry Focus Singapore Developers & REITs
Singapore Developers Peer Comparisons Company
Mkt Cap (S$m)
Price 4-Jan-17 (S$)
RNAV (S$)
*Assumed Discount (%)
Dec Dec Sep
13.0 7.5 4.4
3.06 8.39 1.60
4.80 11.90 2.86
Mar
10.1
2.24
Dec
4.7
Dec Dec Dec Dec Jun Dec Dec Dec Dec Dec
10.9 3.9 1.4 1.8 1.3 1.2 1.6 0.4 0.3 0.1
FYE
Developers Capitaland City Dev Frasers Centrepoint Ltd Global Logistics Properties UOL Average Non-Covered Guocoland UIC Ho Bee Wheelock Wing Tai Bukit Sembawang United Engineers Tuan Sing Hiap Hoe Heeton Holdings Average Average sector
12-mth Target Price (S$)
Upside %
Rcmd
P/RNAV (x)
Latest Qtr P/NBV
-25% -17% -30%
3.60 9.90 2.00
17% 19% 31%
BUY BUY BUY
0.64 0.70 0.53
0.77 0.84 0.67
3.53
-30%
2.47
14%
BUY
0.61
0.83
6.12
10.23
-30%
7.20
23%
BUY
0.57 0.57
0.59 0.75
2.40 2.79 2.04 1.49 1.62 4.48 2.57 0.29 0.72 0.39
-
-
-
-
-
na na na na na na na na na na na
0.90 0.66 0.50 0.60 0.40 0.90 0.90 0.39 0.51 0.41 0.63 0.68
Note: Prices used as of 04 Jan-2017 Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 6
Page 6
Industry Focus Singapore Developers & REITs
2. Key Charts Outlook – Positive (Luxury) Negative (Suburban)
Residential
Price differential across major cities (luxury hoe prices)
Luxury end of the residential market bottoming out 1,800
Units
Units Sold in Core Central Region (LHS)
Rolling 4 Quarters Growth (%)
20%
US$ psf 5,000
2,500 2,000 1,500 1,000
2016Q3
2016Q2
2016Q1
2015Q4
2015Q3
-
2015Q2
-25% 2015Q1
500
2014Q4
-20% 2014Q3
200 2014Q2
-15%
2014Q1
400
2013Q4
-10%
2013Q3
600
2013Q2
-5%
2013Q1
3,000
800
2012Q4
0%
2012Q3
3,500
1,000
2012Q2
5%
2012Q1
4,000
1,200
2011Q4
10%
2011Q3
4,500
1,400
2011Q2
15%
2011Q1
1,600
Monaco
130.0
180
120.0
160
110.0
140
100.0
120
90.0
100
80.0
80
5.0%
70.0
4.0%
60.0
(%)
Index Value
9.0% 8.0% 7.0%
Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 4Q16
6.0%
Vacancy Rate (Non-Landed) (LHS)
London New York
Los Angeles
Japan Singapore Toronto
Home prices in the suburbs to see more downside
A tenants' market as vacancy rates spike 10.0%
Hong Kong
Rental Index (Non-Landed) (RHS)
30%
(2010=100) Af fordability Cur bed but spread is closing
10%
60
High Demand F r om Upgraders
5%
40
(P ublic to Private)
0% -5%
20 0 1Q2004
-10% 3Q2005
1Q2007
3Q2008
1Q2010
3Q2011
1Q2013
3Q2014
1Q2016
Spread vs HDB
Risks Looming from higher mortgage rates, diminishing rental spreads amidst higher market vacancy rates could worsen the holding power for households. • External shocks causing a downturn in the Singapore economy and a loss of jobs, resulting in a significant decline in the property market.
Source: URA, CBRE, DBS Bank
ASIAN INSIGHTS
20% 15%
Property Price index (Outside Central Area)
Key Assertions DBS project prices for luxury residential homes (0% to +1%) to bottom out as transaction volumes and foreigner interests pick up within the Core Central region. Prices for homes in suburban region to fall further by as much as -3 to -5% as affordability remain curbed for upgraders given higher-than-average differential in prices between HDB resale prices and prices of suburban homes. Potential policy relaxation in 2017 given macro uncertainties in 2017 coming on the back of the pace of interest rate increases and its impact on mortgages.
25%
VICKERS SECURITIES
Page 7
Page 7
Industry Focus Singapore Developers & REITs
Retail
Outlook - Neutral
Rental reversions to moderate as RSI declines
Upcoming supply are mainly in the fringe 2.50
m'sqft
2.00 1.50 1.00 0.50 2016
Key Assertions Muted retail sales outlook poses a risk to landlords’ occupancy costs and rental reversions. • Consolidation among retailers to intensify in 2017 amid rising labour costs and labour shortage. • Better-performing malls with sizeable operational scale, strong record of recurring traffic which will continue to attract retailers.
2017
2018
Downtown Core
Fringe Area
Orchard
Outside Central Region
2019
2020
Rest of Central Area
Risks • Increased penetration of e-commerce causing decline in retail sales. • Weaker-than-expected economic growth (GDP), affecting consumer sentiment and expenditure. • Weaker-than-expected tourist arrivals which will have an impact on retail sales performance in Orchard Road malls.
Source: DBS Bank
Outlook - Positive
Office
Two-tier Market with Premium Grade A office leading
Supply to fall off from 2018 onwards 2,500
'000 sqft
S$ psf pm
Post GFC 2010‐2014 average: 2015‐2019 average: 1.10m sqft 1.15m sqft
2,000 1,500
20.0 18.0
S$ psf / mth 13.00
16.0
12.00
14.0 1,000
12.0
500
10.0 8.0
Net supply: Downtown Core (LHS)
‐1,000
Net demand: Downtown Core (LHS) CBRE Grade A office rents (RHS)
‐1,500
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
‐500
2000
0
12% 10% 8% 6% 4% 2% 0% -2% -4%
11.00 10.00 9.00 8.00 7.00
6.0 4.0
Spread between Premium Grade vs Grade A (RHS)
2.0
Colliers Premium Grade Raffles Place/New Downtown (LHS)
‐
Key Assertions • Demand outlook remains uncertain with a merry-goround of tenants gravitating towards Grade A office space. • A two-tier market to emerge; with Grade A office space leading the pack and Grade B office space needing to drop rents or undergo refurbishments to attract tenants. • Office rents could bottom by end of 2017 as precommitment rates for key office buildings remain strong.
CBRE Grade A Core CBD (LHS)
Risks • Earlier completion of new office supply. • Shadow space from further contraction in demand from the financial services sector.
Source: DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 8
Page 8
Industry Focus Singapore Developers & REITs
Outlook – Negative (Factory & Warehouse Space) Positive (Business Parks) Rental reversions remain negative
Industrial Time to absorb supply that entered the market 35.0
m' sqft
30.0 25.0
12%
50%
10%
40%
8%
30%
6%
20%
4%
10%
20.0 15.0 10.0
2%
5.0
0% 2009
0%
2,007
2,008
2,009
2,010
2,011
2,012
2,013
2,014
2,015
2016F 2017F 2018F 2019F 2020F
2010
2011
2012
2013
Business Park Demand
Supply
2014
2015
2016F
2017F
2018F
-10% Warehouse
Factory
-20%
Vacancy Rate (RHS)
Key Assertions Market rents to moderate 5% p.a. due to time needed to absorb supply completion in 2016-2017. Market vacancy rates to hit a high of 10%. Business Park space to remain stable; given lack of new supply but downside risk persists if CBD office rents weaken further. Industrial REITs' rental reversions to remain generally negative over 2017-2018.
Risks Weaker than-expected Singapore economy resulting in further-than-expected declines in rents. Shadow space in the single-user factory/warehouse sectors which result in increased competition for tenants.
Source: DBS Bank
Hospitality
Outlook - Negative
Supply to continue outpace demand growth in 2017
RevPAR to remain under pressure in 2017
Rooms 75,000 70,000 65,000 60,000
6.0% 4.1%
61,287
3,857
2.0%
1,355
y-o-y growth 10.0% 8.0% 7% 6.0%
9% 7%
7% 6% 4% 3%
4.0%
2,520
4% 3.4%
6% 5% 4%
1%
2.0%
4% 4% 3% 2%
0.0%
55,000
-2.0%
50,000
-4.0%
45,000
-6.0%
2015
2016F 2017F Hotel rooms Expected net additions
2018F
Key Assertions We expect demand in 2017 to grow by 4% y-o-y. However, as corporate demand is expected to remain soft, projected demand for accommodation growth should remain modest. Persistent supply pressures arising from a 6% increase in room stock will pressure room and occupancy rates. We project RevPAR to fall by 4% in 2017 before rebounding thereafter.
-1%
-1% -3% 2013
2014 Visitor Arrivals
-2% -4% -5% 2015
2016F
Visitor Days
-4% 2017F
Room supply
2018F RevPAR
Risks Slower-than-expected rebound in Chinese tourist arrivals and greater level of competition from regional markets would cause RevPAR to drop more than expected. Upside risk would come from delays in opening of new hotels.
Source: DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 9
Page 9
Industry Focus Singapore Developers & REITs
4. Developers – Catalysts abound to lift valuations from multi-year lows Key Points Developers to continue looking for opportunities overseas, high-end residential space M&A and potential policy relaxation could lift sentiment for the sector Top picks: City Developments Limited (CDL), UOL Range bound in 2016. The Singapore Property Developers (measured by the FSTREH index) has fallen by close to 5% since the start of 2016 and prices are generally c.9% below prices from the start of 2015. The FSTREH lagged the S-REITs for the most of 2016 but caught up after the recent spike in bond yields saw S-REIT prices weaken on the back of market expectations of a more hawkish FED rate hike momentum in 2017.
4.1 Attractive valuations with upcoming catalysts Looking forward, we believe that the Singapore developers (SG Developers) can outperform the S-REITs, especially with expected headwinds from the uncertainty in the number of
subsequent FED hikes over 2017 to mean limited re-rating opportunities for the S-REITs. We see re-rating catalysts for Singapore Developers come 2017 on the back of (i) improved investor sentiment on increasing expectations of a government policy easing in 2017 as property prices fall by as much as 12-15% from the peak (currently 11%) (ii) potential merger and acquisition (M&A) activities, and (iii) improved balance sheets on the back of expected asset recycling/deleveraging trend. The Singapore Developers, which are trading at an average P/NAV of 0.7x, close to its -1SD is attractive. Current P/NAV valuations are close to multi-year lows. At a 0.7x P/NAV, valuations for developers are similar during past periods of economic stress in 1997, 2003 and 2009, which we believe will not be the case going forward, especially with the Singapore GDP projected to grow by c.1.3% in 2017 according to our DBS economists. While we continue to expect Singapore residential prices to fall marginally in 2017, most negatives are priced in, in our view. We believe that we are closer to the trough, especially with expectations that the government will likely tweak policy measures to negate a further fall in prices.
Figure 1: Developers underperformed S-REITs in 2016 but caught up in 4Q16 6%
Index Value
Relative Performance (%)
4%
900.00
850.00
2% 0% 1/1/15
800.00 1/4/15
1/7/15
1/10/15
1/1/16
1/4/16
1/7/16
1/10/16
‐2%
750.00
‐4%
700.00
‐6% 650.00
‐8% Relative Performance
Developers
‐10%
600.00
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 10
Page 10
Industry Focus Singapore Developers & REITs
Figure 2: Valuations attractive as developers still trade at close to past 3 market down-cycle troughs 2.50
P /N AV (x)
2.00
1.50
+1 SD: 1.30x Me a n: 0.95x
2002-2003 Dot Com Crash
1.00
-1 SD: 0.60x
0.50
2011 Euro Crisis
2008-2009 Global Financial Crisis Jan-97
1997-98 Asian Financial Crisis
Jan-99
Jan-01
P/NAV (w/o GLP)
Jan-03
Jan-05
Jan-07
Mean
Jan-09
- 1 SD
Jan-11
Jan-13
+1 SD
Jan-15
Jan-17
P/NAV (with GLP)
Source: Bloomberg Finance L.P., DBS Bank
Figure 3: Historical developers Price-to-Bk NAV vs PPI 180.0 160.0
Index Value
Property Price Index
Developer P/Bk NAV
140.0
Figure 4: Developers trading at 45% discount to RNAVs (-1.0 standard deviation) (x)
2.50
2.00
-10%
1.50
-20%
120.0 100.0 80.0
0% 2006
1.00
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
-30%
60.0 40.0
0.50
20.0
-40% -50%
-
-60%
Discount to RNAV
Mean
+1 SD
- 1 SD
Source: URA, DBS Bank
ASIAN INSIGHTS Page 11
VICKERS SECURITIES Page 11
Industry Focus Singapore Developers & REITs
4.2 Diversification to remain a key strategy for developers
Diversification remains a key strategy. Singapore Property Developers have been acquiring and diversifying overseas over the past few years, driven mainly by the lack of opportunities in Singapore and also the attractive prospects of higher returns overseas. Based on our estimates, out of a sample size of 22 listed Singapore Property Developers with total assets amounting to an aggregate S$143bn, only 44% of their assets are in Singapore with the remaining invested overseas in China (28%), United States (8%) and Australia (4%) as shown in Figure 5.
properties being the main target asset class. One of the key reasons was the relative attractive returns when compared to Singapore, boosted by a strong exchange rate and low cost of funds as funding rates remain anchored at low levels. Figure 5: Developer exposure by geography
This diversity in exposure has been mainly built over the past three years post a series of cooling measures that were put in place on purchasing residential properties in Singapore. Based on our estimates, we saw close to S$8.1bn of capital invested overseas, in contrast to S$7.6bn invested in Singapore over the past few years. The trend was different prior to 2013 when a majority of capital were vested within Singapore and Asia. Australia, London and Japan have been the main markets of interest in recent years, with commercial (office/hotels)
Source: Companies, DBS Bank
Figure 6: Investment Destinations for Singapore Developers
(2013-YTD)
USA: S$0.3bn
U.K.: S$4.6bn Europe: S$0.7bn
China: S$1.2bn
Japan: S$0.2bn
Singapore S$7.6bn
Australia: S$1.4bn
Source: Companies, DBS Bank
ASIAN INSIGHTS Page 12
VICKERS SECURITIES Page 12
Industry Focus Singapore Developers & REITs
DBS economist believes that most major currencies will depreciate against the US dollar over 2017, as the normalization of the US monetary policy and hawkish policies from new President Trump might lead to flows from emerging markets back to the US. Looking forward, currency volatility will continue to have a big impact on total returns for investors diversifying into real estate outside their home markets, and it is important to closely monitor currency movements.
Overseas capital deployment to continue but opportunities limited as currency volatility impact returns. While we believe that developers will continue to seek higher returns overseas, the yield compression seen for prime assets over the past few years will mean that market focus will likely change. According to JLL, an SGD investor total foreign currency (FX) adjusted total return will diminish over 2016-2018 and is forecasted to yield in the -3% to 10% range with Shanghai, Sydney and Melbourne offering the highest returns which will continue to feature regularly on developers’ horizon over time.
In Singapore, developers could turn to M&A and en-bloc opportunities to land bank. Developers who are looking to replenish their property land banks in Singapore have turned up in force in the government land sales program (GLS) in 2016 and have also ventured into the En-bloc market to gain access to land banks. Looking ahead, we believe that another avenue will be in the listed space, especially with listed developers trading at 0.7x P/NAV and certain mid-cap developers trading below that.
We believe that London will remain one of the key investment markets, despite Brexit going forward and JLL expecting returns to moderate, mainly due to weak GBP in the medium term. Developers are likely to be still keen on the UK if it maintains its financial hub status in Europe. As developers are expected to continue targeting to grow their recurring income base, we believe that core assets in the commercial space which offer stable cash flows will be key acquisition targets.
As pressure from additional buyer stamp duties (ABSD) on land purchase and Qualifying Charges (QC) increase from 2017 onwards, we believe this could spark merger and acquisition (M&A) activities going forward.
Figure 7: FX adjusted returns over time 20%
2016
15%
2018
2017
10% 5%
FX gain/loss
-20%
Property Return
FX adjusted total return
Source: JLL, DBS Bank
ASIAN INSIGHTS Page 13
VICKERS SECURITIES Page 13
Kuala Lumpur
Delhi
-15%
Mumbai
Beijing
Shanghai
New York
Tokyo
London
Seoul
Sydney
Hong Kong
Singapore
Melbourne
Kuala Lumpur
Delhi
Mumbai
Beijing
Shanghai
London
New York
Tokyo
Seoul
Sydney
Hong Kong
Singapore
Melbourne
Delhi
Kuala Lumpur
-10%
Mumbai
Beijing
Shanghai
New York
Tokyo
London
Seoul
Sydney
Hong Kong
Singapore
-5%
Melbourne
0%
Industry Focus Singapore Developers & REITs
Figure 8: Prime Yields for commercial real estate 8.0% 7.0% 6.0% 5.0% 1Q14 4.0%
2Q15 2Q16
3.0% 2.0% 1.0% 0.0% Beijing
Shanghai
Tokyo
Singapore
Sydney
Mebourne
Brisbane
Source: JLL, DBS Bank
Figure 9: Singapore Developers' Exposure (% of RNAV)
Remarks
Developers
SG Residential
SG Commercial
Overseas
Total
CapitaLand
9%
25%
66%
100%
City Dev
27%
52%
21%
100%
Ho Bee
15%
56%
29%
100%
Wheelock
30%
39%
32%
100%
UOL Limited
7%
85%
8%
100%
OUE Ltd
9%
56%
35%
100%
Wing Tai
19%
20%
60%
100%
Global Logistics Properties
0%
0%
100%
100%
SG Developers' exposure to domestic residential sector is generally <10% with the exception of the likes of City Dev, Ho Bee Wheelock, and Wingtai, which have exposure in excess of 15%.
Source: JLL, DBS Bank
ASIAN INSIGHTS Page 14
VICKERS SECURITIES Page 14
Industry Focus Singapore Developers & REITs
4.3 Improved transactions in the luxury end of the market to continue Pick-up in transactions in the luxury residential market. We believe that the luxury end of the market is approaching a near-term bottom, judging by the increased number of transactions seen in the core central region. According to URAlodged caveats, YTD 9M16 transactions by Foreigners (excluding Singapore permanent residents) rose by close to 12% compared to the same period a year ago. We note that the increase in transactions mainly come from buyers in China, Malaysia and Indonesia, up more than 15% y-o-y respectively. If transaction volumes sustain, it will imply investors’ confidence in Singapore’s fundamentals and prospects of longterm capital gains from current levels. Attractive relative pricing compared to other popular investment destinations. According to JLL, Singapore remains an attractive investment destination, especially with additional
25% 20%
2016Q3
2016Q2
2016Q1
2015Q4
2015Q3
2015Q2
2015Q1
2014Q4
-25% 2014Q3
2014Q2
-10%
-20% 2014Q1
-15%
200 2013Q4
400
2013Q3
-5%
2013Q2
-10%
2013Q1
0%
600
2012Q4
-5%
2012Q3
5%
800
2012Q2
0%
2012Q1
10%
1,000
2011Q4
5%
2011Q3
10%
1,200
2011Q2
15%
1,400
2011Q1
1,600
% Change (Rolling 4 Quarters)
2016Q3
2016Q2
2016Q1
2015Q4
2015Q3
2015Q2
2015Q1
2014Q4
2014Q3
2014Q2
2014Q1
2013Q4
2013Q3
2013Q2
2013Q1
2012Q4
2012Q3
15%
2012Q2
20%
2012Q1
Rolling 4 Quarters Growth (%)
2011Q4
Units Sold in Core Central Region (LHS)
2011Q3
Units
Figure 11: Core Central Region transactions outpacing overall total Singapore market
2011Q2
1,800
Therefore, we believe that Singapore luxury home is attractive from a relative pricing across countries with potential capital upside in the medium term once the current over-supply situation normalizes.
2011Q1
Figure 10: Transactions in Core Central region growing
stamp duties recently levied on foreign purchases by other popular residential investment destinations such as London, Melbourne, Sydney which somewhat makes Singapore attractive again for international investors looking for real estate purchases. In addition, we note that (figure 1212) Singapore luxury home prices have corrected 11% over the past few years and the gap has widened over time, when compared to other residential investment destinations such as Hong Kong, London and New York, where prices have continued to increase over the past few years (figure 13).
-15% -20% -25%
Overall Transactions
Core Central Region
-30%
Source: Companies, DBS Bank
Figure 12: % Growth in prices 230.0
Figure 13: Prices of luxury residential homes
Index Value
US$ psf
210.0
5,000
190.0
4,500
170.0
4,000 3,500
150.0
3,000
130.0
2,500 1,500
Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q1 2016 Q2 2016 Q3 2016
2,000
90.0 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
110.0
1,000 500 Monaco
Hong Kong
Korea
Malaysia
Singapore
Taiwan
Thailand
Hong Kong
London New York
Los Angeles
Japan
Singapore Toronto
Source: URA, MAS, Christie Real Estate, JLL, Knight Frank, DBS Bank
ASIAN INSIGHTS Page 15
VICKERS SECURITIES Page 15
Industry Focus Singapore Developers & REITs
4.4 Looming ABSD deadlines not a precursor for a significant price cuts for all developments. Selected impact of ABSD deadlines as most projects continue to enjoy healthy margins. Developers with projects that are subjected to deadlines on the ABSD remission on residential sites in 2017-2018 have also done well, in our view. Based on our analysis of selected projects with significant unsold inventories at the start of 2016 and are likely to be under pressure to clear stock due to looming ABSD deadlines in 2017-2018, most have cleared a substantial portion of their inventory. This is mainly coming from more aggressive marketing activities while prices dipped slightly by 4-12%, with some staying steady as shown in Figure 15. This is against investors’ initial concern that developers might have to suffer deep cuts in prices in order to move unsold inventories.
Strong sales in the core central region could mean firmer prices going forward. There were close to 22,502 unsold units (both completed and uncompleted) as of 3Q16 of which 24% of 5,464 units were located in the Core Central region as of 3Q16. The strong sales seen in recent quarters (especially for recently re-launched completed projects – Gramercy Park, OUE Twin Peaks near downtown Orchard) have brought the number of available units for sale down by 6% q-o-q, which is one of the fastest fall compared to homes in other regions. Based on the current run-rate for residential transactions, we estimate that total transactions in 2016 will likely come in at close to 15,500 (c.8,000 primary sales and 7,500 secondary sales), which implies close to 10% growth y-o-y. The increase is mainly driven from a marked increase in both the primary and secondary transactions. The former is mainly due to generally more aggressive marketing activities and price discounts. The improvement seen in the secondary market mainly came from i) higher transactions in the Core Central region and ii) innovative financing schemes and price discounts offered by developers for selected de-licensed projects which resulted in fairly good response from buyers (see figure 14).
The pick-up in sales momentum, in our view, will likely give developers more optimism to continue marketing existing projects while upcoming property launches in the Central region could also increase in order to capture the current improved sentiment in that space. We believe that developers are likely to pay the ABSD for most projects come 2017 as margins are expected to remain healthy (figure 16).
Figure 14. Pipeline supply of unsold private homes (excluding executive condominiums) as of end of 3rd quarter 2016 Total Units Units Available for sale (3Q16): Unsold uncompleted units Unsold completed units Total unsold units % Chg Q-o-Q Demand : Primary Sales (YTD 9M16) Secondary Sales Total Sales
Ratio (Supply/ annualised primary sales) Primary Sales (2015) Secondary Sales (2015) Ratio of Supply/Demand Average Primary Sales (2013-2016) Average Secondary Sales (2013-2016)
(units)
Core Central Region (units)
Rest of Central Region (units)
Outside Central Region (units)
20,577 1,925 22,502 -3%
4,711 753 5,464 -6%
7,130 543 7,673 1%
8,736 629 9,365 -5%
5,253 6,337 11,590
444 1568 2,012
1,715 1792 3,507
3,094 2977 6,071
3.2
9.2
3.4
2.3
7,440 6,677 14,117 3.0
407 1,452 1,859 13.4
1,884 1,944 3,828 4.1
5,147 3,281 8,428 1.8
7,030 7,475 14,505
530 1,572 2,102
4,400 2,071 6,471
2,100 3,464 5,564
Remarks
Ratios for CCR and RCR regions improved while OCR ratios declined.
Ratios for CCR highest due to low number of primary sales.
Source: URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 16
Page 16
Industry Focus Singapore Developers & REITs
Figure 15: ABSD payable for selected projects with high unsold inventory in 2017 / 2018 ABSD liability
Region
Project
Developer
Total Units
Unsold (Jan’16)
Unsold
Unsold (Nov’16)
(%)
Unsold
Units Sold in 2016
(%)
Land Cost
Estimated ABSD
(S$’m)
(S$’m)
ABSD Payable for projects from government land sites Jan’17
OCR
The Trilinq
IOI Properties
755
528
70%
303
40%
225
408
52.1
Feb’17
RCR
Mon Jervois
Singapore Land
140
61
44%
45
32%
16
118.9
15.2
Mar’17
OCR
Kingsford
512
249
49%
22
4%
227
243.2
31
Jun’17
OCR
Capital Devt.
463
172
37%
84
18%
88
211
26.9
Jul’17
CCR
Kingsford Hillview Peak Vue 8 Residences Pollen & Bleu
Singapore Land
106
94
89%
93
88%
1
113.2
14.4
Jul’17
RCR
Sant Ritz
Santarli Corp
214
24
11%
10
5%
14
114.8
14.7
Sep’17
CCR
The Siena
Far East Org.
54
22
41%
12
22%
10
45.8
5.8
Sep’17
RCR
The Crest
Wingtai,Metro, UE
469
366
78%
325
69%
41
516
65.9
Oct’17
OCR
The Glades
Keppel Land
726
343
47%
134
18%
209
434.6
55.5
Dec’17
RCR
Singapore Land
429
173
40%
152
35%
21
332.7
41.6
Jan’18
OCR
Alex Residences The Panorama
Wheelock
698
126
18%
28
4%
98
550
70.2
Apr’18
OCR
UOL Group
555
188
34%
64
12%
124
262.1
50.2
Jun’18
RCR
Apr’18 Sep’18
Keppel Land
500
320
64%
215
43%
105
550.3
105.3
OCR
Riverbank @ Fernvale Highline Residences The Santorini
MCC Land
597
390
65%
328
55%
62
289.7
55.5
CCR
Sophia Hills
Hoi Hup
493
437
89%
346
70%
91
442.3
84.7
16
15
94%
15
94%
0
9.4
1.2
92
26
28%
6
7%
20
54
6.8
28
13
46%
10
36%
3
24
3.1
48
15
31%
5
10%
10
27
3.4
84
67
80%
64
76%
3
46
5.9
260
144
55%
107
41%
37
190
24.5
65
22
34%
7
11%
15
22.6
2.8
11
8
72%
7
64%
1
18
2.3
120
51
43%
25
21%
26
130
16.6
ABSD Payable for projects from private land sites Mar’17
CCR
Meyer Melodia
Cang Properties Robin25 Pte Ltd
Mar’17
CCR
Robin Suites
Jan’17
RCR
Ascent @ 456
Quest Homes
Apr’17
OCR
Jun’17
RCR
The Bently Residences Neem Tree
Sep’17
OCR
Sep’17
OCR
The Creek @ Bukit Rezi3Two
Goodland Group Aylesbury Pte Ltd Chiu Teng Group Tee, KSH and Heeton
Oct’17
OCR
Lotus Ville
JVA Venture
Nov’17
CCR
The Rise @ Oxley
Hao Yuan
Source: URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 17
Page 17
Industry Focus Singapore Developers & REITs
Figure 16: Selling prices indicate that most projects will still earn good margins after payment of ABSD Project
Est. Breakeven
Est. Breakeven with ABSD
Selling Prices < 2016
Selling prices in 2016
% Chg
Average Prices
Margins (q/o ABSD)
Margins (with ABSD)
(S$’psf)
(S$’psf)
(S$’psf)
(S$’psf)
(%)
(S$’psf)
(%)
(%)
ABSD Payable for projects from government land sites The Trilinq
920
990
1,405
1,404
0%
1,404
53%
42%
Mon Jervois
1,265
1,400
1,981
1,832
-8%
1,907
51%
36%
Kingsford Hillview Peak
1,010
1,090
1,367
1,286
-6%
1,326
31%
22%
780
830
983
992
1%
988
27%
19%
Pollen & Bleu
1,450
1,575
1,922
1,801
-6%
1,862
28%
18%
Sant Ritz
1,000
1,080
1,419
1,358
-4%
1,388
39%
29%
The Siena
1,500
1,650
2,067
1,826
-12%
1,947
30%
18%
The Crest
1,350
1,470
1,698
1,718
1%
1,708
27%
16%
The Glades
1,530
1,675
1,454
1,412
-3%
1,433
-6%
-14%
Alex Residences
1,350
1,500
1,705
1,943
14%
1,824
35%
22%
The Panorama
1,180
1,300
1,243
1,220
-2%
1,232
4%
-5%
850
940
976
992
2%
984
16%
5%
1,600
1,800
1,879
1,735
-8%
1,807
13%
0%
950
1,035
1,131
1,082
-4%
1,106
16%
7%
1,450
1,650
1,995
1,916
-4%
1,955
35%
19%
510
530
2,226
-
0%
1,113
>100%
>100%
Robin Suites
1,450
1,600
2,496
2,276
-9%
2,386
65%
49%
Ascent @ 456
1,400
1,580
1,506
1,527
1%
1,516
8%
-4%
The Bently Residences
1,000
1,050
1,408
1,229
-13%
1,319
32%
26%
Neem Tree
1,180
1,285
1,616
1,756
9%
1,686
43%
31%
The Creek @ Bukit
1,180
1,400
1,589
1,656
4%
1,622
37%
16%
Rezi3Two
1,000
1,050
1,507
1,533
2%
1,520
52%
45%
Lotus Ville
775
830
803
754
-6%
779
0%
-6%
1,525
1,685
2,335
2,283
-2%
2,309
51%
37%
Vue 8 Residences
Riverbank @ Fernvale Highline Residences The Santorini Sophia Hills
ABSD Payable for projects from private land sites Mayer Melodia
The Rise @ Oxley
Source: URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 18
Page 18
Industry Focus Singapore Developers & REITs
4.5 Potential land-banking opportunities in Singapore Developers could turn towards the en-bloc sites or even M&A to grow. The government residential land tenders have remained competitive, driving land bid prices high, following the dearth of land supply since the property market peaked in 2013, coupled by developers having pre-sold most of their inventory on their balance sheets on hand. Looking ahead, as the government continues to maintain a low supply in the upcoming 1H17 land tenders, we believe that developers could turn towards the en-bloc market or even look to M&A to continue land banking and to seek growth. Apart from government land sales, developers have turned to opportunities in the private market as evidenced by the recent pick-up in en-bloc transactions. Smaller developers, some of which on average trade at a 50% discount to book values, could be attractive acquisition or privatisation candidates. Limited government land sales (GLS) to result in sticky land bid prices
tendered out in 2016 has reached its lowest level at approximately 4.4m sqft, 75% below the peak in 2012. Unsold inventory at the lowest since 2001. With the government moderating the land supply for a few years now, unsold inventory of residential properties has reached its lowest levels since 2001. As at 3Q2016, unsold inventory had almost halved since its peak in 2011. Land prices have remained sticky. While land prices from the government land tenders have moderated marginally in 2014 to 2015 (highest land prices within the respective year fell c.27% to close to S$900psf ppr levels from a high of S$1,163 psf ppr in 2013), we saw land prices in 2016 achieve a record high of S$1,239 psf ppr. Land bids are increasingly more competitive as spreads thin. The spreads between the winning bid compared to the 2nd and median bids have also narrowed from 15% back in 2013 (peak of 62% in 2009) to 3% in 2016. The number of bids has increased to an average of 12 in 2016, above the historical average of eight bids.
Government residential land sales at its lowest level since GFC. Since the property market peaked in 2013, the government has been moderating the land supply into the market. Total GFA of government residential land sales Figure 18: Land prices remain steady as competition remains high
100
2,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
-
GLS by GFA (sqft)
Average Land Price (S$'psf)
Source: Realis, DBS Bank
ASIAN INSIGHTS
200 -
533
809
350 463 463 413 436 285 268 404 350 310 241 256 418 489 438 483 481 350 318 320 291 228 203 280 197 245
Min
Average
Max
Source: Realis, DBS Bank
VICKERS SECURITIES
Page 19
Page 19
2016
4,000
400
460
681 724 650 695
2015
200
507
600
607
2014
6,000
639
2013
300
849 871
2012
8,000
800
2011
400
1,239
1,163
869
2010
10,000
1,000
2009
500
2008
12,000
1,200
2007
600
2006
14,000
1,108
2005
700
2003
16,000
1,400
2002
800
Pric e (S$psf)
18,000
A v erage Land Prices (S$'psf)
G ov ernment Land Sales by GFA (sqft)
Figure 17: Shortage of land supply from the government
Industry Focus Singapore Developers & REITs
Figure 19: Winning margin and average range of bid have narrowed 200%
18
winning bid margin and average range of bid has narrowed
180% 160% 140%
14
60% 40% 20% 0%
12
12 A verage no. of bids = 8
10 8
8
8
8
Date of Award
Location
Type of Development
Lease (yrs)
No. of Name of Successful Tenderer Bids
Developer
6-Dec-16 (tender closed) 1-Oct-16
Margaret Drive
Residential
99
14
MCL Land (Regency) Pte Ltd
Fernvale Road
Residential
99
14
Anchorvale Lane Martin Place
Executive Condominium Residential
99
16
99
13
30-May-16
Bukit Batok West Avenue 6
Commercial & Residential
99
11
13-Apr-16
Jalan Kandis
Residential
99
29-Feb-16
Yio Chu Kang Road New Upper Changi Road (Parcel B) Siglap Road
Executive Condominium Residential Residential
18-Jan-16
2016
2015
2014
Source: Realis, DBS Bank
Figure 21: GLS Sites awarded in 2016
26-Feb-16
2013
2009
2008
2007
-
2006
2
2005
Highest vs 2nd
Average
2016
2015
2014
2013
2012
2011
2010
2008
2007
2006
2005
2009
Highest vs Median
Source: Realis, DBS Bank
1-Jul-16
8
4
Highest vs Lowest
5-Sep-16
10
6
6
6
10
8
2012
80%
12
2011
100%
2010
120%
-20%
16
16
Av erage no. of bids
av erage range of bid (%)
Figure 20: Number of bidders has increased
Total
Successfu l Tender Price (S$'m)
$S$ psf per plot ratio
Units
SG Listed
238.4
997.8
275
SG Listed
287.1
517.2
575
Foreign
240.9
355.2
635
SG Listed
595.1
1,239.4
450
Foreign
301.2
634.8
425
9
Sing Development (Pte) Ltd and Wee Hur Development Pte Ltd Hoi Hup Realty Pte Ltd and Sunway Developments Pte Ltd First Bedok Land Pte Ltd (Guocoland) Qingjian Realty (BBR) Pte Ltd. And Qingjian Realty (BBC) Pte Ltd Dillenia Land Pte Ltd
Foreign
51.1
481.2
110
99
10
Hoi Hup Realty Pte Ltd
Foreign
183.8
331.1
520
99
8
CEL Residential Development Pte Ltd
SG Listed
419.4
760.8
570
99
8
FCL Topaz Pte Ltd, Sekisui House Ltd and KH Capital Pte Ltd
SG Listed
624.2
858.3
800
2,702.8
4,085
Source: Companies, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 20
Page 20
Industry Focus Singapore Developers & REITs
Figure 22: 1H17 Government Land Sales Program
S/N
Site area (ha)
Proposed GPR
Est. No. of Housing Units
Est, No. of hotel rooms
Estimated commercial space (sqm)
Estimated launch date
Sales agent
1.87 2.17 1.31 1.72 1.96
1.4 2.8 Landed 2.5 3
325 715 50 505 735 2,330
-
-
Feb-17 Mar-17 Apr-17 May-17 May-17
URA URA URA URA URA
2.11 0.47 2.71 2.17 1.38 1.33 2.02 1.72
4.2 2.1 3 2.8 3.5 3.8 1.8 3
1110 115 775 715 605 515 455 575
-
1,500 -
Available Available Available May-17 Jun-17 Jun-17 Jun-17 Jun-16
URA URA HDB URA URA URA URA URA
2.3
2.6
570
-
13,500
Available
URA
2.1 2.24
4.2 3.5
260
-
88,200 60,030
Available Available
URA URA
Total (Reserve List)
5,135
-
158,080
Total (Confirmed List and Reserve List)
7,465
-
158,080
Location
CONFIRMED LIST 2H15 Residential Sites 1 2 3 4 4
Toh Tuck Road Tampines Avenue 10 (Parcel C) Lorong 1 Realty Park Serangoon North Avenue 1 Woodleigh Lane Total (Confirmed List)
RESERVE LIST Residential sites 1 Stirling Road 2 Bartley Road / Jalan Bunga Rampai 3 Sumang Walk (EC) 4 Yishun Avenue 9 5 Owen Road 6 Jiak Kim Street 7 Fourth Avenue 8 Commercial & Residential Sites 9 Holland Road Commercial Sites 10 Beach Road 11 Woodlands Square
Source: URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 21
Page 21
Industry Focus Singapore Developers & REITs
4.6 More En-bloc transactions in 2017 S$639m (S$557 psf ppr), ii) Raintree Gardens, Potong Pasir second en-bloc sale of privatised former HUDC estate at S$334m (S$593psf ppr) to UOL / UIC JV, iii) No.3 Cuscaden Walk, Orchard at S$103.8m (S$1,826 psf ppr) to SL Capital, a consortium led by Sustained Land, iv) No. 120 Grange Road, Orchard at S$48.5m (S$1,841 psf ppr) to Roxy-Pacific Holdings, and v) No. 8 Hullet Road, Orchard at S$38.2m (S$2,073 psf ppr) to a consortium led by Patrick Kho of Lian Huat Group. Media / news reported properties for sale including two apartments at The Claymore, Lakeside Towers in Jurong, Villa D’Este on Dalvey Road and Cairnhill Mansion on Orchard Road.
Increase in en-bloc transactions in 2016. From 2005-2007, we saw a pick-up in en-bloc transactions when there was a shortage of government land supply. Following the implementation of property cooling measures, en-bloc transactions have dwindled down since 2011 to no transactions in 2014. In 2015, only one successful transaction (the sale of Thong Sia building) was recorded. Nevertheless, we have seen a pick-up of en-bloc transactions in 2016 with Harbour View Gardens being successfully transacted in August 2016 at an average price of S$1.3k psf, five en-bloc deals announced, and increasing media / news on property owners engaging property consultants (such as JLL and CBRE) to set up collective sales committee. The five en-bloc deals announced (excluding en-bloc sales for asset recycling purposes or specifically to be exempted from ABSD or QC charges) were i) Shunfu Ville, Bishan which was the first enbloc sale of privatised former HUDC estate in nine years at
Despite the tighter rules on en-bloc sales and more tedious process to complete an en-bloc transaction, developers are now willing to undertake these properties, implying that i) developers are hungry for land bank, and ii) developers are taking a more positive outlook in the medium term.
Figure 23: Shortage of land supply from the government
Figure 24: Land prices remain high due to competitive bids
Source: URA, DBS Bank
Figure 25: Pick-up in en-bloc sales during shortage of government land supply
Figure 26: Total land transactions has fallen from 2013 onwards, post the implementation of cooling measures
Source: URA, DBS Bank
ASIAN INSIGHTS
Source: URA, DBS Bank
Source: URA, DBS Bank
VICKERS SECURITIES
Page 22
Page 22
Industry Focus Singapore Developers & REITs
4.7 Merger and Acquisition (M&A) activities could pick up With the recent proposed privatisation of various propertyrelated companies and news reports on potential takeovers of United Engineers (UE) (please refer to our report: Another Centenarian for Sale) and Global Logistic Properties (GLP), we believe that some of the smaller-cap developers which are trading at deep discounts to NAV could look attractive for potential M&A as an alternative to acquire assets / land
banking. We reviewed a list of smaller-cap developers with the key summary of each of the developers below. The smaller-cap developers are trading at an average discount to NAV of 29% with most trading at a range of 40-93% discount to NAV. Companies that are in deep discounts with attractive assets includes Bukit Sembawang (93% discount), Wing Tai (60%), Hiap Hoe (51%), and Hobee (50%).
Figure 27: Sample list of mid-cap developers that could head the M&A route Bukit Sembawang
Bloomberg / Reuters Market Cap (S$'m) Shareholding Structure
Disc / (Prem) to NAV Debt / Equity
BS SP / BSES.SI
Cash % of Market Cap Assets by business units
Assets by countries
Key assets
44% Cheng Family 11% Others 5% Free Float
93%
39% no debt
Cash balance (S$'m)
no debt 401
Development properties Investment properties
HIAP SP / HIAP.SI
WINGT SP / WTHS.SI 1,177
Lee Family Aberdeen Asia Fountain Inv (Guoco Grp) Free float
Net debt / Equity
Hiap Hoe
Wing Tai
34%
99.6% Development properties 0.4% Investment properties Retail
n/a
Others
1,298
335
50% Teo Family 2% Others 48% Free float
60% 0.4 0.1 966 74%
70% 1% 29%
51% 0.7 0.6 23 7%
57.0% Investment properties 39.0% Hotel 2.0% Development properties
45% 11% 8%
2.0% Construction
4%
Leisure
0%
Others
31%
SG
47% SG
82%
HK
29% AU
18%
CH
11%
MY
13%
Paterson Collection, Orchard, SG Resi St Thomas Walk, River Valley, SG Resi Luxus Hill, Seletar, SG - Landed resi
The Crest, SG - Resi
Signature At Lewis, SG - Resi
Le Nouvel KLCC, MY - Resi
HH @ Kallang, SG - Industrial
Winsland House, SG - comm
Watercove, Sembawang, SG Landed resi
Development in Suzhou Industrial Park - Comm Lanson Place, Shanghai - hospitality
Zhongshan Park Integrated, Novena, SG - Mixed
Source: DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 23
Page 23
Industry Focus Singapore Developers & REITs
Figure 27: Sample list of mid-cap developers that could head the M&A route (continued)
Bloomberg / Reuters Market Cap (S$'m) Shareholding Structure
Disc / (Prem) to NAV Debt / Equity Net debt / Equity Cash balance (S$'m) Cash % of Market Cap Assets by business units
Assets by countries
Key assets
Hobee
Roxy
HOBEE SP / HBEE.SI
ROXY SP / RXYP.SI
1,477
Chua Family
76% Teo Family
Others Free float
1% Others 23% Free float 50%
Commercial Residential Industrial
0.5 0.5 77 5%
Wheelock WP SP / WPSL.SI
501
1,789
72% Wheelock and Company Limited 6% Aberdeen 22% Free Float 45% 1.9 1.2 327 65%
76% 6% 18% 40% 0.0 (0.4) 1,319 74%
63% Development properties 35% Hotel 1% Investment properties Others
58% 35% 7%
SG UK CH
57% Development properties 11% Investment properties 16% Investments 17%
55% SG 29% AU 12% JP
80% 20%
AU
42% SG 36% Other 8%
4% TH
4%
MY
4%
HK
5%
ID
1%
Turquoise, Seascape & Cape Royale, Sentosa Cove, SG Residential projects in Shanghai, Tangshan, Zhuhai 6 commercial buildings in London The Metropolis, Buona Vista, SG Comm / Retail HB Centre 1 & 2, SG - Ind
Hotel properties in SG, JP, AU, TH & Maldives Sunnyvale Residences, SG - Resi
Ardmore Three, Orchard, SG - Resi
Trilive, SG - Resi / Retail New World Towers, South Brisbane, AU - Resi Land banks in SG, AU, ID
Fuyang project, Hangzhou, CH Wheelock Place, SG - Comm / Retail
Scotts Square, Orchard, SG - Resi
Source: DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 24
Page 24
Industry Focus Singapore Developers & REITs
Figure 27: Sample list of mid-cap developers that could head the M&A route (continued) Metro
Bloomberg / Reuters Market Cap (S$'m) Shareholding Structure
Disc / (Prem) to NAV Debt / Equity
METRO SP / MTHL.SI
Cash % of Market Cap Assets by business units
1,676
ASP SP / ASPA.SI
Free float
49%
37%
15%
0.0
0.6
Retail
Key assets
UEM SP / UTES.SI 36% 10%
Property
Assets by countries
844
Aspial
Ong Family Ngee Ann Dev Pte Ltd Others
Net debt / Equity Cash balance (S$'m)
UE
6%
4%
79% 15% 7%
9% Free float
WBL Corp
3%
Free float
65%
properties Investment properties Technology & Manufacturing Corporate Services & Other Assets SG CH USA
0.3 671 40%
47% Financial service
14% Others
1%
ASEAN (ex SG & MY) HK
0% 0%
Rest of Asia
0%
Others
2%
Free float
12% 15% 1% -63%
4.2
3.1 2.6 367 29% 68% 13% 7% 12% 97% 2% 1%
Japan
0%
Cambodia
0%
Others
1%
UE Bizhub City, SG - Mixed
Middlewood Locks, Manchester, UK - Resi Metro Tower / City, Shanghai - Comm / retail GIE Tower, Guangzhou, CH - Comm
Land banks in Brisbane & Penang
Kensington Square, SG Retail / Resi City Gate, SG - Retail / Resi Nova City, Cairns, AU Mixed
The Flow, East Coast, SG Comm The Rise@Oxley, Oxley Rise Rd, SG - Residences / Retail Floraville / Floraview / Floravista, Ang Mo Kio, SG Mixed Space@Tampines, SG Industrial Novotel & Ibis on Stevens,SG - hospitality Development properties in Cambodia, Malaysia, Myanmar, etc
Source: DBS Bank
ASIAN INSIGHTS
43% 29%
-60%
Nanchang Fashion Mark, Jiangxi, CH - Mixed The Crest at Prince Charles Crescent, SG - Resi Sheffield Digital Campus, Sheffield, UK - Comm
UE Bizhub West, SG - Ind / Comm Mixed Development One North, SG - Mixed
1,282
99.9% SG 0.1% MY UK
85% Singapore 10% Malaysia 1% 1%
5% Investment properties 41% Corporate
17% Jewellery
TW
3.9 72 14% 44% Development properties 10% Hotel
22% Real estate
MY
525
OHL SP / OXHL.SI 84% Ching Chiat Kwong 6% Low See Ching (Liu Shijin) 11% Tee Wee Sien (Zheng Weixian) Others
13% Koh Family 10% Others
Lee Foundation
(0.3) 418 50% 96% Development
CH ASEAN Others
Great Eastern OCBC
Oxley
VICKERS SECURITIES
Page 25
Page 25
Industry Focus Singapore Developers & REITs
Past transaction multiples imply that 1x P/NAV and 0.8x P/RNAV are levels at which most deals are struck. Based on selected privatisation transactions between 2010 and the latest practicable date involving property developers listed on the SGX (list may not be exhaustive), the deals were
transacted at an average P/NAV multiple of 1.0x and P/RNAV of 0.8x as shown in the table below. However, we note that there may be differences in terms of size, market capitalisation, financials and portfolios that could change the potential valuations for M&A.
Figure 28: Historical Transactions involving listed Property Developers (2010-now) Announcement Date
Target Company
Acquirer
Aug-2016
Sim Lian
Final Offer Price
Deal Value
S$'m
Premium/ Disc 1-mth VWAP
P/NAV
P/RNAV
(x)
(x)
Coronation 3G
1.08
216
16.8%
0.9x
n.a.
Jan-2015
Keppel Land
Keppel Corp
4.38
2,749
25.0%
0.88x
0.66x
Apr-2014
Hotel Properties Limited
Wheelock
4.05
200
33.8%
1.32x
0.79x
Apr-2014
CapitaMalls Asia
CapitaLand Limited
2.35
3,025
35.8%
1.26x
0.89x
Feb-2014
Singapore Land Limited
9.40
650
16.9%
0.72x
0.67x
Dec-2012
1.80
318
57.2%
1.15x
0.8x
May-2012
SC Global Developments Limited Wing Tai
United Industrial Corporation Limited MYK Holdings Pte Ltd Ascend Capital Limited
1.39
1,104
14.3%
0.55x
0.62x
May-2011
Allgreen Limited
1.60
1,060
40.6%
0.99x
0.81x
Sep-2010
Soilbuild Limited
Brookevale Investment Pte Ltd Dolphin Acquisitions
0.80
113
15.6%
1.26x
1.07x
Aug-2010
MCL
Hong Kong Land Holdings Limited
2.45
189
27.3%
0.96x
0.75x
Min
14.3%
0.62x
0.62x
Mean
28.3%
0.78x
1.0x
Median
26.1%
0.79x
1.0x
Max
57.2%
1.07
1.32
Source: DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 26
Page 26
Industry Focus Singapore Developers & REITs
4.8 Will Developers need to deleverage? Average indebtedness across developers over time remain stable; larger-cap developers have been generally more conservative. Property developers have generally been conservative in their approach towards capital management and over the past few years, kept net gearing in the range of 0.4-0.6x. Tracking the average indebtedness across developers over time, we found that mid-sized developers (defined as those with market capitalisation of up to S$2bn) have generally taken more debt in recent years and thus average gearing of c.0.8x in the last four years, higher than the sector’s average of c.0.7x over the same period.
capital. Firstly, we expect the land-banking climate to remain competitive in Singapore given limited land sites available for tender from the government, which means that most midsized developers could be crowded out by their larger competitors or foreign developers. Secondly, increased currency volatility going forward is expected to be a drag on returns when deploying more capital overseas. As such, given limited avenues to deploy capital and fairly strong balance sheets, we believe that a possible avenue where developers could look to deleverage their balance sheet or if not pay higher dividends going forward.
On average, over the same period, the large-cap developers have an average net gearing ratio of c.0.5x.
The recent spike in swap-offer rates (SOR) could imply higher refinancing costs going forward. As such, faced with a slowing top-line growth and increasing prospects of higher interest obligations, we believe that a viable strategy will be to utilise proceeds that are recognised from subsequent years’ pre-sales to pare down on debt obligations when they come due in 2017-2018.
Developers that stand out in terms of higher gearing than their peers as of the latest reported quarter are the likes of Guocoland (large-sized developer) at 1.2x and in the mid-sized developer space - Oxley, Tee Land and Roxy-Pacific which all have net gearing in excess of 1.0x (Fig. 30). Chip Eng Seng and Tuan Sing also have high net gearing of above 0.9x. Developers to deleverage as outlook remains subdued. 2017 will turn out to be a tough year for developers to deploy
Figure 29: Gearing levels of Property Developers over time have remained fairly stable
In our interest rate analysis, we estimate impact on PATMI for the developers from a 1% increase in interest rates result in a 4-40% impact on PATMI.
Figure 30: Net gearing of Selected Mid-Cap Developers (Latest Quarter)
0.50
2.50
0.45
2.15
2.00
0.50
0.47
0.50
0.54
OUE
0.25
Hiap Hoe
1.00
0.71
0.85
0.94
0.98
Tuan Sing
0.30
Chip Eng Seng
1.50
0.35
Hobee
1.07
1.16
Large cap
Mid cap
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS Page 27
Average
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES Page 27
Oxley
Roxy-Pacific
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
0.10
TEE Land
0.00
0.15
Heeton
0.20 Fragrance
N e t Debt/Equity (x)
0.40
Industry Focus Singapore Developers & REITs
Figure 31: Summary of Developers Financial position (As of latest quarter ended Sept-2016) Developer
Type*
Market Cap
Total Assets
Total Debt
Total Equity
Cash
Total Debt/ Equity
Net Debt/ Equity
Net Debt/ EBITDA
(x)
Total Debt/ EBITDA (TTM) (x)
(x)
EBITDA/I nterest expense (TTM) (x)
(S$'bn)
(S$'bn)
(S$'bn)
(S$'bn)
(S$'bn)
(x)
Capitaland
Large
13.56
46.21
15.58
23.88
4.24
0.7
0.5
11
8
3.0
GLP
Large
8.77
27.73
6.21
18.30
2.47
0.3
0.2
10
6
3.0
Citydev
Large
7.40
19.93
6.35
11.02
3.29
0.6
0.3
5
3
11.8
UOL
Large
4.52
11.60
2.57
8.51
0.27
0.3
0.3
8
7
9.8
FCL
Large
4.32
24.20
9.80
11.84
2.17
0.8
0.6
12
9
5.1
UIC
Large
3.86
8.62
1.31
6.98
0.08
0.2
0.2
4
4
28.9
Guocoland
Large
2.21
8.15
4.05
3.47
1.13
1.2
0.8
22
16
3.9
Wheelock
Mid
1.78
3.28
0.02
3.02
0.40
0.0
(0.1)
0l0
(7)
55
OUE
Mid
1.57
8.09
2.97
4.59
0.21
0.6
0.6
17
14
1.5
Perennial RE
Mid
1.49
6.71
2.52
3.64
0.19
0.7
0.6
221
1
1.2
Ho Bee
Mid
1.44
4.29
1.39
2.79
0.08
0.5
0.5
9
8
21
Wingtai
Mid
1.31
4.71
1.13
3.34
0.97
0.3
0.0
89
13
0.3
Oxley
Mid
1.23
4.48
2.43
0.96
0.37
2.5
2.1
8
7
8.4
Bukit Sembawang
Mid
1.16
1.42
-
1.27
0.40
-
(0.3)
0.0
(4)
0.0
Fragrance
Mid
1.09
2.00
0.82
1.06
0.06
0.8
0.7
93
85
1.6
Roxy-Pacific
Mid
0.53
1.50
0.89
0.48
0.33
1.8
1.2
12
8
4.8
Chip Eng Seng
Small
0.39
2.18
1.17
0.75
0.46
1.6
0.9
12
7
5
Tuan Sing
Small
0.35
2.09
1.04
0.89
0.16
1.2
1.0
16
14
2.4
Hiap Hoe
Small
0.33
1.30
0.45
0.69
0.02
0.7
0.6
8
6
4.4
SingHaiyi
Small
0.30
0.95
0.30
0.47
0.12
0.6
0.4
-29
-17
-1.3
Heeton
Small
0.14
0.72
0.31
0.33
0.03
0.9
0.9
-85
-77
-0.2
TEE Land
Small
0.09
0.42
0.21
0.17
0.03
1.2
1.1
153
135
0.3
Total Debt/ Equity (x)
Net Debt/ Equity (x)
Average Sector
0.6
0.4
Average Large Cap
0.6
0.4
Average Mid Cap
0.7
0.5
Average Small Cap
1.1
0.9
*Large Cap denotes Market Cap > S$2.0bn, Mid-Cap Developers refer to those with market cap > S$0.5bn to less than S$2.0bn, Small Cap <S$0.5bn in market cap Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 28
Page 28
Industry Focus Singapore Developers & REITs
Bond markets issuances have increased in recent years. With strong investor demand for yields in recent years amidst the low interest rate environment, we have seen an increase in new bond issuances in Singapore. In the real estate space, we saw close to S$34bn of new issues over the past five years, which is more than 20% of the total amount of new bond issuances over the preceding five years. In the real estate sector, bond issuances peaked in 2011, and again reached new highs in 2012 and 2015. In 2015, bond issuances totalled S$8.7bn across the real estate sector. We also note that mid-sized developers have also been tapping the bond markets in recent years. A total of S$3.5bn worth of bonds will be due in 2017. Average cost of funds has also been falling over time, hovering at about 3% since 2008.
Figure 32: Bond issuances by developers peaked in 2015
9,000
4.0%
8,000
3.5%
7,000
We note that among the bonds due in 2017, developers like Guocoland and OUE will need to refinance expiring bonds. Developers such as OUE and Heeton’s existing cash balances and receivables may not be sufficient for repayment of bonds. Additional financing may be required in due time for bond repayments.
Figure 33: Bonds Expiry profile 4.5%
10,000 S $'m
S$3.4bn worth of bonds from developers due in 2017 that need to be refinanced. Continued access to funding is a key enabler to a healthy real estate development and investment market. However, recent bond defaults in the oil & gas space has resulted in heightened risk aversion among investors in bonds. In addition, the market for future bond issues appears to be shut for most aspiring issuers for now. If the current riskoff sentiment remains in the medium term, it might be a headwind for issuers in the real estate sector who need to refinance upcoming bond expires in 2017-2018 which total S$6.3bn, out of which S$4.0bn will be from real estate developers.
Developers
S$'BN
REITs
3.0% 3.2
6,000
2.5%
5,000 2.0%
4,000
1.5%
3,000
1.3
2,000
1.0%
1,000
0.5% 0.0%
0
0.8
2.9
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total amount issued (S$m)
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Average cost of debt
2017
1.2
1.5
1.3
3.6
6.0 1
2.1
0.9
2.6 1.1
1.2
2018
2019
1.4
0.7 2020
2021
2022
2023
0.9 2024
>20 24
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 29
Page 29
Industry Focus Singapore Developers & REITs
Figure 34. Selected property developers’ outstanding bonds, 2017-2018 (S$m) Issuer
Maturity
Amount Outstanding (S$'m)
SingHaiyi Group Ltd
Jan-17
100
Fragrance Group Ltd
Jan-17
85
OUE Ltd
Feb-17
300
City Developments Ltd
Feb-17
250
GLL IHT Pte Ltd (Guocoland)
Feb-17
160
UOL Group Ltd
May-17
75
Oxley Holdings Ltd
May-17
150
Jun-17
60
Jul-17
50
GLL IHT Pte Ltd (Guocoland)
Aug-17
170
Keppel Land Ltd
Aug-17
100
GLL IHT Pte Ltd (Guocoland)
Sep-17
105
Chip Eng Seng Corp Ltd
Oct-17
150
TEE Land Ltd
Oct-17
30
Heeton Holdings Ltd CapitaLand Treasury Ltd
Hongkong Land
Dec-17
50
City Developments Ltd
Mar-18
100
Perennial Treasury Pte Ltd (Perennial)
Mar-18
100
UOL Treasury Services Pte Ltd (UOL)
Apr-18
175
Global Logistic Properties Ltd
May-18
67
Jul-18
65
Centurion Corp Ltd Roxy-Pacific Holdings Ltd GLL IHT Pte Ltd (Guocoland)
Jul-18
60
Sep-18
75
Citydev Nahdah Pte Ltd
Sep-18
50
City Developments Ltd
Sep-18
50
Perennial Real Estate Holdings Ltd
Oct-18
300
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 30
Page 30
Industry Focus Singapore Developers & REITs
5.
Singapore REITs: Déjà vu Key Assertions Back to square one with REITs facing expectations of rising interest rates Some buffer with yield spreads at average levels even after accounting for 3% 10-year bond yield Combination of growth and/or large discount to book best positioned to ride out 2017 Large-cap picks: A-REIT, KREIT, MCT, Mid-cap picks: CRT, FLT, KDCREIT
Negative 2016 outlook for S-REITs fails to materialise until towards later half of the year. At the end of 2015 after the first rate hike by the US Federal Reserve in December 2015, the market was pricing in three rate hikes. These expectations resulted in S-REITs correcting in January 2016. However, as the year progressed, the impact of (1) negative interest rates in Europe and Japan, (2) further correction in oil prices, (3) disappointing nonfarm payroll data in May, and (4) uncertainty caused by Brexit, caused expectations for rate hikes to be dialed back significantly. Consequently, the S-REIT index (excluding dividends) rallied by 11% till early September, outperforming the 0.4% rise in the STI and 2% fall in the property developers index. However, with an improving US economy causing interest expectations to rise, further accelerated by the victory by President-Elect Trump on 8 November 2016, the S-REIT index fell by 8%, underperforming the 0.4% and 0.3%% drop in both the STI and developers index. DBS more hawkish on interest rates means S-REITs performance to be capped. Going into 2017, consensus expectations are for three rate hikes with our DBS economists being more hawkish, forecasting the US Federal Reserve to increase the Fed Funds rate by 25bps once every quarter next with the US 10-year bond yield rising to 3.25% versus current spot rate of 2.3% and consensus forecasts of 2.5%. The Singapore 10-year bond yield is also expected to increase in tandem to 3.05%. Should our DBS house view come to fruition, we believe the performance of S-REITs will likely be capped. Deteriorating rental outlook for most real estate subsectors. Revenues across the office, retail, industrial and hospitality sectors were under pressure in 2016 due to a combination of sluggish demand as well as increase in physical completions and anticipated supply. Demand for the more cyclical sectors office, hotel and industrial sectors were also negatively
ASIAN INSIGHTS
impacted by the uncertain economic environment. Meanwhile, the retail sector was affected by Singaporeans spending their disposable income overseas and shopping online. Going into 2017, we believe these negative trends are likely to continue, resulting in a modest 1.1% growth in DPU for the sector. Current forward yields offer some buffer with yield spread at average levels assuming a normalised 10-year yield of 3.0%. While S-REITs are likely to face headwinds in the form of falling rents and rising interest rates, we believe the recent correction has provided some downside buffer. The current FY17F yield spread to a normalised 3% bond yield stands at 4.0% which is slightly above the historical average spread of 3.8% and close to the 4.1% average since 2010. Full impact on DPU from rise in interest rates will not be felt immediately. While investors are rightfully concerned about the impact of an increase in interest rates on DPU, based on our analysis, the full impact will only be felt over the course of the next two to three years. This is because S-REITs in general have hedged 75-85% of their debt into fixed rates and have only 9%, 21% and 20% of total debt up for refinancing over 2017, 2018 and 2019 respectively. We estimate that a 1% rise in interest rates will have a 2.9% and 4.9% impact on distributions in 2017 and 2018 respectively. Sector preferences – (1) Office, (2) Retail, (3) Industrial, and (4) Hospitality. In terms of sectors, our preference is for the office REITs despite the expected decline in office rents given that the sector trades at 20% discount to book value and 10-30% discount to recent market transactions. In addition, we think the sector remains under-owned relative to other sectors. Our second preference is the retail sector for its resilient income stream (i.e. exposure to suburban necessity shopping malls) and the fact that it now trades close to 1x P/BV versus the sector’s typically 10-20% premium to book value. The industrial sector's third ranking is mainly attributed to our positive view on the larger REITs such as Ascendas REIT which offer a combination of strong balance sheets, decent yields and growth options. While we see long-term value in the hospitality sector given that the sectors trades at 20-40% discount to book, we believe there is limited re-rating catalyst at least for 1H17 as RevPAR is expected to remain under pressure. However, we recommend that investors look for opportunities to re-enter in 2H17 on the
VICKERS SECURITIES
Page 31
Page 31
Industry Focus Singapore Developers & REITs
back of a potential recovery in 2018 as the oversupply situation in Singapore normalises. Stocks with growth and/or trading at a discount to recent market transactions/book to outperform. With a challenging 2017 to come, we believe REITs with a clear and visible growth driver will do well. On that front in the large-cap space, Mapletree Commercial Trust (MCT) stands out given its DPUaccretive acquisition of Mapletree Business City Phase I which is under-rented as well as continued growth at its core asset Vivocity. We also believe the risk reward for Ascendas REIT (AREIT) is favorable given its exposure to the business park space which is supply constrained. Moreover, AREIT will be under geared balance sheet post conversion of the outstanding convertible bonds next year which will allow AREIT to further deepen its presence in Australia through acquisitions.
Figure 35: Price performance of Singapore REITs vs Singapore Developers and STI Index
+12%
1.15 1.10 1.05 1.00 0.95 0.90 0.85 0.80 0.75
In the mid-cap space, Frasers Logistics and Industrial Trust (FLT) and Keppel DC REIT (KDCREIT), with inbuilt annual rental escalations and the ability to deploy their lowly geared balance sheets, offer visible growth in DPU. Growth in DPU is also evident at Croesus Retail Trust (CRT) which will benefit from favorable hedges, with additional upside should it be taken over. Finally, our top pick for stocks that trade at a discount relative to book and recent market transactions is Keppel REIT (KREIT). The implied value for KREIT’s Singapore portfolio on a per sqft basis stands at S$2,250 versus recent market transactions of S$2,700 and above, and it trades at 0.76x P/BV.
Figure 36: S-REIT yields and yield spread chart 14% Sector Yield spread
12%
Sector Yield
10%
MAS 10 Year
8% 6% 4% 2% 0%
FSTREI (ex dividend)
STI Index
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Developers Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 32
Page 32
Industry Focus Singapore Developers & REITs
Key Issues in 2017 With a sense of déjà vu, as we approach 2017, we are faced with the similar issues confronting investors at the start of 2016 and 2015. These include risk of rising interest rates, slowing growth, higher cost of capital potentially constraining the ability to raise capital to fund growth plans, and heightened risk of write-downs of property values given falling rents. With economic outlook now softer than at the start of 2015 and 2016, we believe that S-REITs with stronger relative growth will command an increasing premium. In addition, SREITs which offered resiliency in the past and trade at a premium but are now only able to offer flattish DPU growth might be vulnerable, given rising risks of earnings disappointment. Key themes in 2017 are as follows:
5.1
Impact of an increase in interest rates on share price, distributions
DBS economists project interest rates to rise faster than consensus. We believe investors’ attention is now focused on the pace of interest rates in 2017. Thus far, consensus is expecting three rate hikes with the US 10-year bond yield forecast to rise to 2.5-2.6%. With share prices for S-REITs having already corrected in anticipation of this outcome, we believe S-REITs will likely deliver steady returns. In contrast, the more hawkish forecasts by our DBS economists, who anticipate four rate hikes (25bps once a quarter), would take the Fed funds rate to 1.5% by end-2017, the US 10-year bond yield to 3.25% and the Singapore 10-year bond yield to 3.05%. Under our house view, the overall performance of S-REITs will likely to capped. Figure 37: DBS Interest Rates Forecasts Current (8 Dec'16)
1Q17F
2Q17F
3Q17F
4Q17F
But expectations could be dialled back again. While the market remains focused on rate hikes, there is a possibility that 2016 could repeat again, with interest rate expectations being reduced. This could arise from the European Central Bank (ECB) and Bank of Japan’s (BOJ) decision to push interest rates further into negative territory and concerns over the potential breakup of the Euro on the back of victories by nationalist parties in several European elections next year. Furthermore, the policies actually implemented by President-elect Trump may not be as inflationary as first thought and/or concerns over impact on curtailment of global trade/economies weigh more on long-term bond yields. Potential return of capital to the US a headwind (Figure 38). The SGD strengthened against the USD between 2009 and 2013, when the US Federal Reserve implemented three rounds of quantitative easing. During this period, the carry trade was prevalent with USD-based investors taking advantage of the stronger SGD by taking positions in yield instruments including S-REITs. This resulted in the FSTREI Index rallying c.44% to its peak in May 2013. However, with the end of the quantitative easing by the US Federal Reserve and the interest rate up cycle commencing from December 2015, the FSTREI Index has become more volatile, moving in sync with changes in interest rate expectations and movements in the USD. Going forward, should US interest rates continue on an aggressive path upwards, in line with our DBS economists view, capital from Asia would likely return back to the US, presenting a headwind to the performance of S-REITs.
Figure 38: Singapore REITs vs currency 1,200
P e riod when stre ngthening S GD a tailwind
1,000
US 10Year Bond
2.35%
2.65%
2.85%
3.05%
3.25%
US 2-year bond
1.10%
1.50%
1.70%
1.90%
2.10%
600
US yield Curve
1.25%
1.15%
1.15%
1.15%
1.15%
400
SG 10 year bond
2.34%
2.65%
2.75%
2.85%
3.05%
SG 2-year bond
1.17%
1.50%
1.65%
1.80%
1.95%
SG Yield Curve
1.17%
1.15%
1.10%
1.05%
1.10%
We a ker S GD a pote ntial he a dwind
800
1.70 1.60 1.50 1.40 1.30 1.20
200
1.10 1.00
-
FSTREI Index (LHS)
USDSGD Rate (RHS)
Source: Bloomberg Finance L.P., DBS Bank Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
1.80
VICKERS SECURITIES
Page 33
Page 33
Industry Focus Singapore Developers & REITs
Yield spread below historical averages assuming normalised 3.05% yield. The current FY17F yield spread to the spot 10year bond yield stands at 4.7% which is above the historical average spread of 3.8% and 4.1% average since 2010. However, assuming a normalised 3.05% bond yield, the yield spread will drop to 4.0% which will be in line with its historical mean. This implies that current share prices have priced in rates inching back to normalised levels.
REITs in general may face some volatility. However, we believe S-REITs with clear visible growth drivers have the potential to experience a compression in yield spread, with absolute yields stable or even compressing. This would be similar to the experience during the last interest rate up-cycle. Using Capital Mall Trust (CMT) as an example, from 2004-2007, CMT’s yield spread fell from over 4% to 0.4% in mid-2007, while the US Federal Reserve raised the Fed Funds Rate from 1% to a peak of 5.25%, and CMT generated annual DPU growth in excess of 7%.
Potential for yield spreads for REITs with growth to compress during rising interest rate environment. Assuming the long bond yield spikes to 3.05% by end-2017, share prices of S-
Figure 39: CMT experienced a compression in interest rates during an up-cycle in interest rates 6.0%
20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%
Increase in interest rates
5.0% 4.0% 3.0% 2.0% 1.0%
Fall in yield spread
0.0%
CMT yield spread (LHS)
SG 10 year bond yield (LHS)
US Fed Funds Rate (LHS)
y-o-y DPU growth (RHS)
Source: Bloomberg Finance L.P., Thomson Reuters, DBS Bank
Figure 40: Forward S-REIT yield spread at a new normal
6.0% Sector Yield spread
5.5%
+ 2 SD
5.0% + 1 SD 4.5% M ean
4.0%
- 1 SD
3.5% 3.0%
- 2 SD
2.5%
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 34
Page 34
Industry Focus Singapore Developers & REITs
Figure 41. Historical S-REIT yield and S-REIT yield spread (2005-current) Period
Years
10 Year bond (%)
S-REIT Yields (%)
S-REIT Yield Spreads (%)
2005
2.9%
4.8%
2.1%
“High Growth”
2006
3.4%
5.0%
1.6%
2007
2.9%
4.1%
1.2%
“Aberration in valuations due to the GFC”
“Liquidity driven recovery”
2008
2.8%
7.3%
4.5%
2009
2.3%
9.6%
7.3%
2010
2.4%
6.3%
3.9%
2011
2.2%
6.4%
4.2%
2012
1.5%
6.5%
5.0%
2013
2.0%
5.8%
3.8%
2014
2.4%
6.2%
3.8%
2015
2.4%
6.3%
3.9%
Comments
2006-2008 was a period of high growth for the S-REITs where average distribution growth was c.13% over 2006-2008. Key catalysts were acquisitions Yield spread expanded to >5.1% due to financial crisis
Post-global financial crisis period, the sector saw yield compression in 20122013 before the Fed hinted of rate hikes in mid-2013
Periods 2005-cuurent
2.5%
6.2%
3.8%
2006-2008
3.0%
5.4%
2.4%
2010-current
2.1%
6.3%
4.1%
Forward Current (FY17F)
2.3%
7.0 %
4.7%
Forward(FY17F)
3.0%
7.0%
4.0%
Source: Bloomberg Finance L.P. Finance L.P, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 35
Page 35
Industry Focus Singapore Developers & REITs
Figure 42. Implied share price based on average yield spread and normalised 3.05% 10-year bond yield Yield (-1SD)
Forward DPU (Scts)
Current Price (S$)
Current Forward Yield
Implied Yield (Average Yield Spread + 3.05%)
7.2% 6.5% 8.1% 7.8%
5.4% 5.1% 6.7% 6.2%
6.5 9.3 5.2 9.8
1.020 1.505 0.695 1.270
6.1% 6.1% 7.7% 7.7%
7.1% 6.7% 8.1% 7.9%
0.92 1.39 0.64 1.24
-11% -9% -7% -2%
6.8% 5.3% 9.4% 5.3% 5.6%
7.4% 5.7% 10.1% 5.7% 5.9%
6.1% 4.9% 8.7% 4.9% 5.3%
10.5 11.2 7.5 11.8 5.7
1.385 1.930 0.850 1.930 0.955
7.6% 5.7% 9.0% 6.0% 5.9%
7.6% 6.2% 10.1% 6.8% 6.3%
1.38 1.81 0.74 1.74 0.90
-1% -7% -13% -11% -7%
3.8% 4.8% 4.4% 4.2%
5.8% 7.1% 6.6% 6.3%
6.4% 7.7% 7.1% 7.3%
5.3% 6.4% 6.0% 5.3%
8.7 7.2 5.2 10
1.415 0.945 0.755 1.650
6.0% 7.4% 6.9% 5.9%
6.8% 7.8% 7.4% 7.2%
1.28 0.92 0.70 1.39
-12% -3% -8% -16%
Hospitality ART ASCHT CDREIT FEHT FHT OUEHT
5.1% 5.4% 4.8% 4.0% 5.2% 4.9%
7.2% 7.5% 6.9% 6.2% 7.5% 7.2%
7.9% 8.4% 7.8% 6.9% 7.8% 7.8%
6.5% 6.6% 6.0% 5.5% 7.1% 6.5%
8.1 5.5 8.9 4 5 4.5
1.155 0.700 1.360 0.595 0.645 0.685
7.1% 7.9% 6.8% 6.8% 9.6% 6.9%
8.1% 8.4% 7.8% 7.0% 8.2% 7.9%
1.00 0.65 1.14 0.57 0.61 0.57
-14% -8% -17% -5% -6% -16%
Industrial AIMS a-itrust A-REIT Cache CREIT FLT MINT MLT SBREIT
6.3% 4.7% 4.2% 5.9% 5.9% 5.0% 5.1% 5.0% 5.8%
8.5% 6.8% 6.3% 8.0% 8.0% 6.9% 7.2% 7.1% 8.1%
9.8% 7.4% 6.8% 8.9% 9.3% 7.2% 7.7% 8.2% 8.8%
7.1% 6.2% 5.9% 7.2% 6.8% 6.7% 6.7% 6.0% 7.5%
11.3 5.9 15.7 7.5 4.2 6.6 11.3 7.2 6.1
1.310 1.010 2.310 0.815 0.540 0.940 1.645 1.020 0.655
8.7% 5.6% 6.7% 9.2% 7.8% 7.2% 6.9% 7.1% 9.5%
9.3% 7.7% 7.2% 8.9% 8.9% 8.0% 8.1% 8.0% 8.8%
1.22 0.77 2.18 0.84 0.47 0.83 1.40 0.90 0.69
-7% -25% -7% 3% -14% -13% -15% -13% 5%
Healthcare P-Life
3.3%
5.4%
6.0%
4.9%
12.2
2.390
5.0%
6.3%
1.94
-19%
Others IREIT KDCREIT MUST
6.3% 3.9% 4.9%
8.6% 6.1% 6.9%
9.2% 6.7% 7.2%
7.9% 5.5% 6.6%
6.3 7.2 6
0.720 1.200 0.835
8.8% 5.8% 7.3%
9.3% 6.5% 7.9%
0.68 1.11 0.80
-6% -10% -5%
Avg Yield Spread
Avg Yield
Yield (+1SD)
Office KREIT CCT OUECT FCOT
4.1% 3.7% 5.1% 4.9%
6.3% 5.8% 7.4% 7.0%
Retail CRCT CMT CRT FCT SPH REIT
4.6% 3.2% 7.1% 3.8% 3.3%
Commercial MCT MAGIC SGREIT Suntec
Implied Share Price (S$)
Upside / downside from current share price
Green boxes denote downside limited to <5% Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 36
Page 36
Industry Focus Singapore Developers & REITs
Impact of interest rates on distributions Still some breathing room as impact of interest rates will be felt over time. While interest rates are anticipated to rise next year, the majority of S-REITs have hedged 75-85% of their borrowings and with a weighted average debt maturity of 2-3 years. For FY17, on average about 9% of debt is due to be refinanced, thus the full impact from higher costs of borrowings will not be felt in 2017 but over the next few years. In addition, the impact from a rise in interest rates is likely to be felt by the REITs which predominantly borrow in SGD. In contrast, REITs with exposure to European, Japanese and Australia assets with commensurate debt in EUR, JPY and Australia, may even report declining or face a slower
increase in borrowing costs as they refinancing their debt. This is due to current interest rates in Europe, Japan and Australia being lower than when the REITS first borrowed in the respective local currencies. Assuming a 1% lift in the cost of borrowing above our current estimates (we have already assumed up to a 25-bp increase in cost of debt compared to FY16) and the impact only occurs when the various S-REITs refinance 9% and 21% of all loans outstanding in 2017 and 2018 respectively, as well as only impacting the current outstanding floating rate debt, we estimate up to 2.9% and 4.9% impact on FY17F and FY18F overall S-REIT DPU respectively.
Figure 43. Potential impact on DPU with 1% increase in interest rates REIT Ascendas Hospitality Trust Ascendas India Trust Ascendas REIT Ascott Residence Trust Cache Logistics Trust Cambridge Industrial Trust CapitaLand Commercial Trust* CapitaLand Mall Trust* CapitaLand Retail China Trust CDL Hospitality Trust Croesus Retail Trust Far East Hospitality Trust Frasers Centrepoint Trust Frasers Commercial Trust Frasers Hospitality Trust Frasers Logistics & Industrial Trust IREIT Global Keppel REIT* Keppel DC REIT Manulife US REIT Mapletree Commercial Trust Mapletree Greater China Commercial Trust Mapletree Industrial Trust Mapletree Logistics Trust OUE Commercial REIT OUE Hospitality Trust Parkway Life REIT Soilbuild Business Space REIT SPH REIT Suntec REIT* YTL Starhill Global REIT Total S-REIT Debt
Percentage Fixed rate debt (%)
Percentage floating rate debt (%)
Percentage of debt ue for refinancing (%) 2017 2018 31 37 11 12 6 22 13 11 14 43 0 29 5 16 7 16 43 10 0 35 14 41 30 28 30 8 24 24 14 15 0 0 12 0 0 14 1 44 0 0 2 2
97 100 78 80 64 88 80 90 53 60 100 71 59 85 86 84 88 74 86 100 74
3 22 20 36 12 20 10 47 40 29 41 15 14 16 12 26 14 26
85
15
9
69 81 78 68 98 88 86 60 96 77
31 19 22 32 2 12 14 40 4 23
1 1 27 0 0 0 0 3 35 9
Change in DPU FY17F -2.8% -0.6% -2.2% -4.9% -3.9% -1.1% -3.0% -1.5% -9.6% -3.7% -1.8% -6.6% -4.8% -3.7% -2.7% -0.9% -1.8% -4.0% -0.6% 0.0% -2.5%
FY18F -5.6% -1.4% -3.8% -6.4% -7.2% -4.0% -4.7% -2.9% -10.7% -6.6% -6.3% -9.1% -5.2% -6.0% -4.0% -0.8% -1.8% -6.1% -2.4% 0.0% -2.6%
29
-2.8%
-6.1%
9 15 49 34 14 33 38 37 28 21
-3.3% -2.2% -9.1% -3.4% -0.2% -0.9% -0.8% -5.0% -3.8% -2.9%
-4.0% -3.8% -18.9% -6.8% -1.4% -3.2% -3.0% -9.2% -6.2% -4.9%
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 37
Page 37
Industry Focus Singapore Developers & REITs
S-REIT debt maturity profile Figure 44. Debt Expiry Profile
Figure 45. S-REIT debt by sector
S$bn
14.0
29.7%
30.0%
12.0 10.0
21.3%
20.4%
8.0 6.0
0.0
20.0% 15.0% 10.0% 5.0%
1.1% 2016
0.0% 2017
Industrial 27%
Retail 24%
25.0%
18.6%
8.8%
4.0 2.0
Healthcare 3%
35.0%
2018
2019
2020
Office 33%
Hospitality 13%
>2020
Source: Bloomberg Finance LLP, DBS Bank
Source: Bloomberg Finance LLP, DBS Bank
Figure 46. Debt maturity profile for individual S-REITs (%) REIT AIMS AMP Capital Industrial REIT Ascendas Hospitality Trust Ascendas India Trust Ascendas REIT Ascott Residence Trust Cache Logistics Trust Cambridge Industrial Trust CapitaLand Commercial Trust* CapitaLand Mall Trust* CapitaLand Retail China Trust CDL Hospitality Trust Croesus Retail Trust Far East Hospitality Trust First REIT Frasers Centrepoint Trust Frasers Commercial Trust Frasers Hospitality Trust Frasers Logistics Trust IREIT Global Keppel REIT* Kepple DC REIT Manulife US REIT Mapletree Commercial Trust Mapletree Greater China Commercial Trust Mapletree Industrial Trust Mapletree Logistics Trust OUE Commercial REIT OUE Hospitality Trust Parkway Life REIT Religare Health Trust Soilbuild Business Space REIT SPH REIT Suntec REIT* YTL Starhill Global REIT Total S-REIT Debt
Total Debt (S$bn) 0.61 0.54 0.40 3.37 1.98 0.53 0.53 3.28 3.84 1.00 0.93 0.78 0.82 0.46 0.73 0.75 0.80 0.52 0.30 3.32 0.34 0.30 2.34 2.42 2.11 2.05 1.28 0.86 0.68 0.18 0.47 0.85 2.99 1.14 44.37
2016 0% 4% 0% 10% 0% 0% 0% 0% 0% 4% 0% 0% 5% 0% 0% 0% 0% 0% 0% 0% 9% 0% 0% 0% 0% 0% 0% 0% 2% 0% 0% 0% 0% 1% 1.1%
2017 0% 31% 11% 6% 13% 14% 0% 5% 7% 43% 0% 14% 30% 31% 30% 24% 14% 0% 12% 0% 1% 0% 2% 9% 1% 1% 27% 0% 0% 5% 0% 0% 3% 35% 8.8%
2018 31% 37% 12% 22% 11% 43% 29% 16% 16% 10% 35% 41% 28% 34% 8% 24% 15% 0% 0% 14% 44% 0% 2% 29% 9% 15% 49% 34% 14% 54% 33% 38% 37% 28% 21.3%
2019 40% 0% 21% 15% 8% 34% 19% 21% 13% 18% 24% 14% 12% 26% 16% 28% 70% 34% 49% 28% 38% 36% 12% 16% 26% 16% 22% 31% 31% 35% 6% 15% 27% 9% 20.4%
2020 13% 28% 20% 16% 15% 10% 30% 37% 12% 10% 20% 17% 0% 9% 10% 10% 0% 32% 39% 23% 8% 23% 19% 16% 30% 14% 0% 34% 27% 7% 39% 33% 10% 15% 18.6%
>2020 16% 0% 36% 31% 53% 0% 21% 20% 53% 15% 22% 14% 24% 0% 36% 13% 0% 34% 0% 36% 0% 41% 65% 30% 34% 54% 2% 0% 27% 0% 21% 15% 22% 12% 29.7%
Source: Various REITs, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 38
Page 38
Industry Focus Singapore Developers & REITs
5.2
Moderating DPU performance
Grinding out DPU growth in 2017. On the back of an increasingly uncertain economic environment, supply pressures across various property segments and an uptick in borrowing costs, delivery of DPU growth will increasingly become more challenging in 2017. Nevertheless, we still expect S-REITs in general to grind out a 1.1% y-o-y growth in DPU. This is marginally higher than 0.4% DPU growth in FY16, which was partially impacted by several rights issues, predominantly in the hospitality sector. The slightly higher growth in 2017 is also a function of a low-base effect from a fairly challenging 2016 This came from several industrial REITs facing lower rents on the renewal of master leases and/or loss of income from the conversions of single-tenanted buildings to multi-tenanted buildings. Figure 47: Office/Commercial REITs forecasted to deliver strongest growth in DPUs
However, the office/commercial sector provides the strongest DPU growth in 2017. This is largely due to stronger performances from CCT and MCT which will benefit from the full-year contribution from the acquisitions of CapitaGreen and Mapletree Business City respectively. Despite the headwinds in 2017, there are several REITS with attractive growth prospects next year. These include CCT, MCT, AIT, CRT, OUEHT and KDCREIT.
Figure 48: DBSV forecasts vs consensus estimates
-1.3% Hospitality
-6.7%
-1.3%
Industrial
Singapore Retail
0.5% 1.2%
Singapore Retail
Retail
1.1% 1.2%
Retail
Office/ Commercial
1.3%
FY17/18
-4.0%
-2.0%
Source: Bloomberg Finance LLP, DBS Bank
0.0%
2.0%
1.2%
0.5%
-2.0%
-1.0%
2.3%
1.1% 1.3%
S-REITs
4.0%
2.5%
0.8%
-0.2% Office/ Commercial
2.5%
1.1% 0.4%
S-REITs
FY16/17 -6.0%
-0.7%Hospitality
0.8% 0.0%
Industrial
-8.0%
Meanwhile, the slowdown for the retail sector is largely due to CMT and FCT being in a transition as they embark on the redevelopment of Funan and Northpoint respectively. For the office/commercial sector, DPU growth is expected to moderate on the back of the decline in office rents.
0.0%
1.1% 1.0%
1.5%
Consensus FY17/18
2.0%
Source: Bloomberg Finance LLP, DBS Bank
Figure 49: Selected S-REITs offer strong growth profiles REIT
Sector
Sector Growth
Growth driver
1.3%
FY16-17F DPU growth 3.7%
CCT
Office
MCT
Office/ Commercial
1.3%
2.5%
Acquisition of Mapletree Business City
AIT CRT
Industrial
0.8%
8.1%
New developments and acquisition of BlueRidge Phase II
Retail (Japan)
1.1%
8.7%
Hospitality
-1.3%
5.0%
KDCREIT
Data-centre (industrial)
0.8%
5.0%
Improved SGD/JPY hedge rate Acquisition of Crown Plaza Changi Airport Extension, opening of Michael Kors and Victoria Secret store and lowbase effect Acquisition of data centres in Milan and Singapore
OUEHT
MUST
Office (USA)
1.3%
7.8%
Improvement in US office market
Acquisition of 60% remaining interest in CapitaGreen
Source: Various REITs, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 39
Page 39
3.0%
Industry Focus Singapore Developers & REITs
5.3 Potential risk to property values in the industrial and hospitality sectors Capital values most resilient for office and retail sector. Cap rates have generally been compressing over the past few years due to low interest rates and ample liquidity boosting transactions velocity and value. Looking ahead, with projected decline in rents and RevPAR for the industrial and hotels in 2016, there is potential downside to the capital values for some industrial and hospitality REITs. While rents for the office and retail sector are under pressure near term, we expect capital values to remain steady, given abundant liquidity chasing both these asset classes. This can be seen by recent office transactions such as the sale of Asia Square Tower 1 and Straits Trading Building for approximately S$2,700 and S$3,500 per sqft respectively. In addition, the implied price for the Central Boulevard land tender made by IOI Properties was over S$3,000 per sqft.
For retail space, CityVibe at Clementi was sold at a net yield of slightly above 4% while vendors for Jurong Point is seeking to sell the mall for over S$2bn at a sub-4% net yield. The values ascribed to these transactions are in line or above the valuations of the properties of the various office and retail REITs. Figure 50: Implied price per sqft of NLA for Singapore portfolio on completed basis REIT
Price (S$)
CCT KREIT OUECT Suntec
1.505 1.020 0.695 1.650
Total attributable SG NLA (m sqft) 3.1 2.6 1.0 2.4
Implied psf (S$) 1,850 2,250 2,320 2,050
*Calculated as EV less value of non Grade A office properties divided by attributed property
Figure 51: Recent office transactions Date
Property
Location
Land tenure
Aug-14
Equity Plaza
Raffles Place
74 years remaining
Net Lettable Area (sq ft) 252,135
Price ($)
Price per NLA (S$)
550,000,000
2,181
Jul-14
Anson House
82 years remaining
76,362
172,000,000
2,252
Sep-14
MBFC Tower 3
Tanjong Pagar Area Marina Bay
92
447,327
1,248,000,000
2,790
Jan-15
AXA Tower
Tanjong Pagar
66.5 remaining (2015)
675,000
1,170,000,000
1,733
Jun-15
One Raffles Place
Raffles Place
99/FH
600,000
1,429,166,667
2,382
Nov-15
CPF Building
79 Robinson Road
99 LH (2067)
324,000
550,000,000
1,698
May-16
Remaining 60% interest in CapitaGreen
Raffles Place
57 remaining expiring 31Mar2073
703,122
1,600,500,000*
May-16
Straits Trading Building
9 Battery Road
999 LH
158,897
560,000,000
2,276 (2,700 assuming 99 year leasehold) 3,524
Jun-16
Asia Square Tower 1
Marina Bay
99 LH from 2007
1,200,000 sqft office & 40,000 sqft retail
3,400,000,000
2,668
*Based on 100% equity interest Source: Various press reports, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 40
Page 40
Industry Focus Singapore Developers & REITs
Figure 52: Cap rates for office 4.2%
(%)
4.0%
Remarks
4.1%
Transaction cap rates have compressed down to low-3.0% level as demand for
3.9%
quality offices remain high due to
3.8% 3.6%
foreign investors willing to price in a
3.8%
3.6%
recovery of the sector in the medium
3.6%
term.
3.4%
More transactions in the pipeline could 3.3%
3.2%
mean that cap rates in the interim will likely remain stable.
3.0% Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Source: URA, DBS Bank
Figure 53: Cap rates for retail sector 6.4% 6.2%
(%)
Remarks
6.1%
Cap rates have also been compressing over time and is now close to 70bps
6.0%
below the peak of 6.1% back in 2009.
5.8%
5.7%
Transactions in the retail sector is mainly
5.7%
5.8%
driven by related party deals – Sponsors
5.6%
divesting the malls to their REITs.
5.4%
5.4%
5.4%
5.2%
5.3%
Cap rates expected to remain steady or even compress depending on the potential sale of Jurong Point Mall in
5.0%
2017.
4.8%
Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
Source: URA, DBS Bank
Figure 54: Cap rates for industrial sector 7.6%
7.5%
(%)
7.4%
Remarks Cap rates for factory and warehouse space have compressed over time to a
7.3%
7.2%
peak back in 2013. Since then, it has
7.1%
7.0%
6.9% 6.8%
6.8%
Any downside to valuations are likely due to unforeseen increase in vacancy
6.4% Factory
6.4%
6.2% 6.0% Mar-2009
stable since.
6.7%
6.5%
6.6%
expanded slightly but remained fairly
Warehouse Mar-2010
Mar-2011
Mar-2012
Mar-2013
Mar-2014
Mar-2015
rates from property conversions (singleuser to multi-user) properties.
Mar-2016
Source: URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 41
Page 41
Industry Focus Singapore Developers & REITs
5.4 Acquisitions may be difficult to execute with redevelopments an attractive option Slowdown in acquisitions in 2016.At the end of 2015, we expected the high cost of equity to potentially constrain the ability of S-REITs to raise equity to fund acquisitions. This partially came to fruition with total announced acquisitions dropping 16% y-o-y to S$6.2bn. The most active sectors were the Industrial (S$3.0bn), followed by Office/Commercial (S$1.9bn) and Hospitality (S$0.8bn). Notable transactions include MCT’s purchase of Mapletree Business City Phase I (S$1.8bn), CCT’s acquisition of the remaining 60% interest in CapitaGreen (S$1.6bn) and CRCT’s purchase of Galleria Mall (S$0.3bn).
acquisitions worth S$861m as industrial REITs such as AREIT, FLT and MLT sought freehold properties with annual rental escalations. Suntec and FHT also bought a 25% interest in Southgate, Melbourne (S$289m) and Novotel Melbourne (S$246m) respectively. In 2016, the S-REIT sector made its maiden acquisition in Italy with KDCREIT’s purchase of a data centre in Milan. S-REITs increased the number of assets sold from S$306m in 2015 to S$555m in 2016 as AREIT exited China and redeployed its capital to Australia, while RHT sold its 51% economic interest in its Gurgaon property given the inability of the trust to obtain the necessary regulatory approval to buy a direct 51% equity interest in the hospital.
In terms of country allocation, Singapore returned as the primary market (66% of total acquisitions worth S$3.8bn) for acquisitions. This was mainly driven by the purchase of Mapletree Business City Phase I and 60% interest in CapitaGreen. Australia remains a popular destination with total
Meanwhile, the share of properties acquired from the S-REITs' sponsors jumped to 72% in 2016 from 49% in 2015 as MCT and CCT bought from their respective sponsors. Stripping out these two transactions, the majority of acquisitions were made from third parties.
Figure 55: Acquisition value marginally down
Figure 56: Acquisitions were mainly Singapore-centric
8,000
S $' m
2015
7,000 6,000
Singapore
Others
5,000
Indonesia
4,000
Australia
3% 14%
3,000
Singapore
1,000 2013
2014
2015
2016
Figure 57: Industrial REITs remain most active
Healthcare 2016 2015
Industrial
2014 Retail
2013 2012
Office/Commercial
S$m 0
2,000
4,000
Source: Various REITs, DBS Bank
ASIAN INSIGHTS
6,000
Others
Australia Indonesia Others
Figure 58: Sponsor remains key source of acquisitions in 2016
Total
Hospitality
6%
Japan 66%
Indonesia 5% 3%
Source: Various S-REITs, DBS Bank
Singapore
15%
Australia 2%
38%
0 2012
8%
China
Japan
China
2,000
3%
China 36%
Japan
2016
8,000
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
49%
43%
51%
57%
2013
2014
68%
32% 2012
Sponsor/Strategic partner
28% 51%
72% 49%
2015
2016
3rd party
VICKERS SECURITIES
Page 42
Page 42
Industry Focus Singapore Developers & REITs
Figure 59: Announced acquisitions by S-REITs in 2016 REIT
Property
Country
Sector
LMRT LMRT FIRT ART AIT P-Life CRT FHT CRT CCT MLT MLT SBREIT MCT OUEHT Suntec KDCREIT CRCT FLT
Lippo Mall Kuta Lippo Plaza Jogja Siloam Hospitals Yogyakarta Sheraton Tribeca New York Hotel Building at CyberVale, Chennai Silver Heights Hitsujigaoka Ichiban-kan & Niban-kan Fuji Grand Natalie Maritim Hotel Dresden, Germany Mallage Saga and Feeeal Asahikawa Remaining 60% interest in CapitaGreen Four dry warehouse facilities located in Sydney, NSW, Australia Mapletree Shah Alam Logistics Park Bukit Batok Connection Mapletree Business City (Phase 1) Crowne Plaza Extension Southgate Complex Data Centre in Milan, Italy Galleria 111 Indian Drive, Keysborough, Melbourne & Lot 1 Pearson Road, Yatala, Brisbane (Call option properties) Novotel Melbourne on Collins, Australia 197-201 Coward Street, Sydney & Stage 4, Power Park Estate, Dandenong South, Melbourne Mapletree Logistics Park Phase 2, Vietnam Keppel DC Singapore 3 Siloam Hospitals Labuan Bajo 2 Science Park Properties 4 warehouses in Australia
Indonesia Indonesia Indonesia US India Japan Japan Germany Japan Singapore Australia Malaysia Singapore Singapore Singapore Australia Italy China Australia
Retail Retail Healthcare Hospitality Industrial Healthcare Retail Hospitality Retail Office Industrial Industrial Industrial Industrial/Office Hospitality Office/Retail Industrial Retail Industrial
Australia Australia
Hospitality Industrial
245.9 170.8
3rd Party 3rd Party
Vietnam Singapore Indonesia Singapore Australia
Industrial Industrial Healthcare Business Park Industrial Total Industrial Retail Office Hospitality Healthcare
20.6 141.0 20.0 420.0 151.9 5,696 3,162 393 1,277 551 313
Sponsor Related Sponsor Related Sponsor Related Sponsor Related 3rd Party
Country India
Sector Healthcare
Value (S$m) 299.8
Buyer Sponsor Related
Singapore China Indonesia Philippines Singapore Japan
Industrial Industrial Healthcare Hospitality Industrial Healthcare
27.0 228.1 35.7 7.2 25.5 48.9
3rd Party 3rd Party Sponsor Related 3rd Party 3rd Party 3rd Party
FHT AREIT MLT KDCREIT FIRT AREIT MLT
Value (S$m) 81.6 51.0 40.8 218.0 13.2 13.6 40.2 90.4 74.5 960.0 84.4 53.2 96.3 1,780.0 205.0 289.0 57.3 304.9 71.2
Vendor Sponsor Related Sponsor Related Sponsor Related 3rd Party 3rd Party 3rd Party 3rd Party 3rd Party 3rd Party Sponsor Related 3rd Party Sponsor Related Sponsor Related Sponsor Related Sponsor Related 3rd Party 3rd Party 3rd Party Sponsor Related
Source: Various REITs, DBS Bank
Figure 60: Announced disposals by S-REITs in 2016 REIT RHT CIT AREIT FIRT ART Cache PREIT
Property 51% economic interest in Gurgaon Clinical Establishment and Shalimar Bagh Clinical Establishment 23 Tuas Avenue 10 & 2 Ubi View A-REIT City @ Jingqiao Siloam Hospitals Surabaya - Plot A and existing hospital Salcedo Residences Changi Districentre 3 4 Nursing Homes
Source: Various REITs, DBS Bank
More redevelopments to potentially occur. Given depressed share prices causing difficulty in raising equity to fund acquisitions and potential investor reluctance to gear up
ASIAN INSIGHTS
balance sheets in a rising interest rate environment, we believe the pace of acquisitions may slow further in 2017.
VICKERS SECURITIES
Page 43
Page 43
Industry Focus Singapore Developers & REITs
Nevertheless, redevelopments may come to fore especially with the increase in the development limit from 10% previously to 25%. To date, we have seen CMT redevelop Funan and CCT announce plans to building a Grade A office building at its
existing Golden Shoe property. For 2017, we anticipate that CRT will announce plans to maximise its One’s Mall and Torius property, while FCOT may redevelop Alexandra Technopark should the anchor tenant HP move out.
Figure 61: S-REITs' gearing headroom and sponsor pipeline REIT
Gearing end FY16/17F*
Headroom 40%
Sponsor
Potential Pipeline
Remarks
CCT
38%
316
CapitaLand
36%
137
Frasers Centrepoint Land
Contingent on performance of CapitaGreen High likelihood for Australand's properties though subject to FCOT share price
KREIT OUECT Retail
39% 38%
141 91
Keppel Land OUE Limited
Remaining stake in CapitaGreen Valley Point/Alexandra Point/Cecil Street Office property/Australand properties N/A OUE Downtown
FCOT
CRCT
36%
180
CapitaLand
Malls in China
CMT
35%
831
CapitaLand
CRT
45%
n/a
FCT
28%
423
SPH REIT
26%
798
Croesus Group, Daiwa House, Marubeni Frasers Centrepoint Limited SPH
Westgate, Star Vista, Bedok Mall, Ion Orchard Mallage Saga, China properties
Subject to valuation and malls being stabilised Possible acquisition of Westgate
MCT
37%
344
MAGIC
39%
70
SGREIT
35%
277
Suntec
38%
304
Office
No immediate plans to purchase Chinese properties
Waterway Point, Northpoint City
Pipeline assets under construction
Seletar Mall
Seletar Mall yet to be stabilised as it only opened in Dec-14
Commercial Mapletree Mapletree Business City Investments (MBC) 1&2 Mapletree Kowloon East Office Investments YTL Corporation Cheung Kong / ARA
Limited near-term pipeline from sponsor Potential in 2017-2018
-
MBC 2 under construction Kowloon East Office under construction, MAGIC looking at opportunities in China Focused on existing assets at the moment No acquisitions expected
Source: Various REITs, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 44
Page 44
Industry Focus Singapore Developers & REITs
Figure 62: S-REITs' gearing headroom and sponsor pipeline (cont’d) REIT
Gearing end FY16/17F
Headroom 40%
Sponsor
Potential Pipeline
Remarks
Industrial a-itrust
36%
78
Ascendas Group
Other Ascendas Group Indian properties
A-REIT
34%
921
Ascendas Group
Industrial assets
Cache
41%
n/a
CWT/ARA
Ramp up warehouses from CWT
CREIT
38%
56
N/A
MINT
30%
612
Mapletree Group
Tai Seng development
MLT
37%
223
Mapletree Group
Properties in Hong Kong, China
Subject to share price performance and stabilisation of INR Acquisitions likely to be from sponsor (business park properties in Singapore) Unlikely to acquire from sponsor Exploring opportunities in Australia, Japan and Malaysia Under development and not likely to be acquired in the near term High likelihood of M&A to supplement growth, given headwinds in Singapore
SBREIT
33%
152
Soilbuild Group Holdings
Various industrial properties
Hospitality ASCHT
33%
196
Ascendas Group/Accor
Asia Pacific properties
ART
41%
n/a
Ascott Group
CDREIT
36%
176
City Developments
FEHT
33%
303
Far East Organisation
FHT
34%
46
OUEHT
38%
92
Frasers Centrepoint Limited and TCC Group OUE Limited
Serviced apartments in Europe, Quest apartments in Australia St Regis, South Beach project 7 hotels & serviced residences 17 hotels and serviced residences
Healthcare P-Life
38%
66
IHH
Hospitals in the region including Novena Mt Elizabeth
Others KDCREIT IREIT
29% 42%
300 n/a
Keppel T&T Stella Holdings, Shanghai Summit, Mr Lim Chap Huat
T27
OUE Downtown serviced apartments
Potential disposal of Pullman Cairns to provide additional financial flexibility Subject to ability to recycle capital and raise equity Lower gearing provides firepower for acquisitions Assets not ready to be injected Subject to ability to raise equity Limited, given proposed acquisition of Crowne Plaza Changi and extension
Asset not stabilised yet Low likelihood, given current share price
Source: Various REITs, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 45
Page 45
Industry Focus Singapore Developers & REITs
Figure 63: S-REITs with development potential and/or asset recycling potential REIT
Assets with redevelopment potential
Office
CCT FCOT KREIT OUECT
Golden Shoe Alexandra Techno Park if HP/Microsoft moves out n/a n/a
Retail
CRCT CMT CRT FCT SPH REIT
n/a Funan One’s Mall and Torius Mall Integration with Northpoint extension n/a
Commercial
MCT MAGIC SGREIT Suntec
n/a n/a n/a Park Mall
Industrial
a-itrust A-REIT Cache CREIT MINT MLT SBREIT
n/a Selected properties with unutilised GFA n/a Selected properties with unutilised GFA Selected properties with unutilised GFA Selected properties with unutilised GFA Selected properties with unutilised GFA
Hospitality ASCHT
n/a
ART CDREIT FEHT FHT OUEHT
n/a n/a n/a n/a n/a
Healthcare P-Life RHT
n/a n/a
Other
KDCREIT IREIT
n/a n/a
Potential asset recycling opportunity
n/a n/a n/a n/a
n/a n/a n/a n/a n/a
n/a n/a n/a n/a
n/a Older properties with limited medium upside n/a Older properties with limited medium upside Older properties with limited medium upside Older properties with limited medium upside n/a
Rental properties in Japan / Assets in lower-tier cities in Europe n/a n/a n/a n/a
n/a n/a
n/a n/a
Source: Various REITs, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 46
Page 46
Industry Focus Singapore Developers & REITs
6. Residential Subsector Outlook: Luxury home prices to bottom out
Key Assertions Luxury residential home prices (CCR) to bottom out on the back of improved transaction velocity & foreigner buying interest.
Suburban home prices (OCR) to see up to a 3%5% further drop in prices impacted by higher mortgage rates and market vacancy rates.
Government could relax policy given uncertain macro-outlook and pace of interest rate rise.
Prices for luxury residential homes to further stabilise come 2017; downside for home prices in the suburbs. We believe that the property market may have stabilised at these low levels in the near term with further downside risk likely to come only from a deterioration of the economic outlook for Singapore. The bright spots are that luxury and central market segments have likely bottomed out, while we expect up to a further 5% drop for property prices in the Outside Central Region (OCR).
We believe the stabilisation of the market could be led by the following: 1.
PPI has declined 11.4% from the peak in September 2013 (with the inclusion of net prices in 3Q), inching closer to the government’s trigger point for intervention at c.13% decline from the peak based on historical incidences. Potential relaxation of government policies which will be supportive of prices.
2.
At these price levels, sales volume has improved (+9.8% in 9M16) largely led by executive condominium (EC) and secondary sales which may moderate further decline in property prices.
3.
Vacancy rate remains high with continued pressure on rental rates.
4.
While the 3Q16’s economic data were worse than expected, coupled with unemployment concerns, our economist believes that the downside risk is beginning to moderate (DBS Economics: Singapore: down but not out).
Figure 64: Residential Market Summary Key Indicators Price Index Rental Index Transactions* Pipeline of supply Vacancy rate
% Chg -1.5%
1Q16 140.6
2Q16 140.0
3Q16 137.9
-1.2%
107.5
106.9
105.6
-12.2%
1,419
2,256
1,981
-7.5%
53,512
47,250
43,693
-0.2% points
7.5%
8.9%
8.7%
*Excludes Executive condominiums Source: URA
ASIAN INSIGHTS
VICKERS SECURITIES
Page 47
Page 47
Industry Focus Singapore Developers & REITs
6.1 Trends, demand & supply Outlook Price Trends
Transactions
3Q16 Property Price Index saw the sharpest drop partly due to the inclusion of net prices of de-licensed projects (Chart 1). Private property prices saw the largest q-o-q decline of 1.5% in 3Q16 since the streak of falling prices following the September 2013 peak. This was partly due to the inclusion of net prices of de-licensed projects for the first time which does not present a ‘clean’ q-o-q price movement for this quarter. The landed private property price index (PPI landed) recorded the largest decline of 6.9% y-o-y and a 2.3% q-o-q decrease in 3Q16. The PPI has declined 11.4% since peaking in September 2013 with landed PPI and non-landed PPI dropping by 15.9% and 9.8% respectively.
Total transactions inch up as secondary volumes lead the way (Charts 2 and 3). Total residential transactions rose by 11% yo-y and 1% q-o-q to 4,596 units. This was mainly due to a rise in resale transactions of 53% y-o-y to 2,615 units while executive condominiums saw a 15% increase to 1,398 units. Primary sales volumes (excluding EC) fell 18% after four quarters of improved y-o-y transactions.
PPI has fallen 11.4% from September 2013 peak (Chart 1). Following the new inclusion, PPI has declined 11.4% from the peak in September 2013 with landed properties recording the largest decline of 15.9%, followed by RCR (-11.0%) and CCR (10.6%). Based on the past two incidences (AFC in 1998 and dot com collapse in 2000), the government has been seen to intervene when property prices fell c.13% from the peak. If history is a good indicator, the quantum of the decline is inching closer to the government’s trigger point. Central region bottoming out (Chart 1). Property prices fell in all three regions in Singapore partially due to the inclusion of net prices with Core Central Region (CCR) recording the highest decline at 1.9% q-o-q. Property prices in Rest of Central Region (RCR) and Outside Central Region (OCR) each recorded a 1% decline q-o-q. With the inclusion of net prices, property prices in CCR and RCR recorded 10.6% and 11.0% declines from their peaks. OCR, which previously held up better than the central region, is now inching closer at 9.8%. Nevertheless, we believe the central region is bottoming out as previously, property prices in the central region saw two consecutive quarters of marginal increase in PPI of 0.3% q-o-q in the CCR in both 1Q16 and 2Q16, while RCR saw three consecutive quarters of flat-to-marginal increase of 0.2% q-o-q (2Q16: +0.2% q-o-q).
ASIAN INSIGHTS
Higher 9M16 transactions lead by EC and secondary sales. Total residential transactions rose by 9.8% y-o-y to 12,000 units led by a 65% increase in EC sales and a 25% increase in secondary sales. Primary sales volumes fell 3.1%. We believe that signs of transactions returning to the market albeit from a lower base, implies that after a close to 10% drop in price index, buyers are seeing value in the current market. Supply Supply completion to start moderating from 2017 onwards. The cut in the number of sites available for tender in the government land sales programme and lack of collective sales in recent years mean that supply growth will peak in 2016 at 51,210 units (25,000 public housing units, 21,650 private units and 4,560 ECs) and moderate from 2017 onwards. The total supply under construction stands at 155,750 units (88,000 public housing units, 53,150 private units and 14,600 ECs). Given the declining completion outlook, we believe that the oversupply situation in the residential market will also start to improve and normalise over the coming years. We expect vacancy rates to inch up from 8.9% as of 2Q16 to 9-10% over 2016-2017 before reversing.
VICKERS SECURITIES
Page 48
Page 48
Industry Focus Singapore Developers & REITs
Rentals Increased supply and weak employment outlook to result in further pressure on rental yields. The 3Q16 residential rental index fell 1.2% q-o-q led by non-landed residential homes rental (-1.4%) while rental for landed homes was flat. The residential rental index (non-landed) for residential homes (non-landed) declined by 1.4% compared to a quarter ago and is now more than 10.7% down from its 3Q13 peak. The q-o-q fall is evenly spread across the various parts of the island, with rental for residential homes in OCR leading the decline at 2.4% followed by CCR's -1.4% and RCR's -0.6%.
Vacancy rates improved marginally by 0.2ppt to 8.7% as at end of 3Q16, still above the historical average of 6.6%. The weakness in rental can be attributed to the ramp-up in supply completions in recent years. Despite the marginal improvement, we continue to expect vacancy to rise and further downward pressure for rents but at a more muted rate. The uncertainty in the employment outlook, and the ongoing job rationalisation at financial institutions and tighter regulations impacting expatriates’ employment in Singapore may add pressure on demand for some homes, especially those in the CCR.
Figure 65: Residential Price Indices – Gradual decline in prices Period
3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 %yoy Chg (3Q16) % Chg (Peak) 3Q16 (index)
AllResidential Index
Landed
Non-Landed
Index
Index
0.4% -0.9% -1.2% -1.1% -0.7% -1.1% -1.0% -0.9% -1.3% -0.5% -0.7% -0.4% -1.5%
0.3% -1.0% -0.7% -1.7% -1.8% -1.3% -0.9% -1.0% -0.4% -1.8% -1.1% -1.9% -2.3%
-3.1%
Non-Landed Index
HDB
Core Central Region
Rest of Central Region
Outside Central Region
0.6% -0.9% -1.3% -0.8% -0.4% -1.0% -1.1% -0.8% -1.5% -0.2% -0.6% -0.1% -1.2%
-0.3% -2.1% -1.0% -1.5% -0.8% -0.9% -0.4% -0.6% -1.2% -0.3% 0.3% 0.3% -1.9%
-0.9% 0.4% -3.3% -0.3% -0.4% -1.3% -1.7% -0.6% -2.2% 0.2% 0.0% 0.2% -1.0%
2.2% -0.9% -0.1% -0.9% -0.4% -0.8% -1.1% -1.1% -1.6% 0.0% -1.3% -0.5% -1.0%
-0.9% -1.6% -1.6% -1.4% -1.7% -1.5% -1.0% -0.4% -0.3% 0.1% -0.1% 0.0% 0.0%
-6.9%
-2.0%
-1.6%
-0.6%
-2.8%
0.1%
-11.4%
-15.9%
-9.8%
-10.6%
-11.0%
-9.8%
-9.4%
137.9
152.4
134.9
126.9
139.2
154.9
134.7
Source: URA, HDB, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 49
Page 49
Industry Focus Singapore Developers & REITs
Charts on Property Transactions Figure 66: Developers' Sales by Type 6,000
120.0%
Units
5,000
100.0%
4,000
80.0%
3,000
60.0%
2,000
40.0%
1,000
20.0%
Remarks
We note that given increased transactions in recent months, there has been an increase in sales launches. Developers sold 73% of total new units launched in 3Q16, an improved q-o-q take-up rate led by new launches.
0.0%
‐ 1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
Private Residential Units Launched (uncompleted) Total Direct Sales (Uncompleted)
Source: URA, DBS Bank
Figure 67: Developers' Sales by Type 9,000
U nits Secondary Market (Private)
8,000
Remarks
3Q16 was one of the more active quarters in recent years.
Primary Sales (Private) Executive Condominiums
7,000 6,000 5,000 4,000
Resale Transactions (Secondary Market) contributed close to 57% of total transactions in 3Q16, one of the highest since 2013.
3,000 2,000 1,000
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
Source: URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 50
Page 50
Industry Focus Singapore Developers & REITs
Figure 68: Developers' Sales by Region 9,000
units
Remarks
Transactions in the Rest of Central Region (RCR) and Core Central Region (CCR) contributed 27% and 17% of total transactions respectively in 3Q16.
8,000 7,000 6,000 5,000
4,000 3,000 2,000 1,000 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
CCR
RCR
OCR
Source: URA, DBS Bank
Charts on Residential Supply Outlook Figure 69: Supply of new residential units by expected year of completion 60,000
Un its
40,000
30,000 20,000
Close to 29,000 units were completed in 1H16.
Public housing supply remains fairly constant at close to 19,000-25,000 new units completing each year.
10,000
Remarks
Looking ahead, we are looking at a more modest rate of increase in new units completing, due to fewer units available for sale as a result of the cuts in land for tenders from the government's land sale program.
50,000
2H16 Competed
Source: MND, DBS Bank
2017 Private Residential
ASIAN INSIGHTS
2018 Executive Condo
2019 Public Housing
VICKERS SECURITIES
Page 51
Page 51
Industry Focus Singapore Developers & REITs
Charts on Residential Rents Figure 70: Rental index has been weakening since 4Q13, in line with property prices 15%
% Chg
Index Value
180.0
Remarks
The residential rental index remains in decline, dropping further by 1.2% in 3Q16.
160.0 10%
140.0
Given the positive correlation between rental and prices, we expect prices to continue moderating as rentals weaken further.
120.0 5%
100.0 80.0
0%
60.0 40.0
-5%
20.0 -10%
-
Q0Q Chg in Rental Index
`Source: URA, HDB, DBS Bank
PPI Index
Figure 71: Rental index remains weak on high vacancy rates 10.0%
(%)
Index Value
130.0 120.0
9.0%
110.0
8.0%
Remarks
With expectations that the residential vacancy rate will continue to inch up towards the 8-10% level from the current 8.7%, we expect rentals to remain weak.
100.0 7.0% 90.0 6.0%
80.0 70.0
4.0%
60.0
Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 4Q16
5.0%
Vacancy Rate (Non-Landed) (LHS)
Rental Index (Non-Landed) (RHS)
Source: URA, HDB, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 52
Page 52
Industry Focus Singapore Developers & REITs
6.2 Scenarios where government could relax policy measures Government to tinker only if “material stress” is seen in the system. The Singapore property prices have been in a controlled and modest decline of approximately c.5% per annum from the peak of 3Q13. With prices now fallen by 11% from the peak in 3Q13 and we expect the market to remain on a downside bias in 2017. The government’s key focus is still the overall health of the Singapore’s economy and its intertwining relationship with property prices. With property forming close to 45% of total household wealth as of 3Q16, it is not in the government’s interest to have a rapidly declining property market. Emerging risk in the horizon stemming from increased volatility in interest rates, coupled with a weak rental outlook due to heightened supply completion outlook, will likely warrant the government to consider tweaking its macro prudential policies. What are potential scenarios or datapoints that could lead to a policy easing? A marked drop in prices in a quarter or a peak-to-trough price drop of 13-15% might point to a first round of policy unwinding. If history is a good indicator, the current PPI, having fallen close to 11% from the peak, is inching closer to the government’s trigger point of c.13%. Historically (during the Asian Financial Crisis (AFC) in 1998 and the dot com collapse in 2000), the government has been seen to intervene when property prices fell c.13% from the peak over a period of approximately one year. Current mortgage-to-household income ratio stands at 1.5x (mortgage-to-household income ratio ranged from 1.4-1.9x from 1997-2014). The government’s initial responses were: 1) suspend the seller stamp duty during the AFC; and 2) tax exemptions (capital
gains tax and property tax for land under development) were given and the government opened the market to foreigners again by allowing them to obtain loans in SGD during the dot com collapse. However, we believe the scenarios that may warrant a re-look at policies will be a marked drop in prices in a certain quarter or a potential tweak in certain policies on a selective basis. On that front, we believe that “cyclical measures” such as the buyer stamp duties/seller stamp duties which have been effective in curbing speculative demand, could be re-looked if transaction volumes continue to remain tepid over 2017. Singapore citizen unemployment rate rising towards 4.0%. The uncertain employment outlook in Singapore might be a dampener for prospects for price increases in 2017. As of 3Q16, it was reported that unemployment rate among Singapore citizens rose by 0.6ppt to 3.0% as of June 2016 but has held steady (fallen marginally to 2.9% as of September 2016) since. While not sounding any alarm bells at this point, we caution that prices tend to weaken in the event that unemployment rate rises to 4.0% and above (figure 74). DBS economist believes that the unemployment outlook is likely to remain fairly stable at the 3.0% level and not expected to deteriorate in a big way. Sharp increase in interest rates. The recent spike in SIBOR rates, which a majority of home loans is a risk for prices in our view given that it will a rise in mortgage payments going forward. The pace of increase in base rates are likely to be closely watched by the government in order to avoid an unwarranted fallout in property prices which might pose a risk to an already weak economic outlook.
Figure 72: Summary of possible Scenarios that could warrant a potential policy action Scenario 1.
Description A peak-to-trough fall in property price of 1315%.
Potential Impact on property market Usually accompanied with a weakening GDP outlook, this will dampen homebuyer sentiment as the “loss of wealth” effect on home-owners could cascade to a downward spiral in prices.
What has history taught us? Government had back in 1998 and 2000 intervened when property price dropped 13% from the peak.
2.
Unemployment Rate rising towards 4.0%.
Given the high ownership rate of c.91%, an increase in unemployment will impact on households’ ability to maintain mortgage payments.
A rise in unemployment rate to close to 4.0% and beyond typically results in a fall in property prices.
3.
Sharp increase in interest rates.
Impact on affordability as a larger portion of disposable income is channelled to mortgage repayments.
No real correlation historically but likely be one of the key reasons of assessing household affordability.
Source: URA, HDB, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 53
Page 53
Industry Focus Singapore Developers & REITs
Figure 73: Measures that government tweaked during previous fall in the Singapore Property Price Index 8.00
Jun 98: deferral of buyer stamp duty
7.00
Series of tightening Sept 02: EC measures downpayment ‐ 10% cash and 10% CPF Dec 02: 2 yrs property tax exempt on land under dev; Jul 05: LTV raised from 80% to 30% reduction in 90%; cash payment reduced fr May 99: 2nd stamp duty 10% to 5%; relax foreign CPF housing ownership rules; relaxation on Oct 01: CGT lifted; grant cut non‐related singles joint foreigners can use purchases SGD loans; property Nov 05: Waived security tax exempted for requirement of developers on land under dev DPS
6.00 5.00 1997: seller stamp duty suspended
4.00 3.00
Feb 00: tax exemption on land dev removed; DC rates on resi land increased
2.00 Nov 98: 10% CPF housing grant cut
1.00
Dec 06: buyer stamp duty concession removed
Jun 00: HDB tightened regulations
Oct 07: DPS removed
Jun‐15
Sep‐14
Dec‐13
Mar‐13
Jun‐12
Sep‐11
Dec‐10
Mar‐10
Jun‐09
Sep‐08
Dec‐07
Mar‐07
Jun‐06
Sep‐05
Dec‐04
Mar‐04
Jun‐03
Sep‐02
Dec‐01
Mar‐01
Jun‐00
Sep‐99
Dec‐98
Mar‐98
Jun‐97
Sep‐96
Dec‐95
Mar‐95
‐
Blue denotes relaxation measures Source: URA, HDB, DBS Bank
Figure 74: Unemployment spikes to close to 4% typically result in a slide in property prices 0.0% 1.0%
Sep’97-Dec’98 Unemployment Rate: 1.9% - 4.7% Property Price Index: Fell by 36%
( %)
Sep’07-Sep’09 Unemployment Rate: 2.4% - 4.9% Property Price Index: Fell by 25%
180 Index Value
160 140
2.0%
120
3.0%
100
4.0%
80 60
5.0% Property Price Index
Sep’00-Dec’01 Unemployment Rate: 2.6% - 5.2% Property Price Index: Fell by 17%
6.0% 7.0% Mar-92
Mar-94
Mar-96
Mar-98
Mar-00
Mar-02
40
Unemployment Rate (Inverse)
20 0
Mar-04
Mar-06
Mar-08
Mar-10
Mar-12
Mar-14
Mar-16
Source: URA, HDB, DBS Bank
Figure 75: Sensitivity of interest rates to mortgage payments Monthly Mortgage Payments** Typical Property Type HDB BTO
Price S$’000 500
Loan S$’000* 400
2.0%
3.0%
4.0%
5.0%
$1,695
$1,897
$2,111
$2,338
Resale
600
480
$2,035
$2,276
$2,534
$2,806
Resale/EC
800
640
$2,713
$3,035
$3,378
$3,741
EC / Private
1,000
800
$3,391
$3,794
$4,223
$4,677
Private
1,250
1,000
$4,239
$4,742
$5,278
$5,846
Private
1,500
1,200
$5,086
$5,691
$6,334
$7,015
Private
1,750
1,400
$5,934
$6,639
$7,390
$8,184
Private
2,000
1,600
$6,782
$7,587
$8,445
$9,353
* Assumed 80% loan for a tenure of 25 years Source: URA, HDB, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 54
Page 54
Industry Focus Singapore Developers & REITs
7. Office Subsector Outlook: Grade A office space to bottom by end 2017 Key Assertions Office rents projected to bottom in 2017 as new supply sees good pre-commitment. Improving pre-commitment rates for key new buildings mainly driven by tenant relocation rather than a net office absorption. A two-tier market to emerge with Grade A office to emerge out of the downtown first; Business Park space remain attractive.
7.1 Trends, Demand and Supply outlook Office rents to bottom in 2017. With Marina One slated to be completed in the first half of next year, we project office rents to bottom in mid or late 2017. Our base scenario assumes Grade A office rents to hit a trough at c.S$8.50 per square foot per month (psf/mth) from S$9.30 psf/mth currently. Not only is this reflective of the expected spike in vacancy rates in the
overall Downtown Core area but is also at a market clearing level to entice a company to move into a new office given fitout costs of S$2.00-2.50 psf/mth and office rents of between S$10.40-11.40 psf/mth over the past year. In our bear case scenario, we project Grade A office rents to hit a low of S$7.50-8.00 psf/mth, which is 14-19% below current Grade A office rents of S$9.30 psf/mth. Office rents continued to trend down in 3Q16. Office rents continued on their downward trajectory since peaking in the first quarter of 2015. According to CB Richard Ellis (CBRE), Grade A office rents fell 2% q-o-q (-15% y-o-y) to S$9.30 psf/mth after falling 4% q-o-q in the second quarter of 2016. Grade B rents also dropped 2% q-o-q to S$7.50 psf/mth. Meanwhile, Grade A occupancies improved to 95.9% from 94.8% in the second quarter of 2016 as CBRE reported positive net absorption of 820k sqft islandwide which ended four consecutive quarters of negative absorption numbers.
Figure 76 Office rents and occupancies Rents
3Q15
2Q16
3Q16
q-o-q
y-o-y
URA Office Rental Index: Central Area
187.0
174.1
172.0
-1%
-8%
URA Office Rental Index: Fringe Area
147.8
135.3
135.0
0%
-9%
CBRE Grade A Core CBD (psf/mth)
10.90
9.50
9.30
-2%
-15%
CBRE Grade B Core CBD (psf/mth)
8.35
7.65
7.50
-2%
-10%
Occupancy
3Q15
2Q16
3Q16
q-o-q (bps)
y-o-y (bps)
URA occupancy private sector: Central Downtown Core
91.1%
90.9%
88.5%
-235
-260
URA occupancy private sector: Central Fringe Area
86.7%
88.8%
89.6%
76
287
CBRE Grade A
94.8%
94.8%
95.9%
110
110
CBRE Core CBD
95.8%
95.1%
95.9%
80
10
Source: URA, Corporate Locations, CBRE, various REITs and corporate, press reports, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 55
Page 55
Industry Focus Singapore Developers & REITs
Demand
Forecasts
Uncertain outlook for new office demand. Over the past three years, employment growth in the four key sectors driving office demand were (1) Financial Services, (2) IT and other information services, (3) Legal, Accounting and Management Services, and (4) Insurance Services, and had been healthy. The three-year compound annual growth rate (CAGR) for those sectors ranged from 3-9% to end-September 2016. However, given a slowing economy, announced job losses in the financial services industry and businesses moving out of the CBD to business parks/suburban locations, we believe the demand for new office space will be sluggish but still positive. This is evidenced by c.13,000 sqm of net new space in Downtown Core area during the first nine months of the year. In addition, the number of people employed in the services sector continues to grow, expanding by 2% in the nine months to September compared to the same period last year.
Spike in vacancy but market moves to two-tier market. On the back of sluggish demand and jump in supply, we anticipated Private Sector Downtown Core vacancy rate to potentially spike from 11.5% at the end of September 2016 to 17% in 2017 and 18% in 2018, approaching the levels seen in 2004 and surpassing the 14% vacancy level in 2010 and 2011. While the headline vacancy rate is high, the figure will be composed of two very different markets. One would consist of the older buildings such as those in Shenton Way and Raffles Place where there will be a “structural” or persistent high vacancy potentially in excess of 20% as these buildings are unable to compete against the new buildings currently under construction or recently completed due to less efficient floorplates and modern specifications. In contrast, vacancy at the newer buildings or those defined as Category 1 office buildings by URA will enjoy substantially lower vacancies, closer to the 10% level, as the “flight to quality” takes place, i.e. tenants seeking better quality offices to cater to their expansion plans or consolidate their various offices into a single location. According to URA, Category 1 office buildings are defined as those located in core business areas in Downtown Core and Orchard Planning Area which are relatively modern or recently refurbished, command relatively high rentals, and have large floor plate sizes and gross floor areas.
Improving pre-commitment rates for key new buildings. Compared to earlier this year where the pace of securing tenants for new offices was muted, the environment has since improved. Guoco Tower, according to press reports, has now been 80% pre-leased, while pre-commitments level has increased to 30-40% for Marina One with Duo Tower stable at 30%. With less urgency for Guoco Tower to secure tenants and Marina One potentially increasing pre-commitment levels in the coming months, the incremental pressure on Premium Grade A rents may start to ease. Supply 16% jump in downtown core office supply. Approximately 5.4m sqft of office net lettable area (NLA) will be completed within Singapore’s downtown core between 2016 and 2018; translating into a 16% increase in existing downtown CBD stock, or at a three-year CAGR of 5%. Approximately 73% of new office supply (by NLA) will be concentrated in four assets: (a) DUO Tower located in Bugis; (b) Guoco Tower, located in Tanjong Pagar; (c) Marina One in Marina Bay; and (d) Frasers Tower, located at Tanjong Pagar (Table 1). Based on press reports, the majority of the remaining developments will likely be sub-divided and strata sold to end-users.
Recovery from 2018 onwards. While we expect office vacancy rates to peak in late 2017 or early 2018, with new office supply easing from 2018 onwards, we anticipate rents to start recovering as early as the end of 2017, as both tenants and landlords anticipate vacancies to drop due to a fall in supply. However, we expect a recovery in rents to largely occur in the premium spectrum of Grade A office space, as the older buildings at Shenton Way and Raffles Place will unlikely be able to raise rents due to their still high occupancies and uncompetitive products. On that front, we expect Grade A office rents to recover from the S$8.50 psf/mth low in 2017 towards S$10 psf/mth in 2018, similar to the 14% rise in office rents experienced between mid-2013 and 2015 as we approached a dearth of new supply in 2015 and demand normalises to historical average in 2019. The projected recovery in Grade A office rents is also partially a result of the increased proportion of premium quality office stock commanding higher office rents.
ASIAN INSIGHTS
VICKERS SECURITIES
Page 56
Page 56
Industry Focus Singapore Developers & REITs
Key Charts Figure 78: Office supply in the Central Business District (CBD) Office (CBD)
Location
Developer
2016
Remarks Estimated NLA (sqft)
Property Type
Guoco Tower
Peck Seah Street
Guocoland
890,000
Leasing
EON Shenton
Shenton Way
Roxy Pacific Holdings
101,045
Strata Sale
SBF Center
Robinson Road
Far East
353,480
Strata Sale
DUO Tower
Rochor Road
M+S
570,475
Leasing
GSH Plaza
Cecil Street
GSH/TYJ/Vibrant/DB2
282,000
Strata Sale
OUE Downtown 1
Shenton Way
OUE
50,000
Leasing
2,247,000 2017 Marina One
Marina Bay
M+S
1,876,000
Leasing
UIC Building
Shenton Way
UIC
278,000
Strata Sale
Oxley Tower
Robinson Road
Oxley Consortium
112,000
Strata Sale
Crown @ Robinson
Robinson Road
WyWy Developments
70,000
Strata Sale
2,299,000
2018 Redevelopment of International Factors Building and Robinson Towers Frasers Tower
Robinson Road
Tuan Sing
194,380
Strata Sale
Cecil Street
Frasers Centrepoint Limited
645,000
Leasing
Estimated 5.4m sqft of office net lettable area (NLA) is expected to complete within the Downtown Core between 2016 and 2018, representing a 16% total increase in current Downtown Core office stock. Around 4.0m sqft of NLA will be held for leasing purposes, while the rest will likely be strata sold. Key office projects to watch out for are Guoco Tower (2016), DUO Tower (2016), Marina One (2017) and Frasers Tower (2018). Following the easing of supply in 2018 and 2019, a pickup in new CBD supply will only occur in 2020/2021 when CPF Building, Golden Shoe and Central Boulevard White site are scheduled to be completed.
858,380 2019 Funan
North Bridge Road
CapitaLand Mall Trust
204,000
Leasing
204,000 2020 CPF Building
Shenton Way
Ascendas-Singbridge, Mitsui and Tokyo Tatemono
500,000
Leasing
500,000 2021 Golden Shoe
Market Street
Central Boulevard White Site
Marina Bay
CapitaLand Commercial Trust In bidding stage
800,000
Leasing
1,070,000
Leasing
1,870,000
Source: URA, Corporate Locations, CBRE, various REITs and corporate, press reports, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 57
Page 57
Industry Focus Singapore Developers & REITs
Figure 79: Decentralised office supply Office (Decentralised) 2016 M18 Havelock II
Remarks
Location
Developer
Estimated NLA (sqft)
Property Type
Eastern Suburbs - Paya Lebar River Valley / Havelock
Mapletree
56,000
Leasing
Guthrie GTS
64,850
Strata Sale
Over the next few years, supply of decentralised office space will be steady. Given a large majority of this new supply is being sold as strata units potentially for smaller users and owner occupiers, they will compete directly with CBD space.
120,850 2017 Arc 380
Eastern Suburbs - Jalan Besar Western Suburbs - Jurong
Vision Exchange
2018 Paya Lebar Central
2019 Woods Square
Tong Eng Group
103,500
Strata Sale Strata Sale
500,000 603,500
Eastern Suburbs - Paya Lebar
Lend Lease / ADIA
Northern Suburbs - Woodlands
Far East Organisation
750,000
However, in 2018, Paya Lebar Central may pose some form of competition to CBD office space if Lend Lease/ADIA is able to position the property as a viable alternative.
Leasing
750,000 534,500
Strata Sale
534,500
Source: URA, Corporate Locations, CBRE, various REITs and corporate, press reports, DBS Bank
Figure 80: Average new supply per annum over 2015-2019 in line with average from 20102014 2,500
'000 sqft
S$ psf pm
Post GFC 2010‐2014 average: 2015‐2019 average: 1.10m sqft 1.15m sqft
2,000 1,500
20.0 18.0 16.0 14.0
1,000
12.0 10.0
500
While the headline supply is expected to be large from 2015-2019, the average supply of 1.15m sqft p.a. is comparable to 2010-2014’s average of 1.10m sqft p.a. Despite the large supply in 2010-2014, central area office rents still recorded positive growth.
8.0
Net supply: Downtown Core (LHS)
‐1,000
Net demand: Downtown Core (LHS) CBRE Grade A office rents (RHS)
‐1,500
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0 ‐500
Remarks
6.0 4.0 2.0 ‐
Source: URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 58
Page 58
Industry Focus Singapore Developers & REITs
Figure 81: URA rental index (central) growth vs. changes in employment for financial institutions (1998 – present)
70%
20%
60% 50%
15%
40% 30%
10%
20% 10%
5%
0% ‐10%
0%
‐20% ‐30%
‐5% URA rental inde x ‐ central (LHS)
Remarks Between 1998 and 2015, there was 90% correlation between changes in the URA rental index (central) and employment growth in the financial services sector. Lower correlation in rents and financial services employment from 2012 onwards (73%) reflects a diversification in demand for CBD office space from other sectors such as technology, media and telecommunications, commodities/resources and professional services. Employment in the financial institution sector will still have a large influence on the direction of rents in the CBD.
Employment ‐ Financial & Insurance Services (RHS)
Source: URA, Singstat, CEIC, DBS Bank
Figure 82: Business Park rents still cheaper than Grade A but pricing advantage has narrowed 20
50%
S$ ps f/mth
45%
16
40%
14
35%
12
30%
10
25%
8
20%
6
15%
4
10%
2
5%
0
0%
Business Park rents have stayed fairly flattish over the past five years, and the pricing advantage expanded when Grade A rents increased by around 20% from 3Q13 to its peak in 1Q15-2Q15. Firms which wanted to achieve significant cost savings and were eligible to be located in business parks, had thus relocated from the CBD while maintaining a leaner presence in the CBD.
1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
18
Remarks
Grade A and BP rent spread (RHS) Business Park rent (LHS)
Grade A office rent (LHS)
Source: CBRE, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 59
Page 59
Industry Focus Singapore Developers & REITs
Figure 83: Uncertain demand outlook for key sectors that drive CBD office demand
Ke y sectors for CBD office demand
Key drivers of CBD office demand include financial services, legal and accounting sectors, as well as IT and other information services.
Legal, IT and Other Accounting information and Services, 21% Management Services, 30%
Insurance Serivces, 8%
Between 2012 and 2015, these key sectors led CBD office demand, and reported headcount increases of between 3-9% p.a.
Financial Services, 41%
3‐year headcount CAGR (2012‐2015) Total
Outlook
5%
Legal, Accounting and Management Services
8%
Insurance Serivces
5%
Financial Services
Remarks
With an uncertain economic environment ahead, the outlook across these sectors has turned more cautious. Nevertheless, given still positive GDP growth ahead as projected by our DBS economists, we expect net positive demand for space though at a slower pace than the more buoyant times during 2012-2013. For 9M16, the amount of occupied space in the Downtown Core area rose by 237k sqft, according to the latest URA statistics.
3%
IT and Other information Services
7%
0.0%
5.0%
10.0%
Source: Singstat, CEIC, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 60
Page 60
Industry Focus Singapore Developers & REITs
Figure 84: Office vacancies to spike on sluggish demand and increase in supply 3,000
Remarks
S$ psf pm 20.0
'000 sqft
We expect the soft demand outlook to result in c.40k sqft of net demand for space in the Downtown core region for the next three years.
18.0
2,500
16.0
2,000
14.0
1,500
Given the large increase in supply, this will result in Downtown Core vacancy rates spiking to 17% and 18% in 2017 and 2018 respectively from 11.5% as at the end of September 2016.
12.0
1,000
10.0 500
8.0
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
-500
2000
0
-1,000
6.0
Vacancy rates should start trending down from 2019 onwards as demand normalises back up to historical averages, and supply eases.
4.0 2.0
Net Supply: Downtown Core (LHS) Net demand: Downtown Core (LHS) CBRE Grade A office rents (RHS)
-1,500
Source: URA, CBRE, DBS Bank
-
Figure 85: DBS Grade A office rental forecast (2016-2017)
3,000
Remarks
S$ psf pm
'000 sqft
2,500 2,000
15.0 While overall vacancy rates are
likely to remain elevated in 2018, we believe Grade A rents will recover to c.S$10 as the proportion of Premium Grade 10.0 buildings (which typically charge higher rents) become an increasing proportion of the Grade A category.
1,500 1,000 500
-1,000 -1,500 Source: URA, CBRE, DBS Bank
ASIAN INSIGHTS
Net Supply: Downtown Core (LHS) Net demand: Downtown Core (LHS) CBRE Grade A office rents (RHS) DBS Base case (RHS) DBS Bear Case (RHS)
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0 -500
Based on the projected increase in vacancies, we expect Grade A 20.0 rents to bottom out at around S$8.50 in 2017 before recovering to c.S$10 by end2018.
5.0
In our bear-case scenario, rents could fall to S$7.50-8.00, from S$9.30 currently before recovering to S$9.00 in 2019.
-
VICKERS SECURITIES
Page 61
Page 61
Industry Focus Singapore Developers & REITs
Figure 86: Two-tier Grade A office market to develop S$ psf / mth 13.00
Remarks 12% 10%
12.00
8%
11.00
6%
10.00
4% 2%
9.00
0%
8.00
-2%
7.00
-4%
Spread between Premium Grade vs Grade A (RHS) Colliers Premium Grade Raffles Place/New Downtown (LHS) CBRE Grade A Core CBD (LHS)
While we expect overall Downtown Core vacancy rate to rise to c.18% by 2018, we believe a two-tier market will develop. The first submarket will be related to the older buildings in Shenton Way and Raffles Place where vacancy levels will be structurally higher given an uncompetitive product (lower efficiency and older specifications) resulting in lower rents. The other category will be the premium grade buildings, largely consisting of new buildings currently under construction or built over the past 5-6 years. These will command higher rents and achieve lower vacancies. This can already be evidenced by the increasing spread between Premium Grade rents as reported by Colliers and overall Grade A core CBD rents as estimated by CBRE. Going forward, Premium Grade offices will continue to command 11% higher rents relative to overall Grade A offices, and this spread may widen.
Source: URA, CBRE, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 62
Page 62
Industry Focus Singapore Developers & REITs
8. Retail subsector Outlook: Hampered by weakening retail sales Key Assertions Retail sector outlook tempered by impact of e commerce and dampened consumer sentiment.
More demand in the outskirts; Orchard road expect to remain weak.
Rental reversion remain flattish to marginally negative.
8.1 Trends, demand and supply outlook We see the next supply spike in 2018 adding more pressure in rental and occupancy. The years 2013 and 2014 saw Singapore’s largest influx of retail space since 2006. Recent supply has been largely located outside the central region (Figure 88), an indication that the government’s push towards a live, work and play concept in regional hubs is bearing fruit. The recently completed Waterway Point (95% tenanted) continues to see good demand, an indication that retailers remain keen to tap into suburban demand for goods and services. Much more limited supply is expected in 2016 and 2017, before another spike in completions in 2018, stemming from two key projects: Changi Jewel and Northpoint City (Figure 89-90). Demand Tempered by retail headwinds. Despite strong take-up rates in recently completed malls, net absorption has been negative since 2015 (Figure 92). Existing malls have, in general, been under occupancy and rental pressure. As of 3Q16, shop occupancy rates across the country had fallen to 91.3%, from a high of 95.5% in 2013. Occupancy for Frasers Centrepoint Trust fell by 1ppt on-year to 94.9% (adjusted to exclude Northpoint which is undergoing an asset enhancement initiative); though occupancy for CapitaLand Mall Trust was more stable, down marginally to 98.6% from 98.8% at the end of 2014, its rental reversions dropped to 1.3% for 9M16, Figure 87: Retail Market Summary Key Indicators Price Index Rental Index Pipeline of supply Vacancy rate
% Chg -0.6% -1.5% -11.2% +0.6% points
significantly below the 6% average over the past few years, and the lowest since 2009. Retailers have been hit by several factors: (a) declining sales efficiency (revenue per square foot) as a result of e-commerce and leakage from residents travelling abroad; (b) a manpower shortage due to government restrictions on foreign labour; and (c) rising labour costs from minimum wage policies. Faced with declining revenues and rising costs, retailers have, since 2014, begun to consolidate their operations, cutting down on the number of stores they operate while maintaining a presence in better-performing malls. The impact of retail headwinds will not be felt evenly across all malls, in our view. We believe that in order for a mall to outperform, it needs to be well located with a strong track record of recurring footfall and tenant sales, and have active asset management and advertising and promotion efforts. Supply Moving to the outskirts. The retail experience for locals will be an increasingly suburban affair. The majority of shopping mall completions in the past year have been located in the suburbs: One KM in Tanjong Katong, Big Box in Jurong East, Paya Lebar Square in Paya Lebar and Seletar Mall in Seletar, for example. Looking ahead, new retail space will still be largely focused in the suburbs. Waterway Point in Punggol opened in January 2016, and Northpoint City in Yishun (2018) and Changi Jewel (2018) are largest suburban developments in the pipeline. Just as we have seen in Jurong East, the government has been actively encouraging the continued development of regional centres in decentralised areas as key working and leisure destinations, as a means of relieving the congestion in the central business district and Orchard Road. As a result, we have seen many retailers that were previously only in the Orchard Road area moving into suburban shopping malls in order to directly cater to residents living in those areas. Examples include Zara, Coach, Kate Spade and Isetan.
2Q16 123.1 107.0 734k sqm GFA 7.8%
3Q16 122.3 105.4 652k sqm (GFA) 8.4%
Source: URA
ASIAN INSIGHTS
VICKERS SECURITIES
Page 63
Page 63
Industry Focus Singapore Developers & REITs
Figure 88: Net Additions to Shop Space Supply - suburban retail stock has been growing at a quicker pace than that in the central region 1.40 1.20
Retail supply additions in recent years have been mainly in the Outside Central Region (a.k.a. OCR; dark grey column) and Fringe of City Centre (pink column).
m' sqft
1.00
In the OCR, major completions since 2013 include Westgate, JEM, Sports Hub, One KM, Seletar Mall, Paya Lebar Square, Capitol Piazza and Big Box.
0.80 0.60 0.40 0.20 (0.20)
Remarks
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 9M16
(0.40)
Waterway Point, the latest mall to obtain its temporary occupation permit – in 4Q2015 –added around another 30,000 square metres (sqm) of space to the retail sector.
(0.60) Downtown
Orchard
Rest of Central
Fringe
Outside Central Region
Source: URA, CEIC, DBS Bank
Figure 89: Upcoming retail developments by planning region (478,230 sqm of gross floor area)
Remarks New retail supply will be heavily skewed to the suburbs (OCR) with around 46% of total gross floor area (GFA). This is in line with the government’s strategy of decentralising and creating regional “work, live, play” hubs.
Rest of Central Area 2.1%
East Region 25.6%
Outside Central Region 46.0% F ringe Area 31.7% Orchard 5.0% Orchard 5.0%
North Region 14.9%
Large proportion of OCR retail supply will be in the East Region (i.e. Changi Jewel). New supply of Downtown Core is concentrated on Funan Redevelopment (2019), OUE Downtown (2016) and Marina One (2017).
West Region 9.1% North East Region 6.6%
Source: URA, CEIC, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 64
Page 64
Industry Focus Singapore Developers & REITs
Figure 90: New Retail Space Supply by regions 2.50
Remarks
m'sqft
Most of the pure-play retail supply had already entered the market in 2014 and 2015.
2.00 1.50
Going forward, most of the supply will be part of mixed-use developments (including both office and retail components).
1.00 0.50
Key mall supply will come from Northpoint City in Yishun, and Changi Jewel in Changi. These are slated for completion in 2018.
2016
2017
2018
2019
Downtown Core
Fringe Area
Orchard
Outside Central Region
2020
Rest of Central Area
Source: URA, CEIC, DBS Bank
Figure 91: Net Absorption of retail supply and Occupancy Rate 150
Remarks 96%
sqm
95% 100 94% 50 93% 0
92% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 9M16 91%
‐50 90% ‐100
Net additions of shop space outpaced net absorption which has turned negative since 2015 and has been declining further in 2016 as landlords take more time to fill up the space in recently completed malls. We expect net absorption to continue to fall going forward, as retailers are consolidating their operations amid headwinds in the sector. Likewise, occupancy rates should continue to moderate in the next 1-2 years.
89% ‐150
88% Net Supply: Shop Space (LHS)
Net Absorption: Shop Space (LHS)
Occupancy (RHS)
Source: URA, DBS Bank
Figure 92: URA property rental index (shop) 140
Remarks
1998=100
Rents in the central region have been weakening at a faster pace than rents in the fringe area.
130 120
Rentals in the Central Area have fallen c.15% from the peak in June 2008 and c.11% from December 2014, as retailers’ consolidation efforts accelerate.
110 100 90 80 70 60
Property Rental Index: Shop: Fringe Area
Property Rental Index: Shop: Central Area
Source: URA, CEIC, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 65
Page 65
Industry Focus Singapore Developers & REITs
Figure 93: Upcoming retail developments by project name Project Name
Street Name
Developer
Region
Total Retail Space (000'sqft) 548.0
Hillion Mall
Jelebu Road
Sim Lian JV
Outside Central Region
221.1
OUE Downtown 1
Shenton Way
Alkas Realty Pte Ltd
Downtown Core
237.2
Guoco Tower (retail)
Wallich Street
GuocoLand
Downtown Core
77.0
2016
Others
12.69
2017
1,316.8
DUO Galleria
Bencoolen Street
Kah Motor Co Sdn Bhd
Rest of Central Area
Marina One
Yishun Ring Road
Outside Central Region
Northshore Plaza
Punggol Way
Northern Resi Pte Ltd/Northern Retail Pte Ltd Housing & Development Board
North East Region
79.8 197.9 91.2
Oasis Terraces
Punggol Drive
Housing & Development Board
North East Region
Office/retail development
Hoe Chiang Road
Fragrance Grandeur Pte Ltd
Central Region
120.2
96.6
Singapore Post Centre (AEI)
Eunos Road 8
Singapore Post Limited
Central Region
269.0
Tripleone Somerset (AEI)
Somerset Road
Perennial (Somerset) Pte Ltd
Central Region
122.3
Others
339.7
2018
2,323.7
City Gate
Beach Road
Bayfront Ventures Pte Ltd
Central Region
101.7
Frasers Tower
Cecil Street
FC Commercial Trustee Pte Ltd
Central Region
30.9
Changi Jewel
Airport Boulevard
East Region
IMall
Marine Parade Central
Changi Airport Group (S) Pte Ltd Marine Parade Central Pte Ltd
Central Region
74.5
Mapletree 18
Tai Seng Street
Mapletree Trustee Pte Ltd
North East Region
63.4
Northpoint City
Yishun Central 1
Fraser Centrepoint Limited
North Region
Office/retail development
Robinson Road
Superluck Properties Pte Ltd
Central Region
79.7
Oxley Tower
Robinson Road
Oxley Consortium Pte Ltd
Central Region
49.8
Paya Lebar Quarter
Paya Lebar Road/Sims Avenue
Central Region
475.5
Woods Square
Woodlands Square
Roma Central Pte Ltd/Milano Central Pte Ltd/Verona Central Pte Ltd Woodlands Square Pte Ltd
968.4
420.2
North Region
59.7
2019 and onwards
957.6
Office/retail development
Hoe Chiang Road
Funan (redevelopment)
North Bridge Road
Wisteria Mall
Yishun Ring Road
Mansfield Developments Pte Ltd HSBC Institutional Trust Services (S) Limited Northern Resi Pte Ltd/Northern Retail Pte Ltd
Central Region
100.2
Central Region
536.7
North Region
83.3
Others
237.5
* We have selectively shown retail properties that are over 45,000 sqft in size in this table. Source: URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 66
Page 66
Industry Focus Singapore Developers & REITs
9. Industrial Sector Summary: Year of consolidation post supply spike
Key Assertions Supply absorption remain the key drag on rental growth prospects. Demand outlook weak given firms remain on a consolidation trend; vacancy rates to hike up to 11% by end-2018. Business Park space offers the best visibility.
9.1 Trends, demand and supply outlook Downside as pre-commitments for new supply remain low. We believe that the industrial sector outlook remains soft and is projected to remain on a decline with rental rates expected to edge down by 5-10% per annum over the coming two years, weighed down by a spike in supply completions over 20162107. Demand for space is expected to lag behind supply Figure 94: Industrial Market Summary Key Indicators Price Index Industrial Property Multi-User Rental Index Industrial Property Single-User Factory Multi-User Factory Warehouse Business Park Vacancy rate Industrial Property Single-User Factory Multi-User Factory Warehouse Business Park Pipeline under construction Industrial Property Single-User Factory Multi-User Factory Warehouse Business Park
growth in the coming years as firms continue to look to consolidate or downsize their space requirements in order to remain cost efficient. Vacancy rates are expected to remain on an uptrend to 11% by end-2018. Manufacturing Sector expanded in September 2016 but outlook remains weak. The Singapore PMI increased to 50.1 in September 2016 which is an expansion in factory activity for the first time in 15 months, led by higher new orders, new exports, and output. It was a first month of expansion in over a year for the country with the electronics sector rising to 50.3 (50.2 in August 2016). However, the outlook is likely to remain uncertain with anaemic growth in Singapore’s major industrial sectors. Industrial leasing volumes inched up in 3Q16, closing 4% higher y-o-y and flat q-o-q to 2,172 leasing deals (inclusive of factory, warehouse and business park space).
% Chg
2Q16
3Q16
-1.70% -0.98%
100.0 101.8
98.3 100.8
-1.98% -1.28% -2.12% -4.40% -0.19%
96.2 93.4 104.0 95.4 104.4
94.3 92.2 101.8 91.2 104.2
-0.1% 0.8% -0.2% 0.0% -0.1%
10.6% 8.6% 13.1% 10.9% 19.0%
10.5% 9.4% 12.9% 10.9% 18.9%
-8.90% -14.10% -4.29% -6.66% 2.33%
57.2 23.5 18.0 15.2 0.5
52.1 20.2 17.3 14.2 0.5
Source: JTC
ASIAN INSIGHTS
VICKERS SECURITIES
Page 67
Page 67
Industry Focus Singapore Developers & REITs 60.0m sqft – of new industrial space are either under construction or in planning and projected to complete over the Year-to-date absorption remains negative. As of end-September next four years from 2016-2020. Of this, more than 60% of the 2016, year-to-date take-up for industrial space still lagged space will be completed and operational by the end of 2017. behind supply growth with net increase in unoccupied space of Among industrial types, warehouse space is expected to see the close to 6.7m square feet (sqft). This is almost double that when highest growth in supply at 21% or close to 20m sqft. Factory compared to a year ago, coming mainly from close to 5.0m sqft space, inclusive of both single-user and multi-user space, have of single-user factory space that was competed but yet to be close to 44m sqft of new space under construction, implying a occupied. We expect this to be occupied when a majority of the growth rate of 13%. The business park space will add another space is taken up progressively by end-user occupiers in the 3m sqft of new space, implying a 14% increase in space to coming quarters. close to 26m sqft. However, most of the space are precommitted and thus not an issue for existing landlords. As one of the key drivers for space in the industrial sector has Forecasts been the consolidation of operations to achieve operational Industrial sector overall vacancy rates to increase to 10-11% by efficiency, we expect the increased take-up in the single-user 2017; with a negative bias if economic outlook deteriorates. factory space to be at the expense of higher vacancy rates Taking into account assumed pre-commitment rates and emerging from existing multi-user factory space where some of projected new demand, and faced with an increasing supply the end-users are expected to vacate from. outlook, the average vacancy rate is now 10.5% (as of 3Q16) and we expect further weakness till the end of 2017 before Supply bottoming out from 2018 onwards. Increased competition from a spike in supply completions. The industrial market is in the midst of a spike in supply completions As the influx and pace of completions are skewed over the starting from 2014 and peaking in 2017. As such, landlords are 2016-2017 calendar year, we believe that, on average, spot typically still facing an increasingly competitive operating rentals are likely to see downside to the tune of 7-10% per environment, and compounded from the weak demand outlook annum over 2016-2017, with the exception of business park on the back of a slowing economy, we expect downside risks to space, which we believe will be resilient with around 0-3% occupancy rates and market rents. growth. Based on the latest Urban Redevelopment Authority (URA) statistics, a total of 5.9m square metres (sqm) – equivalent to Demand.
Figure 95: Industrial Leasing Transactions 3,000
Remarks 25.0
Number of transactions
Value S$'m
2,500
20.0
Leasing volumes in 3Q are flat qo-q, while they appear to be picking up in recent quarters, we believe that it is still early to call a bottom.
2,000 15.0 1,500 10.0 1,000 5.0
500
Transactions
Value
‐
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
‐
Source: JTC, URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 68
Page 68
Industry Focus Singapore Developers & REITs
Figure 96: Close to 50m sqft of new space to complete over 2016-2019 35.0
Remarks 12%
m' sqft
30.0
10%
25.0
8%
20.0
Supply completions to spike from 2014 and peak in 2016-2017 with an average of 25m sqft of space, thereafter it will drop significantly to 5.3m sqft from 2017 onwards.
6% 15.0 4%
10.0
Supply completions to be more than double that of the past five years.
2%
5.0
0%
2,007
2,008
2,009
2,010
2,011
2,012
Demand
2,013
2,014
Supply
2,015
2016F
2017F
2018F
2019F
2020F
Vacancy Rate (RHS)
Source: JTC, URA, DBS Bank Figure 97: We project net absorption to remain negative over 2016F-2020F with vacancy rates inching up to 11%
6
12%
m'sqft
4
10%
2 8%
‐ 2007
2008
2009
2010
2011
2012
2013
2014
2015
2016F 2017F 2018F 2019F 2020F
(2)
6%
(4)
4%
(6) 2%
(8)
0%
(10) Net Suplus/(Net deficit)
Vacancy Rate (RHS)
Source: JTC, URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 69
Page 69
Industry Focus Singapore Developers & REITs
Figure 98: Rental reversion trend to remain negative over 2016-2018
Remarks
50%
Rental reversion trends are expected to turn from flattish to negative from 2016 onwards.
40%
The factory and warehouse space is expected to see a larger drop in rental reversions.
30% 20%
Business park space is expected to buck the trend, given expectations of a 3% per annum rise in market rents in 2016; flat in 2017.
10% 0% 2009
2010
2011
2012
2013
2014
2015
2016F
2017F
‐10% Business Park
Warehouse
Factory
‐20%
Source: JTC, URA, DBS Bank
Figure 99: Rental trends (forecast)
Remarks
Industrial Segments
2015
2016F
2017F
2018F
Factory
S$ psf/mth 2.09
S$ psf/mth 1.88
S$ psf/mth 1.75
S$ psf/mth 1.70
Warehouse
1.98
1.79
1.66
1.58
Business Park
4.15
4.15
4.24
4.32
% Chg
% Chg
% Chg
% Chg
Factory
y-o-y -2%
y-o-y -10%
y-o-y -7%
y-o-y -3%
Warehouse
-3%
-10%
-7%
-5%
Business Park
-1%
0%
2%
2%
Rentals for factory and warehouse segments are forecast to decline by 5-10% over the next two years. We forecast warehouse space to see the largest declines given supply competition. Business park segment is expected to increase by 2% in 2017-2018, supported by a lack of supply completions.
Source: JTC, URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 70
Page 70
Industry Focus Singapore Developers & REITs Industrial Sub-sector – Multi-User Factory Figure 100: Multi-user factory supply: Supply spike in 2016 to be an overhang 7.0
Remarks 16%
M illion Sqft
14%
6.0
12%
5.0
10%
4.0
8% 3.0
6%
2.0
4%
1.0
2%
-
0%
Source: JTC, URA, DBS Bank Demand
Supply
Vacancy Rate (%)
Supply completions to spike in 2016-2018; resulting in vacancy rates increasing to more than 14%. However, we see risk emerging from “shadow space” arising from the single-user factory segment if end-users decide to sub-lease part of their space (bottom chart). Rentals are expected to remain under pressure as competition heats up. We project a 7-10% drop over 2016-2017 followed by a more modest 3% fall in 2018.
Figure 101 Multi-user factory: Occupancy and rental rates to dip 7.0
92%
M illion Sqft
6.0
91%
5.0
90%
4.0
89%
3.0
88%
2.0
87%
1.0
86%
-
85%
(1.0)
84% Annual Demand (sqm) LHS
Annual Supply (Sqm) LHS
Occupancy Rate (%) RHS
Source: JTC, URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 71
Page 71
Industry Focus Singapore Developers & REITs Industrial Sub-sector – Warehouse Figure 102: Warehouse: Oversupply situation to persist till 2018 12.0 Million Sqft 10.0 8.0 6.0 4.0 2.0 Demand Supply Vacancy (%) RHS Source: JTC, URA, DBS Bank
Remarks 12%
Supply under construction remains one of the highest among industrial subsectors, at close to 21%.
10% 8%
While new supply appears to be pre-committed, we believe that shadow space will emerge from tenant consolidation from multiple locations to single warehouses for efficiency purposes.
6% 4% 2%
0%
Figure 103: Warehouse: Occupancy to dip below 90%
12.0
M illion sqft
Remarks
(%)
Warehouse rents expected to decline 710% over 2016-2017.
95% 94%
10.0
93%
8.0
Occupancy rates projected to dip below 90% going forward.
92% 91%
6.0
90% 4.0
89%
2.0
88% 87%
-
86% 85%
(2.0) Annual Demand (m'sqft) LHS Occupancy Rate (%) RHS
Annual Supply (m'sqft) LHS
Source: JTC, URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 72
Page 72
Industry Focus Singapore Developers & REITs Industrial Sub-sector – Business Parks Figure 104: Majority of Business Park space has been pre-committed
Remarks
'000 sqft 3.00 2.50
While the sector is expected to see a c.14% increase in supply, a majority has been pre-committed with minimal speculative built except for certain properties – Mapletree Business City which has also seen good take-up rates.
100%
Global Financial Crisis (2008‐2009)
95%
Eurozone Crisis (2012)
2.00
90%
1.50 85%
1.00 80%
0.50
75%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F (0.50)
70% Demand for Private Business Park Occupancy (%) RHS
Supply for Private Business Park
Source: JTC, URA, DBS Bank
Figure 105: Business parks: Rental differential currently above historical averages 20
Remarks
Business Park vs. Grade A Office rents
(S$ ps f/mth)
Business park rents (offcentral and rest of Island) tend to be at 50% and 60% discounts to Grade A offices respectively.
18 16 14 12
Current differential above historical average but softening outlook for CBD office rents caps further upside.
10 8 6 4 2 0 4Q04
4Q05
4Q06
4Q07
4Q08
Grade A Office
Source: JTC, URA, DBS Bank
ASIAN INSIGHTS
4Q09
4Q10
4Q11
Business Park - Rest of Island
4Q12
4Q13
4Q14
4Q15
Series3
VICKERS SECURITIES
Page 73
Page 73
Industry Focus Singapore Developers & REITs 10. Hospitality Outlook Summary Key Assertions Supply remains the key drag on RevPAR growth prospects. Corporate demand to remain soft; demand for accommodation to lag supply growth. Hotel sector to bottom only from 2H17-2018 onwards.
10.1 Trends, demand and supply outlook Decline in 3Q16 RevPAR. Following a soft second-quarter where RevPAR was weak and declined 3% y-o-y to S$191, RevPAR in the third-quarter (3Q16) continued to fall, based on the Singapore Tourism Board (STB) statistics. The 4% fall in RevPAR was a result of a decrease in both occupancy (87.2% vs 88.3% in 3Q15) and average daily rate (ADR; S$244 versus S$249 in 3Q15) as excess supply continued to weigh on the market despite an increase in tourists arrivals. However, tourist arrivals for 3Q16 was positive, up 4%, driven largely by Chinese tourists (+20%).
2017 will be another challenging year. While we expect tourist arrivals into Singapore to increase in 2016 by 9% to 16.6 million, largely led by a 35% jump Chinese visitors (+41% in Jan-Sep), we forecast total visitor days to rise by only 4% due to the shorter average length of stay. In addition, while the increase in new supply this year is now lower than earlier expected due to delays in completion of some hotels (2,520 net rooms to be added this year versus 3,930 previously), we remain cautious on the outlook for revenue per available room (RevPAR) given soft demand from the corporate sector which typically offers higher yields, and excess supply. Thus, we project that RevPAR in 2016 will drop by 4% year-on-year (y-o-y) to S$201. For 2017, we expect tourist arrivals to grow at a more modest rate of 4%, but average length of stay to lengthen, resulting in 5% uplift in total visitor days. However, with corporate demand expected to remain soft and persistent supply pressures arising from a 6% increase in room stock, 2017 RevPAR is projected to fall 4%.
Figure 106: Hospitality sector remained under pressure in 3Q16 3Q15
2Q16
3Q16
q-o-q
y-o-y
88.3%
83.2%
87.2%
4.0%
-1.2%
Industry average daily rate (S$)
249
229
244
6.6%
-1.9%
Industry RevPAR (S$)
220
191
212
11.2%
-3.6%
4,096,271
4,022,046
4,248,079
5.6%
3.7%
Luxury RevPAR (S$)*
409
348
421
21.2%
3.1%
Upscale RevPAR (S$)*
242
215
233
8.4%
-3.8%
Mid-Tier RevPAR (S$)*
157
144
151
5.2%
-3.8%
Economy RevPAR (S$)*
90
81
84
3.7%
-6.9%
Industry Occupancy
Tourist* arrivals
Source: Singapore Tourism Board, STR Global, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 74
Page 74
Industry Focus Singapore Developers & REITs Demand Overall increase in seat capacity to Singapore points to growth in tourist arrivals offset by decline in average length of stay. Based on data from Centre for Asia Pacific Aviation (CAPA), seat capacity between Singapore and the rest of the world is projected to increase 3% on-year in the fourth quarter of this year following an increase of 3% during January-September. Overall seat capacity is expected to increase by a further 5% yo-y in the first quarter of 2017. We believe this is supportive of a sustained recovery in Singapore arrivals and underpins our forecast for a 9% and 3% increase in tourist arrivals in 2016 and 2017 respectively. However, given the lower “quality” of tourists coming in such as tour groups, which typically only stay 1-2 days in Singapore, we forecast total visitor days to rise by only 3% in 2016 due to a shorter average length of stay of 3.42 days, down from 3.61 days in 2015. For 2017, we expect a slight increase in the average length of stay to 3.46 days as the proportion of Chinese visitors fall, resulting in total visitor days rising by 5% y-o-y. Recovery in Chinese tourists. Following an extremely weak 2014 where Chinese tourist arrivals (Singapore’s second largest source market) dropped 24% on‐year to 1.7 million due to Chinese tour groups avoiding Southeast Asia as a consequence of the MH370 incident and the political uncertainty in Thailand, Chinese visitor arrivals recovered in 2015, rising 22% on‐year to 2.1 million. We expect the recovery to continue in 2016. With visitor arrivals from China growing 41% y‐o‐y during January to September, the recovery is on track to hit our 35% growth projection for this year. Beyond 2016, we expect Singapore to remain an attractive destination for Chinese visitors, and we expect arrivals from China will increase by 10% and 7.5% in 2017 and 2018 respectively. Recovery in Indonesian visitors. We project Indonesian tourist arrivals (Singapore’s largest source market) to grow by 6% this year due to a healthy performance during January to September (arrivals up by 6%), and low base effect as overall tourist arrivals in 2015 was down 10% y‐o‐y. This is despite a 2% decline in seat capacity between Indonesia and Singapore in 2016 based on data from CAPA. For 2017 and 2018, we expect growth to normalise to 3% per annum.
share, e.g. Singapore accounts for 38-39% of total Indonesian outbound travel. Potential headwinds from near-term currency volatility. The recent depreciation of regional currencies, especially the IDR and MYR, could pose near-term headwinds to tourist arrivals into Singapore. Nevertheless, the number of Indonesian and Malaysian visitors (third largest source market) to Singapore is expected to remain on an upward trajectory as the SGD was weak against the IDR and MYR over the past six months. Supply Pressure from new room supply. While new room supply in 2016 is projected to be lower than the 4,237 rooms added in 2015, supply pressures should still persist with a net addition of 2,520 rooms. This is despite a reduction from the 3,930 rooms projected earlier this year, on account of delays in the completion of hotels. As a consequence of hotels such as Intercontinental Robertson Quay and Sofitel at Tanjong Pagar Centre which were originally scheduled to open in 2016 being shifted to 2017, supply for 2017 now stands at 3,857 rooms, up from 2,727 rooms previously. Thus, the demand and supply situation in Singapore is likely to become more balanced only in 2018, when supply pressures ease and new room inventory is projected to increase by only 2%. 2016 supply mainly outside traditional areas with 2017 supply growth to come from Central Business District (CBD) and Orchard. The majority of new supply in 2016 is concentrated outside the traditional areas of Bras Basah, CBD, Orchard and Singapore River, such as Changi, Joo Chiat and East Coast. These hotels account for 1,413 rooms or 45% of supply in 2016. Meanwhile, the second largest cluster of hotels opening in 2016 are located in the Singapore River precinct (20% of 2016 supply). These include M Social, and The Warehouse Hotel. Combined with the completion of refurbishment works at Swissotel Merchant Court, an estimated 507 rooms (9% of existing supply in the precinct) will hit the market. Beyond the new supply in the Singapore River area, the rebranding of Riverview Hotel as Four Points by Sheraton would also raise the level of competition in this sub-market. In 2017, the majority of supply will switch back to Orchard (1,612 rooms, equivalent to 14% of existing Orchard inventory, from Novotel on Stevens and Ascott Orchard) and the CBD area (c.748 rooms from hotels such as JW Marriot, Sofitel Singapore Tanjong Pagar, The Murray Hotel and Grand Park City Hall).
Competition from other markets. Singapore faces increased competition from other tourism markets through a variety of factors which include easier access to other countries through the relaxation of visa restrictions, e.g. multiple entry visas for Chinese visitors into Japan; devaluation of the other regional currencies, potentially making its cheaper to visit other countries More evenly balanced across tiers in 2016 with growth in luxury in 2017. In 2015, the growth in supply was driven by the Midcompared to Singapore, e.g. a weaker Korean won and Tier segment, which represented 64% of total net new supply Japanese yen; and Singapore already having a high market in 2015 and 20% of existing Mid-Tier stock. For 2016, the new
ASIAN INSIGHTS
VICKERS SECURITIES
Page 75
Page 75
Industry Focus Singapore Developers & REITs supply of 2,520 rooms is more evenly spread across all the different categories, 25% in Economy, 40% in Mid-Tier and 25% in Upscale, with no hotels opened in the Luxury segment. Nevertheless, similar to 2015, we expect Mid-Tier and Economy categories to face the greatest pressure on ADR and occupancies. For 2017, the proportion of new room supply to Economy, Mid-Tier and Upscale hotels is expected to drop to 21%, 34% and 25% respectively, with Luxury hotels making a return with 21% of 2017 supply. With a larger proportion of new rooms being added in the Upscale and Luxury segment in 2017, there may be more pricing discipline compared to 2016 given constraints by these upper-tier brands to cut room rates without affecting their brand status. Forecasts
hotels this year, supply growth is still projected to increase by 4%. Combined with continued weak corporate demand, which is typically higher yielding, we project a 4% decline in RevPAR to S$201. This will be led by a decline in ADR (down 4% to S$236) with occupancy relatively stable at c.85%. 2017 still weak with recovery only in 2018. With the carryover of new hotels which were originally scheduled to open in 2016 into 2017, our earlier expectation of a more balanced market in 2017 is likely to be delayed into 2018 where the supply of new hotels drops off. The decline in new room supply in 2018 is due to the lack of new land released by the Singapore government for hotel developments over the past two years. On the back of a 6% jump in supply in 2017 and still weak corporate demand, we expect ADR to remain under pressure, down 4% with occupancy stable at 85%. This translates to a 4% decline in RevPAR. Going into 2018, we expect a 3% recovery in RevPAR, as demand (+4% growth in visitor arrivals) exceeds the 2% growth in new room supply.
Supply pressures to weigh on RevPAR in 2016. The Singapore hospitality market is facing the same issues in 2016 as in 2015, i.e. excess supply. While we expect a 9% bounce in tourist arrivals, we believe this will only translate to a 4% increase in visitor days due to a higher proportion of Chinese tour groups which typically have a shorter average length of stay. In addition, while there has been a delay in the opening of some Figure 107: Number of visitors rising year-to-date but growth in visitor days still modest and RevPAR remains soft on supply pressure
Remarks Tourist arrivals jumped 4% in 3Q16, led by China (+20%), Indonesia (+ 3%) and India (+6%) But visitor days were only up by 1% due to decline in average length of stay RevPAR remains weak, down 4% in 3Q16 on excess supply and weak corporate demand
Source: Singapore Tourism Board, STR Global, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 76
Page 76
Industry Focus Singapore Developers & REITs Figure 108: Uptick in overall airline capacity points to sustained recovery in tourist arrivals
Remarks Historically, there is a positive correlation between seat capacity growth and inbound tourist arrivals Inbound tourist arrivals have recovered following a reduction in seat capacity in 2014 second half and 2015 first half Airline seat capacity into Singapore is projected to grow by 3% and 5% y-o-y in fourth quarter 2016 and first quarter 2017 which underpins growth of tourist arrivals into Singapore. We project 9% and 4% growth in visitor arrivals for 2016 and 2017
Source: Centre for Asia Pacific Aviation, Singapore Tourism Board, Bloomberg Finance L.P., DBS Bank
Figure 109: Chinese visitor arrivals on a recovery path
100%
y-o-y growth
Recovery from weak 2014
80% 60%
Remarks
Mar14 - MH370 incident
40%
Chinese visitors avoided Singapore/Southeast Asia in 2014 due to the MH370 incident and political instability in Thailand.
20% 0% -20% -40%
Oct13 - New Chinese tourism laws
May14 - Thai military coup
Recovery in Chinese visitors over 2015-2016. Expect growth in visitors from China to continue but at a slower rate than in first half 2016.
Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16
-60%
Downturn in Chinese arrivals started from October 2013 due to new tourism laws which banned “shopping tours”.
Source: Singapore Tourism Board, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 77
Page 77
Industry Focus Singapore Developers & REITs Figure 110: Stable 2H16 seat capacity between Indonesia and Singapore with pick-up in 1Q17
Remarks Growth in Indonesian arrivals from 4Q12 to 2Q14 on the back of increases in seat capacity between Indonesia and Singapore, despite a weaker rupiah against Singapore dollar. The trend reversed from 3Q14 to 4Q15 on the back of declines in seat capacity especially in the low cost carrier segment
Healthy start to 2016, with 6% y-o-y growth in tourist arrivals from Indonesia in Jan to Sep despite a decline in overall airline seat capacity Stable seat capacity between Indonesia and Singapore in 4Q16; 7% y-o-y pick up in 1Q17 points to continued growth in Indonesian tourist arrivals. We project 5.5% and 3% increases for 2016 and 2017 respectively
Source: Centre for Asia Pacific Aviation, Singapore Tourism Board, Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 78
Page 78
Industry Focus Singapore Developers & REITs Figure 111: Uptick in arrivals not translating to significant growth in visitor days
Remarks Despite healthy increase in total visitors arrivals into Singapore of c.9% for the first nine months of the year, visitor days i.e. total length of time spent in Singapore only rose 3.1 % The more modest growth in visitor days is due to a decline in the average length of stay from 3.61 days in 2015 to 3.49 days for 9M16. The fall in the average length stay was driven by an increase in Chinese visitors who are on tour groups, typically staying only for 1-2 days
Source: Singapore Tourism Board, Bloomberg Finance L.P., DBS Bank
Figure 112: Increased competition from other tourism markets (9M16 inbound tourist arrivals)
Remarks Increased competition for Chinese tourists from countries such as Japan, Korea and Australia Singapore getting a larger share of Chinese tourists potentially due to Singapore Tourism Board’s success in promoting Singapore as a single destination, following weaker growth in the prior year General upturn in Indonesian outbound travel but Singapore lagging growth of other market such as South Korea and Japan
Source: CEIC, Singapore Tourism Board, Bloomberg Finance L.P, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 79
Page 79
Industry Focus Singapore Developers & REITs Figure 113: Recent FX volatility in regional currencies a potential headwind 15%
Remarks
Winners versus SGD - IDR, AUD, Avg
10%
IDR AUD
5%
Avg MYR
0%
Recent correction in regional currencies for Singapore’s top five source markets a potential headwind. However, weakening of SGD over the last six months provides some buffer.
INR
-5%
CNY -10%
Losers versus SGD - INR, CNY -15%
AUD
CNY
INR
MYR
IDR
Top 5 weighted average
* Inbound travel statistics for Singapore and Thailand related to 8M16 Source: CEIC, Singapore Tourism Board, Bloomberg Finance L.P., DBS Bank
Figure 114: Opening of some hotels delayed from 2016 to 2017
Remarks
Rooms 75,000 70,000 65,000 60,000
6.0% 4.1%
3,857
2.0%
1,355
2,520
61,287
Despite delays in the completion of new hotels resulting in 2,520 net new rooms being added in 2016 (down from 3,930 previously), supply pressures are expected to persist due to a 4% growth in supply. Delay in the demand and supply situation in Singapore being more balanced as hotels previously expected to open in 2016 are now shifted to 2017 resulting in a 6% growth in room inventory in 2017.
55,000 50,000 45,000 2015
2016F 2017F Hotel rooms Expected net additions
Source: CDL Hospitality Trust, Singapore Tourism Board, DBS Bank
2018F
Potential recovery in 2018 only when supply pressures ease.
ASIAN INSIGHTS
VICKERS SECURITIES
Page 80
Page 80
Industry Focus Singapore Developers & REITs Figure 115: More supply in Singapore River and CBD areas in 2016 switching to Orchard in 2017 Number of rooms 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 -500 -1,000
Remarks New supply switching from Orchard and Bras Basah in 2015 to Singapore River and CBD areas in 2016. For 2017, the majority of supply will come from Orchard and CBD areas. Growth in new supply also coming from outside core city centre areas.
2014
2015
Bras Basah/Bugis
2016
CBD
2017
Orchard
Singapore River
2018 Others
Total
Source: CDL Hospitality Trust, Singapore Tourism Board, DBS Bank
Figure 116: Majority of supply growth in 2016 coming from the Mid-Tier category number of rooms 4,500
Remarks Majority of new supply in 2016 coming from the Mid-Tier category.
4,000 3,500
For 2017, there is greater share of new rooms being opened in the luxury and upscale category which may result in more pricing discipline in the industry.
3,000 2,500 2,000 1,500 1,000 500 0 Economy
Mid-Tier 2015
Upscale 2016
Luxury
2017
Total
2018
Source: CEIC, Singapore Tourism Board, DBS Bank
Figure 117: RevPAR to remain weak in 2016 and 2017 with recovery from 2018 y-o-y growth 10.0% 8.0% 7% 6.0%
9% 7%
7% 6%
4% 3.4%
3%4%
4.0%
5% 4%
6% 4% 4% 3% 2%
1%
2.0% 0.0% -2.0%
-1%
-1%
-4.0%
-3%
-4%
-6.0% 2013
-2%
2014
-5% 2015
2016F
-4% 2017F
Visitor Arrivals Visitor Days Room supply Source: CDL Hospitality Trust, Singapore Tourism Board, DBS Bank
2018F RevPAR
Remarks 9% growth in visitor arrivals is expected for 2016 but this will be partially offset by the shorter average length of stay which translates to 3% growth in visitor days. However, a 5% increase in room supply remains a key issue for hoteliers, with RevPAR expected to decline by 4% this year. 2017 to remain a challenging year due to a 6% growth in supply with a recovery only occurring in 2018 when supply pressures ease.
ASIAN INSIGHTS
VICKERS SECURITIES
Page 81
Page 81
Industry Focus Singapore Developers & REITs Figure 118: Supply of new rooms Year of opening 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2018 2018 2018 2018
Hotel The South Beach Hotel Grand Central Ibis Styles Oasia Downtown Hotel Grand Park City Hall Hotel Clover @ 7 HK St Hotel Indigo Singapore Katong Mercure Singapore Middle Road M Social Holiday Inn Express Singapore Katong Crowne Plaza Changi Airport (extension) Premier Inn Singapore JW Marriott Hotel Singapore South Beach (formerly The South Beach) Swissôtel Merchant Court Villa Samadhi The Warehouse Hotel Andaz Singapore (DUO Project) Novotel Singapore on Stevens InterContinental Singapore Robertson Quay (Gallery Hotel after refurbishment) Sofitel Singapore City Centre Hotel (Tanjong Pagar Centre) The Ascott Orchard Singapore The Patina Capitol Singapore Duxton Terrace (formerly Murray House) Duxton House (formerly Blakes) Laguna Dusit Thani Ibis Singapore on Stevens Grand Park City Hall Park Hotel Farrer Park Courtyard Marriott at Novena YOTEL Orchard Road Aqueen Hotel Geylang Aqueen Hotel Little India Frasers @ China Street Yotel Changi Jewel Aqueen Hotel Lavender (Additional rooms) Outpost Hotel Sentosa & Village Hotel Sentosa
Source: CDL Hospitality Trust, Singapore Tourism Board, DBS Bank
Net room addition -654 46 298 314 -165 27 131 395 293 451 243 300 634 150 20 37 342 254 225 222 220 157 138 50 197 528 181 300 250 610 100 83 306 130 69 850
ASIAN INSIGHTS
VICKERS SECURITIES
Page 82
Page 82
Industry Focus Singapore Developers & REITs
11. Charts
ASIAN INSIGHTS
VICKERS SECURITIES
Page 83
Page 83
Industry Focus Singapore Developers & REITs
Singapore REITs S-REIT Sector Yield Spread 8% 7% 6% 5% 4% 3% 2% 1% 0%
Sector Yield spread
Sector Yield
MAS 10 Year
Mean Yield
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
S-REIT Sector Historical P/BV 1.20 Sector P/BV P/BV Mean 1.15
+1 SD -1 SD
1.10
N ov ' 13 (1.04x)
1.05
OC t' 16 ( 1.01)
H i storical Mean : P/NAV at 1. 0x 1.00
0.98
0.95
F e b'14 ( 0.94 x)
N ov ' 15 (0.94 x)
-1 S ta ndard Deviation : 0.92x P / NAV
0.90
N ov ' 11 (0.89x)
Ja n' 16 (0.90x)
0.85 Ja n' 12 (0.84x) 0.80
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 84
Page 84
Industry Focus Singapore Developers & REITs
Office REIT Sector Yield Spread
Office REIT Sector Historical P/BV 1.2
9.0% 8.0%
1.1
7.0%
1.0
6.0% 5.0%
0.9
4.0%
0.8
3.0% 2.0%
0.7
1.0% 0.0% Jan-2010
Jan-2011
Jan-2012
Jan-2013
Jan-2014
Office REITs Yield Spread
Office REITs Yield
-1 SD
+1 SD
Jan-2015
Jan-2016
Jan-2017
0.6 0.5 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-20
Mean Yield
CCT P/BV
Mean
Source: Bloomberg Finance L.P., DBS Bank
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
CapitaLand Commercial Trust Historical Yield Spread
CapitaLand Commercial Trust Historical P/BV 1.2
9.0% 8.0%
1.1
7.0%
1.0
6.0%
0.9
5.0%
0.8
4.0%
0.7
3.0%
0.6
2.0%
0.5 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017
1.0% 0.0% Jan-2010
Jan-2011
Jan-2012
CCT Yield Spread -1 SD
Jan-2013
Jan-2014
CCT Yield +1 SD
Jan-2015
Jan-2016
Office REITs P/BV
Mean Yield
Mean
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Frasers Commercial Trust Historical Yield Spread
Frasers Commercial Trust Historical P/BV 1.2
9.0% 8.0%
1.1
7.0%
1.0
6.0% 0.9
5.0%
0.8
4.0% 3.0%
0.7
2.0% 0.6
1.0% 0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2 FCOT Yield Spread
FCOT Yield
Mean
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
-1 SD
+1 SD
0.5 Jan-2010
Jan-2011
Jan-2012
FCOT P/BV
Jan-2013
Jan-2014
Mean
Jan-2015 +1 SD
Jan-2016 -1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 85
Page 85
Jan
Industry Focus Singapore Developers & REITs
IREIT Global Yield Spread
IREIT Global Historical P/BV
10.0%
1.4
9.0% 8.0%
1.3
7.0% 6.0%
1.2
5.0% 4.0%
1.1
3.0% 2.0% 1.0%
1.0
0.0% Sep-2014
Mar-2015
IREIT Yield Spread
Sep-2015 IREIT Yield
Mar-2016 Mean
Sep-2016 -1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
0.9 Sep-2014
Mar-2015
IREIT P/BV
Sep-2015 Mean
Mar-2016 +1 SD
Source: Bloomberg Finance L.P., DBS Bank
Keppel REIT Historical Yield Spread
Sep-2016 -1 SD
Keppel REIT Historical P/BV 1.2
9.0%
1.1
8.0% 7.0%
1.0
6.0%
0.9
5.0%
0.8
4.0%
0.7
3.0% 2.0%
0.6
1.0% 0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 KREIT Yield Spread
KREIT Yield
Mean Yield
-1 SD
0.5 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 +1 SD
Source: Bloomberg Finance L.P., DBS Bank
Manulife US REIT Historical Yield Spread
KREIT P/BV
Mean
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
Manulife US REIT Historical P/BV
8.0%
1.05
7.0% 6.0%
1.03
5.0%
1.00
4.0%
0.98
3.0%
0.95
2.0%
0.93
1.0% 0.0% Jun-2016
Sep-2016
MUST Yield Spread
MUST Yield
Dec-2016 Mean
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
-1 SD
+1 SD
0.90 Jun-2016
MUST P/BV
Sep-2016
Mean
+1 SD
Dec-2016
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 86
Page 86
Industry Focus Singapore Developers & REITs
OUE Commercial Trust Historical Yield Spread
OUE Commercial Trust Historical P/BV 1.2
9.0%
1.1
8.0% 7.0%
1.0
6.0% 5.0%
0.9
4.0%
0.8
3.0%
0.7
2.0% 1.0%
0.6
0.0% Feb-2014
Aug-2014
OUECT Yield Spread
Feb-2015
Aug-2015
OUECT Yield
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Feb-2016 Mean
Aug-2016 -1 SD
+1
0.5 Feb-2014
Aug-2014
OUECT P/BV
Feb-2015
Aug-2015
Mean
Feb-2016
+1 SD
Aug-2016 -1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 87
Page 87
Industry Focus Singapore Developers & REITs
Retail REIT Sector Yield Spread
Retail REIT Sector Historical P/BV 1.50
8.0%
1.40
7.0%
1.30
6.0%
1.20
5.0%
1.10
4.0%
1.00
3.0%
0.90
2.0%
0.80
1.0% 0.0% Jan-2010
0.70 Jan-2011
Jan-2012
Jan-2013
Jan-2014
Retail REITs Yield Spread
Retail REITs Yield
-1 SD
+1 SD
Jan-2015
Jan-2016
Jan-2017
0.60 Jan-10
Mean Yield
Jan-11
Jan-12
Retail REITs P/BV
Source: Bloomberg Finance L.P., DBS Bank
Jan-13 Mean
Jan-14
Jan-15
Jan-16
+1 SD
Jan-17
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
CapitaLand Mall Trust Historical Yield Spread
CapitaLand Mall Trust Historical P/BV
8.0%
1.5
7.0%
1.4
6.0%
1.3
5.0%
1.2
4.0%
1.1
3.0%
1.0
2.0%
0.9
1.0% 0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-20 CMT Yield Spread
CMT Yield
-1 SD
+1 SD
Mean Yield
0.8 0.7 0.6 Jan-2010 Jan-2011 Jan-2012 CMT P/BV
Jan-2013
Mean
Jan-2014
Jan-2015
+1 SD
Jan-2016 -1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
CapitaLand Retail China Trust Historical Yield Spread
CapitaLand Retail China Trust Historical P/BV 1.4
8.0%
1.3
7.0%
1.2
6.0% 5.0%
1.1
4.0%
1.0 3.0%
0.9
2.0% 1.0% 0.0% Jan-2010
0.8 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017 CRCT Yield Spread
Jan-2011 -1 SD
Jan-2012
CRCT Yield
Jan-2013
+1 SD
Jan-2014
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Mean Yield
Jan-2015
Jan-2016
Jan-2017
CRCT P/BV
Mean
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 88
Page 88
Industry Focus Singapore Developers & REITs
Croesus Retail Trust Historical Yield Spread
Croesus Retail Trust Historical P/BV 1.2
11.0% 10.0% 9.0%
1.1
8.0% 7.0% 6.0%
1.0
5.0% 4.0% 3.0%
0.9
2.0% 1.0% 0.0% Jun-2013
Jun-2014
Jun-2015
Croesus Yield Spread
Croesus Yield
-1 SD
+1 SD
Jun-2016
0.8 Jun-2013 Dec-2013 Jun-2014 Dec-2014 Jun-2015 Dec-2015 Jun-2016 Dec-2016
Mean Yield
Croesus P/BV
Source: Bloomberg Finance L.P., DBS Bank
Mean
Source: Bloomberg Finance L.P., DBS Bank
Frasers Centrepoint Trust Historical Yield Spread
+1 SD
-1 SD
Frasers Centrepoint Trust Historical P/BV 1.5
8.0%
1.4
7.0%
1.3
6.0%
1.2
5.0%
1.1
4.0%
1.0
3.0%
0.9
2.0%
0.8
1.0%
0.7
0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-20 FCT Yield Spread -1 SD
FCT Yield +1 SD
Mean Yield
0.6 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-201 FCT P/BV
Mean
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Mapletree Greater China Commercial Trust Historical Yield Spread
Mapletree Greater China Commercial Trust Historical P/BV 1.3
9.0% 8.0%
1.2
7.0%
1.1
6.0% 5.0%
1.0
4.0% 3.0%
0.9
2.0%
0.8
1.0% 0.0% 2013
2014
2015
MAGIC Yield Spread
MAGIC Yield
-1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
2016 Mean
0.7 Mar-2013
Mar-2014 MAGIC P/BV
Mar-2015 Mean
Mar-2016 +1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 89
Page 89
Industry Focus Singapore Developers & REITs
[SPH REIT Historical Yield Spread
SPH REIT Historical P/BV
8.0%
1.5
7.0%
1.4
6.0%
1.3 1.2
5.0%
1.1
4.0%
1.0
3.0%
0.9 0.8
2.0%
0.7
1.0%
0.6
0.0% Jul-2013
Jul-2014
SPH REIT Yield Spread -1 SD
Jul-2015 SPH REIT Yield +1 SD
Jul-2016
0.5 Jul-2013
Mean Yield
Jul-2014 SPH REIT P/BV
Jul-2015 Mean
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Starhill Global REIT Historical Yield Spread
Starhill Global REIT Historical P/BV
8.0%
Jul-2016 -1 SD
1.5 1.4
7.0%
1.3
6.0%
1.2
5.0%
1.1 1.0
4.0%
0.9
3.0%
0.8 0.7
2.0%
0.6
1.0% 0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan SGREIT Yield Spread -1 SD
SGREIT Yield +1 SD
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
0.5 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 SGREIT P/BV
Mean
+1 SD
-1 SD
Mean Yield
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 90
Page 90
Industry Focus Singapore Developers & REITs Mixed Commercial REIT Sector Yield Spread
Mixed Commercial REIT Sector Historical P/BV
9.0%
1.7
8.0% 1.5
7.0% 6.0%
1.3
5.0% 4.0%
1.1
3.0%
0.9
2.0% 1.0% 0.0% Jan-2010
0.7
Jan-2011
Jan-2012
Jan-2013
Jan-2014
Jan-2015
Mixed Use REITs Yield Spread
Mixed Use REITs Yield
Mean Yield
-1 SD
Jan-2016
Jan-2017
0.5 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017 Mixed Use REITs P/BV
Mean
+1 SD
-1 SD
SD Source: Bloomberg+1Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Mapletree Commercial Trust Historical Yield Spread
Mapletree Commercial Trust Historical P/BV 1.7
9.0% 8.0%
1.5
7.0% 6.0%
1.3
5.0%
1.1
4.0% 3.0%
0.9
2.0%
0.7
1.0% 0.0% Apr-2011
Apr-2012
Apr-2013
Apr-2014
MCT Yield Spread
MCT Yield
-1 SD
+1 SD
Apr-2015
Apr-2016 Mean Yield
0.5 Apr-2011
Apr-2012 MCT P/BV
Apr-2013
Apr-2014 Mean
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Suntec REIT Historical Yield Spread
Apr-2015 +1 SD
Apr-2016 -1 SD
Suntec REIT Historical P/BV 1.5
9.0%
1.4
8.0%
1.3
7.0%
1.2
6.0%
1.1
5.0%
1.0
4.0%
0.9
3.0%
0.8
2.0%
0.7
1.0%
0.6
0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-20
0.5 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016
Suntec Yield Spread
Suntec Yield
-1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Mean
Suntec P/BV
Mean
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 91
Page 91
Industry Focus Singapore Developers & REITs
Hospitality REIT Sector Yield Spread
Hospitality REIT Sector Historical P/BV 1.6
10.0%
1.5
9.0% 8.0%
1.4
7.0%
1.3
6.0%
1.2
5.0%
1.1
4.0%
1.0
3.0%
0.9
2.0%
0.8
1.0%
0.7
0.0% Jan-2010
Jan-2011
Jan-2012
Jan-2013
Jan-2014
Jan-2015
Hospitality REITs Yield Spread
Hospitality REITs Yield
Mean Yield
-1 SD
Jan-2016
Jan-2017
0.6 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017 Hospitality REITs P/BV
+1 SD
Mean
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Ascendas Hospitality Trust Historical Yield Spread
Ascendas Hospitality Trust Historical P/BV
10.0% 9.0%
1.6
8.0% 1.4
7.0% 6.0%
1.2
5.0% 1.0
4.0% 3.0%
0.8
2.0% 1.0% 0.0% Jul-2012
0.6 Jul-2012
Jul-2013
ASCHT Yield Spread
Jul-2014 ASHT Yield
Jul-2015 Mean
Jul-2013 ASCHT P/BV
Jul-2016 -1 SD
Jul-2014
Jul-2015
Mean
+1 SD
Jul-2016 -1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Ascott Residence Trust Historical Yield Spread
Ascott Residence Trust Historical P/BV
10.0%
1.6
9.0% 8.0%
1.4
7.0% 6.0%
1.2
5.0% 4.0%
1.0
3.0% 2.0%
0.8
1.0% 0.0% Jan-2010
Jan-2011
Jan-2012
Jan-2013
Jan-2014
Ascott Yield Spread
Ascott Yield
-1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Jan-2015
Jan-2016 Mean Yield
Jan-2
0.6 Jan-2010
Jan-2011
Jan-2012
Ascott P/BV
Jan-2013 Mean
Jan-2014
Jan-2015 +1 SD
Source: Bloomberg Finance L.P., DBS Bank
Jan-2016
Jan-2
-1 SD
VICKERS SECURITIES
Page 92
Page 92
Industry Focus Singapore Developers & REITs
CDL Hospitality Trust Historical Yield Spread
CDL Hospitality Trust Historical P/BV
10.0% 1.6
8.0%
1.4
6.0%
1.2
4.0%
1.0
2.0%
0.8
0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016
0.6 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017 CDREIT P/BV
-2.0% CDREIT Yield Spread -1 SD
CDREIT Yield +1 SD
Mean
+1 SD
-1 SD
Mean Yield
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Far East Hospitality Trust Historical Yield Spread
Far East Hospitality Trust Historical P/BV
10.0%
1.60
9.0% 8.0%
1.40
7.0% 6.0%
1.20
5.0% 4.0%
1.00
3.0% 2.0%
0.80
1.0% 0.0% Aug-2012
Aug-2013
FEHT Yield Spread
Aug-2014 FEHT Yield
Aug-2015 Mean
Aug-2016 -1 SD
+1 S
0.60 Aug-2012
Aug-2013
FEHT P/BV
Aug-2014 Mean
Aug-2015 +1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Frasers Hospitality Trust Historical Yield Spread
Frasers Hospitality Trust Historical P/BV
10.0%
Aug-2016 -1 SD
1.6
9.0% 8.0%
1.4
7.0% 6.0%
1.2
5.0% 4.0%
1.0
3.0% 2.0%
0.8
1.0% 0.0% Aug-2014
Feb-2015
FHT Yield Spread
Aug-2015 FHT Yield
Feb-2016 Mean
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Aug-2016 -1 SD
+1 SD
0.6 Aug-2014
Feb-2015
FHT P/BV
Aug-2015 Mean
Feb-2016 +1 SD
Aug-2016
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 93
Page 93
Industry Focus Singapore Developers & REITs OUE Hospitality Trust Historical Yield Spread
OUE Hospitality Trust Historical P/BV
10.0%
1.6
9.0%
1.5
8.0%
1.4
7.0%
1.3
6.0%
1.2
5.0%
1.1
4.0%
1.0
3.0%
0.9
2.0%
0.8
1.0%
0.7
0.0% Jul-2013
Jul-2014
OUEHT Yield Spread -1 SD
Jul-2015 OUEHT Yield +1 SD
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Jul-2016 Mean Yield
0.6 Jul-2013 Jan-2014 Jul-2014 Jan-2015 Jul-2015 Jan-2016 Jul-2016 Jan-20 OUEHT P/BV
Mean
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 94
Page 94
Industry Focus Singapore Developers & REITs
Industrial REIT Sector Yield Spread
Industrial REIT Sector Historical P/BV 1.8
11.0%
1.7
10.0%
1.6
9.0%
1.5
8.0%
1.4
7.0% 6.0%
1.3
5.0%
1.2
4.0%
1.1
3.0%
1.0
2.0%
0.9
1.0% 0.0% Jan-2010
0.8 Jan-2011
Jan-2012
Jan-2013
Jan-2014
Jan-2015
Industrial REITs Yield Spread
Industrial REITs Yield
Mean
+1 SD
Jan-2016
Jan-20
0.7 Jan-2010
Jan-2011
Jan-2012
Jan-2013
Industrial REITs P/BV
Jan-2014
Jan-2015
Mean
Jan-2016
+1 SD
Jan-2017
-1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Ascendas REIT Historical Yield Spread 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Jan-2010
Ascendas REIT Historical P/BV 1.7 1.5 1.3 1.1 0.9
Jan-2011
Jan-2012
AREIT Yield Spread
Jan-2013
Jan-2014
AREIT Yield
Mean Yield
Jan-2015
Jan-2016 -1 SD
Jan-
0.7 Jan-2010
Jan-2011
+1 S
Source: Bloomberg Finance L.P., DBS Bank
Jan-2012
Jan-2013
AREIT P/BV
Jan-2014
Mean
Jan-2015
+1 SD
Jan-2016
Jan
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
Cambridge Industrial Trust Historical Yield Spread
Cambridge Industrial Historical P/BV 1.8
11.0%
1.6
10.0%
1.4
9.0%
1.2
8.0% 7.0%
1.0
6.0%
0.8
5.0% 4.0%
0.6
3.0%
0.4
2.0%
0.2
1.0% 0.0% Jan-2010
Jan-2011
Jan-2012
CREIT Yield Spread -1 SD
Jan-2013
Jan-2014
CREIT Yield +1 SD
S Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Jan-2015
Jan-2016 Mean Yield
Jan-2
0.0 2006
2007
2008
2009
CREIT P/BV
2010
2011
2012
Mean
2013 +1 SD
2014
2015 -1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 95
Page 95
2016
Industry Focus Singapore Developers & REITs Cache Logistics Trust Historical Yield Spread
Cache Logistics Trust Historical P/BV
11.0%
1.7
10.0% 9.0%
1.5
8.0% 7.0%
1.3
6.0% 5.0%
1.1
4.0% 3.0%
0.9
2.0% 1.0% 0.0% Apr-2010
Apr-2011
Apr-2012
Cache Yield Spread -1 SD
Apr-2013
Apr-2014
Apr-2015
Cache Yield +1 SD
0.7 Apr-2010
Apr-2016
Apr-2011
Apr-2012
Cache P/BV
Apr-2013 Mean
Apr-2014
Apr-2015
+1 SD
Apr-2016
-1 SD
Mean Yield
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Frasers Logistics & Industrial Trust Yield Spread
Frasers Logistics & Industrial Trust Historical P/BV
8.0%
1.14
7.0% 6.0%
1.12
5.0%
1.10
4.0%
1.08
3.0%
1.06
2.0%
1.04
1.0% 0.0% Jul-2016
1.02 Aug-2016
FLT Yield Spread
Sep-2016
Oct-2016
FLT Yield
Mean Yield
Nov-2016 -1 SD
Jul-2016
Dec-201
FLT P/BV
+1 SD
Mean
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Keppel DC REIT Historical Yield Spread
Keppel DC REIT Historical P/BV
10.0%
1.8
9.0%
1.7
8.0%
1.6
7.0%
1.5
6.0%
1.4
5.0%
1.3
4.0%
1.2
3.0%
1.1
2.0%
1.0
1.0%
0.9
-1 SD
0.8
0.0% Jan-2015
Jul-2015
KDCREIT Yield Spread
Jan-2016 KDCREIT Yield
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Jul-2016 Mean
-1 SD
+1 S
0.7 Jan-2015
Jul-2015
KDCREIT P/BV
Jan-2016
Mean
+1 SD
Jul-2016
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 96
Page 96
Industry Focus Singapore Developers & REITs
Mapletree Industrial Trust Historical Yield Spread
Mapletree Industrial Trust Historical P/BV
10.0%
1.5
9.0%
1.4
8.0%
1.3
7.0%
1.2
6.0%
1.1
5.0%
1.0 0.9
4.0%
0.8
3.0%
0.7
2.0%
0.6
1.0% 0.0% Apr-2011
Apr-2012
Apr-2013
MINT Yield Spread -1 SD
Apr-2014
Apr-2015
MINT Yield +1 SD
0.5 Oct-2010
Apr-2016
Oct-2011
Oct-2012
MINT P/BV
Mean Yield
Source: Bloomberg Finance L.P., DBS Bank
Oct-2013
Oct-2014
Mean
Oct-2015
+1 SD
Oct-201
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
Mapletree Logistic Trust Historical Yield Spread
Mapletree Logistic Trust Historical P/BV
10.0%
1.5
9.0%
1.4
8.0%
1.3
7.0%
1.2
6.0%
1.1
5.0%
1.0
4.0%
0.9
3.0%
0.8
2.0%
0.7
1.0%
0.6
0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 MLT Yield Spread
MLT Yield
Mean Yield
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
0.5 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 +1
MLT P/BV
Soilbuild Business Space REIT Historical Yield Spread 9.0%
1.40
8.0%
1.30
7.0%
1.20
6.0%
1.10
5.0%
1.00
4.0%
0.90
3.0%
0.80
2.0%
0.70
1.0%
0.60
SBREIT Yield Spread -1 SD
Aug-2015 SBREIT Yield +1 SD
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
-1 SD
Soilbuild Business Space REIT Historical P/BV 1.50
Aug-2014
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
10.0%
0.0% Aug-2013
Mean
Aug-2016
0.50 Aug-2013
Aug-2014
Aug-2015
Aug-2016
Mean Yield SBREIT P/BV
Mean
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 97
Page 97
Industry Focus Singapore Developers & REITs
Ascendas India Trust Historical Yield Spread
Ascendas India Trust Historical P/BV
9.0%
1.7
8.0%
1.6
7.0%
1.5
6.0%
1.4
5.0% 4.0%
1.3
3.0%
1.2
2.0%
1.1
1.0%
1.0
0.0% Jan-2010
Jan-2011
AIT Yield Spread
Jan-2012
Jan-2013
AIT Yield
Jan-2014 Mean Yield
Jan-2015
Jan-2016
-1 SD
Jan-20 +1 SD
0.9 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan AIT P/BV
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Mean
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 98
Page 98
Industry Focus Singapore Developers & REITs
Healthcare REIT Sector Yield Spread
Healthcare REIT Sector Historical P/BV 1.5
8.0%
1.4
7.0% 6.0%
1.3
5.0%
1.2
4.0%
1.1
3.0%
1.0
2.0% 1.0%
0.9
0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-20
0.8 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2
Healthcare REITs Yield Spread
Healthcare REITs Yield
Mean
-1 SD
Healthcare REITs P/BV
Mean
+1 SD
-1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Parkway Life REIT Historical Yield Spread
Parkway Life REIT Historical P/BV 1.7
10.0% 9.0%
1.5
8.0% 7.0%
1.3
6.0% 1.1
5.0% 4.0%
0.9
3.0% 0.7
2.0% 1.0% 0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 PREIT Yield Spread -1 SD
PREIT Yield +1 SD
0.5 Jan-2010
Jan-2011
Jan-2012
PREIT P/BV
Jan-2013
Jan-2014
Mean
Jan-2015
+1 SD
Jan-2016 -1 SD
Mean
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Religare Health Trust Historical Yield Spread
Religare Health Trust Historical P/BV
10.0%
1.7
9.0% 8.0%
1.6
7.0%
1.5
6.0%
1.4
5.0% 4.0%
1.3
3.0%
1.2
2.0%
1.1
1.0% 0.0% Nov-12
1.0 Nov-13
RHT Yield Spread -1 SD
Nov-14 RHT Yield +1 SD
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Nov-15
Nov-1 Mean Yield
0.9 Nov-2012
Nov-2013 RHT P/BV
Nov-2014 Mean
Nov-2015 +1 SD
Nov-2016 -1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 99
Page 99
Industry Focus Singapore Developers & REITs
Singapore Developers CapitaLand Limited P/NAV
City Developments Limited P/NAV 3.5
2.5
(X)
(X)
3.0
2.0
2.5 2.0
1.5
1.5 1.0
1.0 0.5
0.5 0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 CapitaLand P/NAV
Mean
-1 SD
City Dev P/NAV
+1 SD
Mean
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Global Logistics Properties Limited P/NAV
UOL Limited P/NAV
1.6
1.4 (X)
1.4
1.2
1.2
1.0
1.0
+1 SD
(X)
0.8
0.8
0.6
0.6
0.4
0.4
0.2
0.2 0.0 2010
2011
2012 GLP P/NAV
2013 Mean
2014 -1 SD
2015
0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
UOL P/NAV
Mean
-1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
Wheelcok Properties P/NAV 2.5
2016
Wingtai P/NAV 2.0
(X)
1.8
(X)
1.6
2.0
1.4 1.2
1.5
1.0 0.8
1.0
0.6 0.4
0.5
0.2 0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Wheelock P/NAV
Mean
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
-1 SD
+1 SD
0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Wingtai P/NAV
Mean
-1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 100
Page 100
Industry Focus Singapore Developers & REITs
UIC Limited P/NAV
Perennial Real Estate P/NAV 1.4
1.6
(X)
(X)
1.2
1.4 1.2
1.0
1.0
0.8
0.8
0.6
0.6
0.4
0.4
0.2
0.2 0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 UIC P/NAV
Mean
-1 SD
0.0 2014 Perennial RE P/NAV
Source: Bloomberg Finance L.P., DBS Bank
Mean
2016 -1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
Ho Bee Group Limited P/NAV
Bukit Sembawang Limited P/NAV 3.5
2.5
2015
+1 SD
(X)
(X)
3.0
2.0
2.5
1.5
2.0 1.5
1.0
1.0 0.5
0.5
0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Ho Bee P/NAV
Mean
-1 SD
+1 SD
Bukit Sembawang P/NAV
Source: Bloomberg Finance L.P., DBS Bank
Mean
-1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
United Engineers P/NAV 1.4
0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Tuan Sing P/NAV 1.2
(X)
1.2
(X)
1.0
1.0
0.8
0.8 0.6
0.6 0.4
0.4
0.2
0.2 0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 United Engineers P/NAV
Mean
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
-1 SD
+1 SD
0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Tuan Sing P/NAV
Mean
-1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 101
Page 101
Industry Focus Singapore Developers & REITs
Stock Profiles
ASIAN INSIGHTS
VICKERS SECURITIES
Page 102
Page 102
Singapore Company Guide
CapitaLand Refer to important disclosures at the end of this report
Version 6 | Bloomberg: CAPL SP | Reuters: CATL.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Strong earnings quality
Last Traded Price (4 Jan 2017): S$3.06 (STI : 2,921.31) Price Target 12-mth: S$3.60 (18% upside) Potential Catalyst: Stronger than anticipated residential sales Where we differ: Estimates are more conservative than consensus Analyst Derek TAN +65 6682 3716 [email protected] Rachel TAN +65 6682 3713 [email protected]
Growing recurring revenues from retail mall portfolio and Ascott. Its property portfolio has c. 75% of assets in retail malls, and commercial integrated developments, including Ascott Group, which offers strong income visibility in the medium term. The operating performance of its malls will improve as the properties reach maturity, boosted by the completion of four Raffles City mega developments in China in the medium term.
Price Relative S$
Relative Index
4.4 207
187
3.9
167 147
3.4
127 107
2.9
87 2.4 Jan-13
Jan-14
Jan-15
CapitaLand (LHS)
Forecasts and Valuation FY Dec (S$ m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)
Jan-16
67 Jan-17
Relative STI (RHS)
2015A 4,762 2,325 1,839 1,066 1,066 (8.2) 25.0 25.0 (8) 25.0 9.00 420 12.3 12.3 5.3 13.8 2.9 0.7 0.5 6.1
Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:
2016F 4,109 1,651 1,152 661 661 (38.0) 15.5 15.5 (38) 15.5 9.00 427 19.9 19.9 nm 21.0 2.9 0.7 0.6 3.7
2017F 4,959 1,851 1,313 753 753 14.0 17.7 17.7 14 17.7 9.00 436 17.5 17.5 11.9 18.9 2.9 0.7 0.6 4.1
2018F 4,730 1,961 1,357 779 779 3.4 18.3 18.3 3 18.3 9.00 445 16.9 16.9 17.5 18.2 2.9 0.7 0.6 4.2
17.0 B: 18
19.0 S: 0
20.8 H: 3
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P
ASIAN INSIGHTS ed: JS / sa:JC, PY
Improving earnings quality. We believe that CapitaLand Limited (CAPL) offers good value, trading at an attractive 0.7x P/B and 0.6x P/RNAV. The group’s strategy to focus on growing its commercial portfolio is bearing fruit, offering better earnings visibility. Coupled with opportunistic asset recycling of mature assets into its listed REITs/funds, there is ample upside potential to our earnings estimates. We maintain our BUY call with a target price of S$3.60.
Robust set of 3Q16 results. CAPL reported a robust 28.4% growth in net profit to S$247.5m, on the back of stronger revenues which was up 27.7% to S$1,373m. The better performance was seen across its portfolio, but mainly driven by development projects in Singapore and China, and higher performance from its Singapore commercial portfolio. Tenant sales across its malls in Singapore and China were stable. Valuation: Our target price of S$3.60 is based on a 25% discount to our adjusted RNAV of S$4.80/share. Our RNAV is based on our estimates of the market valuations of its various property developments and investment property assets across its various divisions. Key Risks to Our View: Slowdown in Asian economies. The risk to our view is if there is a slowdown in Asian economies, especially China, which could dampen demand for housing and private consumption expenditure and retail sales. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Temasek Holdings Pte Ltd Blackrock Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate
4,237 12,966 / 9,167 40.1 6.0 53.9 17.4
VICKERS SECURITIES Page 103
Company Guide CapitaLand
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Growing recurring revenues from retail mall portfolio and Ascott. While trading properties (residential development and strata offices) account for 24% of assets, we see continued strength from CAPL’s retail mall division (CapitaMalls Asia) and commercial integrated developments, including Ascott Group, its successful serviced residence brand, which form a significant 76% of total assets and is expected to contribute to growing recurring income for the group.
Revenue (S$’m) 6,000.0
S $'m
5,000.0
4,000.0 3,000.0
2,000.0
1,000.0
13A
14A
15A
16F
17F
18F
Breakdown of Revenues (FY17)
CapitaMalls Asia continues to perform steadily despite ongoing operational headwinds. There are 87 operating properties across Asia (56 of it in China). As at Sep-16, the group’s shopping malls continue to record steady sales and occupancy rates. Portfolio tenant sales remained healthy at 2.5% for Singapore and 5.2% in China on the back of improving traffic. For China, sales performance varies, with malls in Tier 1 cities performing better (tenant sales +2.8%) while those in Tier 2 and Tier 3 cities marginally higher by 2.4% and 1.7% respectively. Looking ahead, CAPL is expected to open another 16 properties (nine in China) in the next few years. In addition, Raffles City integrated developments in China will continue to offer stable returns (7-8% for stabilised properties in Shanghai and Beijing, c.3% for stabilising properties in Chengdu and Ningbo). Looking ahead, the group will be opening four more Raffles City developments in 2016-2018, which will boost the group’s returns and profitability when completed.
Ascott 16%
Others 3%
CapitaLand Singapore 21%
CapitaMalls Asia 31%
Capitaland China 29%
Operating PATMI (Ex Revaluations) 900.0
S $'m
800.0 700.0
600.0 500.0 400.0 300.0 200.0
The Ascott Limited remains on the fast track to achieve its 80,000-unit target by year 2020 and will add another 770 units by 4Q16. Ascott’s investment in China’s largest and fastestgrowing online apartment sharing platform, Tujia has yet to bear fruit meaningfully but we continue to believe in its longer term synergies and ability to leverage on Tujia’s platform to reach out to a wider addressable market in the medium term. Launch of new PE funds. Leveraging on its fund management expertise, CAPL aims to launch 5-6 private equity (PE) funds with funds under management of S$8-10bn by 2020. We think that by tapping on third-party capital, CAPL would be able to leverage on larger economies of scale, better capitalise on market opportunities and at the same time de-risk its property level exposure. The group launched the US$1.5bn Raffles City China Investment Partners III (RCCIP III) aimed at prime integrated developments in gateway cities in China which will likely be seeded by their properties.
100.0 13A
14A
15A
16F
17F
18F
RNAV of CapitaLand
S$'bn
Value of CapitaLand Singapore
7,082.5
Value of CapitaLand China CapitaMalls Asia
9,818.5 17,446.0
Ascott
4,237.1
Others GDV of CAPL Group Less: Net Debt
855.0 39,439.2 (11,552.3)
Less: devt capex
(7,548.6)
RNAV of CAPL
20,458.3
Total Shares
4,258.6
RNAV per share
4.80
Discount to RNAV
25%
Target price
3.60
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 104
Company Guide CapitaLand
Balance Sheet: Balance sheet remains strong. We forecast debt/equity ratio to remain stable, at below c.0.6x over the coming years. Debt maturity profile remains long at 3.5 years (as of 3Q16) with an average cost of 3.4%. Approximately 70% of the interest cost is hedged into fixed rate debt.
Leverage & Asset Turnover (x) 0.2 0.70
0.2
0.60
0.2 0.1
0.50
0.1 0.40
0.1 0.1
0.30
0.1
0.20
0.0
Share Price Drivers: De-risking its Singapore residential exposure/replenishing land bank. CAPL has been actively de-risking its Singapore residential exposure through active marketing of its unsold units across its projects and most completed projects are substantially sold. Singapore residential is only c.6% of its total asset value, and is not likely to have a major impact on earnings if further risks arise. Looking ahead, while the group has not been an active investor in Singapore’s residential market, winning any new land tenders will imply improved confidence in the outlook for Singapore’s residential market in the medium term.
0.10
0.0 0.0
0.00 2014A
2015A
2016F
Gross Debt to Equity (LHS)
2017F
2018F
Asset Turnover (RHS)
Capital Expenditure S$m 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0
Relaxation of government policies. Expectations of policy relaxation (especially cyclical measures like the Buyers’ and Sellers’ stamp duties) may improve buyers’ market sentiment and spark a revival in transactional volumes in the Singapore residential market. This is also expected to lift sentiment on property stocks, which we believe will enable CAPL to close the gap between stock price and its NAV. Asset recycling into listed S-REITs. CAPL will continue to demonstrate its ability to crystallise value through strategic divestments of mature assets to its listed REITs, which are market leaders in their respective subsectors of retail, office and hospitality. The ability to recycle capital efficiently will enable the group to free up capital, improve its balance sheet position and deploy capital to projects with higher returns.
0.0 2014A
2015A
2016F
2017F
2018F
Capital Expenditure (-)
ROE (%) 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2014A
2015A
2016F
2017F
2018F
Forward PE Band (x) (x) 22.4
Key Risks: Slowdown in Asian economies. The risk to our view is a further slowdown in Asian economies which could dampen demand for housing and private consumption expenditure and retail sales. This in turn could result in slower-than-expected projections. Company Background CapitaLand is one of Asia’s largest real estate companies headquartered and listed in Singapore. Its two core markets are Singapore and China; while Indonesia, Malaysia and Vietnam have been identified as new growth markets.
+2sd: 21.2x
20.4 18.4
+1sd: 18.3x
16.4
Avg: 15.3x
14.4 12.4
‐1sd: 12.4x
10.4
‐2sd: 9.4x 8.4 Jan-13
Jan-14
Jan-15
Jan-16
PB Band (x) 1.3
(x)
1.2 1.1 1.0
+2sd: 1.01x
0.9
+1sd: 0.91x
0.8
Avg: 0.82x
0.7
‐1sd: 0.72x
0.6
‐2sd: 0.62x
0.5 Jan-13
Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 105
Company Guide CapitaLand
Segmental Breakdown FY Dec
2014A
2015A
2016F
2017F
2018F
Revenues (S$m) CapitaLand Singapore CapitaLand China CMA Ascott Others Total
1,242 638 1,178 683 185 3,925
1,229 2,039 663 744 86.1 4,761
890 1,505 840 725 148 4,109
1,030 2,005 997 775 151 4,959
1,053 1,601 1,128 794 153 4,730
2014A
2015A
2016F
2017F
2018F
3,925 (2,543) 1,382 (513) 869 541 970 (382) 0.0 1,997 (238) (599) 0.0 1,161 1,161 2,444
4,762 (3,287) 1,475 (431) 1,044 490 726 (422) 0.0 1,839 (344) (430) 0.0 1,066 1,066 2,325
4,109 (2,245) 1,864 (465) 1,398 0.0 188 (435) 0.0 1,152 (207) (283) 0.0 661 661 1,651
4,959 (2,851) 2,107 (489) 1,619 0.0 167 (473) 0.0 1,313 (236) (323) 0.0 753 753 1,851
4,730 (2,498) 2,232 (513) 1,719 0.0 177 (539) 0.0 1,357 (244) (334) 0.0 779 779 1,961
11.8 7.4 27.8 32.7
21.3 (4.9) 20.2 (8.2)
(13.7) (29.0) 33.9 (38.0)
20.7 12.1 15.8 14.0
(4.6) 6.0 6.2 3.4
35.2 22.1 29.6 7.1 2.6 1.9 33.0 2.3
31.0 21.9 22.4 6.1 2.3 2.0 36.0 2.5
45.4 34.0 16.1 3.7 1.4 2.7 58.0 3.2
42.5 32.6 15.2 4.1 1.6 3.0 50.9 3.4
47.2 36.3 16.5 4.2 1.7 3.1 49.2 3.2
Income Statement (S$m) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)
Mainly from residential sales in China and Singapore
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 4
Page 106
Company Guide CapitaLand
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA
1Q2016
2Q2016
3Q2016
1,076 (738) 338 (30.2) 308 0.0 140 (105) 0.0 343 (64.4) (85.6) 193 193 448
1,740 (1,359) 381 (28.4) 352 0.0 224 (97.1) 0.0 479 (84.7) (147) 248 248 576
894 (615) 279 2.70 282 0.0 165 (108) 0.0 339 (51.6) (69.6) 218 218 447
1,132 (828) 304 77.9 382 0.0 198 (102) 0.0 477 (82.1) (101) 294 294 580
1,374 (950) 423 (89.3) 334 0.0 149 (101) 0.0 383 (61.2) (74.1) 248 248 483
4.3 (17.4) 0.5 36.1
61.7 28.6 14.4 28.5
(48.6) (22.4) (19.9) (11.9)
26.6 29.6 35.3 34.7
21.4 (16.6) (12.5) (15.8)
31.4 28.6 17.9
21.9 20.3 14.2
31.2 31.5 24.4
26.8 33.7 26.0
30.8 24.3 18.0
Balance Sheet (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
1,047 12,781 18,705 2,941 0.0 963 7,676 44,113
808 12,858 20,760 4,257 0.0 1,424 6,945 47,053
908 13,130 21,260 2,151 0.0 1,027 6,808 45,285
1,007 13,389 21,760 2,477 0.0 1,240 6,259 46,131
1,107 13,654 22,260 2,431 0.0 1,154 6,299 46,904
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.
3,469 3,070 463 12,517 1,386 16,758 6,451 44,113
2,246 4,064 620 13,812 1,373 17,905 7,032 47,053
2,246 1,386 684 14,312 1,373 18,183 7,101 45,285
2,246 1,088 777 14,812 1,373 18,553 7,282 46,131
2,246 690 879 15,312 1,373 18,949 7,455 46,904
5,107 (13,045) 99.1 438.9 N/A 0.1 1.7 0.6 0.6 0.8 0.8 1.1
3,685 (11,801) 91.5 404.1 N/A 0.1 1.8 0.8 0.5 0.7 0.4 1.1
5,766 (14,407) 108.9 456.1 N/A 0.1 2.3 0.7 0.6 0.8 1.0 1.1
5,633 (14,581) 83.4 162.1 N/A 0.1 2.4 0.9 0.6 0.8 1.0 1.1
5,883 (15,127) 92.3 133.4 N/A 0.1 2.6 0.9 0.6 0.8 0.9 1.1
Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)
Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)
Gearing to remain stable
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 5
Page 107
Company Guide CapitaLand
Cash Flow Statement (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)
1,997 64.6 (256) (970) 51.9 111 999 (127) (1,357) 841 406 (102) (339) (705) 177 1.38 (3,746) (4,272) 55.0 (3,557) 22.2 20.5
1,839 65.0 (145) (726) 1,264 169 2,466 (64.0) (718) 509 394 33.0 154 (727) (212) 0.0 (274) (1,213) 16.9 1,424 28.2 56.4
1,152 65.0 (144) (188) (2,144) 0.0 (1,259) (164) (500) (150) 65.8 0.0 (749) (598) 500 0.0 0.0 (98.1) 0.0 (2,106) 20.8 (33.4)
1,313 65.0 (143) (167) 39.3 0.0 1,107 (164) (500) (150) 58.5 0.0 (756) (525) 500 0.0 0.0 (24.9) 0.0 326 25.1 22.1
1,357 65.0 (142) (177) (352) 0.0 751 (164) (500) (150) 62.1 0.0 (752) (545) 500 0.0 0.0 (44.7) 0.0 (45.8) 25.9 13.8
Assumed capex
Source: Company, DBS Bank Target Price & Ratings History S$ 3.37
S. No .
3.27
12 6
3.17 3.07
1
2.87
10 9 11
5 4
1:
16 18
7
2
2.97
14
8
13
15
22 20 17 19 21
3
2.77 2.67 Jan-16
May-16
Sep-16
Jan-17
No t e : Share price and Target price are adjusted for corporate actions.
Dat e o f Repo rt
Clo sin g Pric e
1 2 - mt h T arg et R at in g Pric e
08 J an 16
3.16
3.73
BUY
2:
18 J an 16
3.02
3.73
BUY
3:
16 F eb 16
2.90
3.73
BUY
4:
18 F eb 16
2.91
3.70
BUY
5:
02 Mar 16
3.07
3.70
BUY
6:
16 Mar 16
3.14
3.70
BUY
7:
18 Apr 16
3.16
3.70
BUY
8:
20 Apr 16
3.17
3.70
BUY
9:
27 May 16
2.98
3.70
BUY
10:
31 May 16
2.99
3.70
BUY
11: 12: 13: 14: 15: 16: 17: 18: 19: 20: 21: 22:
09 Jun 16 05 Aug 16 16 Se p 16 30 Se p 16 18 Oct 16 24 Oct 16 07 Nov 16 10 Nov 16 14 Nov 16 16 Nov 16 21 Nov 16 25 Nov 16
3.05 3.22 3.12 3.20 3.13 3.17 3.04 3.08 3.00 2.99 2.98 3.02
3.70 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60
BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY
Source: DBS Bank Analyst: Derek TAN, Rachel TAN
ASIAN INSIGHTS
VICKERS SECURITIES
Page 6
Page 108
Singapore Company Guide
City Developments Refer to important disclosures at the end of this report
Version 5 | Bloomberg: CIT SP | Reuters: CTDM.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Solitaire PPS Club member
Last Traded Price (4 Jan 2017): S$8.39 (STI : 2,921.31) Price Target 12-mth: S$9.90 (18% upside)
Attractive valuations. We continue to see good value at 0.8x FY17F P/NAV, at 1SD below historical average. Key catalysts are: i) potential injection of assets into Profit Participation Securities (PPS), ii) improvement in hotel operations, and iii) accretive acquisitions/land banking.
Potential Catalyst: Further injections into PPS structure Where we differ: Below consensus Analyst Rachel TAN +65 6682 3713 [email protected] Derek TAN +65 6682 3716 [email protected]
9M16 net profit grew 13% on one-off gains. 9M16 net profit grew 13% y-o-y to S$409m (68% of consensus’ full-year estimates) driven by revenue growth of 12% y-o-y (largely contributions from property development), one-off gains from disposal of 53% stake in City E-Solutions (CES) and insurance claims. Property development continues to record strong growth coupled with a 24% y-o-y increase in 9M16 property sales value (number of units sold was stable y-o-y). Weak performance from the hotel properties continue to weigh down earnings.
Price Relative S$
Relative Index
14.0
216
13.0
196
12.0
176
11.0
156
10.0
136
9.0
116
8.0
96
7.0
76
6.0 Jan-13
Jan-14
Jan-15
City Developments (LHS)
Forecasts and Valuation FY Dec (S$ m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)
56 Jan-17
Jan-16
Relative STI (RHS)
2015A 3,304 948 985 760 436 8.6 83.6 47.9 9 79.7 16.0 989 10.0 17.5 98.0 13.4 1.9 0.8 0.3 8.7
Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:
2016F 3,654 1,092 787 548 548 25.7 60.2 60.2 26 57.4 11.5 1,034 13.9 13.9 8.0 11.4 1.4 0.8 0.3 6.0
2017F 3,875 1,135 830 577 577 5.3 63.5 63.5 5 60.5 12.1 1,085 13.2 13.2 11.3 11.0 1.4 0.8 0.3 6.0
2018F 4,437 1,246 937 653 653 13.2 71.8 71.8 13 68.4 13.7 1,145 11.7 11.7 5.4 9.5 1.6 0.7 0.2 6.4
62.5 B: 19
63.3 S: 1
69.2 H: 3
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P
ASIAN INSIGHTS ed: TH / sa: JC, PY
Some light from overseas investments. CDL’s decision to diversify into the overseas property market amid a challenging outlook in the Singapore property market is finally coming to fruition. With most of its Singapore property projects having been completed or are soon-to-be-completed, we expect international properties (UK and China) to drive property sales/revenue recognition in 2017/2018. We believe this could partly offset the impact of a weak property market in Singapore. Valuation: We maintain our BUY call with TP to S$9.90 pegged to a 20% discount to our RNAV of S$11.90. Supported by a strong balance sheet and diversified earnings base, CDL should be able to navigate well around the current uncertain market conditions. Key Risks to Our View: Decline in residential prices in Singapore. As a proxy to Singapore’s residential market, a deteriorating operating environment will cap share price performance. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Davos Investments Hong Leong Investment Aberdeen Asset Management Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate
909 7,629 / 5,341 16.4 15.4 14.0 54.2 8.9
VICKERS SECURITIES Page 109
Company Guide City Developments
CRITICAL DATA POINTS TO WATCH
Revenue growth (FY14A-18F) 5,000.0 4,500.0
Earnings Drivers: Aiming for a higher proportion of recurring earnings base. Weighed down by weak sentiment and depleting land bank for its development projects, CDL’s focus in 2015-2016 has been to focus on its commercial portfolio; building up a recurring income base in order to sustain profitability. In 2015, CDL had close to 64% of its revenues from recurring and stable segments. Hotel operations are the largest revenue contributor (49%) among all divisions despite showing some signs of weakness, which implies a substantial proportion of stable income. Potential headwinds in this segment are further deterioration of RevPAR especially in Asian hotels and further depreciation of GBP.
3,500.0 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0 500.0 0.0 2014A
In China, CDL has launched some projects in Suzhou (Hong Leong City Center continues to see steady sales). Phase 1 of the project (30-storey, 462-unit residential tower and 912-unit Soho Tower) has seen good sales momentum, selling 995 units to date, locking in sales proceeds of over RMB2.12bn (S$424m) which will be booked when completed. Tower 2 of the project was launched and fully sold in an hour. The group’s Hongqiao Royal Lake project also moved 32 units (out of 85), locking in sales of RMB634m (S$127m). CDL’s other projects in Chongqing and Suzhou will likely take more time before they can be launched. In Australia, the group’s JV residential project in Brisbane is 93% sold (Ivy and Eve, two 30-storey towers comprising 472 apartments), and will be booked in 2018. The group’s developments in Tokyo will likely be launched in the medium term. New PPS structure. Post the successful launch of three PPS structures, management is keen to continue unlocking value through fund management and/or new private equity structures. The successful launch will enable the group to book in substantial gains given that assets are recorded at cost.
2015A
Others
2016F
Hotel operations
2017F
Rental income
2018F Property devt
Breakdown in revenues (FY16F) Others 4%
The group’s investment property division (office and retail malls mainly in Singapore) is projected to offer steady returns. In total, the hotel and investment property divisions contribute c. 6467% of revenues. Looking overseas to sustain growth. We continue to see good progress for the group’s overseas investments. London – CDL recorded strong sales at its 82-unit Reading project, and is expected to book in revenues of c. GBP18.4m (S$36m), while its other projects will be launched progressively in the coming quarters. The Teddington Studios and Stag Brewery sites (planning approvals expected in 1Q18) are expected to be launched in phases in the medium term. CDL has also signed a contract to purchase 56-64 Leonard Street in Shoreditch for GBP37.4m (S$73.5m), to be redeveloped into an office tower block.
S $'m
4,000.0
Property devt 36%
Hotel operations 49%
Rental income 11%
Revenue growth from hotel segment 1,850.0
52%
S$ 'm
1,800.0
50%
1,750.0 1,700.0
48%
1,650.0 1,600.0
46%
1,550.0
44%
1,500.0 1,450.0
42%
1,400.0 1,350.0
40% 2013A
2014A Revenue
2015A
2016F
2017F
% of topline
RNAV breakdown RNAV Investment Portfolio (office) Investment Portfolio (mixed Development ) Investment Portfolio (hotels) Investment Portfolio (retail) Investment Portfolio (industrial and others) GDV of residential portfolio Listed Stakes in M&C CDL HT Others Gross Asset Value Less: pref conversion Less: Net debt RNAV of CDL No of shares RNAV/share Discount TP
S$'m 3,122.2 1,505.1 1,071.5 893.5 137.4 4,757.6 1,856.7 338.1 86.7 13,768.8 (211.8) (1,835.9) 11,721.2 954.3 12.3 -20% 9.90
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 110
Company Guide City Developments
Balance Sheet: Undervalued Net Asset Value (NAV). As the group has chosen to account for investment properties on a historical cost basis, its NAV is conservative as we estimate that current fair values of CDL’s properties are much higher than carrying values.
Leverage & Asset Turnover (x) 0.3 0.80 0.70 0.3
0.60 0.50
0.2
0.40 0.30
Low gearing of 26%. CDL’s gearing is estimated to remain low at <30% (and closer to mid-teens assuming that its investment property values are marked-to-market) which is within management’s comfortable range. This provides greater financial flexibility and debt headroom for the group to acquire opportunistically. Share Price Drivers: Replenishing land bank is key to income sustainability. The ongoing tight government measures have taken a toll on the group’s residential business segment, with the group staying selective on land banking activities. However, CDL has been active in the Executive Condos (ECs) segment; The Brownstone EC and The Criteron saw brisk sales when launched. CDL launch 40 units in Gramercy Park, a high-end condominium in May 2016 and has achieved 90% sales. The group has been marketing the project regionally and is understood to have received positive responses from investors. The successful launch of its ongoing project will be positive to investor sentiment on property stocks, which we believe will enable CDL to close the gap between its stock price and NAV.
0.2
0.20 0.10
0.1
0.00 2014A
2015A
2016F
Gross Debt to Equity (LHS)
2017F
2018F
Asset Turnover (RHS)
Capital Expenditure S$m 1,000.0 900.0 800.0 700.0 600.0 500.0 400.0 300.0 200.0 100.0 0.0 2014A
2015A
2016F
2017F
2018F
Capital Expenditure (-)
ROE (%) 9.0% 8.0% 7.0% 6.0% 5.0% 4.0%
Key Risks: Decline in residential prices in Singapore. Seen as a proxy to Singapore’s residential market, a worsening of the operating environment is expected to cap any upside potential for the stock. Unsold inventories are mainly in the high-end and executive segments whose unsold stock typically take time to clear.
3.0% 2.0% 1.0% 0.0% 2014A
2015A
2016F
2017F
2018F
Forward PE Band (x) (x) 25.5
+2sd: 24.7x
23.5
Interest rate risk. A rise in interest rates will have a negative impact on property transactions, given lower affordability and thus could adversely affect the group’s outlook.
21.5
+1sd: 21.2x
19.5
Avg: 17.6x
17.5 15.5
‐1sd: 14.1x
13.5
Company Background City Developments Limited (CDL) is one of the pioneers in Singapore's property sector. It is a property and hotel conglomerate involved in real estate development and investment, hotel ownership and management, and facility management.
11.5
‐2sd: 10.6x
9.5 Jan-13
Jan-14
Jan-15
Jan-16
PB Band (x) (x) 1.7 1.5
+2sd: 1.45x
1.3
+1sd: 1.25x
1.1
Avg: 1.05x
0.9
‐1sd: 0.85x
0.7 0.5 Jan-13
‐2sd: 0.65x Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 111
Company Guide City Developments
Segmental Breakdown FY Dec Revenues (S$m) Property devt Rental income Hotel operations Others Total Income Statement (S$m) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)
2014A
2015A
2016F
2017F
2018F
1,581 385 1,678 120 0.0 3,764
1,037 405 1,698 163 0.0 3,304
1,324 394 1,773 163 0.0 3,654
1,478 420 1,814 163 0.0 3,875
1,960 428 1,885 163 0.0 4,437
2014A
2015A
2016F
2017F
2018F
3,764 (2,132) 1,632 (948) 684 0.0 54.8 (90.5) 356 1,004 (95.1) (139) (12.9) 757 401 939
3,304 (1,648) 1,656 (1,030) 626 0.0 107 (72.2) 325 985 (119) (92.7) (12.9) 760 436 948
3,654 (1,888) 1,766 (926) 840 0.0 37.3 (90.8) 0.0 787 (135) (91.3) (12.9) 548 548 1,092
3,875 (2,003) 1,872 (982) 891 0.0 30.1 (90.7) 0.0 830 (144) (96.0) (12.9) 577 577 1,135
4,437 (2,316) 2,121 (1,124) 997 0.0 33.9 (94.4) 0.0 937 (163) (108) (12.9) 653 653 1,246
17.1 (7.4) (12.8) (40.4)
(12.2) 1.0 (8.5) 8.6
10.6 15.3 34.2 25.7
6.1 3.9 6.0 5.3
14.5 9.8 12.0 13.2
43.4 18.2 20.1 9.4 4.1 3.6 19.2 7.6
50.1 18.9 23.0 8.7 3.8 3.0 19.1 8.7
48.3 23.0 15.0 6.0 2.7 3.7 19.1 9.3
48.3 23.0 14.9 6.0 2.7 3.8 19.1 9.8
47.8 22.5 14.7 6.4 3.0 4.2 19.1 10.6
Recognition of locked-in sales
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 4
Page 112
Company Guide City Developments
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA
1Q2016
2Q2016
3Q2016
809 (396) 413 (258) 156 0.0 20.6 (22.0) 0.0 155 (24.4) (23.7) 106 106 234
855 (392) 463 (3.9) 459 0.0 29.2 (17.1) 0.0 471 (44.1) (16.8) 410 410 546
723 (365) 358 (82.9) 209 0.0 10.6 (14.8) 0.0 205 (14.5) (18.6) 172 172 272
1,092 (652) 440 (98.5) 214 0.0 12.5 (21.4) 0.0 205 (37.6) (33.7) 134 134 280
923 (493) 430 (50.6) 245 0.0 16.5 (22.7) 0.0 239 (35.6) (33.1) 170 170 313
(1.9) (8.9) (18.0) (20.3)
5.7 133.5 194.5 285.8
(15.4) (50.2) (54.4) (58.1)
51.0 3.1 2.2 (22.2)
(15.5) 12.0 14.6 27.3
51.1 19.3 13.1
54.2 53.7 48.0
49.5 28.9 23.8
40.3 19.6 12.2
46.6 26.6 18.5
Balance Sheet (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
4,918 1,128 3,324 3,933 11.2 1,589 4,797 19,701
5,175 1,307 2,949 3,597 11.2 1,762 5,519 20,319
5,260 1,527 2,949 3,913 12.9 1,948 5,312 20,921
5,346 1,740 2,949 3,988 13.7 2,066 5,509 21,610
5,431 1,957 2,949 4,799 15.8 2,366 5,067 22,584
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.
2,233 1,463 261 4,466 501 8,410 2,365 19,701
1,911 1,602 319 4,572 702 8,996 2,217 20,319
1,911 1,836 195 4,572 702 9,398 2,309 20,921
1,911 1,948 204 4,572 702 9,870 2,405 21,610
1,911 2,251 222 4,572 702 10,413 2,513 22,584
Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)
4,672 (2,766) 156.6 263.6 1.9 0.2 2.6 1.4 0.3 0.3 14.0 1.7
5,371 (2,885) 185.0 390.3 2.9 0.2 2.8 1.4 0.3 0.3 (13.0) 1.7
5,242 (2,569) 185.3 375.0 2.6 0.2 2.8 1.5 0.3 0.3 4.6 1.7
5,438 (2,495) 189.1 386.1 2.7 0.2 2.9 1.5 0.3 0.3 4.6 1.7
4,975 (1,684) 182.3 364.7 2.6 0.2 2.8 1.6 0.2 0.2 4.6 1.7
Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)
Weaker property development division, rental and hotel divisions
Conservative gearing
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 5
Page 113
Company Guide City Developments
Cash Flow Statement (S$m) FY Dec Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)
2014A
2015A
2016F
2017F
2018F
1,004 200 (188) (54.8) (482) (187) 292 (936) 0.0 828 17.9 47.6 (41.8) (275) 172 0.0 842 739 189 1,178 85.1 (70.7)
985 215 (194) (107) (712) (110) 77.8 843 0.0 (227) 16.9 (113) 520 (271) (310) 0.0 (333) (914) (16.6) (333) 86.8 101
787 215 (259) (37.3) 252 0.0 957 (300) 0.0 (200) 16.9 0.0 (483) (158) 0.0 0.0 0.0 (158) 0.0 316 77.5 72.3
830 215 (135) (30.1) (204) 0.0 675 (300) 0.0 (200) 16.9 0.0 (483) (118) 0.0 0.0 0.0 (118) 0.0 74.6 96.7 41.3
937 215 (144) (33.9) 444 0.0 1,418 (300) 0.0 (200) 16.9 0.0 (483) (123) 0.0 0.0 0.0 (123) 0.0 811 107 123
Source: Company, DBS Bank Target Price & Ratings History S$ 9.34
12 10
6
8.84
8 9
11
16 15
8.34
17 7.84
7 4
7.34 1 2
5
6.84
3 6.34 Jan-16
May-16
Dat e of Report
Closing Pric e
1:
08 J an 16
7.58
10.26
BUY
2:
18 J an 16
7.18
10.26
BUY
3:
16 F eb 16
6.93
10.26
BUY
4:
26 F eb 16
7.20
10.26
BUY
5:
16 Mar 16
7.58
10.26
BUY
14 13
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
12- mt h T arget Rat ing Pric e
S. No.
6:
18 Apr 16
8.76
10.26
BUY
7:
12 May 16
7.97
9.60
BUY
8:
27 May 16
8.35
9.60
BUY
9:
09 J un 16
8.80
9.60
BUY
10:
12 Aug 16
8.80
9.90
BUY
11: 12: 13: 14: 15: 16: 17:
16 27 30 18 24 10 16
8.86 8.99 9.07 8.77 8.82 8.60 8.38
9.90 9.90 9.90 9.90 9.90 9.90 9.90
BUY BUY BUY BUY BUY BUY BUY
Sep 16 Sep 16 Sep 16 Oct 16 Oct 16 Nov 16 Nov 16
Source: DBS Bank Analyst: Rachel TAN, Derek TAN
ASIAN INSIGHTS
VICKERS SECURITIES
Page 6
Page 114
Singapore Company Guide
Frasers Centrepoint Ltd Refer to important disclosures at the end of this report
Version 5 | Bloomberg: FCL SP | Reuters: FRCT.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Yielding like a REIT Growing developer with high dividend yields. We maintain our BUY rating on Frasers Centrepoint Ltd (FCL) for its attractive valuations at 0.7x P/NAV and FY17F PE of 11x, and offering one of the highest dividend yields among developers at c.5.7%. We continue to expect re-rating catalysts coming from potential asset monetisation from ongoing strategies to crystallise value across its portfolio.
Last Traded Price ( 4 Jan 2017): S$1.60 (STI : 2,921.31) Price Target 12-mth: S$2.00 (25% upside) Potential Catalyst: Better operating results Where we differ: Our estimates are conservative Analyst Rachel TAN +65 6682 3713 [email protected] Derek TAN +65 6682 3716 [email protected]
Price Relative S$
Relative Index
2.2 2.1
208
2.0
188
1.9 168
1.8
148
1.7 1.6
128
1.5 108
1.4 1.3 Jan-14
88 Jan-15
Jan-16
Frasers Centrepoint Ltd (LHS)
Forecasts and Valuation FY Sep (S$ m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)
2016A 3,440 993 960 533 368 (23.8) 18.4 12.7 (24) 18.4 8.61 230 8.7 12.6 4.2 17.6 5.4 0.7 0.6 8.1
Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:
Relative STI (RHS)
2017F 2,412 1,051 830 387 387 5.0 13.3 13.3 5 13.3 8.60 234 12.0 12.0 nm 18.7 5.4 0.7 0.8 5.7
2018F 3,103 1,153 886 415 415 7.2 14.3 14.3 7 14.3 8.60 240 11.2 11.2 14.4 17.4 5.4 0.7 0.8 6.0
2019F 2,633 1,107 836 378 378 (8.8) 13.0 13.0 (9) 13.0 8.60 245 12.2 12.2 nm 19.2 5.4 0.7 0.8 5.4
0 17.0 B: 8
0 19.3 S: 0
0 19.0 H: 0
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P
ASIAN INSIGHTS ed: JS / sa: YM, PY
FY16 core net profit fell 11% (in line) weighed down by weak earnings from development properties. FY16 net profit fell 23% y-o-y to S$597m, mainly due to lower core net profit and lower fair value gains. FY16 fair value gains was 34% lower at S$160m, mainly due to fair value losses in Singapore and Hospitality units offset by fair value gains in Australia (including S$77m fair value gain from the injection of properties into Frasers Logistics and Industrial Trust (FLT)). FY16 profit before interest and tax (PBIT) from development properties fell 29% while recurring income from investment properties dropped by 9% (partly due absence of one-off gains). Property sales were lower in FY16, falling 25% to 4.9k units. Management remains cautious and is selective in the residential sector, and continues to look for opportunities to strengthen its recurring income from commercial properties. Asset recycling into its listed S-REITs. FCL will continue to demonstrate its ability to crystallise value by strategically divesting matured assets to its listed REITs. The group is thus able to free up capital, improve its balance sheet position and recycle capital to projects with higher returns. Valuation: We maintain our BUY rating on FCL, TP maintained at S$2.00 (30% discount to RNAV). Key Risks to Our View: Dependent on the outlook of the Australian real estate market and currency. The group derives an estimated 30% of PBIT from Australia, and returns could be impacted by the weakening AUD/SGD exchange rate. At A Glance Issued Capital (m shrs) 2,900 Mkt. Cap (S$m/US$m) 4,625 / 3,213 Major Shareholders (%) TCC Assets Ltd 59.2 Thai Beverage 28.4 Free Float (%) 12.4 3m Avg. Daily Val (US$m) 0.24 ICB Industry : Real Estate / Real Estate Investment & Services
VICKERS SECURITIES Page 115
Company Guide Frasers Centrepoint Ltd
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Growing recurring revenues from its commercial and hospitality divisions. Frasers Centrepoint Limited (FCL) is one of the largest property developers in Singapore with an asset base of over S$24bn as of FY16. The group aims to grow recurring revenues to 60-70% of PBIT in the medium term.
Revenue (FY15A-FY19F) 4,000.0
S $' m
3,500.0 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0
The group’s commercial portfolio will see incremental income from the completions of WaterwayPoint (completed in January 2016), Northpoint City (retail) and Frasers Towers (commercial) from 2018 onwards, which will boost its earnings further while The Centrepoint mall’s AEI has completed in Sep16. Frasers Hospitality is also expected to see its footprint expand to 30,000 managed units by 2019. In addition, the acquisition of the Malmaison Hotel du vin Group (MHDV), which has a portfolio of 29 boutique lifestyle hotels and 2,082 keys within 25 regional cities in the UK, will further deepen its presence and clientele reach. We see cross-selling opportunities and synergies between MHDV and the Frasers brand, propelling the division’s performance to greater heights. New launches across its portfolio; property development division has over S$3.6bn in locked-in sales. FCL sold 330 units in FY16, and launched the 628-unit Parc Life EC project (80:20% JV with Keong Hong) in Sembawang, selling close to 119 units (or c.19% of total units), which is below initial expectations. We believe this could be due to supply fatigue of ECs in the vicinity but management remains optimistic that sales will return over time once competition within the space thins out. In China and Australia, FCL achieved sales of 1.7k units and 2.9k units during FY16. Unrecognised revenues from its property division, including Frasers Property Australia totalled about S$3.1bn. Sustainable high dividend. FCL has one of the highest ROEs among property developers (c.8-11% over FY14A-15A) and dividend yield of close to 6% vs industry average ROE of close to 6% and dividend yield of c.2-3%. This is mainly due to the group’s efficient operating model of quick-asset turns for its residential development projects and its focus on a portfolio of recurring commercial properties (hotels, retail and office) which boosts returns. Golden Land acquisition to bear fruit in the medium term. The group acquired close to a 35.6% stake in Golden Land Property Development PCL (GOLD) and management believes that this acquisition offers good synergies to FCL as both companies share similar investment philosophies with an aim to continue growing its recurring income base. GOLD also offers FCL the ability to tap into the growing real estate market in Thailand, supported by favourable market fundamentals.
500.0 0.0 2015
2016
2017F
2018F
PBIT breakdown by divisions (FY16)
F r asers P r operty Australia 2 6%
Ho spitality 1 3%
De velopment pr operties 31 %
Commercial pr operties 30 %
PATMI (FY15A-19F) 600.0
S $' m
500.0 400.0 300.0 200.0 100.0 2015
2016
2017F
RNAV RNAV Surpluses from: Commercial Portfolio (Office, retail, hotels) Stakes in REITs Frasers Australand Fee income : Hotel Mgmt Fee income : REITs NPV development projects Total Surpluses Add: Book NAV Gross Development Value less: preference shares less: MI Add: MI Attributable to REITs RNAV RNAV/share ($) Discount TP ($)
2018F
2019F
S$'m (699) 190 519 854 373 346 1,583 8,053 9,636 (1,392) (3,791) 3,827 8,280 2.86 30% 2.00
Source: Company, DBS Bank
ASIAN INSIGHTS
2019F
VICKERS SECURITIES
Page 2
Page 116
Company Guide Frasers Centrepoint Ltd
Balance Sheet: Balance sheet remains strong. Debt/equity ratio is expected to remain fairly stable at between 0.8-0.9x over FY15F-17F which is within management's comfortable range. Debt maturity profile remains long at 3.0 years with an average cost of debt of 3.1%. Fixed rate percentage of its loans remains high at 81%.
Leverage & Asset Turnover (x) 0.2
1.00
0.2 0.2
0.80
0.1 0.1
0.60
0.1 0.1
0.40
0.1 0.0
0.20
Share Price Drivers: Replenishing land bank key to income sustainability. The group currently has 9.3m sq ft of development space, mainly in Australia. It is actively looking for efficient means to replenish its land bank especially in Singapore but remains selective, given the sustained high land prices seen in recent government land tenders. The ability to secure additional land bank at lower prices will mean upside to RNAVs and could re-rate the stock.
0.0 0.0
0.00 2015A
2016A
2017F
Gross Debt to Equity (LHS)
2018F
2019F
Asset Turnover (RHS)
Capital Expenditure S$m 60.0 50.0 40.0 30.0
Relaxation of property cooling measures in Singapore. Expectations of policy relaxation (especially cyclical measures like the Buyers’ and Sellers’ stamp duties) might improve buyers’ market sentiment and spark a revival in transaction volumes in the Singapore residential market. This is also expected to lift sentiment on property stocks, which we believe will enable FCL to close the gap between its stock price and NAV.
20.0 10.0 0.0 2015A
2016A
2017F
2018F
2019F
Capital Expenditure (-)
ROE (%) 10.0%
Gains from asset recycling into its listed S-REITs to boost share price. Recycling activities are perceived positively by investors as FCL is able to free up capital by selling its matured assets to its listed REITs, which will improve the group’s balance sheet position and recycle capital to projects with higher returns.
8.0% 6.0% 4.0% 2.0% 0.0%
Key Risks: Small free float. The stock has a low free float with 87.9% of the company held by major shareholders TCC Group and Thai Beverage, thus leading to low liquidity.
2015A
2016A
2017F
2018F
2019F
Forward PE Band (x) (x) 14.2
+2sd: 13.6x
Dependent on the outlook of Australia's real estate market, currency outlook. The group derives an estimated 30% of PBIT from Australia which is dependent on the real estate market and whose returns could be impacted by the weakening AUD/SGD exchange rate. Company Background Frasers Centrepoint Ltd (FCL) is a one of Singapore’s main real estate companies with assets exceeding S$23bn. The group has four key core businesses focused on residential, commercial, hospitality and industrial sectors spanning 77 cities across Asia, Australasia, Europe and the Middle East.
13.2
+1sd: 12.6x
12.2
Avg: 11.6x
11.2
‐1sd: 10.5x
10.2
‐2sd: 9.5x
9.2 8.2 Jan-14
Jan-15
Jan-16
PB Band (x) 1.1
(x)
1.0
+2sd: 0.94x
0.9
+1sd: 0.8x
0.8 0.7
Avg: 0.66x
0.6
‐1sd: 0.52x
0.5 0.4
‐2sd: 0.37x
0.3 0.2 Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 117
Company Guide Frasers Centrepoint Ltd
Income Statement (S$m) FY Sep Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)
2015A
2016A
2017F
2018F
2019F
3,562 (2,479) 1,082 (257) 825 0.0 279 (149) 241 1,197 (184) (241) (46.9) 724 483 1,146
3,440 (2,407) 1,033 (266) 767 0.0 171 (142) 164 960 (194) (169) (64.5) 533 368 993
2,412 (1,337) 1,075 (193) 882 0.0 114 (166) 0.0 830 (141) (238) (64.3) 387 387 1,051
3,103 (1,827) 1,276 (248) 1,028 0.0 70.6 (212) 0.0 886 (151) (257) (64.3) 415 415 1,153
2,633 (1,440) 1,193 (184) 1,009 0.0 44.1 (216) 0.0 836 (142) (252) (64.3) 378 378 1,107
61.7 47.2 33.0 16.6
(3.4) (13.3) (7.1) (23.8)
(29.9) 5.9 15.1 5.0
28.6 9.7 16.5 7.2
(15.1) (4.0) (1.9) (8.8)
30.4 23.2 20.3 11.2 3.3 3.4 34.4 5.5
30.0 22.3 15.5 8.1 2.3 2.8 46.9 5.4
44.6 36.6 16.0 5.7 1.6 3.2 64.5 5.3
41.1 33.1 13.4 6.0 1.6 3.7 60.1 4.8
45.3 38.3 14.4 5.4 1.4 3.5 65.9 4.7
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 4
Page 118
Company Guide Frasers Centrepoint Ltd
Quarterly / Interim Income Statement (S$m) FY Sep 4Q2015 1Q2016 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA
2Q2016
3Q2016
4Q2016
1,037 (1,176) (138) 249 110 0.0 162 (37.8) 180 415 (62.8) (92.4) 213 32.8 292
672 (420) 252 (73.8) 178 0.0 32.8 (32.7) (1.3) 177 (35.6) (42.7) 98.7 100.0 241
898 (610) 288 (57.3) 231 0.0 4.77 (37.3) 9.41 207 (37.2) (47.0) 123 114 262
682 (453) 229 (85.6) 143 0.0 23.8 (38.2) 64.0 193 (29.0) (9.5) 154 90.0 192
1,188 (924) 264 210 474 0.0 110 (33.9) 92.3 643 (92.4) (69.7) 481 388 611
2.7 (12.3) (57.9) (81.9)
(35.3) (17.4) 61.6 204.4
33.7 8.8 29.4 13.9
(24.0) (26.7) (38.0) (20.9)
74.2 218.4 231.7 331.4
(13.3) 10.6 20.5
37.5 26.5 14.7
32.1 25.7 13.7
33.5 21.0 22.6
22.2 39.9 40.5
Balance Sheet (S$m) FY Sep
2015A
2016A
2017F
2018F
2019F
Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
1,991 585 14,150 1,393 7.47 844 4,096 23,067
1,972 793 14,467 2,169 5.68 678 4,120 24,204
1,919 907 14,615 576 2.12 345 6,961 25,326
1,867 978 14,764 633 2.93 443 8,088 26,774
1,814 1,022 14,912 455 2.29 376 8,721 27,302
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.
1,020 1,315 218 9,255 608 7,803 2,848 23,067
1,470 1,695 284 8,325 586 8,053 3,791 24,204
1,470 2,137 188 8,725 586 8,190 4,028 25,326
1,470 2,954 198 8,925 586 8,356 4,285 26,774
1,470 2,310 189 9,725 586 8,485 4,537 27,302
Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%)
3,415 (8,882) 84.8 196.8 1.1 0.2 2.5 0.9 0.8 1.1 0.4
2,825 (7,627) 80.7 263.0 0.9 0.1 2.0 0.8 0.6 0.9 (0.5)
4,983 (9,620) 77.4 608.3 0.6 0.1 2.1 0.2 0.8 1.2 0.0
5,383 (9,763) 46.3 608.3 0.6 0.1 2.0 0.2 0.8 1.2 0.0
6,601 (10,740) 56.8 608.3 0.6 0.1 2.4 0.2 0.8 1.3 0.0
Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)
Gearing to remain stable at 0.8x
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 5
Page 119
Company Guide Frasers Centrepoint Ltd
Cash Flow Statement (S$m) FY Sep Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)
2015A
2016A
2017F
2018F
2019F
955 781 (184) (279) 302 (891) 684 (45.3) (1,501) (57.9) 350 (146) (1,401) (249) 936 649 (111) 1,225 (8.4) 500 13.2 22.1
766 54.5 (194) (171) 344 298 1,097 50.6 (264) (317) 197 (389) (722) (456) (940) 1,000 340 (56.2) 39.1 358 26.0 39.6
830 54.5 (237) (114) (2,063) 0.0 (1,529) 0.0 (150) 0.0 0.0 0.0 (150) (249) 400 0.0 (64.3) 86.3 0.0 (1,593) 18.4 (52.7)
886 54.5 (141) (70.6) (409) 0.0 320 0.0 (150) 0.0 0.0 0.0 (150) (249) 200 0.0 (64.3) (114) 0.0 56.5 25.1 11.0
836 54.5 (151) (44.1) (1,210) 0.0 (514) 0.0 (150) 0.0 0.0 0.0 (150) (249) 800 0.0 (64.3) 486 0.0 (177) 24.0 (17.7)
Source: Company, DBS Bank Target Price & Ratings History
S$ 1.74 1.69 1.64
8
6 7 12
4
1.59
3 5
1.54
12 10
9
1.49
11 1.44 1.39 Jan-16
May-16
Sep-16
12- mt h T arget Rat ing Pric e
S.No.
Dat e of Report
Closing Pric e
1:
08 J an 16
1.65
2.05
BUY
2:
18 J an 16
1.60
2.05
BUY
3:
04 Feb 16
1.60
2.05
BUY
4:
16 Feb 16
1.58
2.05
BUY
5:
16 Mar 16
1.58
2.05
BUY
6:
05 Apr 16
1.65
2.05
BUY
7:
18 Apr 16
1.69
2.05
BUY
8:
11 May 16
1.67
2.05
BUY
9:
08 Aug 16
1.53
1.90
BUY
10:
30 Sep 16
1.49
1.90
BUY
11: 12:
18 Oct 16 10 Nov 16
1.50 1.53
1.90 2.00
BUY BUY
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Rachel TAN Derek TAN
ASIAN INSIGHTS
VICKERS SECURITIES
Page 6
Page 120
Singapore Company Guide
Global Logistic Properties Refer to important disclosures at the end of this report
Version 7 | Bloomberg: GLP SP | Reuters: GLPL.SI
DBS Group Research . Equity
4 Jan 2017
BUY
In pursuit of growth
Last Traded Price ( 4 Jan 2017): S$2.24 (STI : 2,921.31) Price Target 12-mth: S$2.47 (10% upside) Potential Catalyst: Better-than-expected results Where we differ: More positive than consensus in the medium-term Analyst Rachel TAN +65 6682 3713 [email protected] Derek TAN +65 6682 3716 [email protected]
Price Relative
Forecasts and Valuation FY Mar (US$ m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)
2016A 777 735 1,343 690 (30.0) nm 20.8 (0.9) nm 20.8 6.25 250 10.7 nm 17.6 21.7 2.8 0.9 0.3 8.4
Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:
2017F 851 615 473 269 269 nm 8.10 8.10 nm 8.10 6.98 253 27.4 27.4 nm 27.8 3.1 0.9 0.4 3.2
2018F 946 688 540 311 311 15.6 9.36 9.36 16 9.36 8.07 256 23.7 23.7 14.5 25.5 3.6 0.9 0.4 3.7
2019F 1,029 746 592 341 341 9.6 10.3 10.3 10 10.3 8.84 260 21.6 21.6 14.1 24.4 4.0 0.9 0.4 4.0
7.4 B: 10
8.2 S: 2
9.3 H: 4
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P
ASIAN INSIGHTS ed: TH / sa: YM, PY
Value at current prices. We maintain BUY on Global Logistics Properties (GLP) with TP of S$2.47, pegged at 30% discount to RNAV to reflect ongoing uncertainties in the operating environment. Trading at 0.9x P/BV, below the lower end of historical range, we believe the cautious outlook is priced in. 1H17 results driven by higher rental income, management fees and development completions; core results in line. Core 1H17 net profit (excluding revaluation gains and one-off items) grew 36% y-o-y to S$137m, in line with street’s FY17 estimates, led by higher rental income mainly from Japan (+21%) and US (+67%) and higher management fees from Japan (+47%) and US (+165%). In 1H17, GLP recorded development profit of US$128m at 30% margin (vs 27% in FY16), achieving 64% (ahead) of its full-year target of US$200m. GLP achieved 42% and 46% of its development starts and completion targets respectively. Management has turned positive on Brazil, and cautiously positive on China, while Japan and US continue to show strong demand. AUM of fund management platform rose to US$38bn. As at 1H17, total AUM had risen to US$38bn, and the group has another US$12bn of uncalled capital, expected to be deployed in the next two years. Given that this business is a highly scalable and an ROE-enhancing business arm of the group, management is focusing on driving returns and operational scale by establishing new funds. Valuation: We maintain our BUY call and target price of S$2.47, pegged at a 30% discount to RNAV. Despite a weaker outlook, we believe the current share price, which is at 0.9x P/BV, below the lower end of historical range, is attractive. Key Risks to Our View: Faster-than-expected ramp-up in competing supply on the back of a slowdown in China's retail sector would impact demand for logistics warehouses. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) GIC Pte Ltd Hillhouse Capital Blackrock Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate
4,687 10,499 / 7,292 36.9 8.2 6.0 43.5 28.3
VICKERS SECURITIES Page 121
Company Guide Global Logistic Properties Top line and EIBT (US’m) 1,000.0
CRITICAL DATA POINTS TO WATCH
900.0 800.0
Strong operational momentum across markets. As expected, FY16 recorded a strong year largely led by positive effective rent growth on renewal and same-property net operating income. The group’s lease ratio remains relatively stable at 92% with WALE of 2.6-5.5 years. While management has turned cautious on China and Japan, hence reducing development targets, the US market appears to have strong growth potential.
700.0
US $'mn
600.0 500.0 400.0 300.0 200.0 100.0 0.0 FY15A
Development starts and completion pipeline. In FY17, GLP has set lower targets for development starts and completions of US$2.1bn (vs US$2.8bn in FY16) and US$1.5bn (vs US$2.1bn in FY16) respectively as management turns cautious. Nevertheless, value creation margin at 27% remains above historical average of 25%. Deepening presence in US. We are positive on GLP’s announcement of a US$1.1bn (at valuation) logistics portfolio in the US from Hillwood, a property developer. The acquisition will be in various tranches – initial closing of US$700m is fully leased and income producing by end of December 2016 and the remaining US$400m, when the target properties under development complete and achieve pre-agreed lease ratios. GLP intends to pare down its effective stake in this portfolio to 10% upon syndication to third-party capital partners. Assets are located in key markets of Dallas, Chicago and Atlanta, which according to Colliers, have one of the brightest outlooks for absorption and rental growth in the US.
FY17F
FY18F
Operating profit (ex reval)
Revenue Breakdown by segment (US$’m) 1,200.0 1,000.0 800.0 600.0 400.0 200.0 FY15A
FY16A China
FY17F Japan
FY18F
FY19F
US & Brazil
EBIT Margins (%) 59.0 57.0 55.0 E BIT Margins (%)
Fund management platform delivers superior returns at lower risk. GLP’s fund management platform delivers superior returns at lower risk. Management fees increased 80% to US$130m in FY16 and this segment is expected to potentially earn US$400m in the medium term. As of end-March 2016, total AUM had risen to US$35bn, with another US$11bn of uncalled capital to be deployed. We expect the fund management business to continue growing through new funds due to its scalable nature, boosting returns and ROEs for the group. Going forward, the group is looking to launch a new China fund with equity capital of c.US$3bn to increase its reach in China.
FY16A Revenue
US $'mn
Earnings Drivers: Riding on the growing demand from e-commerce players for logistics space. Riding on the tailwinds of China’s rising consumerism and thriving e-commerce sector, Global Logistics Properties (GLP) remains in the front seat to take advantage of China’s rapidly changing retail landscape. With an extensive portfolio of warehouses (11.8m sqm of space) in 35 cities in China, the group is one of the leading providers of modern logistics solutions to end-users. GLP’s network of warehouses enables customers to expand; this has been positively received by current users of its space. Its strong network of warehouses enables management to enjoy recurring demand from existing clients. Close to 90% of GLP’s portfolio is occupied by businesses geared towards domestic consumption.
53.0 51.0 49.0 47.0 45.0 FY15A
FY16A
FY17F
FY18F
FY19F
RNAV Valuation of GLP
S$'m
Japan Logistics Business (Stabalized)
2,173.8
China Logistics Business (Stabalized)
4,953.7
China Landbank (NPB of future devt)
3,815.0
Other Assets
58.1
GLP J-REIT
413.5
Brazil
523.1
USA
337.0
Fee income business (15x P/E)
1,054.4
Gross Asset Value
13,296
Less: Estimated net debt
-660.57
RNAV
12,668
RNAV/ share (US$)
2.62
RNAV/ share (S$)
3.53
Discount
30%
Target Price
2.47
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 122
Company Guide Global Logistic Properties
Leverage & Asset Turnover (x)
Balance Sheet: Low leverage ratio. Total debt-to-asset ratio is expected to remain fairly stable at c.0.40x, which is well within management's comfortable level. As such, this provides GLP with additional debt headroom for future debt-funded acquisitions. Currently, the group has 70% of its debt on fixed rate with a weighted average cost of debt of 3.0% and a long debt maturity of 5.2 years. Share Price Drivers: Robust outlook for e-commerce in China. GLP has a large (11.8m sqm in completed properties) portfolio in China that is positioned strategically to benefit from growth in e-commerce through its modern logistics space, and it has another US$5.3bn slated for completion in FY17-19. We expect the group’s assets to hit higher occupancies and pricier leases, if e-commerce increases in scale (8-year CAGR was 80%) on the back of strong consumer demand (11-year CAGR was 63%, expected to double over the next three years). Incremental earnings contribution from China would be a share price catalyst.
Capital Expenditure US$m 1,600.0 1,400.0 1,200.0 1,000.0 800.0 600.0 400.0 200.0 0.0 2015A
2016A
2017F
2018F
2019F
Capital Expenditure (-)
ROE (%)
Realisation of value through its fund business. GLP continues to expand through its fund platform. Looking ahead, the potential conversion of its development funds in China and Japan into income funds could unlock performance fees, offering upside to the earnings that are currently not in our estimates. Additionally, GLP continues to look for opportunities in the US and potentially Europe to expand its fund management business. Key Risks: Slowdown in Chinese economy If a slowdown in the Chinese economy leads to a reduced appetite for logistics warehouse space, there could be slowerthan-projected revenue growth.
PB Band (x)
Foreign currency risks Exposure to various currencies (CNY, JPY, BRL) could lead to volatility in the group's USD earnings. Company Background Global Logistics Properties (GLP) is a leading provider of modern logistics facilities in China, Japan, Brazil and the US. The group develops, owns and manages c.41m sqm GFA of logistics properties, catering to growing domestic consumption.
ASIAN INSIGHTS
Source: Company, DBS Bank
VICKERS SECURITIES Page 3
Page 123
Company Guide Global Logistic Properties
Income Statement (US$m) FY Mar Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)
2015A
2016A
2017F
2018F
2019F
708 (139) 570 (165) 405 0.0 71.4 (47.9) 434 862 (194) (182) (32.0) 454 201 488
777 (157) 620 (229) 392 91.1 241 (101) 720 1,343 (310) (314) (28.7) 690 (30.0) 735
851 (137) 714 (241) 473 23.6 107 (130) 0.0 473 (50.3) (125) (28.7) 269 269 615
946 (173) 773 (245) 527 25.4 124 (136) 0.0 540 (56.8) (144) (28.7) 311 311 688
1,029 (204) 825 (250) 575 26.6 133 (143) 0.0 592 (62.6) (160) (28.7) 341 341 746
13.3 (4.4) 6.0 (18.6)
9.8 50.7 (3.2) nm
9.4 (16.3) 20.8 nm
11.2 11.9 11.5 15.6
8.8 8.4 9.0 9.6
80.4 57.2 64.2 5.6 2.9 2.1 41.7 8.4
79.8 50.4 88.8 8.4 3.4 1.7 30.1 3.9
83.9 55.6 31.6 3.2 1.2 2.2 86.2 3.6
81.7 55.8 32.9 3.7 1.3 2.4 86.2 3.9
80.2 55.8 33.1 4.0 1.4 2.5 86.2 4.0
Top line driven mainly by development completions in China, supported by stable occupancy rates in Japan. In addition, top line is driven from increased fund management fees in US and Brazil
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 4
Page 124
Company Guide Global Logistic Properties
Quarterly / Interim Income Statement (US$m) FY Mar 2Q2016 3Q2016 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA
4Q2016
1Q2017
2Q2017
189 (38.9) 150 (62.1) 88.3 17.1 34.3 (20.8) 110 229 (52.9) (62.3) 114 3.79 91.3
199 (39.2) 160 (57.3) 102 55.8 48.5 (44.7) 202 364 (94.6) (84.9) 184 (17.4) 105
199 (41.3) 158 (78.3) 79.6 (0.4) 38.9 (39.6) 214 292 (82.7) (78.1) 131 (82.2) 82.6
207 (38.2) 168 (54.3) 114 7.86 57.3 (70.0) 208 317 (67.0) (47.2) 203 (5.0) 114
214 (37.5) 176 (56.2) 120 3.03 70.7 (29.5) 117 281 (60.6) (47.8) 173 55.9 120
(0.4) (11.2) (11.6) (89.8)
5.1 15.2 15.9 nm
0.1 (21.6) (22.3) (371.6)
3.7 38.2 43.4 93.9
3.4 5.2 5.2 nm
79.5 46.7 60.2
80.3 51.5 92.6
79.3 40.0 65.9
81.5 55.2 98.2
82.4 56.2 81.0
Balance Sheet (US$m) FY Mar
2015A
2016A
2017F
2018F
2019F
Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
52.2 1,544 12,479 1,446 0.0 475 1,467 17,462
52.9 1,954 14,656 1,025 0.0 548 4,895 23,129
52.9 2,485 14,856 350 0.0 709 4,895 23,348
52.9 3,034 15,053 301 0.0 788 4,895 24,124
52.9 3,592 15,368 112 0.0 858 4,895 24,878
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.
371 811 21.9 2,476 1,019 8,780 3,983 17,462
1,021 1,026 2,965 3,750 1,208 8,888 4,272 23,129
1,021 724 2,962 4,050 1,208 8,987 4,398 23,348
1,021 933 2,968 4,350 1,208 9,103 4,541 24,124
1,021 1,111 2,974 4,650 1,208 9,214 4,701 24,878
Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)
1,109 (1,402) 227.0 2,092.7 N/A 0.0 2.8 1.6 0.1 0.2 53.5 0.0
1,451 (3,746) 240.1 2,307.7 N/A 0.0 1.3 0.3 0.3 0.4 0.2 0.8
1,917 (4,720) 269.6 2,547.5 N/A 0.0 1.3 0.2 0.4 0.5 4.0 0.8
1,782 (5,070) 288.8 1,872.9 N/A 0.0 1.2 0.2 0.4 0.6 3.7 0.8
1,667 (5,558) 291.9 1,939.8 N/A 0.0 1.1 0.2 0.4 0.6 5.6 0.7
Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)
Gearing (D/E) to remain conservative at 0.4x
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 5
Page 125
Company Guide Global Logistic Properties
Cash Flow Statement (US$m) FY Mar
2015A
2016A
2017F
2018F
2019F
Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)
862 11.6 (28.5) (71.4) 45.5 (375) 444 (1,523) (1,467) (422) 12.9 (10.5) (3,409) (174) 687 159 2,246 2,918 0.0 (47.0) 11.8 (31.8)
1,343 11.8 (31.5) (241) 27.3 (691) 418 (8.0) 212 (472) 2.77 (4,672) (4,937) (200) 1,964 0.0 2,525 4,289 0.0 (230) 11.8 12.4
473 11.8 (53.5) (107) (463) 0.0 (138) (204) 0.0 (425) 0.0 0.0 (629) (208) 300 0.0 0.0 92.4 0.0 (674) 9.78 (10.3)
540 11.8 (50.3) (124) 129 0.0 507 (200) 0.0 (425) 0.0 0.0 (625) (232) 300 0.0 0.0 68.3 0.0 (49.6) 11.4 9.25
592 11.8 (56.8) (133) 109 0.0 522 (318) 0.0 (425) 0.0 0.0 (743) (268) 300 0.0 0.0 32.2 0.0 (188) 12.5 6.16
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Rachel TAN, Derek TAN
ASIAN INSIGHTS
VICKERS SECURITIES
Page 6
Page 126
Singapore Company Guide
UOL Group Refer to important disclosures at the end of this report
Version 6 | Bloomberg: UOL SP | Reuters: UTOS.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Diversification is key to sustainability
Last Traded Price (4 Jan 2017): S$6.12 (STI : 2,921.31) Price Target 12-mth: S$7.20 (18% upside)
Potential headwinds ahead; but valuations still attractive. Despite the weak operating outlook and potential headwinds, we maintain our BUY rating on UOL Group (UOL) based on its attractive valuations of c.0.6x P/NAV, which is below the low end of its historical range, making it one of the cheapest large cap landlords in Singapore.
Potential Catalyst: Strong pre-sales for residential projects Where we differ: Earnings generally more conservative vs peers Analyst Derek TAN +65 6682 3716 [email protected] Rachel TAN +65 6682 3713 [email protected]
3Q16 results in line; outlook improves. UOL’s 3Q16 net profit fell 14% y-o-y to S$87.1m, mainly due to lower contribution from JVs. However, the Group’s recent purchases in London should add to its recurring income stream and improve earnings visibility. Key positives from the results are: i) 11% revenue growth from all divisions, and ii) rental reversions were generally positive for its office and retail properties with stable occupancy rates remained stable. However, RevPAR for most of its hotels in all markets were marginally lower except for hotels in Australia.
Price Relative S$
Relative Index
8.7
209
8.2 189
7.7 7.2
169
6.7
149
6.2
129
5.7
109
5.2 4.7 Jan-13
Jan-14
Jan-15
UOL Group (LHS)
Forecasts and Valuation FY Dec (S$ m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)
Jan-16
89 Jan-17
Relative STI (RHS)
2015A 1,279 514 460 391 343 (5.9) 49.2 43.0 (7) 49.2 15.0 991 12.5 14.2 9.4 14.8 2.5 0.6 0.3 5.0
Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:
2016F 1,228 567 424 355 355 3.6 44.6 44.6 4 44.6 15.0 1,021 13.7 13.7 28.7 13.9 2.5 0.6 0.3 4.4
2017F 1,324 601 453 372 372 4.8 46.7 46.7 5 46.7 15.0 1,053 13.1 13.1 13.8 13.0 2.5 0.6 0.3 4.5
2018F 1,410 618 470 386 386 3.6 48.4 48.4 4 48.4 15.0 1,086 12.6 12.6 13.4 12.4 2.5 0.6 0.2 4.5
0 47.6 B: 9
0 47.8 S: 0
0 46.6 H: 3
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P
ASIAN INSIGHTS ed: JS / sa: JC, PY
New launches in 2H16/2017. Management saw good take-up for its recent Park Eleven project in Shangai, selling 131 out of 168 units and there will be subsequent launches in phases in 2017. In addition, UOL is positioning to launch The Clement Canopy (1Q17; 505 units), and Bishopsgate, London (160 units). The purchase of a recent enbloc site at Potong Pasir Ave 1 will be finalised soon, the project is planned for launch in 2018. Valuation: Maintain BUY on attractive valuations. Our TP of S$7.20 is pegged to a 30% discount to our RNAV of S$10.23. Key Risks to Our View: Economic slowdown. The downside risk to our projections is if residential sales are slower than our projections or if commercial properties and hotels operations are impacted by slower-than-projected growth in rental/room rates. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) CY Wee & Co Pte Ltd Wee Investment Pte Ltd United Overseas Bank Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate
805 4,924 / 3,448 13.9 13.4 7.5 59.8 3.7
VICKERS SECURITIES Page 127
Company Guide UOL Group
CRITICAL DATA POINTS TO WATCH
Revenue (S$’m) 1,600.0
S$'m
1,400.0
Earnings Drivers: Retail and office sub-segments to offer stable returns. UOL Group Limited (UOL) derives a significant 47%-58% of its revenues from retail, office and hotel segments which should continue delivering stable cashflows in the coming years.
1,200.0 1,000.0 800.0 600.0 400.0 200.0
While we see headwinds in both the retail and office segments ahead, we believe that the positioning and location of UOL’s portfolio of commercial properties mainly along the fringe areas of the CBD will result in lower volatility in rents. Thus, operational performance is likely to remain stable going forward. Its retail malls - United Square and Novena Square - are located in the Novena area, close to the emerging medical hub. The malls have formed a niche, which should result in high tenant stickiness. This is especially so for United Square, which houses tenants well known for providing various children’s education programs. On the other hand, Novena Square’s tenant mix mainly caters to necessity shopping and the needs of the vicinity’s growth as a medical hub. Hotel performance – weakness in Asia; overall outlook stable. Growth will be driven by the addition of close to 1,582 rooms (6 hotels), implying 16% growth in total rooms under management. Performances from hotels and serviced residences are expected to remain mixed. We expect the operational performance of the group’s hotels & residences in Singapore and Malaysia to be weak, but partially offset by a better performance from its hotels in Australia. We project portfolio RevPAR to remain fairly flattish.
0.0 15 16F Investments Hotel Operations Property Development
17F 18F Management Services Property Investments
PATMI (S$’m) 400.0
S $' m
390.0 380.0 370.0 360.0
350.0 340.0 330.0 15
16F
17F
18F
Operating Margins (%) 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%
Presales for residential projects doing well amid muted residential outlook. Despite tepid residential transactions yearto-date, UOL’s projects have continued to do fairly well. As at Sep 2016, the Group has substantially sold most of its projects that are completed or currently under development and its latest project - Principal Garden - has seen good take-up rate of 50% (vs 33.5% last quarter). Park Eleven in Shanghai had a private launch in 3Q2016 and sold 131units out of the 168 units approved for sale. Looking ahead, UOL will launch further phases of Park Eleven in Shanghai, The Clement Canopy in Singapore and its London project in 2017. The 555-unit Riverbank @ Fernvale (78.2% sold as at Sep 2016), and 797-unit Botanique at Bartley (95.9% sell-through rate) have sold well. Despite the low sales take-up rate, Principal Garden recorded steady sales and is now 43.4% sold. We view this as a testament of the Group’s ability to design residential projects that are well liked and attractively priced.
FY13
FY14
Breakdown of RNAV
FY16F
FY17F
RNAV (S$’m)
Properties Investment Properties less book value Surplus/deficit
OMV ($m) 2,950.8 -4,137.0 -1,186.2
NPV of devt profits Mark to TP value of quoted holdings Listed equities/Strategic Holdings Hotel operations Total less book value Surplus
390.6
Book NAV
7,894.2
RNAV Total Shares RNAV/share ($) Discount Price Target ($)
8,096.8 787.0 10.29 30% 7.20
Source: Company, DBS Bank
ASIAN INSIGHTS
FY15F
3,145.9 2,219.8 5,365.7 -4,367.4 998.3
VICKERS SECURITIES
Page 2 Page 128
Company Guide UOL Group
Balance Sheet: Balance sheet remains strong. Debt to equity ratio is expected to remain stable at 0.3x to 0.4x from FY16F-FY18F. This leaves UOL with sufficient headroom to acquire projects / new land when such opportunities come by.
Leverage & Asset Turnover (x) 0.45
0.2
0.40
0.2
0.35
0.2
0.2
0.30
0.2
0.25
0.2
0.20
0.1
0.15
Share Price Drivers: Replenishing land bank key to income sustainability. The Group turns around its projects quickly and has little land bank on its balance sheet. UOL has always been active in land tenders to replenish its land bank especially in Singapore but remains selective given the high competitive environment seen in recent government land tenders. The ability to secure additional land bank at lower prices will mean upside to RNAVs and this could re-rate the stock.
0.1
0.10
0.1
0.05
0.1
0.00
0.1 2014A
2015A
2016F
Gross Debt to Equity (LHS)
2017F
2018F
Asset Turnover (RHS)
Capital Expenditure S$m 300.0
250.0 200.0 150.0
Relaxation of property cooling measures in Singapore. Expectations of policy relaxation (especially cyclical measures like the buyers’ and sellers’ stamp duties) may improve market sentiment and spark a revival in transacted volumes in the Singapore residential market. This would also lift sentiment on property stocks, which should enable UOL to close the gap between its stock price and its NAV. Deep value from its hotel business. We believe that deep value lies in the group’s portfolio of well located hotels and serviced residences in Singapore, Malaysia and Australia. These hotels are held on a historical cost basis, which we believe are conservative compared to potential realisable value. We estimate potential upside of more than S$1bn if these properties are valued on marked-to-market basis.
100.0 50.0 0.0
2014A
2015A
2017F
2018F
ROE (%) 9.0% 8.0%
7.0% 6.0% 5.0%
4.0% 3.0% 2.0% 1.0%
0.0% 2014A
Key Risks: Economic slowdown. The downside risk to our projections is if residential sales are slower than projected or if its hotel operations are impacted by slower-than-projected RevPAR performance. The upside risks to our view and target price would be higher-than-expected selling prices or upgrades to the target prices of its listed investment holdings.
2016F
Capital Expenditure (-)
2015A
2016F
2017F
2018F
Forward PE Band (x) (x) 19.7
+2sd: 18.7x 17.7
+1sd: 16.7x 15.7
Avg: 14.8x 13.7
-1sd: 12.8x
Company Background With a track record of nearly 50 years, UOL Group's impressive list of property development projects includes best-selling residential units, office towers, shopping centres, hotels and serviced suites.
11.7
-2sd: 10.8x 9.7 Jan-13
Jan-14
Jan-15
Jan-16
PB Band (x) 1.0
(x)
0.9
+2sd: 0.86x 0.8
+1sd: 0.77x
0.7
Avg: 0.69x
0.6
-1sd: 0.6x
0.5
-2sd: 0.51x
0.4 Jan-13
Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3 Page 129
Company Guide UOL Group
Segmental Breakdown FY Dec
2014A
2015A
2016F
2017F
2018F
Revenues (S$m) Property Development Property Investment Hotel Operations Investments Others Total
676 198 438 20.3 28.8 1,361
578 219 419 42.3 20.2 1,279
595 200 369 42.3 20.8 1,228
675 214 371 42.3 21.4 1,324
754 218 374 42.3 22.0 1,410
Income Statement (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
1,361 (780) 581 (209) 372 13.4 158 (28.5) 322 837 (76.7) (74.3) 0.0 686 364 604
1,279 (775) 504 (231) 273 18.4 156 (35.6) 48.8 460 (47.2) (21.8) 0.0 391 343 514
1,228 (782) 446 (184) 261 18.4 220 (74.9) 0.0 424 (50.9) (18.5) 0.0 355 355 567
1,324 (839) 485 (199) 287 18.4 229 (81.6) 0.0 453 (54.3) (26.2) 0.0 372 372 601
1,410 (904) 506 (211) 295 18.4 238 (81.1) 0.0 470 (56.4) (28.2) 0.0 386 386 618
28.5 15.1 10.1 39.5
(6.0) (14.8) (26.6) (5.9)
(4.0) 10.1 (4.3) 3.6
7.8 6.1 9.6 4.8
6.5 2.8 2.8 3.6
42.7 27.3 50.4 9.5 6.2 3.2 17.2 13.0
39.4 21.4 30.6 5.0 3.4 2.2 30.5 7.7
36.3 21.3 28.9 4.4 3.0 2.0 33.6 3.5
36.6 21.6 28.1 4.5 3.1 2.1 32.1 3.5
35.9 20.9 27.3 4.5 3.1 2.1 31.0 3.6
Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)
Pre-sales of residential units to add to earnings.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 4 Page 130
Company Guide UOL Group
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA
1Q2016
2Q2016
3Q2016
354 (217) 137 (52.2) 84.5 (2.4) 44.8 (11.3) 2.89 118 (13.7) (4.0) 101 97.9 144
344 (221) 123 (56.2) 67.1 (2.4) 36.8 (9.8) (15.1) 76.6 (10.5) (2.3) 63.8 79.0 123
330 (216) 114 (55.0) 59.0 5.33 34.1 (4.8) 0.17 93.7 (12.4) (4.3) 77.1 76.9 115
364 (238) 125 (55.2) 70.2 3.86 38.1 (6.3) (26.5) 79.3 (10.7) 0.19 68.8 95.3 128
393 (263) 130 (56.5) 73.7 6.75 29.1 (5.7) 0.0 104 (12.3) (4.4) 87.1 87.1 123
3.4 7.2 (0.4) 6.2
(2.7) (14.8) (20.5) (19.4)
(4.1) (6.3) (12.1) (2.6)
10.1 11.7 18.9 23.9
8.2 (4.3) 5.1 (8.5)
38.6 23.9 28.5
35.8 19.5 18.5
34.5 17.9 23.3
34.5 19.3 18.9
33.1 18.7 22.1
Balance Sheet (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
1,241 3,162 4,528 935 0.80 248 1,735 11,848
1,179 3,366 4,981 276 0.73 197 1,501 11,501
1,384 3,586 4,981 254 0.70 189 1,561 11,955
1,517 3,815 4,981 288 0.76 204 1,449 12,255
1,500 4,053 4,981 482 0.81 217 1,334 12,567
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.
1,292 282 75.2 1,737 332 7,643 488 11,848
523 238 42.1 1,980 317 7,894 507 11,501
523 229 51.2 2,180 317 8,130 525 11,955
523 247 54.6 2,180 317 8,382 552 12,255
523 263 56.7 2,180 317 8,648 580 12,567
Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)
1,626 (2,094) 83.9 184.8 0.4 0.1 1.8 0.7 0.3 0.3 5.2 1.9
1,419 (2,227) 63.5 134.1 0.4 0.1 2.5 0.6 0.3 0.3 1.9 2.0
1,470 (2,449) 57.4 119.3 0.4 0.1 2.5 0.6 0.3 0.3 10.1 2.0
1,353 (2,415) 54.2 112.5 0.3 0.1 2.4 0.6 0.3 0.3 7.4 2.0
1,233 (2,222) 54.5 111.2 0.3 0.1 2.4 0.8 0.2 0.3 1.8 2.0
Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)
Gearing to remain healthy
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 5 Page 131
Company Guide UOL Group
Cash Flow Statement (S$m) FY Dec Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)
2014A
2015A
2016F
2017F
2018F
760 60.1 (96.5) (158) (726) (250) (411) (157) (0.8) (1.6) 18.7 8.89 (132) (57.1) 690 3.58 (103) 534 2.42 (6.9) 40.1 (72.2)
413 67.2 (66.7) (156) 259 (0.1) 517 (47.0) 0.68 79.8 42.0 (12.3) 63.2 (64.3) (466) 7.93 (62.1) (584) (5.7) (10.1) 32.4 59.0
424 67.2 (41.8) (220) (60.8) 0.0 170 (273) 0.0 0.0 0.0 0.0 (273) (119) 200 0.0 0.0 80.6 0.0 (22.6) 28.9 (13.0)
453 67.2 (50.9) (229) 114 0.0 354 (200) 0.0 0.0 0.0 0.0 (200) (119) 0.0 0.0 0.0 (119) 0.0 34.5 30.1 19.3
470 67.2 (54.3) (238) 118 0.0 363 (50.0) 0.0 0.0 0.0 0.0 (50.0) (119) 0.0 0.0 0.0 (119) 0.0 193 30.7 39.3
Acquisition of 2 properties in London and Raintree Gardens in 2017
Source: Company, DBS Bank Target Price & Ratings History 6.59
S$ Closing Pric e
1:
18 J an 16
5.54
8.47
BUY
2:
29 F eb 16
5.66
7.39
BUY
3:
13 May 16
5.70
7.39
BUY
4:
27 May 16
5.68
7.39
BUY
5:
09 J un 16
5.61
7.39
BUY
6:
05 Aug 16
5.83
7.20
BUY
7:
16 Sep 16
5.51
7.20
BUY
8:
30 Sep 16
5.61
7.20
BUY
9:
07 Oct 16
5.85
7.20
BUY
10:
18 Oct 16
5.76
7.20
BUY
11:
11 Nov 16
5.66
7.20
BUY
S.No.
6.19 5.99
6
5.79
5.39
4
2
5.59
10 89
3
11
5
1
7
5.19 4.99 Jan-16
May-16
Sep-16
12- mt h T arget Rat ing Pric e
Dat e of Report
6.39
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Derek TAN Rachel TAN
ASIAN INSIGHTS
VICKERS SECURITIES
Page 6 Page 132
Singapore Company Guide
Ascendas Hospitality Trust Refer to important disclosures at the end of this report
Version 6 | Bloomberg: ASCHT SP | Reuters: ASHP.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Untapped balance sheet
Last Traded Price ( 4 Jan 2017): S$0.70 (STI : 2,921.31) Price Target 12-mth: S$0.84 (20% upside and 7.9% yield)
Attractive yield and discount to book value. We maintain our BUY recommendation and TP of S$0.84. We believe at current levels, Ascendas Hospitality Trust’s (ASCHT) offers a compelling yield in excess of 7% which is based on a 95% payout ratio. In addition, the stock trades at 16% discount to its NAV per unit of S$0.88 and speculated offer price in excess of S$0.80 when several parties were considering a takeover bid for ASCHT earlier this year.
Potential Catalyst: Earnings recovery/further acquisitions/potential takeover offer Where we differ: DBS is the sole broker covering this REIT Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Mitigating factors against known headwinds. While ASCHT’s faces several headwinds in the form of an oversupply in the Singapore and Brisbane hospitality markets and recent strengthening of the JPY, we believe ASCHT can still deliver relatively stable DPUs going forward. This is premised on higher earnings from a renegotiated management contract at its Osaka property, uplift from the recently completed refurbishment at Courtyard by Marriott North Ryde, and still positive increase in tourist arrivals into Australia and Japan boosting demand for ASCHT’s Sydney, Melbourne and Tokyo properties.
What’s New
2Q17 DPU of 1.38 Scts flat y-o-y but up 4% y-o-y on normalised basis
Some near term headwinds but there are levers to drive earnings
Low gearing (c.32%) provides capacity to pursue acquisitions
Acquisition capability enhanced due to low gearing and new Chairman with extensive hospitality experience. With gearing of only c.32%, ASCHT is in a strong financial position to pursue debt-funded acquisitions. In addition, we believe the ability to execute on non-organic opportunities is enhanced by the recent appointment of Mr Miguel Ko as Chairman of ASCHT. Mr Ko, who is currently the CEO of ASCHT’s sponsor, was formerly the Chairman and President of Starwoods Hotels & Resorts (Asia Pacific Division) and Deputy Chairman and CEO of CDL Hotels International.
Price Relative
Forecasts and Valuation FY Mar (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 227 93.3 28.6 56.3 1.72 137 5.06 (8) 74.2 40.7 7.2 0.9 37.2 2.3
Distn. Inc Chng (%):
2016A 215 90.9 147 63.7 0.10 (94) 5.41 7 86.0 726.0 7.7 0.8 32.7 0.1
2017F 226 92.3 34.4 65.4 3.06 3,072 5.52 2 85.8 22.9 7.9 0.8 32.8 3.6
2018F 225 91.6 33.2 64.3 2.94 (4) 5.39 (2) 85.7 23.8 7.7 0.8 32.8 3.4
0
0
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Valuation: We maintain our DCF-based TP at S$0.80. With 20% capital upside and attractive 7.9% yield, we reiterate our BUY call. Key Risks to Our View: Significant drop in AUD/JPY and demand/supply imbalance. If the AUD/JPY drops significantly from current levels and there is excess supply in ASCHT’s respective markets, there will be downside risks to our DPU estimates and ASCHT may continue to trade at a discount to book value. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) TJ Holdings Tang Yigang Jinquan Tong Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trusts
1,123 786 / 589 27.1 6.2 4.9 61.8 0.30
VICKERS SECURITIES Page 133
Company Guide Ascendas Hospitality Trust Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Australia – the largest contributor. ASCHT’s Australian portfolio contributed c.55% of FY16 NPI. With a positive outlook for the Australian hospitality market, driven by a combination of continued growth in tourist arrivals (+12% y-o-y for 8M16 following 8% growth in CY15) and modest new hotel supply in Sydney and Melbourne in the near term, we expect ASCHT’s Australian operations to drive the REIT’s performance going forward. Contribution from Australia should also rise in 2019 as ASCHT inked an agreement to acquire the serviced apartment component at Aurora Melbourne Central for A$120m, on an NPI yield of 7.6%. Construction of Aurora Melbourne Central is due to be completed in 2H19. Due to uncertainty over how ASCHT will fund the acquisition of Aurora Melbourne and RevPAR in 2019, we have yet to include this investment in our estimates. Japan is another growth driver. Despite potential softening in ASCHT’s Japanese operations due to the recent strengthening of the JPY, we remain positive on the outlook for ASCHT’s Japanese properties (c.21% of FY16 NPI). This is because while the pace of inbound tourists may slow, it should remain on an uptrend as the Japanese government continues to support the tourism sector through the relaxation of visa requirements. Overall tourist arrivals climbed 24% y-o-y in 9M16 following a 47% y-o-y increase in CY15. New operator for Osaka Namba hotel. Another boost for ASCHT in FY17 is the 13% uplift in annual fixed rents for its Osaka Namba Washington Hotel, as ASCHT has recently appointed a new operator, Sunroute Co Ltd. As part of the new 10-year agreement, the hotel will undergo a refurbishment and will be rebranded under the “Sunroute” name.
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Modest contribution from Singapore and China. In FY17, we see modest contributions from ASCHT’s Singapore (16% of FY16 NPI) and China (8%) properties due to challenging operating conditions induced by new hotel supply. For Singapore, we project a decline in RevPAR. However, the downside from Singapore is limited given an annual fixed rent of c.S$12m with a 3% annual escalation. Financial flexibility to pursue acquisitions. Following recent revaluation gains, ASCHT’s gearing has fallen to c.32%. This provides the REIT with some debt headroom to pursue acquisitions.
ASIAN INSIGHTS
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2
Page 134
Company Guide Ascendas Hospitality Trust
Balance Sheet: Stable gearing. Excluding revaluation gains, we expect ASCHT’s gearing to remain stable at around the 32% level in the near term. However, this may increase should ASCHT fund the acquisition of Aurora Melbourne in 2019.
Aggregate Leverage (%)
Share Price Drivers: Consistent delivery with upside risk from potential takeover. ASCHT’s share price has been negatively impacted since its IPO due to a patchy DPU track record. We believe a more stable DPU will re-rate ASCHT in the medium term given that ASCHT trades at a c.80bps yield premium to other listed hospitality SREITs. Should ASCHT’s manager fail to deliver, there is potential for activist unitholders soliciting a takeover offer from a third party to crystallise the full value for ASCHT’s portfolio.
ROE (%)
Inorganic drivers. While ASCHT's ability to raise equity in the short term is constrained by the fact the trust is trading on a relative high distribution yield (above 7%), we think its gearing of c.32% provides ASCHT with some headroom to pursue debt funded acquisitions. Key Risks: Interest rate risk. As the US Fed is expected to raise interest rates, ASCHT faces the challenge of higher interest costs. Nevertheless, with c.97% of the group’s debt on fixed rates, ASCHT is partially insulated in the near term.
Distribution Yield (%)
FX risks. Significant volatility in AUD and JPY would negatively impact our DPU estimates. However, this risk is tempered by ASCHT entering into 15-month rolling hedges. Supply risk. Any significant increase in the number of hotel rooms without a commensurate growth in demand could limit income growth for the REIT, as hotels may have to lower their room rates in order to remain competitive and maintain high occupancies.
PB Band (x)
Company Background A-HTRUST is a stapled group comprising Ascendas Hospitality Business Trust (A-HBT) and Ascendas Hospitality REIT (AHREIT), established to invest in a diversified portfolio of hotel assets in Asia, Australia and New Zealand.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 135
Company Guide Ascendas Hospitality Trust
Income Statement (S$m) FY Mar Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
Source: Company, DBS Bank
2014A
2015A
2016A
2017F
2018F
214 (131) 83.5 (40.7) (13.7) (15.0) 0.0 14.3 (7.7) 0.0 0.0 6.66 16.7 38.0 54.6
227 (134) 93.3 (35.9) (15.0) (17.2) 0.0 28.4 (9.9) 0.0 0.0 18.5 28.6 37.8 56.3
215 (124) 90.9 (34.6) (3.9) (17.9) 0.0 38.5 (37.4) 0.0 0.0 1.08 147 62.6 63.7
226 (134) 92.3 (36.0) 0.0 (18.4) 0.0 37.9 (3.6) 0.0 0.0 34.4 34.4 31.1 65.4
225 (133) 91.6 (36.0) 0.0 (18.8) 0.0 36.8 (3.6) 0.0 0.0 33.2 33.2 31.1 64.3
55.5 73.4 (25.3) 100.0 39.0 3.1 25.5 19.0 0.9 0.5 1.8 2.9
6.0 11.8 177.5 100.0 41.1 8.1 24.8 15.8 2.3 1.3 3.0 3.3
(5.3) (2.7) (94.2) 95.0 42.2 0.5 29.6 16.1 0.1 0.1 0.1 3.1
5.1 1.5 3,090.0 95.0 40.8 15.2 28.9 15.9 3.6 2.1 3.6 3.1
(0.4) (0.7) (3.4) 95.0 40.7 14.8 28.6 16.0 3.4 2.0 3.5 3.0
ASIAN INSIGHTS Page 4
Growth driven by ASCHT’s Australian and Japanese properties
VICKERS SECURITIES Page 136
Company Guide Ascendas Hospitality Trust
Quarterly / Interim Income Statement (S$m) FY Mar 2Q2016 3Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
4Q2016
1Q2017
2Q2017
54.5 (31.9) 22.6 (8.8) (2.7) (4.3) 0.0 6.80 (1.4) 0.0 5.36 5.36 10.9 16.3
54.9 (31.5) 23.4 (8.5) 0.0 (4.3) 0.0 10.7 (1.8) 0.0 8.90 8.90 8.12 17.0
52.9 (29.5) 23.4 (9.0) 1.23 (4.5) 0.0 11.2 (33.4) 0.0 (22.2) 123 37.6 15.4
52.4 (29.8) 22.6 (9.4) (3.2) (4.5) 0.0 5.56 (1.3) 0.0 4.22 4.22 11.0 15.2
55.6 (31.2) 24.3 (9.4) 0.92 (4.4) 0.0 11.4 (2.1) 0.0 9.36 9.36 0.0 16.3
3 5 (41) 41.5 95.2
1 4 66 42.6 95.3
(4) 0 nm 44.3 100.0
(1) (3) nm 43.2 95.2
6 8 122 43.8 95.0
Balance Sheet (S$m) FY Mar
2014A
2015A
2016A
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
516 763 72.4 0.65 8.13 5.79 1,366
618 734 91.5 0.49 9.67 6.40 1,460
788 733 94.6 0.37 10.9 5.01 1,632
792 733 84.6 0.37 9.62 5.01 1,624
797 733 82.2 0.37 9.58 5.01 1,627
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
0.0 31.1 9.21 485 45.3 795 0.0 1,366
72.0 31.5 5.92 472 52.4 826 0.0 1,460
58.0 44.7 9.18 475 81.4 963 0.0 1,632
58.0 31.5 11.4 475 81.4 967 0.0 1,624
58.0 31.4 11.5 475 81.4 970 0.0 1,627
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(25.8) (413)
(20.9) (452)
(37.7) (439)
(28.0) (449)
(28.0) (451)
2.2 2.1 35.5 0.9
1.0 1.0 37.2 0.9
1.0 1.0 32.7 0.8
1.0 1.0 32.8 0.8
1.0 1.0 32.8 0.8
Gearing expected to remain relatively stable going forward
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 137
Page 5
Company Guide Ascendas Hospitality Trust
Cash Flow Statement (S$m) FY Mar
2014A
2015A
2016A
2017F
2018F
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash
14.3 27.4 (2.5) (0.2) 11.7 17.0 67.7 (300) 0.0 0.0 1.15 (24.3) (323) (51.5) 120 198 0.0 266 2.84 13.1
28.4 27.9 (6.8) (3.1) 7.26 1.94 55.6 (110) 0.0 0.0 1.33 (10.0) (119) (56.9) 85.7 49.2 0.0 77.9 1.14 15.8
38.5 26.0 (3.1) (4.0) 9.19 2.92 69.5 (11.4) 29.5 0.0 1.02 (13.8) 5.26 (58.2) (8.8) 0.0 0.0 (67.0) (1.2) 6.48
37.9 26.0 (1.3) 0.0 (12.0) 5.06 55.7 (3.6) 0.0 0.0 0.0 0.0 (3.6) (62.1) 0.0 0.0 0.0 (62.1) 0.0 (10.0)
36.8 26.0 (3.6) 0.0 0.0 5.06 64.3 (5.6) 0.0 0.0 0.0 0.0 (5.6) (61.0) 0.0 0.0 0.0 (61.0) 0.0 (2.4)
Operating CFPS (S cts) Free CFPS (S cts)
6.09 (25.3)
4.50 (5.1)
5.40 5.19
6.02 4.64
5.69 5.19
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Mervin SONG CFA Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 138
Singapore Company Guide
Ascendas India Trust Version 7
Refer to important disclosures at the end of this report
| Bloomberg: AIT SP | Reuters: AINT.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Still under the radar
Last Traded Price ( 4 Jan 2017): S$1.01 (STI : 2,921.31) Price Target 12-mth: S$1.13 (12% upside and 5.8% yield) Potential Catalyst: Acquisitions and/or further redevelopments Where we differ: Above consensus due to incorporation of Blue Ridge Phase II acquisition Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Clear growth drivers with prospects of healthy rental reversions ahead. Over the past year, a-iTrust has announced several developments including the construction of The V, a new 408k sqft IT building, as well as acquisitions of CyberVale, aVance 3 & 4 and BlueRidge Phase 2. Coupled with the potential for healthy rental reversions ahead, of 12-20% in Chennai and up to 5% for Hyderabad and Bangalore, provides confidence over a-iTrust’s ability to deliver a robust 8% DPU CAGR over the next two years.
Price Relative
Forecasts and Valuation FY Mar (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 129 77.6 65.9 49.8 2.97 59 4.86 7 66.2 34.0 4.8 1.5 25.1 4.6
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016A 144 93.7 105 56.5 1.01 (66) 5.50 13 67.2 99.9 5.4 1.5 26.9 1.5
2017F 168 104 53.6 60.9 5.76 470 5.89 7 66.6 17.5 5.8 1.5 36.0 8.4
2018F 196 125 57.9 66.2 6.19 8 6.37 8 66.1 16.3 6.3 1.5 37.1 9.1
B: 3
6.00 S: 0
6.40 H: 1
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Still has legs to run. We maintain our BUY call on Ascendas India Trust (a-iTrust), with a revised TP of S$1.13. While a-iTrust has rallied over 30% since we upgraded the stock to BUY in late January, and investor interest has picked up, we believe a-iTrust’s growth story still has yet to gain recognition among investors at large. With Singapore-focused REITs increasingly facing headwinds translating into slowing DPU growth (average DPU CAGR of 1%), we anticipate investors will gravitate to a-iTrust given its healthy 2year DPU CAGR of 8% and a still decent 5.5% yield.
Untapped land bank and acquisition pipeline. Through its untapped land bank and sponsor pipeline, a-iTrust has access to c.5.9m sqft of floor area. This provides the trust with a visible and sustainable source of growth over the long term. The ability to execute on these growth opportunities is supported by its healthy balance sheet (current gearing is low at 29%, rising to c.36% with planned developments and acquisitions in the next couple of years). Valuation: We maintain our DDM-based TP of S$1.13. Key Risks to Our View: The key risk to our bullish stance is a significant depreciation of the INR, downturn in the Indian economy which will depress rents or delays in the completion of announced acquisitions and development projects. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Ascendas Pte Ltd Massachusetts Financial Services JPMorgan Chase & Co Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
930 939 / 652 23.9 12.7 9.5 53.9 0.37
VICKERS SECURITIES Page 139
Company Guide Ascendas India Trust Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Leveraged on offshoring trends. a-iTrust provides exposure to India, which remains a leading IT and offshoring hub. The growing demand for offshoring services is underpinned by the country's low-cost environment. According to PayScale, the average salary for IT/software, developers or programmers in India stands at US$5,451 p.a. which is way below that of other competing and/or developed countries such as the US (US$73,031), Australia (US$51,331), Hong Kong (US$23,600) and Malaysia (US$10,165). Combined with an abundant skilled labour force and qualified English-speaking talent pool, based on NASSCOM (National Association of Software and Services Companies) estimates, IT-BPM (business process management) revenues are forecast to grow by 10-12% in FY16/17 to US$157-160bn. Balanced lease expiry to capture upside in rents. a-iTrust’s WALE stands at 5.7 years, with 8% and 30% of leases up for renewal in FY17 and FY18 respectively. Given the favourable demand backdrop and limited supply in certain markets such as Chennai, we believe a-iTrust’s lease expiry profile provides it with ample opportunities to capture the upside in rents.
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Boost from recent acquisitions and developments. Over the past year, a-iTrust announced the construction of The V, a new 408k-sqft IT building, as well as the acquisitions of CyberVale, aVance 3 & 4 and BlueRidge Phase II. These organic and inorganic developments should boost a-iTrust’s DPU, contributing to a healthy 8% DPU CAGR over the next two years. Potential one-third increase in floor area. a-iTrust currently has a portfolio of properties with 9.7m sqft of space with announced plans to take it to c.12m sqft. Beyond this, through its sponsors and assuming a-iTrust exercises its right of first refusal (ROFR), it could access c.2.3m sqft worth of properties. In addition, we understand the trust is also open to the acquisition of thirdparty properties. Currently, it is exploring acquisition opportunities in Mumbai, Delhi and Gurgaon, thereby expanding its presence beyond its current core markets of Bangalore, Chennai, Hyderabad and Pune.
Interest Cover (x)
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 140
Company Guide Ascendas India Trust
Balance Sheet: Flexible balance sheet. a-iTrust’s current gearing remains low at <30%. However, we expect gearing to rise to c.36% by endFY17 after including the trust’s existing development projects and announced acquisitions. This is within management comfortable level of 35%-45%.
Aggregate Leverage (%)
100% of debt fixed. As at end September 2016, 100% of the trust’s debt was fixed with an all-in cost of debt of 7.0%. This minimises the trust’s exposure to short-term volatility in interest rates. Share Price Drivers: Stronger INR. Since a-iTrust’s IPO in 2008, NPI in INR terms has grown at a CAGR of 8%. However, due to the weak INR, aiTrust’s share price has been capped and net property income in SGD terms has only grown at c.5% CAGR. Should the INR appreciate, this will be a major tailwind for a-iTrust’s share price. Crystallisation of development and sponsor pipeline. The trust has a development and sponsor pipeline of c.3m sqft and 2.3m sqft respectively. The delivery of the development pipeline and acquisition of its sponsor’s properties with resultant increase in earnings/DPU should drive the stock price higher over the medium term.
ROE (%)
Distribution Yield (%)
Key Risks: Currency risk. a-iTrust’s distributions are generated in INR but paid in SGD. While the trust hedges each half-yearly distribution, DPU from the trust will be negatively impacted on a lagged basis if the INR depreciates. In addition, as 75% and 25% of the trust’s borrowings are in INR and SGD respectively, while all its assets are in India, a depreciation of the INR would also be negative to its NAV per share. Economic risk. Deterioration in the Indian economic outlook and/or companies outsourcing their operations to India may negatively impact demand for space and rents at a-iTrust’s properties.
PB Band (x)
Interest rate risk. Increases in interest rates will result in higher interest payments which would reduce income available for distribution. This risk is partially mitigated by the fact that 100% of the trust’s debt is fixed. Company Background Ascendas India Trust ("a-iTrust") was listed in August 2007 as the first Indian property trust in Asia. Its principal objective is to own income-producing real estate used primarily as business space in India. a-iTrust may also develop and acquire land or uncompleted developments to be used primarily as business space, with the objective of holding the properties upon completion. a-iTrust is managed by Ascendas Property Fund Trustee Pte Ltd, a subsidiary of the Ascendas Group.
ASIAN INSIGHTS
Source: Company, DBS Bank
VICKERS SECURITIES Page 3
Page 141
Company Guide Ascendas India Trust
Income Statement (S$m) FY Mar Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016A
2017F
2018F
121 (48.6) 72.1 (7.9) 0.0 (3.9) (8.1) 52.2 (30.4) (4.8) 0.0 17.1 50.1 (13.3) 46.1
129 (51.2) 77.6 (8.4) 0.0 (2.8) 4.31 70.7 (38.3) (5.1) 0.0 27.3 65.9 (16.1) 49.8
144 (50.2) 93.7 (16.1) 0.0 (9.2) 0.0 68.4 (51.1) (8.0) 0.0 9.34 105 (11.9) 56.5
168 (64.4) 104 (11.6) 0.0 (14.8) 0.0 77.6 (20.8) (3.2) 0.0 53.6 53.6 7.34 60.9
196 (71.5) 125 (14.1) 0.0 (27.1) 0.0 83.5 (22.2) (3.3) 0.0 57.9 57.9 8.28 66.2
(4.4) (0.1) (25.4) 90.0 59.7 14.2 38.2 6.5 2.9 1.6 2.6 16.3
6.7 7.6 59.8 90.0 60.3 21.2 38.7 6.5 4.6 2.4 2.8 24.4
11.8 20.8 (65.8) 90.0 65.1 6.5 39.2 11.2 1.5 0.7 1.6 8.4
17.0 11.0 473.2 90.0 61.8 31.8 36.2 6.9 8.4 3.7 4.9 6.2
16.5 19.8 8.2 90.0 63.5 29.5 33.8 7.2 9.1 3.7 5.4 4.1
Improvement in earnings on the back of positive rental reversions and contributions from new properties/acquisitions
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 142
Company Guide Ascendas India Trust
Quarterly / Interim Income Statement (S$m) FY Mar 2Q2016 3Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
4Q2016
1Q2017
2Q2017
36.5 (12.8) 23.7 0.11 0.0 (2.6) 0.17 21.4 (6.1) (1.1) 14.2 16.8 (4.6) 14.0
37.5 (12.7) 24.8 2.35 0.0 (3.0) (5.7) 18.5 (8.0) (0.8) 9.70 9.70 (5.2) 14.0
35.9 (12.7) 23.2 (2.2) 0.0 (2.8) 0.13 18.4 (30.2) (5.2) (17.0) 72.6 (4.0) 14.4
36.1 (12.4) 23.6 (2.5) 0.0 (3.6) (2.6) 14.9 (4.6) (1.0) 9.39 9.39 (0.9) 14.0
37.1 (12.0) 25.2 (2.9) 0.0 (3.3) 3.00 21.9 (3.6) (1.2) 17.1 17.1 (3.0) 14.2
7 8 75 65.0 90.0
3 5 (32) 66.2 90.0
(4) (6) nm 64.7 90.0
1 2 nm 65.6 90.0
3 6 82 67.7 90.0
Balance Sheet (S$m) FY Mar
2014A
2015A
2016A
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
0.41 953 74.4 0.71 20.3 13.9 1,063
0.26 1,150 69.7 0.74 22.8 13.6 1,257
3.29 1,222 85.9 0.69 15.1 22.8 1,350
3.21 1,442 44.2 0.97 29.8 22.8 1,543
3.13 1,488 35.9 1.12 34.7 22.8 1,586
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
49.9 39.3 0.97 184 180 566 42.0 1,063
89.9 42.6 0.71 225 222 627 49.3 1,257
45.0 57.4 0.51 318 238 639 52.9 1,350
45.0 55.7 0.51 511 238 637 56.1 1,543
45.0 64.9 0.51 543 238 636 59.4 1,586
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(5.4) (160)
(6.1) (246)
(19.4) (277)
(2.6) (512)
(6.7) (552)
1.2 1.0 22.1 1.5
0.8 0.7 25.1 1.1
1.2 1.0 26.9 1.1
1.0 0.7 36.0 0.9
0.9 0.6 37.1 0.9
Increase in gearing due to new properties
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 143
Page 5
Company Guide Ascendas India Trust
Cash Flow Statement (S$m) FY Mar Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
2014A
2015A
2016A
2017F
2018F
52.2 0.10 (11.3) 0.0 14.2 22.2 77.4 (35.5) (8.6) 0.0 0.0 0.04 (44.0) (40.2) 17.7 0.0 0.0 (22.5) (6.4) 4.52
70.7 0.08 (12.4) 0.0 3.73 17.4 79.6 (17.7) (91.8) 0.0 0.0 0.08 (109) (43.4) 80.5 0.0 (16.3) 20.8 4.27 (4.7)
68.4 0.08 (51.1) 0.0 13.3 66.5 97.1 (51.8) 0.0 0.0 0.0 0.0 (51.8) (48.0) 24.7 0.0 (0.4) (23.7) 0.0 21.6
77.6 0.08 (20.8) 0.0 (16.8) 0.0 40.0 (198) (22.2) 0.0 0.0 0.0 (220) (54.8) 193 0.0 0.0 138 0.0 (41.8)
83.5 0.08 (22.2) 0.0 4.10 0.0 65.5 (68.0) 22.2 0.0 0.0 0.0 (45.8) (59.6) 31.6 0.0 0.0 (28.0) 0.0 (8.3)
6.91 4.59
8.25 6.73
9.07 4.90
6.11 (17.0)
6.56 (0.3)
Includes $133m investment in BlueRidge Phase 2
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Mervin SONG CFA Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 144
Singapore Company Guide
Ascendas REIT Version 6
Refer to important disclosures at the end of this report
| Bloomberg: AREIT SP | Reuters: AEMN.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Takes three at a go!
Last Traded Price (4 Jan 2017): S$2.31 (STI : 2,921.31) Price Target 12-mth: S$2.65 (15% upside and 6.9% yield) Potential Catalyst: Acquisitions Where we differ: Estimates are in line with consensus Analyst Derek TAN +65 6682 3716 [email protected] Mervin SONG CFA +65 6682 3715 [email protected] Singapore Research Team [email protected]
Acquisition that ticks the right boxes. A-REIT continues to deepen its exposure to the Business Parks/Science Parks Space with an acquisition of three properties at a price of S$420m. The acquisition ticks most of the boxes – long lease tenure (16.5 years with annual escalations of 2.0%-2.5%), long unexpired land lease tenure (65.7 years) and offers investors a deeper exposure to a sector (R&D) that continues to grow. The yield of 6.0% (all-in cost) appears low at first glance but we believe it reflects the properties’ relatively young age (2.0 years) and long land lease tenure. Accretion is projected to be marginal at 0.5%. We have yet to factor in the acquisition, pending EGM.
Price Relative S$
Relative Index
3.1
222
2.9
202 182
2.7
162 2.5 142 2.3
122
2.1 1.9 Jan-13
102
Jan-14
Jan-15
Ascendas REIT (LHS)
Forecasts and Valuation FY Mar (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
Jan-16
82 Jan-17
Relative STI (RHS)
2015A 673 463 398 351 14.6 0 14.6 3 208 15.8 6.3 1.1 33.4 7.1
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016A 761 534 349 378 13.9 (5) 15.4 5 207 16.6 6.7 1.1 37.1 6.7
2017F 837 598 415 427 15.3 10 15.7 2 207 15.1 6.8 1.1 34.2 7.4
2018F 858 617 434 446 15.3 1 15.6 (1) 201 15.0 6.7 1.1 34.4 7.5
B: 15
15.7 S: 0
15.9 H: 7
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: CK / sa: YM, PY
Maintain BUY, TP maintained at S$2.65. Ascendas REIT (A-REIT) offers attractive yields of close to 6.6% to investors looking for steady returns in the current volatile market. A low leverage of 35% supports any potential M&A activities which the REIT has the ability and access to deliver on.
Conservative capital management. A-REIT stands tall in the face of rising interest rates going into 2017 with a spread-out debt expiry profile of 3.8 years, implying that the REIT does not face any major refinancing in any one year. The manager adopts a prudent interest rate risk management strategy with a weighted average cost of debt of 3.0% with 78.0% hedged into fixed rates. Valuation: Our DCF-based TP is maintained at S$2.65 as a result of additional contribution from acquisitions. Maintain BUY on the back of total potential returns of c.15% Key Risks to Our View: Interest rate risk. An increase in lending rates will negatively impact dividend distributions. However, A-REIT's strategy has been to actively manage its exposure and it currently has c.70% of its interest cost hedged into fixed rates. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Ascendas Pte Ltd Mondrian Investment Blackrock Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
2,843 6,566 / 4,597 20.0 8.0 5.1 36.9 21.2
VICKERS SECURITIES Page 145
Company Guide Ascendas REIT Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Rebound in occupancy rates to provide upside to earnings. AREIT’s Singapore portfolio occupancy rates dipped marginally to 87.9%, compared to c.88.3% in 1QFY17 and 89.9% a year ago. The dip was mainly due to non-renewals of leases at 40 Penjuru Lane and Pioneer hub. Given A-REIT’s scale in Singapore, the manager continues to attract a diverse tenant base to its properties, despite the current economic slowdown. The manager is still seeing expansionary and new demand mainly from businesses in the transport and storage, distribution, and electronics sectors. Looking ahead, with close to 13% of the portfolio still vacant, the ability to back-fill the unoccupied space provides potential upside to our earnings estimates. A long portfolio-weighted average lease expiry (WALE) profile of 3.7 years (4.4 years post latest acquisition) means good earnings visibility for the REIT.
S$ m
700 600
77.3%
500
75.3%
400
73.3%
300
71.3%
200
69.3%
100
67.3%
0
65.3% 2014A
2015A
2016A
Net Property Income
2017F
2018F
Net Property Income Margin %
Net Property Income and Margins (%) 76%
159
74% 149 72% 139
70% 68%
129
66% 119
64%
109
Inorganic growth to drive contributions in Australia and Singapore. A-REIT has regularly embarked on acquisitions and development projects, which have helped the REIT to deliver sustained growth in distributions over time. Given the limited opportunities in Singapore and the fragmented market in China, the manager has looked overseas for higher returns. The manager remains focused on deepening its presence in the core markets of Singapore, Australia and China, when the opportunity arises.
Net Property Income
2Q2017
1Q2017
4Q2016
3Q2016
2Q2016
1Q2016
4Q2015
3Q2015
2Q2015
62%
1Q2015
Still positive rental reversions, but spread will likely narrow. Rental reversionary trends are moderating and reached a low of 0.9% in 2QFY17. Looking ahead, leases representing close to 12% in Singapore and given the narrowing spread between passing and market rents, we expect rental reversionary trends to remain flattish or even turn negative. In Australia, given the well-spread lease expiry profile, we do not anticipate too much volatility in the rentals and the manager is pro-actively engaging tenants ahead of expiry to renew their leases. In Australia, the manager is seeing a pick-up in demand for space in the recent quarter and reported a 4.2 percentage point increase in occupancy to 94.2%, back-filling most of the empty space in the previous quarter. Australia continues to offer the strongest earnings visibility with a WALE of 5.1 years.
Net Property Income Margin %
Distribution Paid / Net Operating CF 1.2
(x)
1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 2014A
2015A
2016A
2017F
2018F
2017F
2018F
Interest Cover (x) (x) 12.00 10.00 8.00 6.00 4.00 2.00 0.00
Apart from the recently acquired acquisitions in Australia (A$179m in total), A-REIT will be embarking on a new asset enhancement project at 50 Kallang Avenue for S$45.2m which will be anchored by a new tenant on a long lease. A-REIT has in total S$113.1m in asset enhancements currently underway. The manager is also looking at further asset refurbishment options at its portfolio in Singapore in order to position the assets to capture changing tenant needs.
ASIAN INSIGHTS
2014A
2015A
2016A
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2
Page 146
Company Guide Ascendas REIT
Balance Sheet: Optimal gearing level of c.34%. A-REIT’s gearing is estimated to dip to 34% (from c.37%) upon the assumed full conversion of S$300m of Exchange Collateralised Securities (ECS) by end of FY17F. This will be at the lower end of management’s comfortable 35-40% range. We believe that there is still capacity for management to utilise its debt headroom for further acquisitions but any significant deals could mean potential issuance of new equity. Well-staggered debt maturity profile. The manager adopts a prudent interest rate risk management strategy with a weighted average cost of debt of 3.0% with 78.0% hedged into fixed rates. The debt tenure is long at 3.8 years, with a well spreadout refinancing profile ensuring no concentration risk. Share Price Drivers: Direction of 10-year long bonds impacts share price. Seen by investors as a key S-REIT proxy, A-REIT’s share price has typically been closely linked to investors’ perception on the direction of the US benchmark 10-year bond yields. A fall in 10-year bond yields on the back of a delay in Fed hikes is likely to mean a higher share price.
Aggregate Leverage (%)
35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 2014A
2015A
2016A
2017F
2018F
2017F
2018F
ROE (%) 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2014A
2015A
2016A
Distribution Yield (%)
Capital recycling strategy. With limited acquisition opportunities in Singapore, A-REIT regularly looks to divest older, loweryielding properties and re-cycle the capital into assetenhancement exercises (AEI), development projects or acquisitions. The aim is to optimise the portfolio returns and distributions which have a positive impact on its share price. Key Risks: Interest rate risk. Any increase in interest rates will result in higher interest payments, which will reduce income available for distribution and result in lower distribution per unit (DPU) to unitholders. Economic risk. A deterioration in the economic outlook could have a negative impact on industrial rents and occupancies as companies cut back production and require less space, given that industrial rents have a strong correlation with GDP growth.
(%) 7.8 7.3
+2sd: 7% 6.8
+1sd: 6.6%
6.3
Avg: 6.2%
5.8
‐1sd: 5.8%
5.3
‐2sd: 5.3%
4.8 4.3 2013
2014
2015
2016
PB Band (x) 1.7
(x)
1.6 1.5 1.4
+2sd: 1.32x +1sd: 1.24x Avg: 1.16x ‐1sd: 1.09x ‐2sd: 1.01x
1.3 1.2 1.1 1.0
Company Background A-REIT is Singapore’s first and largest listed business space and industrial real estate investment trust. It has a diversified portfolio comprising assets in Singapore, China and Australia. A-REIT is managed by Ascendas Funds Management (S) Limited, a wholly owned subsidiary of the Singapore-based Ascendas Group.
ASIAN INSIGHTS
0.9 Jan-13
Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
VICKERS SECURITIES Page 3
Page 147
Company Guide Ascendas REIT
p Income Statement (S$m) FY Mar Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016A
2017F
2018F
614 (178) 436 (40.8) 2.67 (35.9) 12.1 374 (23.2) 0.0 0.0 351 482 (8.7) 342
673 (211) 463 (43.8) 41.7 (105) 2.02 357 (6.7) 0.0 0.0 351 398 0.57 351
761 (227) 534 (67.4) (5.7) (77.5) 0.0 383 (25.1) 0.0 (6.6) 351 349 26.9 378
837 (238) 598 (55.2) 0.0 (109) 0.0 434 (4.2) 0.0 (15.0) 415 415 11.6 427
858 (241) 617 (55.4) 0.0 (108) 0.0 454 (4.7) 0.0 (15.0) 434 434 11.7 446
6.6 6.6 32.8 100.0 71.1 57.2 55.7 6.6 7.4 4.9 5.3 11.0
9.8 6.1 0.0 100.0 68.7 52.1 52.1 6.5 7.1 4.5 5.5 4.0
13.0 15.3 0.2 100.0 70.1 46.2 49.7 8.9 6.7 3.9 5.0 6.0
9.9 12.1 18.1 100.0 71.5 49.6 51.0 6.6 7.4 4.2 5.6 5.0
2.5 3.1 4.6 100.0 72.0 50.6 52.0 6.5 7.5 4.4 5.7 5.2
Driven by acquisitions and development projects.
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 148
Company Guide Ascendas REIT
Quarterly / Interim Income Statement (S$m) FY Mar 2Q2016 3Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
4Q2016
1Q2017
2Q2017
183 (58.8) 124 (12.2) 32.3 (5.3) 0.0 123 (0.7) 0.38 123 123 (23.9) 99.3
194 (51.6) 142 (21.3) 3.16 (22.8) 0.0 101 (7.3) 0.03 93.9 93.9 3.02 96.9
204 (60.6) 143 (23.1) (12.6) (37.0) 0.0 70.8 (16.7) 0.0 54.1 47.3 41.8 89.1
208 (58.1) 149 (14.9) (9.3) (36.8) 0.0 88.7 (2.1) 0.0 86.6 86.6 15.7 102
205 (53.0) 152 (15.7) (13.2) (28.2) 5.70 101 13.7 0.01 115 115 (7.8) 107
1 0 41 67.8 100.0
6 15 (24) 73.4 100.0
5 1 (42) 70.3 102.0
2 4 60 72.0 104.5
(1) 2 33 74.2 105.1
Balance Sheet (S$m) FY Mar
2014A
2015A
2016A
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
6,923 290 67.3 0.0 65.1 12.9 7,358
7,868 135 41.6 0.0 90.1 25.8 8,160
9,599 96.2 56.2 0.0 89.3 35.6 9,876
9,665 96.2 8.64 0.0 98.2 35.6 9,903
9,695 96.2 15.3 0.0 101 35.6 9,942
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
893 128 85.8 1,231 171 4,849 0.03 7,358
286 189 32.8 2,442 198 5,014 0.04 8,160
1,180 172 43.5 2,485 199 5,797 0.02 9,876
1,190 189 39.8 2,195 205 6,085 0.02 9,903
1,220 194 40.4 2,205 210 6,074 0.02 9,942
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(136) (2,057)
(105) (2,686)
(90.6) (3,608)
(95.1) (3,376)
(98.0) (3,409)
0.1 0.1 28.9 1.4
0.3 0.3 33.4 1.3
0.1 0.1 37.1 0.9
0.1 0.1 34.2 1.1
0.1 0.1 34.4 1.1
Steady gearing profile
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 149
Page 5
Company Guide Ascendas REIT
Cash Flow Statement (S$m) FY Mar
2014A
2015A
2016A
2017F
2018F
374 0.70 (0.8) 0.0 (1.4) 28.5 401 0.0 (94.7) 0.0 0.0 (40.2) (135) (326) 170 (0.1) (70.8) (227) 8.53 47.8
357 0.37 (2.4) 0.0 (10.2) 17.4 362 0.0 (643) 0.0 0.0 5.50 (638) (261) 577 0.0 (68.1) 249 0.80 (25.7)
383 0.18 (4.5) 0.0 11.5 (6.6) 384 0.0 (1,496) 0.04 0.0 5.50 (1,491) (442) 1,218 342 0.0 1,118 (1.7) 9.56
434 0.0 (7.9) 0.0 8.22 (15.0) 420 0.0 (66.0) 0.0 0.0 5.50 (60.5) (427) (280) 300 0.0 (407) 0.0 (47.6)
454 0.0 (4.2) 0.0 2.28 (15.0) 437 0.0 (30.0) 0.0 0.0 5.50 (24.5) (446) 40.0 0.0 0.0 (406) 0.0 6.67
16.8 16.7
15.5 15.1
14.7 15.2
15.1 15.4
15.4 15.4
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
Source: Company, DBS Bank Target Price & Ratings History
S$ 2.62
6
2.52
7
8
5
2.42
2
4
9
10
2.32
14
13
3 2.22
12
11
1
12- mt h T arget Rat ing Pric e
Dat e of Report
Closing Pric e
1:
08 J an 16
2.25
2.52
BUY
2:
04 Feb 16
2.34
2.52
BUY
3:
18 May 16
2.32
2.50
BUY
4:
10 J un 16
2.32
2.50
BUY
5:
12 J ul 16
2.48
2.55
BUY
6:
21 J ul 16
2.49
2.61
BUY
7:
22 J ul 16
2.53
2.61
BUY
8:
22 Aug 16
2.42
2.61
BUY BUY
S.No.
9:
29 Aug 16
2.44
2.61
2.12
10:
20 Sep 16
2.42
2.61
BUY
2.02 Jan-16
11: 12: 13: 14:
26 Sep 16 21 Oct 16 08 Nov 16 06 Dec 16
2.46 2.40 2.34 2.37
2.61 2.65 2.65 2.65
BUY BUY BUY BUY
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Derek TAN Mervin SONG CFA Singapore Research Team
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 150
Singapore Company Guide
Ascott Residence Trust Version 5
Refer to important disclosures at the end of this report
| Bloomberg: ART SP | Reuters: ASRT.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Unrealised potential
Last Traded Price ( 4 Jan 2017): S$1.16 (STI : 2,921.31) Price Target 12-mth: S$1.32 (14% upside and 7.0% yield) Potential Catalyst: Further acquisitions and asset recycling to accelerate growth, improvement in performance of ART’s Chinese properties Where we differ: Below consensus on lower assumed sales Analyst Mervin SONG CFA +65 6682 3715 [email protected]
Value from recent acquisitions/AEIs yet to be fully realised. ART has announced c.S$1.2bn worth of acquisitions over the last two years, increasing the value of its assets under management (AUM) by one-third to S$5bn. Combined with completed and ongoing asset enhancement initiatives (AEIs), ART should progressively realise benefits over the next few years.
Price Relative S$
Relative Index
1.7
216
1.6
196
1.5
176
1.4
156
1.3
136
1.2
116
1.1
96
1.0 Jan-13
Jan-14
Jan-15
Ascott Residence Trust (LHS)
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2014A 357 180 121 126 4.83 (5) 8.20 (2) 137 23.9 7.1 0.8 37.6 3.5
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
Diversified portfolio underpins resilience. We maintain our BUY recommendation on Ascott Residence Trust (ART) and TP of S$1.32. Amid the volatility in the Singapore hospitality market, we believe ART’s diversified portfolio with serviced residences and rental housing across 14 countries in the Asia Pacific, Europe and the US, offers investors a more resilient DPU outlook. ART’s resiliency and cashflow visibility also comes from having 40-50% of its income sourced from master leases and management contracts with minimum guaranteed income.
76 Jan-17
Jan-16
Relative STI (RHS)
2015A 421 205 152 123 4.61 (4) 7.99 (3) 141 25.0 6.9 0.8 38.4 3.3
2016F 464 219 111 134 6.14 33 8.20 3 137 18.8 7.1 0.8 39.4 4.5
2017F 490 229 102 134 6.13 0 8.11 (1) 134 18.8 7.0 0.9 39.6 4.5
B: 8
0 8.20 S: 0
0 8.40 H: 4
Divestments to strengthen balance sheet. ART’s headline gearing of c.41% is slightly elevated and we are mindful of ART’s adjusted gearing (treating 50% of perpetual securities as debt) which stands at 42-44%. However, we understand this is temporary as ART is reviewing its portfolio mix, and looking to divest some of its lower yielding properties. Valuation: We maintain our DCF-based TP and DPU forecasts which have incorporated the realised forex gains in 3Q16 and lower assumed interest rates given prospects of achieving interest savings as ART refinances its borrowings over the next couple of years, partially offset by moderation of average daily rate (ADR) growth in Japan due to potential impact of the recent strengthening of the JPY. Key Risks to Our View: Oversupply and forex volatility. The key risk to our call is potential oversupply in ART’s key markets as well as impact from forex volatility. These risks are mitigated by ART’s diversified portfolio with no country contributing more than 20% of the group’s net property income.
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) CapitaLand Limited Aia Group Ltd Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
ASIAN INSIGHTS ed: JS / sa: JC, PY
1,653 1,910 / 1,317 43.8 5.0 51.2 0.89
VICKERS SECURITIES Page 151
Company Guide Ascott Residence Trust Net Property Income and Margins (%) S$ m
Australia, Japan and US - key growth markets. With a timely expansion into Australia and Japan, ART is well positioned to take advantage of the growing Australian and Japanese hospitality markets which should translate to healthy RevPAR growth. In addition, ART’s entry into New York provides exposure to the recovering US economy. The abovementioned markets, representing c.34% of ART’s 9M16 net property income (NPI), should help offset potential weakness from its Chinese properties (c.9% of group NPI) which are affected by the economic slowdown in China. Steady income base from Europe and Japan rental properties. Around a third of ART’s NPI comes from properties under master leases in France, Germany, Singapore and Japan (rental properties). With the prudent use of forex hedges, and having properties under management contracts with minimum guaranteed income (14% of group NPI) in Belgium, Spain and UK, ART provides investors with a solid income base.
54.4%
200
52.4%
150
50.4%
100
48.4%
50
46.4%
0
44.4% 2013A
2014A
2015A
Net Property Income
2016F
2017F
Net Property Income Margin %
Net Property Income and Margins (%) 54% 59 52%
57 55
50%
53 51
48%
49 46%
47 45
44%
43 42%
Net Property Income
3Q2016
2Q2016
1Q2016
4Q2015
3Q2015
2Q2015
1Q2015
41
4Q2014
Asset enhancements to drive earnings. Beyond the announced acquisitions, another growth driver for ART are the asset enhancement initiatives it has undertaken or in the process of completing. Refurbishments, which are initiated every 7-10 years, are designed to enhance the market positioning of ART’s various properties and should translate to higher occupancies and room rates. It has announced c.S$95m worth of renovations over the last 18 months in various cities including Barcelona, Dalian, Ho Chi Minh City, London, Manila, Singapore, Shanghai and Tianjin.
250
3Q2014
Earnings Drivers: Value of past acquisitions yet to be realised. ART has had an active two years, marking its maiden entries into Malaysia and the US. In addition, ART has deepened its presence in Australia, China and Japan. All in, ART has acquired c.S$1.2bn worth of properties on an average yield of 5-8%. The benefits from these acquisitions should accrue over the next few years.
300
2Q2014
CRITICAL DATA POINTS TO WATCH
Net Property Income Margin %
Distribution Paid / Net Operating CF (x)
0.9 0.8 0.7 0.6 0.5 0.4 0.3 2013A
2014A
2015A
2016F
2017F
2016F
2017F
Interest Cover (x) (x) 5.00 4.50 4.00 3.50 3.00 2.50 2.00
Ambitions to grow portfolio size to S$6bn. ART has ambitions to grow its portfolio from S$5bn currently to S$6bn by 2017. The properties will be sourced from its Sponsor and third parties.
1.50 1.00 0.50 0.00 2013A
2014A
2015A
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 152
Company Guide Ascott Residence Trust
Balance Sheet: Temporary increase in gearing. Post ART’s recent acquisition of properties in Australia, Japan and the US, ART’s headline gearing is expected to settle at around the 40-41% level. However, on an adjusted basis treating 50% of the perpetual securities as debt (in line with Moody’s treatment), gearing is expected to hover around 42-44%. While cognizant of the higher gearing near term, we understand ART will look to pare down its debt by disposing some of its lower-yielding properties. Share Price Drivers: Overcoming past disappointments. ART’s share price has been range bound over the last year due to inconsistent DPU growth over the last two years on account of the dilution impact from the rights issue in late 2013 and weakness from its Chinese properties. However, we believe ART will re-rate as the full benefits from c.S$1.2bn worth of acquisitions and refurbishment activities over the past two years are realised.
Aggregate Leverage (%) 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 2013A
2014A
2015A
2016F
2017F
2016F
2017F
ROE (%) 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0%
Key Risks: Interest rate risks. Any increase in interest rates will result in higher interest payments and reduce the income available for distribution, which will result in lower distribution per unit (DPU) for unitholders. As at 30 September 2016, 80% of ART’s debts are on fixed rates.
2013A
2014A
2015A
Distribution Yield (%) (%) 8.1 7.6
+2sd: 7.5% +1sd: 7.1%
7.1
Currency risk. As ART earns rental income in various currencies, a depreciation of any foreign currency against the SGD could negatively impact DPU. Nevertheless, through the use of currency hedges for EUR and JPY sourced income, as well as the benefits from having a diversified portfolio, FX volatility has had a minimal impact on ART’s earnings historically. In FY13-FY15, changes in ART’s basket of currencies had only a net 0.8-1.5% negative impact on earnings. Company Background Ascott REIT's Investment portfolio primarily comprises real estate used mainly as serviced residences or rental housing properties (including investments in real estate-related assets and/or other related value-enhancing assets or instruments).
Avg: 6.8%
6.6
‐1sd: 6.4% 6.1
‐2sd: 6%
5.6 5.1 2013
2014
2015
2016
2017
PB Band (x) 1.3
(x)
1.2 1.1
+2sd: 1.02x +1sd: 0.96x Avg: 0.89x
1.0 0.9
‐1sd: 0.82x ‐2sd: 0.75x
0.8 0.7 0.6 Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 153
Company Guide Ascott Residence Trust
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
Source: Company, DBS Bank
2013A
2014A
2015A
2016F
2017F
317 (155) 161 (13.0) 0.0 (42.6) 6.63 112 (36.2) (6.7) 0.0 69.3 209 (93.8) 115
357 (177) 180 (19.9) 1.29 (41.2) 0.0 120 (36.9) (7.9) (1.4) 74.1 121 4.51 126
421 (217) 205 (30.4) 9.25 (48.3) 0.0 135 (36.8) (13.8) (13.4) 71.2 152 (28.4) 123
464 (245) 219 (23.2) 0.0 (45.2) 0.0 151 (25.7) (6.3) (19.2) 99.9 111 22.5 134
490 (261) 229 (23.7) 0.0 (52.3) 0.0 153 (26.1) (6.4) (19.2) 102 102 32.8 134
4.2 1.3 11.2 100.0 50.9 21.9 36.3 4.1 3.8 2.1 3.2 3.5
12.8 11.8 6.9 100.0 50.4 20.7 35.2 5.6 3.5 1.9 3.0 3.9
17.9 13.5 (4.0) 100.0 48.6 16.9 29.3 7.2 3.3 1.6 3.0 3.6
10.2 7.2 40.4 100.0 47.2 21.5 28.8 5.0 4.5 2.1 3.5 4.3
5.6 4.4 1.7 100.0 46.7 20.7 27.4 4.8 4.5 2.1 3.6 3.9
ASIAN INSIGHTS Page 4
Growth driven by acquisitions in China, Malaysia, Australia, US and Japan over the past 18 months
VICKERS SECURITIES Page 154
Company Guide Ascott Residence Trust
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
113 (58.0) 55.2 (6.5) 10.3 (12.1) 0.0 46.9 (10.3) (1.2) 35.5 45.8 (8.9) 32.0
119 (62.4) 56.8 (12.5) 6.23 (13.2) 0.0 37.4 (16.6) (1.8) 19.0 68.1 (31.2) 32.1
106 (57.0) 48.6 (2.6) (0.1) (12.2) 0.0 33.7 (6.3) (1.4) 26.0 25.9 6.25 27.3
119 (61.5) 57.9 (7.3) (1.1) (11.7) 0.0 37.7 (17.3) (1.1) 19.3 55.6 (25.3) 35.0
124 (66.4) 57.5 (7.1) (1.3) (12.0) 0.0 37.1 (5.6) (1.4) 30.0 32.1 11.5 38.7
15 12 174 48.8 100.0
5 3 (46) 47.7 100.0
(11) (14) 37 46.0 100.0
13 19 (26) 48.5 100.0
4 (1) 56 46.4 100.0
Balance Sheet (S$m) FY Dec
2013A
2014A
2015A
2016F
2017F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
3,177 81.1 205 0.37 11.7 107 3,582
3,724 80.9 193 0.29 36.4 87.8 4,122
4,290 80.2 220 0.30 49.7 84.2 4,725
4,567 75.7 174 0.30 50.2 84.2 4,951
4,577 71.7 147 0.30 53.0 84.2 4,933
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
50.3 4.37 114 1,147 79.1 2,093 94.1 3,582
249 119 7.85 1,302 91.4 2,255 97.8 4,122
258 136 5.24 1,557 99.2 2,587 81.8 4,725
258 143 5.24 1,695 99.2 2,663 88.0 4,951
258 151 5.24 1,695 99.2 2,630 94.4 4,933
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
0.68 (993)
(2.0) (1,358)
(7.5) (1,595)
(13.4) (1,779)
(18.5) (1,806)
1.9 1.3 33.4 1.0
0.8 0.6 37.6 0.9
0.9 0.7 38.4 0.8
0.8 0.6 39.4 0.7
0.7 0.5 39.6 0.7
Increase in gearing on the back of announced acquisitions
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 155
Page 5
Company Guide Ascott Residence Trust
Cash Flow Statement (S$m) FY Dec Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
2013A
2014A
2015A
2016F
2017F
112 13.5 (13.3) 0.00 2.30 37.2 152 (42.2) (180) 0.0 0.0 2.23 (220) (107) (89.8) 398 (52.3) 149 (0.8) 79.3
120 16.3 (22.4) 0.0 (25.8) 64.1 153 (40.0) (428) 0.0 0.0 7.76 (461) (116) 315 0.0 99.7 298 (2.0) (12.0)
135 16.6 (24.1) 0.0 (14.8) 64.5 177 (46.8) (352) 0.0 0.0 1.76 (397) (125) 581 0.0 (213) 243 3.66 27.9
151 16.4 (25.7) (0.2) 5.91 0.0 147 (267) (10.0) 0.0 0.0 0.0 (277) (134) 138 98.5 (19.2) 83.7 0.0 (46.1)
153 16.4 (26.1) (0.2) 5.15 0.0 149 (12.3) (10.0) 0.0 0.0 0.0 (22.3) (134) 0.0 0.0 (19.2) (154) 0.0 (27.4)
10.9 8.03
11.6 7.33
12.5 8.48
8.69 (7.4)
8.65 8.22
Acquisition of properties in Australia, Japan and US partially offset by asset disposals in Japan and Philippines
Source: Company, DBS Bank Target Price & Ratings History 1.25
S$ Closing Pric e
1:
26 J an 16
1.12
1.33
2:
15 Mar 16
1.08
1.33
BUY
3:
13 Apr 16
1.12
1.33
BUY
4:
18 Apr 16
1.11
1.28
BUY
5:
21 J ul 16
1.16
1.31
BUY
6:
21 Oct 16
1.15
1.32
BUY
1.20
6
1.15
5 4
1.10
1
2
3
12- mt h T arget Rat ing Pric e
Dat e of Report
S.No.
BUY
1.05
1.00 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Mervin SONG CFA
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 156
Singapore Company Guide
Cache Logistics Trust Refer to important disclosures at the end of this report
Version 7 | Bloomberg: CACHE SP | Reuters: CALT.SI
DBS Group Research . Equity
4 Jan 2017
HOLD
Operational weakness to persist
Last Traded Price ( 4 Jan 2017): S$0.82 (STI : 2,921.31) Price Target 12-mth: S$0.93 (14% upside and 9.2% yield) Potential Catalyst: Better than expected results Where we differ: Estimates are below consensus on lower rental reversion assumption Analyst Derek TAN +65 6682 3716 [email protected] Singapore Research Team [email protected] Mervin SONG CFA +65 6682 3715 [email protected]
Interim solution to 51 Alps Avenue a key overhang. 3Q16 DPU fell 13.7% y-o-y on the back of an enlarged share base. Looking ahead, we expect pressure on earnings arising from the holding arrangement with Schenker in relation to 51 Alps Avenue until the Court’s final judgement of the dispute. In the interim, Cache has agreed to receive in “protest” Schenker’s rent of S$0.77 per square foot (psf)/ month until further resolution. Under the worst-case scenario, FY17F DPU will drop by 4.0% to 7.2 Scts. We understand that the decline in future cashflows will also result in a c.S$44m write-off on the property valuation and thus, gearing may inch higher to c.42%.
Price Relative S$
Relative Index
1.6 1.5
204
1.4
184
1.3
164
1.2
144
1.1 124
1.0
104
0.9
84
0.8 0.7 Jan-13
Jan-14
Jan-15
Cache Logistics Trust (LHS)
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 89.7 76.2 (12.3) 67.9 6.66 (8) 8.50 (1) 100 12.2 10.4 0.8 39.9 6.7
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
64 Jan-17
Jan-16
Relative STI (RHS)
2016F 116 91.1 (2.5) 70.8 6.84 3 7.87 (7) 91.1 11.9 9.7 0.9 39.1 7.7
2017F 120 89.1 58.7 67.7 6.50 (5) 7.51 (5) 90.1 12.5 9.2 0.9 39.2 7.2
2018F 124 92.5 61.3 68.2 6.75 4 7.50 0 89.4 12.1 9.2 0.9 39.3 7.5
8.10 B: 2
7.80 S: 1
7.90 H: 7
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Maintain HOLD, TP unchanged at S$0.93. Maintain our HOLD call on Cache Logistics Trust (Cache) on uncertainty regarding the outcome of the holding arrangement with Schenker. This currently has a negative impact on outlook and portfolio valuation. While yields are attractive at 8.5%, we believe that uncertainties owing to the oversupply in the overall Singapore warehouse market and more pressure on Cache’s organic growth potential will cap rerating opportunities.
Cache may need to address its gearing in the near term. A scenario of higher gearing of 42% (vs 45% regulatory cap), which is above the management’s comfortable level of 35-40% is likely to result in an overhang in the share price of Cache in the immediate term. We believe that the Manager may consider divestments or acquisitions (funding through equity) to pare down its gearing. Depending on the strategy, potential DPU dilution is possible, this has not been factored in our model yet. Valuation: Our target price remains at S$0.93. Maintain HOLD. Key Risks to Our View: Schenker’s rent dispute. The rent dispute at 51 Alps Avenue (Schenker Megahub) is pending the Court’s resolution with an uncertain timeline. If the Court rules to settle the rent significantly below the market price (which is also our assumption), there could be further pressure on TP and DPU. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Bank of New York Mellon Corp CWT Ltd Capital Group Companies Inc Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trusts
898 732 / 504 4.4 4.4 4.3 86.9 1.1
VICKERS SECURITIES Page 157
Company Guide Cache Logistics Trust Net Property Income and Margins (%) S$ m
The non-renewal of the master lease at Hi-Speed Logistics Centre (40 Alps Ave) is not expected to impact earnings significantly. We anticipate that net property income (NPI) for the property will dip by on the back of lower rents and efficiency for the property. However, given that the property only contributes c.5% of top line, actual impact to distributions is expected to be marginal.
90.8% 85.8% 80.8% 75.8% 70.8% 2014A
2015A
2016F
Net Property Income
2017F
2018F
Net Property Income Margin %
Net Property Income and Margins (%)
80%
19
75%
18
70%
Net Property Income
3Q2016
85%
20
2Q2016
21
1Q2016
90%
4Q2015
95%
22
3Q2015
23
2Q2015
100%
1Q2015
24
4Q2014
Stable underlying occupancy for expiring master-leases. The underlying occupancies for both properties (Schenker Megahub and Hi-Speed Logistics Centre) are fairly high and given the strategic location at the airport logistics hub where there is minimal new supply. Hence, demand for the space should remain resilient, despite the current weak operating climate, made worse by high supply from completions.
95.8%
3Q2014
Earnings Drivers: Well-spread out lease profile offers strong income visibility. Cache Logistics Trust (Cache) offers investors strong income visibility supported by a weighted average lease to expiry (WALE) of 3.8 years by revenues. Cache has renewed a majority of leases up till 2017 and is actively managing these expiries in order to limit disruption to distributions. The REIT has a stable occupancy rate of 96.5% as of 3Q16.
100.8%
2Q2014
CRITICAL DATA POINTS TO WATCH
100 90 80 70 60 50 40 30 20 10 0
Net Property Income Margin %
Distribution Paid / Net Operating CF 1.1
(x)
1.0 0.9 0.8 0.7
The court case regarding the renewal of the lease at Schenker Megahub from the anchor tenant (Schenker) is expected to take some time to resolve. Given this uncertainty, we have assumed that rental from this property will fall to the “pre-agreed” rent levels, which reflects a worst-case scenario, in our view. Deepening its presence in Australia to diversify and grow earnings stream. Cache has been able to diversify its earnings base through an acquisition of six properties in Australia, which now contribute close to 14% of top line. The acquisition of these properties in Australia has enabled the REIT to weather the downturn in Singapore better as the long leases from Australia helps provide the REIT with strong income visibility.
0.6 0.5 0.4 2014A
2015A
2016F
2017F
2018F
2017F
2018F
Interest Cover (x) (x) 6.00 5.00 4.00 3.00 2.00 1.00
DHL project a key driver of growth from FY16 onwards. Revenue contribution the DHL property will be a key earnings driver for Cache in 2016 and beyond. The weighted average occupancy for the property is >85% (100% for block 1 by DHL and the tenant is expected to take up the remaining space at block 2 in two years' time). The long 10-year lease, coupled with extension options to the end of the land lease offers strong income visibility for the REIT.
ASIAN INSIGHTS
0.00 2014A
2015A
2016F
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2
Page 158
Company Guide Cache Logistics Trust
Balance Sheet: Gearing close to optimal level of 40%; limited capacity to acquire further. Cache’s gearing is expected to hover around 40% in FY16-18F. We note that this is at the higher end of management’s comfortable range of 35-40%, and will likely mean that further acquisition capacity will be limited. However, given more acquisition opportunities on the horizon, we believe that new deals will be partly funded by raising new equity.
Aggregate Leverage (%) 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 2014A
2015A
No refinancing required in 2016. Cache has a weighted average debt to maturity of 2.4 years with no refinancing requirements till 2017. It has 64% of its borrowings hedged into fixed rates. Share Price Drivers: Acquisition of assets in its ROFR. Cache has been granted the Rights of First Refusal (ROFR) to 15 properties by its Sponsor (CWT) and C&P in the Asia Pacific. These 15 properties can approximately contribute 5.7m sq ft in gross floor area which when acquired, is expected to significantly increase its portfolio size, earnings and thus provide uplift to share price.
2016F
2017F
2018F
2017F
2018F
ROE (%) 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
Beating market outlook. While the warehouse market is expected to see a deluge of new supply completions over 20162018, a majority of Cache’s leases are MNCs and 3PLs, and hence we believe occupancy rates should remain steady. Higher rents achieved given its quality portfolio could outperform market expectations that rents would moderate. Key Risks: Interest rate risk Any increase in interest rates will result in higher interest payments for the REIT, hence reducing the income available for distribution, which will result in lower distribution per unit (DPU) for unitholders. Economic risk A weaker economic outlook could have a negative impact on industrial rents and occupancies as companies cut back on production and require less space. Industrial rents have a strong historical correlation with GDP growth. Company Background Cache is a REIT whose investment mandate is to invest primarily in logistics properties located in the Pan Pacific region.
2014A
2015A
2016F
Distribution Yield (%) (%) 11.1
+2sd: 10.2%
10.1 9.1
+1sd: 9.1%
8.1
Avg: 7.9%
7.1
‐1sd: 6.8%
6.1
‐2sd: 5.7% 5.1 2013
2014
2015
2016
2017
PB Band (x) 1.7
(x)
1.5
+2sd: 1.43x 1.3
+1sd: 1.27x
1.1
Avg: 1.11x ‐1sd: 0.96x
0.9
‐2sd: 0.8x 0.7 Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 159
Company Guide Cache Logistics Trust
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
Source: Company, DBS Bank
2014A
2015A
2016F
2017F
2018F
82.9 (4.9) 78.0 (8.6) 0.0 (12.2) 0.0 57.2 (0.5) 0.0 0.0 56.7 65.7 1.07 66.8
89.7 (13.6) 76.2 (9.5) 0.0 (13.7) 0.0 53.0 (0.6) 0.0 0.0 52.4 (12.3) 75.2 67.9
116 (25.0) 91.1 (10.1) 0.0 (18.9) 0.0 62.1 (0.6) 0.0 0.0 61.5 (2.5) 6.00 70.8
120 (30.4) 89.1 (10.2) 0.0 (19.5) 0.0 59.4 (0.8) 0.0 0.0 58.7 58.7 6.05 67.7
124 (31.6) 92.5 (10.3) 0.0 (20.1) 0.0 62.1 (0.8) 0.0 0.0 61.3 61.3 6.09 68.2
2.3 1.5 (0.4) 100.0 94.1 68.5 80.6 10.3 7.4 5.1 6.3 5.7
8.3 (2.4) (7.7) 100.0 84.9 58.4 75.7 10.6 6.7 4.3 5.4 4.9
29.4 19.7 17.3 100.0 78.5 53.0 61.0 8.7 7.7 4.6 6.0 4.3
2.9 (2.2) (4.6) 100.0 74.6 49.1 56.7 8.5 7.2 4.3 5.8 4.0
3.9 3.8 4.6 100.0 74.6 49.4 55.0 8.3 7.5 4.5 6.0 4.1
ASIAN INSIGHTS Page 4
Driven mainly from conversion of single user to multi-user properties
VICKERS SECURITIES Page 160
Company Guide Cache Logistics Trust
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
23.1 (4.4) 18.8 (2.0) 0.00 (4.1) 0.0 12.6 (0.2) 0.0 12.4 12.4 4.36 16.8
24.0 (4.9) 19.2 (3.0) 0.00 (4.7) 0.0 11.5 (0.2) 0.0 11.3 (53.4) 68.9 15.5
27.9 (5.8) 22.1 (2.6) 0.0 (4.8) 0.0 14.6 (0.4) 0.0 14.2 14.2 4.08 18.2
28.1 (5.5) 22.6 (2.6) 0.15 (4.7) 0.0 15.5 0.12 0.0 15.6 15.6 2.22 17.8
28.0 (6.0) 22.1 (3.0) 0.0 (4.9) 0.0 14.2 (0.3) 0.0 13.9 (22.2) 38.7 16.6
7 2 (8) 81.2 100.0
4 2 (9) 79.8 100.0
16 15 25 79.1 100.0
1 2 10 80.3 100.0
0 (2) (11) 78.7 100.0
Balance Sheet (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
1,122 0.24 11.3 0.0 3.46 0.09 1,137
1,311 1.84 8.05 0.0 4.98 0.42 1,326
1,345 1.84 7.37 0.0 2.90 0.42 1,357
1,345 1.84 6.09 0.0 2.99 0.42 1,356
1,346 1.84 6.99 0.0 3.10 0.42 1,358
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
6.62 20.5 0.0 343 0.41 767 0.0 1,137
8.31 14.3 0.0 515 2.06 787 0.0 1,326
8.31 9.68 0.64 517 2.06 819 0.0 1,357
8.31 9.96 0.78 519 2.06 816 0.0 1,356
8.31 10.3 0.81 521 2.06 815 0.0 1,358
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(17.0) (338)
(8.9) (515)
(7.0) (518)
(7.3) (521)
(7.6) (522)
0.5 0.5 31.1 1.5
0.6 0.6 39.9 1.1
0.6 0.6 39.1 1.3
0.5 0.5 39.2 1.2
0.5 0.5 39.3 1.2
Outlook remains flattish given limited expiries.
Gearing level remains close to 40%.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 161
Page 5
Company Guide Cache Logistics Trust
Cash Flow Statement (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
57.2 0.22 (0.3) 0.0 13.2 3.51 73.8 (63.5) 0.0 0.0 0.0 0.17 (63.3) (66.7) 42.2 0.0 (15.5) (40.1) 0.04 (29.5)
53.0 0.65 (0.6) 0.0 (8.1) 30.1 75.1 (263) 0.0 0.0 0.0 0.06 (263) (74.2) 173 98.5 (12.8) 185 0.0 (3.2)
62.1 0.0 0.0 0.0 (2.5) 6.00 65.6 (97.5) 0.0 0.0 0.0 0.0 (97.5) (70.8) 2.00 100 0.0 31.2 0.0 (0.7)
59.4 0.0 (0.6) 0.0 0.20 6.05 65.0 (0.6) 0.0 0.0 0.0 0.0 (0.6) (67.7) 2.00 0.0 0.0 (65.7) 0.0 (1.3)
62.1 0.0 (0.8) 0.0 0.27 6.09 67.7 (0.6) 0.0 0.0 0.0 0.0 (0.6) (68.2) 2.00 0.0 0.0 (66.2) 0.0 0.90
7.76 1.33
10.6 (23.9)
7.58 (3.5)
7.19 7.14
7.42 7.38
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
Source: Company, DBS Bank Target Price & Ratings History
S$
6 2
0.90
1
0.85
4
5
3
7
12- mt h T arget Rat ing Pric e
Dat e of Report
Closing Pric e
1:
26 J an 16
0.88
0.96
BUY
2:
25 Apr 16
0.89
0.93
BUY
3:
31 May 16
0.87
0.93
BUY
4:
21 J ul 16
0.88
0.93
BUY
5:
22 Aug 16
0.91
0.93
BUY
6:
28 Sep 16
0.91
0.93
HOLD
7:
24 Oct 16
0.87
0.93
HOLD
S.No.
0.95
0.80
0.75 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Derek TAN Singapore Research Team Mervin SONG CFA
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 162
Singapore Company Guide
Cambridge Industrial Trust Version 5
Refer to important disclosures at the end of this report
| Bloomberg: CREIT SP | Reuters: CMIT.SI
DBS Group Research . Equity
4 Jan 2017
HOLD
Still Feeling the Pain of Transition
Last Traded Price (4 Jan 2017): S$0.54 (STI : 2,921.31) Price Target 12-mth: S$0.54 (0% upside and 7.6% yield) Potential Catalyst: Turnaround in rental prospects. Where we differ: Estimates are below consensus Derek TAN +65 6682 3716 [email protected] Singapore Research Team [email protected]
Price Relative S$
Relative Index
0.9
216
0.9
0.8
196
0.8
176
0.7
Asset recycling to redeploy capital; looking to Australia. CREIT has been active in acquisitions, and is focusing on optimizing its portfolio performance through strategic asset enhancement initiatives (AEIs) and divestments to redeploy capital to higheryielding sources. While its Australia JV partner has ceased the partnership, the Manager remains committed to its long-term acquisition strategy in Australia and is actively exploring other opportunities.
156
0.7 0.6
136
0.6
116
0.5 96
0.5 0.4 Jan-13
Transitional pain to continue, HOLD. TP S$0.54. Cambridge Industrial Trust (CREIT) remains in the midst of a portfolio reposition in the midst of the current downtown in the industrial space. While portfolio occupancy remains fairly high, it is at the expense of declining rents, a painful but justified strategy for the REIT. A couple of roadbumps : (i) its Australian partner is terminating its joint venture, putting a pause to plans to develop and grow an Australian business; and (ii) more potential downside to DPUs on the back of more conversions from single-tenanted properties to multi-tenanted ones. Our TP and estimates are cut by 8% on the back of lower margin assumptions. Maintain HOLD, TP S$0.54.
Jan-14
Jan-15
Cambridge Industrial Trust (LHS)
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 112 86.2 52.5 61.8 4.33 3 4.79 (4) 67.7 12.6 8.8 0.8 36.7 6.3
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
Jan-16
76 Jan-17
Relative STI (RHS)
2016F 110 80.3 52.2 53.2 4.03 (7) 4.11 (14) 66.9 13.5 7.5 0.8 37.6 6.0
2017F 112 81.5 53.2 54.2 4.08 1 4.16 1 66.8 13.3 7.6 0.8 37.9 6.1
2018F 113 82.6 53.1 54.1 4.07 0 4.15 0 66.7 13.4 7.6 0.8 38.1 6.1
0 4.20 B: 3
0 4.20 S: 0
0 4.30 H: 2
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
Outcome of strategic review key to re-rating. The Manager is conducting a strategic review of CREIT’s business and operations to fulfill its strategy of maximising value for its unitholders and has appointed Goldman Sachs (Singapore) Pte to assist in its analysis. The strategic review may open up a myriad of scenarios (M&A, trade sale or even an internalisation). Any incremental steps taken by the Manager to drive value should be well received by investors. Valuation: Our DCF-backed TP is S$0.54. The stock is offering a forward yield over 7.5%, which we believe will cap further downside to share price. Maintain HOLD. Key Risks to Our View: Interest rate risk. Any increase in interest rates will result in higher interest payments which will reduce income available for distribution and DPUs. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Jinquan Tong Chan Wai Kheong Credit Suisse Group AG Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
1,304 704 / 498 17.84 5.39 5.00 71.77 0.60
CRITICAL DATA POINTS TO WATCH Earnings Drivers:
ASIAN INSIGHTS ed: JS / sa: YM, PY
VICKERS SECURITIES Page 163
Company Guide Cambridge Industrial Trust
Property conversions to cause headwinds to occupancy rates. While we note that CREIT offers strong income visibility with a relatively long weighted average lease expiry of 3.8 years, property conversions (from single-tenanted properties to multitenanted ones when the leases expire) which account for 11.3% and 23.6% of revenues over FY16-17F will translate to near-term pressure to top line. This is due to the loss of property efficiency and higher vacancy rates when these conversions take place. However, the pace of conversions is expected to taper off from FY17 onwards, meaning that further downside in vacancy rates will likely be limited.
Net Property Income and Margins (%) S$ m
100 90 80 70 60 50 40 30 20 10 0
85.4% 83.4% 81.4% 79.4% 77.4% 75.4%
73.4% 71.4% 69.4% 2014A
2015A
2016F
Net Property Income
2017F
2018F
Net Property Income Margin %
Net Property Income and Margins (%)
In view of the competitive environment, the Manager is focusing on maintaining occupancy rates and thus rental reversionary rates are likely to turn slightly negative over these two years.
82%
23
80%
22
22
78%
21
76%
21
74%
20 72%
20
Net Property Income
3Q2016
2Q2016
1Q2016
4Q2015
3Q2015
2Q2015
1Q2015
68%
4Q2014
70%
19
3Q2014
19
2Q2014
Optimal gearing level implies that upside from acquisitions is likely to be limited. Gearing level of c.37% is within management's comfortable range of 35-40% and is optimal, in our view. This is likely to mean that while the Manager remains keen to grow the portfolio via acquisitions and is looking to venture overseas for potential opportunities, there is a cap to the number of deals it can look at.
Net Property Income Margin %
Distribution Paid / Net Operating CF (x)
1.2
Asset rejuvenation strategy. CREIT has recently completed the sale of 23 Tuas Ave 10. The divestment price is 5% above valuation. Proceeds are expected to be utilised towards debt repayment and/or asset enhancement opportunities. The Manager will be embarking on asset enhancement initiative at 120 Pioneer Road (completing in 3Q17) which will increase the property’s attractiveness to end-users. Strategic review. The Manager is conducting a strategic review of CREIT’s business and operations to fulfill its strategy of maximising value for unitholders of CREIT and has appointed Goldman Sachs (Singapore) Pte to assist in its analysis.
1.0 0.8 0.6 0.4 0.2
2014A
2015A
2016F
2017F
2018F
2017F
2018F
Interest Cover (x) (x) 4.00 3.90 3.80 3.70
3.60 3.50 3.40
3.30 3.20 2014A
2015A
2016F
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 164
Company Guide Cambridge Industrial Trust
Balance Sheet: Gearing remains stable Looking ahead, there is limited capacity to pursue acquisition opportunities with gearing at c.37%.
Aggregate Leverage (%) 40.0% 35.0% 30.0%
Pro-active capital management. CREIT has refinanced most of its loans expiring and has no refinancing due till 2H18. In addition, the Manager has fixed c.88% of its interest rates over the next 3.2 years, meaning that volatility from a hike in interest rates to have a marginal impact to distributions. Share Price Drivers: Pick-up in occupancy rate. We believe that expected vacancies and earnings weakness arising from property conversions from single-tenanted to multi-tenanted could be an overhang on the stock. The ability to retain tenants will alleviate such risks and may result in higher prices.
25.0% 20.0% 15.0% 10.0% 2014A
2015A
2016F
2017F
2018F
2017F
2018F
ROE (%) 6.0% 5.0% 4.0% 3.0%
Not likely to see acquisitions given gearing of 37%. The Manager remains keen to grow the portfolio through acquisitions. Given limited accretive deals in Singapore, CREIT has broadened its investment focus to Australia, Japan and Malaysia, which the Manager has identified as having similar sovereign risks and transparency characteristics with Singapore.
2.0% 1.0% 0.0% 2014A
2015A
2016F
Distribution Yield (%)
Key Risks: Interest rate risk. Any increase in interest rates will result in higher interest payments which will reduce income available for distribution and result in lower distribution per unit (DPU) to unitholders. That said, CREIT has substantially hedged its interest rate exposure.
(%) 10.0 9.0
+2sd: 8.8% +1sd: 8.1%
8.0
Avg: 7.4% 7.0
‐1sd: 6.6% 6.0
Economic risk. A deterioration in the economic outlook could have a negative impact on industrial rents and occupancies as companies cut back production and require less space. Industrial rents have a strong correlation with GDP growth.
2014
2015
2016
PB Band (x) 1.5
Company Background Cambridge Industrial Trust (CREIT) is a real estate investment trust which invests primarily in income-producing industrial assets located in Singapore.
‐2sd: 5.9%
5.0 2013
(x)
1.4 1.3 1.2
+2sd: 1.22x
1.1
+1sd: 1.09x
1.0
Avg: 0.97x
0.9
‐1sd: 0.85x
0.8
‐2sd: 0.72x
0.7 0.6 Jan-13
Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 165
Company Guide Cambridge Industrial Trust
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
Source: Company, DBS Bank
2014A
2015A
2016F
2017F
2018F
99.3 (21.5) 77.8 (9.7) 0.0 (17.5) 1.14 52.3 (0.1) 0.0 0.0 52.2 45.3 12.3 63.0
112 (26.1) 86.2 (9.4) 0.0 (22.1) 0.40 55.2 0.0 0.0 0.0 55.2 52.5 7.20 61.8
110 (29.7) 80.3 (7.7) 0.0 (20.4) 0.0 52.2 0.0 0.0 0.0 52.2 52.2 1.00 53.2
112 (30.1) 81.5 (7.7) 0.0 (20.6) 0.0 53.2 0.0 0.0 0.0 53.2 53.2 1.00 54.2
113 (30.6) 82.6 (7.7) 0.0 (21.8) 0.0 53.1 0.0 0.0 0.0 53.1 53.1 1.00 54.1
3.0 (3.2) 4.2 100.0 78.3 52.5 63.5 9.7 6.0 3.9 5.3 3.9
13.0 10.7 5.8 100.0 76.8 49.1 55.1 8.4 6.3 3.9 5.6 3.5
(2.0) (6.8) (5.3) 100.0 73.0 47.5 48.4 7.0 6.0 3.7 5.1 3.6
1.5 1.5 1.9 100.0 73.0 47.7 48.6 6.9 6.1 3.7 5.2 3.6
1.4 1.4 (0.3) 100.0 73.0 46.9 47.8 6.8 6.1 3.7 5.3 3.4
ASIAN INSIGHTS Page 4
Earnings outlook to remain flattish in the absence of acquisitions
VICKERS SECURITIES Page 166
Company Guide Cambridge Industrial Trust
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
28.5 (6.8) 21.7 (2.3) 0.0 (4.8) 0.0 14.7 0.0 0.0 14.7 14.7 0.87 15.6
28.5 (6.9) 21.6 (2.2) 0.0 (5.3) (0.2) 14.0 0.0 0.0 14.0 12.5 2.30 14.8
28.4 (6.9) 21.5 (2.3) 0.0 (5.0) (0.4) 13.8 0.0 0.0 13.8 13.8 0.73 14.5
28.3 (7.1) 21.2 (2.3) 0.0 (5.5) (0.9) 12.5 0.0 0.0 12.5 12.5 1.53 14.1
27.6 (7.7) 19.9 (2.3) 0.0 (5.5) 0.0 12.2 0.0 0.0 12.2 12.9 0.0 12.9
2 1 37 76.3 100.0
0 (1) (5) 75.8 100.0
0 (1) (1) 75.8 100.0
0 (2) (9) 74.8 100.0
(2) (6) (3) 72.0 100.0
2014A
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
1,335 16.4 6.10 0.0 10.9 11.9 1,381
1,377 0.0 2.66 0.0 9.65 41.2 1,431
1,379 0.0 2.20 0.0 1.69 41.2 1,424
1,381 0.0 4.28 0.0 1.72 41.2 1,429
1,383 0.0 6.37 0.0 1.74 41.2 1,433
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
50.0 26.4 0.0 426 12.3 866 0.0 1,381
0.0 24.0 0.0 525 8.74 873 0.0 1,431
0.0 7.58 0.0 536 8.74 872 0.0 1,424
0.0 7.70 0.0 541 8.74 871 0.0 1,429
0.0 7.80 0.0 546 8.74 870 0.0 1,433
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(3.6) (469)
26.9 (523)
35.3 (534)
35.2 (537)
35.1 (540)
0.4 0.2 35.6 1.0
2.2 0.5 36.7 1.0
5.9 0.5 37.6 1.1
6.1 0.8 37.9 1.1
6.3 1.0 38.1 1.1
Balance Sheet (S$m) FY Dec
Lower distributable income mainly due to higher finance costs and zero management fees paid in units.
Gearing to remain at the optimal level of c.38%
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 167
Page 5
Company Guide Cambridge Industrial Trust
Cash Flow Statement (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash
52.3 0.0 0.0 (0.5) (4.2) 19.3 66.9 (195) 0.0 0.0 0.0 0.82 (194) (42.6) 102 (0.2) 0.0 59.4 0.0 (67.9)
55.2 0.0 (0.1) (0.1) (0.3) 24.5 79.1 (40.6) (10.6) 0.0 0.0 1.08 (50.1) (48.4) 16.1 (0.3) 0.0 (32.6) 0.0 (3.6)
52.2 0.0 0.0 0.0 (8.5) 0.0 43.8 (2.0) 0.0 0.0 0.0 0.0 (2.0) (53.2) 11.0 0.0 0.0 (42.2) 0.0 (0.5)
53.2 0.0 0.0 0.0 0.09 0.0 53.3 (2.0) 0.0 0.0 0.0 0.0 (2.0) (54.2) 5.00 0.0 0.0 (49.2) 0.0 2.09
53.1 0.0 0.0 0.0 0.08 0.0 53.2 (2.0) 0.0 0.0 0.0 0.0 (2.0) (54.1) 5.00 0.0 0.0 (49.1) 0.0 2.08
Operating CFPS (S cts) Free CFPS (S cts)
5.73 (10.3)
6.23 3.02
4.03 3.22
4.08 3.94
4.07 3.92
Source: Company, DBS Bank Target Price & Ratings History
0.60
S$ Dat e of Report
Closing Price
1:
28 Apr 16
0.55
0.56
HOLD
2:
25 J ul 16
0.56
0.60
HOLD
3:
22 Aug 16
0.55
0.60
HOLD
4:
26 Oct 16
0.55
0.54
HOLD
5:
28 Nov 16
0.53
0.54
HOLD
0.58
2 0.56 0.54
4 1
3
0.52
12- mt h T arget Rat ing Pric e
S.No.
5
0.50 0.48 0.46 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Derek TAN, Singapore Research Team
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 168
Singapore Company Guide
CapitaLand Commercial Trust Version 6
Refer to important disclosures at the end of this report
| Bloomberg: CCT SP | Reuters: CACT.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Moving from green to gold
Last Traded Price ( 4 Jan 2017): S$1.51 (STI : 2,921.31) Price Target 12-mth: S$1.70 (13% upside and 6.2% yield)
Timely acquisition of CapitaGreen. Despite the expected decline in the office market, we believe the timely acquisition of the remaining 60% in CapitaGreen not only helps to offset Potential Catalyst: Delivery of DPU growth in the midst of a downturn in potential negative rental reversions and lower occupancies for the Singapore office market Where we differ: Above consensus after incorporating the acquisition of the rest of CapitaLand Commercial Trust (CCT)’s portfolio but will allow CCT to deliver a 2-year DPU CAGR of 4% (2015-2017 60% interest in CapitaGreen excluding impact from redevelopment of Golden Shoe), which is Analyst among the highest in the office sector (average of 2%) and Mervin SONG CFA +65 6682 3715 [email protected] above the S-REIT DPU CAGR of 1%. Derek TAN +65 6682 3716 [email protected]
Price Relative S$
Relative Index
2.1
214
2.0 1.9
194
1.8
174
1.7
154
1.6 1.5
134
1.4
114
1.3 94
1.2 1.1 Jan-13
Jan-14
Jan-15
CapitaLand Commercial Trust (LHS)
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2014A 263 205 449 249 12.6 38 8.46 3 175 11.9 5.6 0.9 30.4 7.3
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
Jan-16
74 Jan-17
Relative STI (RHS)
2015A 273 213 307 254 10.4 (18) 8.62 2 177 14.4 5.7 0.8 30.0 5.9
2016F 277 217 241 266 8.15 (22) 8.98 4 177 18.5 6.0 0.9 37.5 4.6
2017F 348 273 259 280 8.62 6 9.31 4 175 17.5 6.2 0.9 37.5 4.9
B: 13
8.90 S: 4
9.10 H: 7
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
Trading at a discount to physical office transactions. Investors have been concerned over the value of CCT’s portfolio given falling office rents. We believe this is unwarranted given the resiliency of office property values in Singapore. CCT’s Singapore Grade A office portfolio trades at an implied value of c.S$1,900 per square foot (psf) compared to recent sales of between c.S$2,700 (adjusted for 99-year leasehold for CapitaGreen) and $3,500 psf. While CCT’s Grade A portfolio is unlikely to trade up to c.S$2,700 given the older profile of some of its properties, we believe the current strength of the physical market and 999-year leasehold status of some of its buildings, warrants CCT to trade close to its book value per unit of S$1.72 or an implied valuation of S$2,000 psf. Medium term upside from redevelopment of Golden Shoe Car Park. CCT announced the redevelopment of its Golden Shoe Car Park property. Subject to obtaining the necessary government approvals, the property will be developed into one with c.1m square feet (sqft) of commercial space in terms of gross floor area (GFA) and comprise an office tower of up to 280 metres high. Upon completion in 2021, the property will provide a medium term uplift to CCT’s current NAV per unit of S$1.72. Valuation: Our DCF-based TP of S$1.70 implies a price of c.S$2,000 psf for CCT’s Singapore portfolio. Key Risks to Our View: A key risk to our view is new office supply causing spot rents to fall below S$7 psf, which is likely to lead to lower-thanexpected asking rents and rental income. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Capitaland Limited Blackrock CBRE Group Inc Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
ASIAN INSIGHTS ed: JS / sa: YM, PY
2,963 4,460 / 3,075 31.1 6.6 4.9 57.4 10.1
VICKERS SECURITIES Page 169
Company Guide CapitaLand Commercial Trust Net Property Income and Margins (%) S$ m
300
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Staggered weighted lease expiry profile to help mitigate negative rental reversions. We have factored in lower occupancies and negative reversions at Capital Tower, Six Battery Road, and One George Street for FY16 and FY17. CCT’s defensive weighted average lease expiry (WALE) of 6.8 years (by net lettable area (NLA)) should also help ensure that the negative impact from an anticipated decline in rents over the next two years will be gradual rather than immediate. Thus, CCT offers investors a measure of earnings stability and certainty amid record office completions over the next two years.
86.0%
250
84.0%
200
82.0%
150
80.0%
100
78.0%
50
76.0%
0
74.0% 2013A
2014A
2015A
Net Property Income
2016F
2017F
Net Property Income Margin %
Net Property Income and Margins (%) 80% 79%
58
79% 78%
56
78% 54
77% 77%
52
76% 76%
50
75% 75%
Net Property Income
3Q2016
2Q2016
1Q2016
4Q2015
3Q2015
2Q2015
1Q2015
4Q2014
3Q2014
48
2Q2014
Defensive portfolio with >70% of office leases expiring in FY19 and beyond, coinciding with the period when Singapore faces no new office supply. CCT has maintained a defensive leasing strategy amid stiff competition for larger tenants by locking in longer-term leases for most of its top 10 tenants. With proactive forward renewals, more than 70% of office leases now expire in FY19 and beyond. This fortuitously coincides with the period when the Singapore office market should be on an upturn as no new office buildings will be completed from FY18 onwards.
Net Property Income Margin %
Distribution Paid / Net Operating CF 1.4
(x)
1.3 1.2 1.1
CapitaGreen contribution to weather CCT through tough times. CCT’s near-term earnings will be driven by the acquisition of the 60% remaining interest in CapitaGreen. We believe the increased contribution from CapitaGreen will not only help offset potential negative rental reversions at CCT’s other properties but also contribute to 4% DPU CAGR over the next couple of years (excluding any loss of income from redevelopment of Golden Shoe). Beyond the boost from the higher equity interest in CapitaGreen (40% previously to 100%), CCT should benefit from the higher underlying earnings at CapitaGreen as tenants progressively move into the building and rent-free periods start to expire.
1.0 0.9 0.8 0.7 0.6 0.5 2013A
2014A
2015A
2016F
2017F
2016F
2017F
Interest Cover (x) (x) 7.00 6.00 5.00 4.00
Medium term upside from redevelopment of Golden Shoe Car Park. CCT announced the redevelopment of its Golden Shoe Car Park property. Subject to obtaining the necessary government approvals, the property will be developed into one with c.1m sqft of commercial GFA and comprise an office tower of up to 280 metres high. Upon completion in 2021, the property will provide a medium term uplift to CCT’s current NAV per unit of S$1.72 and earnings. This is on top of any value creation from disposal of its stake in One George Street (50% interest) and Wilkie Edge as speculated by the press.
ASIAN INSIGHTS
3.00 2.00 1.00 0.00 2013A
2014A
2015A
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2
Page 170
Company Guide CapitaLand Commercial Trust
Balance Sheet: Increase in gearing post acquisition of CapitaGreen. Post acquisition of the remaining 60% interest in CapitaGreen, its gearing has risen to c.38% from c.30% previously. While this is higher than CCT’s average gearing over the last few years, we believe this remains prudent, as it is below the 45% gearing cap imposed by MAS and provides some buffer in the event of any decline in the value of CCT’s portfolio.
Aggregate Leverage (%)
35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 2013A
Share Price Drivers: Higher-than-average DPU growth. Following the acquisition of the remaining 60% interest CapitaGreen, CCT will have the highest 2-year DPU growth among the office REITs (average of 2%) which is also higher than the average S-REIT growth of 1.7%. With a superior growth profile in a slowing growth environment, we believe investors will gravitate towards CCT, causing the stock to re-rate.
2014A
2015A
2016F
2017F
2016F
2017F
ROE (%) 7.0% 6.0% 5.0% 4.0% 3.0% 2.0%
Key Risks: Risk of higher vacancies and negative rental reversions for FY16. In FY16-17, c.10% of CCT’s office leases will be due for expiry, the majority of which stems from One George Street, Six Battery Road and Raffles City, where expiring rents are close to or higher than market rents. As the Manager has prioritised tenant retention, there is a possibility of negative rental reversions, which would impede earnings growth.
1.0% 0.0% 2013A
2014A
2015A
Distribution Yield (%) (%) 7.4 6.9
+2sd: 6.6% 6.4
+1sd: 6.1%
5.9
Competition from other landlords. Between 2016 and 2018, c.5.3m sqft of office (NLA) will be completed within the downtown core, translating to a 15% increase in existing stock, or 3-year CAGR of 4.6%. Due to weaker net absorption rates of <1m sqft in recent years, CCT could face higher competition for large tenants from landlords of newer buildings, which have large floor plates of 30-40k sqft. Pressure on rents from shadow space. We see some downsizing activity from banks and financial institutions, and shadow space (particularly in the Marina Bay area) could put some pressure on rents for CCT’s portfolio, which is located primarily in the Raffles Place/Tanjong Pagar areas. Company Background CapitaLand Commercial Trust (CCT) is a real investment trust investing exclusively in commercial properties in Singapore.
Avg: 5.5%
5.4 4.9
‐1sd: 5%
4.4
‐2sd: 4.4%
3.9 2013
2014
2015
2016
2017
PB Band (x) 1.3
(x)
1.2 1.1
+2sd: 1.05x 1.0
+1sd: 0.97x
0.9
Avg: 0.89x
0.8
‐1sd: 0.8x
0.7
‐2sd: 0.72x
0.6 Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 171
Company Guide CapitaLand Commercial Trust
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
Source: Company, DBS Bank
2013A
2014A
2015A
2016F
2017F
251 (54.3) 197 (15.2) (4.6) (46.3) 2.52 261 0.0 0.0 0.0 261 367 (139) 234
263 (57.4) 205 (16.2) (3.5) (32.7) (2.5) 368 0.0 0.0 0.0 368 449 (200) 249
273 (60.5) 213 (17.6) 0.87 (32.1) 47.5 309 (0.1) 0.0 0.0 307 307 (52.8) 254
277 (59.8) 217 (29.5) 0.0 (41.2) 0.0 242 (0.7) 0.0 0.0 241 241 24.6 266
348 (74.6) 273 (25.1) 0.0 (77.4) 0.0 260 (0.9) 0.0 0.0 259 259 20.9 280
(33.1) (33.3) 26.9 100.0 78.4 103.8 93.1 6.0 5.4 3.9 2.8 3.9
4.4 4.1 40.9 100.0 78.2 140.0 94.9 6.2 7.3 5.8 3.0 5.8
4.0 3.7 (16.4) 100.0 77.9 112.5 93.1 6.4 5.9 4.7 3.0 6.1
1.3 2.0 (21.4) 100.0 78.4 87.2 96.1 10.6 4.6 3.3 2.6 4.6
25.7 26.0 7.4 100.0 78.6 74.5 80.5 7.2 4.9 3.3 3.1 3.2
ASIAN INSIGHTS Page 4
Earnings growth will be driven by increased contribution from CapitaGreen, which should offset income loss from lower occupancies and negative rental reversions at existing office assets such as Capital Tower, 6 Battery Road and One George Street
VICKERS SECURITIES Page 172
Company Guide CapitaLand Commercial Trust
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
68.3 (15.7) 52.7 (4.3) 0.11 (8.3) 0.0 56.7 0.0 0.0 56.7 0.0 0.0 63.2
67.6 (15.3) 52.3 (4.4) (0.3) (8.5) 0.0 68.0 (0.1) 0.0 68.0 0.0 0.0 64.1
66.9 (14.8) 52.0 (4.2) 1.66 (8.1) 0.0 61.9 (0.2) 0.0 61.7 0.0 0.0 64.8
67.6 (16.1) 51.5 (4.5) 0.0 (8.3) 0.0 74.3 0.0 0.0 74.3 0.0 0.0 65.1
74.4 (17.4) 57.0 (3.9) 1.22 (11.4) (13.5) 51.6 (0.2) 0.0 51.4 0.0 0.0 68.3
(1) (2) (26) 77.1 100.0
(1) (1) 20 77.3 100.0
(1) 0 (9) 77.8 100.0
1 (1) 20 76.1 100.0
10 11 (31) 76.6 100.0
Balance Sheet (S$m) FY Dec
2013A
2014A
2015A
2016F
2017F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
4,769 1,359 84.1 0.0 33.7 0.01 6,245
4,882 1,499 101 0.0 38.3 0.0 6,521
4,962 1,504 81.2 0.0 45.3 0.0 6,593
6,578 1,199 140 0.0 17.2 0.0 7,934
6,582 1,199 156 0.0 21.6 0.0 7,959
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
0.0 50.9 12.0 1,218 51.6 4,913 0.0 6,245
270 47.4 11.4 970 68.6 5,153 0.0 6,521
0.0 37.3 8.68 1,255 57.6 5,234 0.0 6,593
0.0 64.2 9.34 2,546 57.6 5,257 0.0 7,934
0.0 80.7 9.47 2,379 57.6 5,432 0.0 7,959
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(29.1) (1,134)
(20.5) (1,139)
(0.7) (1,174)
(56.4) (2,406)
(68.6) (2,223)
1.9 1.9 30.3 2.1
0.4 0.4 30.4 2.2
2.8 2.8 30.0 2.2
2.1 2.1 37.5 1.2
2.0 2.0 37.5 1.3
Increased gearing due the acquisition of remaining 60% interest in CapitaGreen
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 173
Page 5
Company Guide CapitaLand Commercial Trust
Cash Flow Statement (S$m) FY Dec Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
2013A
2014A
2015A
2016F
2017F
261 1.39 (0.1) (127) 7.68 52.5 195 (21.4) (1.0) (526) 82.6 526 60.5 (231) 40.2 0.0 (98.8) (290) 0.0 (34.3)
368 3.51 0.0 (217) (4.6) 39.3 189 (29.8) 0.0 (397) 86.1 392 51.7 (243) 50.3 0.0 (30.7) (223) 0.0 17.0
307 3.51 0.0 (97.3) (19.8) 3.05 197 (21.3) 0.0 0.0 85.0 0.0 63.7 (252) 5.00 0.0 (33.4) (280) 0.0 (19.9)
242 3.51 (0.1) (95.8) 55.0 24.6 229 (401) 0.0 0.0 95.8 0.0 (305) (266) 401 0.0 0.0 135 0.0 59.2
260 3.51 (0.7) (89.2) 12.1 20.9 207 (8.0) 0.0 0.0 89.2 0.0 81.2 (280) 8.00 0.0 0.0 (272) 0.0 15.7
6.55 6.07
6.63 5.45
7.35 5.95
5.89 (5.8)
6.47 6.60
Higher capex due to the acquisition of remaining 60% interest in CapitaGreen
Source: Company, DBS Bank Target Price & Ratings History 1.72
S$
1.62
5 4
1.52
6
7 2
1.42
12- mt h T arget Rat ing Pric e
Dat e of Report
Closing Pric e
1:
20 J an 16
1.33
1.45
BUY
2:
15 Apr 16
1.43
1.53
BUY
3:
24 May 16
1.39
1.61
BUY
4:
21 J ul 16
1.56
1.70
BUY
S.No.
5:
05 Sep 16
1.59
1.70
BUY
6:
19 Oct 16
1.58
1.70
BUY
7:
09 Nov 16
1.56
1.70
BUY
3
1.32
1 1.22 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Mervin SONG CFA Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 174
Singapore Company Guide
CapitaLand Mall Trust Refer to important disclosures at the end of this report
| Bloomberg: CT SP | Reuters: CMLT.SI
Version
DBS Group Research . Equity
4 Jan 2017
BUY
Christmas Present is Still in the Box
Last Traded Price ( 4 Jan 2017): S$1.93 (STI : 2,921.31) Price Target 12-mth: S$2.25 (16% upside and 5.8% yield) Potential Catalyst: Delay in rate hike expectations; more uncertainties from Brexit execution plans; better-than-expected rental reversion Where we differ: We are line with consensus Analyst Singapore Research Team [email protected] Derek TAN +65 6682 3716 [email protected] Mervin SONG CFA +65 6682 3715 [email protected]
Price Relative S$
Relative Index
2.6
219
2.5
199
2.4 2.3
179
2.2
159
2.1 2.0
139
1.9
119
1.8
99
1.7 1.6 Jan-13
Jan-14
Jan-15
CapitaLand Mall Trust (LHS)
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 669 466 580 405 13.5 2 11.1 2 192 14.3 5.7 1.0 33.0 7.3
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
79 Jan-17
Jan-16
Relative STI (RHS)
2016F 697 488 413 417 11.7 (14) 11.2 1 189 16.5 5.8 1.0 33.3 6.2
2017F 695 480 418 418 11.8 1 11.2 0 190 16.4 5.8 1.0 34.3 6.2
2018F 700 481 417 421 11.8 0 11.3 1 190 16.4 5.8 1.0 35.3 6.2
11.0 B: 10
11.0 S: 0
11.2 H: 12
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Negative DPU in 3Q16 is a false alarm as retention is boxed for distribution in 4Q16. CapitaLand Mall Trust (CMT)’s reported 3Q16 DPU was 2.78Scts and 9M16 DPU was 8.25Scts, down 6.7% and 1.4% y-o-y, respectively. Investors should not be alarmed by the negative growth, as a higher base was set by the DPU in 3Q15 due to S$8.0m (or 0.23Scts) retention paid out in 3Q15, out of S$12.5m retained from 1Q15. Stripping out the payment of S$8m in 3Q15, DPU growth was up a marginal 1.1% in 3Q16. CMT retained S$12.0m of its taxable income in 1Q16, equivalent to c.0.34Scts in DPU terms, and will pay this out in the festive season next quarter. We expect flattish DPU growth for the full year. Funan’s redevelopment plans are within our expectations. Plans for Funan 2.0, including a cycle-through mall, two Grade A office towers, and co-living apartment units, were largely in line with our scenario study published on 1 July 2016 (Rhapsody of Funan 2.0). We are supportive of CMT’s decision to undertake the redevelopment. Apart from a potential 4 Scts (or 2.0%) boost to NAV, we applaud the proactive asset management strategy to turn the ageing mall into a ’lifestyle destination’. Gearing has room to finance asset enhancement programs and other developments. As CMT will fund Funan’s redevelopment cost of S$560m entirely with debt, which is comfortably below the S$800m headroom available, gearing is expected to increase to 38%, which is still healthy. Valuation: We have a DCF-backed TP of S$2.25. The stock offers FY16/17F DPU yields over 5.0%. Key Risks to Our View: A rate hike surprise before December. While consensus is still ruling out a hike in November just days before the US election, any surprise move by the Fed may cause ripples in the market. In the unlikely scenario of a rate hike ahead of consensus’ year-end expectation, we believe this will be an opportunity for investors to accumulate the stock on any dips. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Capitaland Blackrock NTUC Enterprise Co-operativ Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
3,543 6,838 / 4,715 29.3 5.0 5.0 60.7 13.4
VICKERS SECURITIES Page 175
Company Guide CapitaLand Mall Trust Net Property Income and Margins (%)
Expect rental reversions to underperform historical levels. CMT’s rental reversion trends have been moderating (3.7% for FY15 and 1.7% for 9M16) and as retailers’ profitability continues to be squeezed by high labour costs and falling retail sales. We believe that rental reversions are likely to fall within the 1-2% range in the next 1-2 years, compounded by pressure from escalating labour costs and labour shortage.
76.6% 74.6% 72.6% 70.6% 68.6% 66.6% 64.6% 2014A
2015A
2016F
Net Property Income
2017F
2018F
Net Property Income Margin %
Net Property Income and Margins (%) 72% 131
70%
126 68% 121 66%
116
64%
111
Net Property Income
3Q2016
2Q2016
1Q2016
4Q2015
60%
3Q2015
101
2Q2015
62%
1Q2015
106
4Q2014
Ability to deliver value through AEIs. Strategic asset enhancement initiatives (AEIs) across its properties will result in increased shopper traffic in the medium term. For instance, the completion of AEI at IMM building in November 2015 has repositioned the mall as the largest outlet mall in Singapore with wider offerings, which should help to further differentiate the mall in the midst of new supply. The upcoming redevelopment of Funan 2.0 could also offer upside potential to the Trust.
500 450 400 350 300 250 200 150 100 50 0
3Q2014
Earnings Drivers: Mall owner of choice despite retail headwinds. CMT’s portfolio of malls stands out in Singapore’s retail landscape due to its (a) accessibility, (b) excellent asset management track record, and (c) strong rewards/marketing programme. Despite recent retail headwinds, we believe that CMT’s malls will continue to see good demand as retailers look to consolidate their footprints within CMT’s malls.
S$ m
2Q2014
CRITICAL DATA POINTS TO WATCH
Net Property Income Margin %
Distribution Paid / Net Operating CF 1.2
(x)
1.1 1.0 0.9 0.8 0.7
NPI margins could decline as the Manager expands marketing efforts. The Manager is looking to ramp up marketing efforts to attract a younger audience by deploying various digital and social media initiatives and the rollout of the enhanced CapitaStar reward programme to attract and retain shoppers. In addition, the Manager intends to step up the installation and adoption of mobile and internet-enabled infrastructure within its malls to allow complementary e-commerce activities (J Avenue website for shoppers to buy online and collect in store). While the immediate benefits are not obvious and are likely to drive up operating expenses in the medium term, we laud the efforts of the management in embracing changes in shoppers' expectations.
0.6 0.5 0.4 2014A
2015A
2016F
2017F
2018F
2017F
2018F
Interest Cover (x) (x) 4.80 4.60 4.40 4.20 4.00 3.80 3.60 2014A
2015A
2016F
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 176
Company Guide CapitaLand Mall Trust
Balance Sheet: Gearing to remain stable. CMT’s gearing ratio is forecast to remain fairly stable at 35-38% over FY16-18F. This is after the placement of new units as consideration for the purchase of Bedok Mall in 3Q15 and assuming 100% debt financing for the redevelopment of Funan. Gearing level is within management's comfortable level of between 35% and 40%. Cost of debt to remain stable. The average debt cost is 3.2%, which should remain stable in the immediate term. With interest rates on the rise, we have priced in a 25 bps increase in average interest cost once hedges are rolled over in the coming two years.
Aggregate Leverage (%) 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 2014A
2015A
2016F
2017F
2018F
2017F
2018F
ROE (%) 7.0% 6.0%
Share Price Drivers: Acquisitions to drive earnings. CMT has the right of first refusal to acquire its Sponsor’s retail assets in Singapore. CapitaLand has several retail assets in its portfolio which could be injected into the REIT, including Star Vista and the remaining 70% stake in Westgate.
5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
Better-than-expected operational results. We believe that CMT’s portfolio will continue to remain resilient despite headwinds. The Trust's ability to maintain a steady growth in top line while holding occupancies will be a strong testament of the Manager's capability to stand out among its peers. IMM could be a positive surprise. With the completion of phase two, IMM is now the largest outlet mall in Singapore, with 85 outlet stores. Feedback has been positive as the mall renewed 22.0% of its NLA over 9M16 at 4.6% reversion rate which is highest among all properties.
2014A
The uncertainties from the implementation of Brexit following the referendum on 24 June 2016 will continue to cause ripples in the market.
2016F
Distribution Yield (%) (%) 6.6 6.1
+2sd: 6% +1sd: 5.6%
5.6
Avg: 5.2%
5.1
‐1sd: 4.9% 4.6
‐2sd: 4.5%
4.1 3.6 2013
Key Risks: Downside risk to rental reversions. A worse-than-expected slowdown in consumer sentiment and consumption outlook may result in lower reversionary potential (vs our 2% estimate) for leases expiring in 2016. Funan’s redevelopment could be a near-term catalyst. Further upside risk is from interest savings. The Trust has been proactive in extending its debt profile, locking in long-tenure MTNs at lower rates than previously achieved. Further interest savings from refinancing associate debt would offer upside to our estimates.
2015A
2014
2015
2016
2017
PB Band (x) 1.6
(x)
1.5 1.4 1.3
+2sd: 1.29x
1.2
+1sd: 1.21x Avg: 1.13x
1.1
‐1sd: 1.04x
1.0
‐2sd: 0.96x 0.9 0.8 Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Source: Company, DBS Bank
Company Background CapitaMall Trust is a real estate investment trust which owns and invests in retail properties in the suburban areas and downtown core of Singapore.
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 177
Company Guide CapitaLand Mall Trust
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
Source: Company, DBS Bank
2014A
2015A
2016F
2017F
2018F
659 (210) 448 (46.3) 0.0 (99.3) 4.89 457 0.0 0.0 0.0 457 619 (44.6) 412
669 (203) 466 (45.8) 0.0 (91.6) 72.8 473 (0.6) 0.0 0.0 473 580 (68.3) 405
697 (209) 488 (49.4) 0.0 (103) 0.0 413 0.0 0.0 0.0 413 413 3.95 417
695 (215) 480 (49.2) 0.0 (91.7) 0.0 418 0.0 0.0 0.0 418 418 0.0 418
700 (220) 481 (49.7) 0.0 (94.1) 0.0 417 0.0 0.0 0.0 417 417 4.00 421
3.3 2.2 12.3 91.0 68.1 69.3 62.6 7.0 7.4 4.8 4.3 4.1
1.5 4.0 3.5 96.9 69.7 70.7 60.5 6.8 7.3 4.7 4.2 4.6
4.2 4.7 (12.6) 95.0 70.1 59.3 59.9 7.1 6.2 4.0 4.3 4.3
(0.3) (1.7) 1.1 95.0 69.0 60.2 60.2 7.1 6.2 3.9 4.2 4.7
0.8 0.2 (0.2) 95.0 68.6 59.6 60.2 7.1 6.2 3.8 4.1 4.6
ASIAN INSIGHTS Page 4
Earnings from Bedok Mall will more than offset the loss of earnings from Funan for 3 years from 2H16. (Bedok's FY16 NPI was S$10.9m vs Funan's S$5.6m)
VICKERS SECURITIES Page 178
Company Guide CapitaLand Mall Trust
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
162 (48.4) 113 (11.1) 0.0 (20.9) 0.0 101 0.0 0.0 101 101 (0.7) 102
180 (54.7) 126 (12.1) 0.0 (25.3) 72.7 181 (0.6) 0.0 180 234 (2.7) 102
180 (51.9) 128 (12.1) 0.0 (23.4) (0.6) 111 0.0 0.0 111 111 1.31 115
171 (54.8) 116 (12.6) 0.0 (23.0) 0.06 98.2 0.0 0.0 98.2 154 1.80 97.1
170 (50.2) 120 (12.1) 0.0 (24.2) (0.2) 104 0.0 0.0 104 104 (0.8) 105
1 3 14 70.1 101.4
12 11 78 69.7 100.0
0 2 (38) 71.1 84.0
(5) (9) (12) 67.9 99.9
(1) 3 6 70.4 93.8
Balance Sheet (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
7,510 1,194 1,130 0.0 25.1 0.0 9,858
8,366 1,357 604 0.0 28.8 0.0 10,356
8,287 1,357 870 0.0 32.9 0.0 10,546
8,463 1,357 892 0.0 32.8 0.0 10,744
8,639 1,357 913 0.0 33.1 0.0 10,941
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
762 217 35.8 2,407 153 6,282 0.0 9,858
0.0 200 3.56 3,312 147 6,693 0.0 10,356
0.0 282 0.0 3,405 147 6,712 0.0 10,546
0.0 281 0.0 3,581 147 6,735 0.0 10,744
0.0 283 0.0 3,757 147 6,754 0.0 10,941
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(228) (2,040)
(175) (2,708)
(249) (2,536)
(248) (2,689)
(250) (2,844)
1.1 1.1 33.0 5.8
3.1 3.1 33.0 5.6
3.2 3.2 33.3 5.5
3.3 3.3 34.3 5.4
3.3 3.3 35.3 5.3
S$12m of 1Q16 taxable income has been retained for distribution in 4Q16, equivalent to c.0.34Scts in DPU terms
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 179
Page 5
Company Guide CapitaLand Mall Trust
Cash Flow Statement (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
457 0.0 (0.5) (149) 5.21 96.3 409 (64.7) 0.0 12.3 96.6 6.47 50.6 (370) 315 0.0 (105) (160) 0.0 300
473 0.0 0.0 (71.8) 0.91 19.9 422 (95.0) 0.0 (17.6) 70.8 (422) (464) (389) (890) 151 644 (484) 0.0 (525)
413 0.0 (3.6) (77.9) 78.0 0.0 410 79.0 0.0 0.0 77.9 0.0 157 (397) 93.0 1.88 0.0 (302) 0.0 265
418 0.0 0.0 (79.2) (0.7) 0.0 338 (176) 0.0 0.0 79.2 0.0 (96.8) (397) 176 1.89 0.0 (219) 0.0 22.1
417 0.0 0.0 (80.5) 1.89 0.0 339 (176) 0.0 0.0 80.5 0.0 (95.4) (400) 176 1.91 0.0 (222) 0.0 20.9
11.7 9.94
12.0 9.35
9.37 13.8
9.56 4.58
9.50 4.59
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
Funan’s earnings have been removed for c.3.5 years from 2H16 (expected opening in 4QFY19). After which, our new forecasts for Funan 2.0 have been incorporated in the model
Source: Company, DBS Bank Target Price & Ratings History
S$ 2.27
3
2.17
4 6 5
7
2.07
2
1.97
12- mt h T arget Rat ing Pric e
S.No.
Dat e of Report
Closing Pric e
1:
22 J an 16
1.97
2.10
2:
25 J an 16
1.97
2.10
BUY
3:
18 Apr 16
2.16
2.10
HOLD
4:
01 J ul 16
2.17
2.20
HOLD
5:
25 J ul 16
2.15
2.23
HOLD
6:
22 Sep 16
2.12
2.25
BUY
7:
24 Oct 16
2.15
2.25
BUY
BUY
1 1.87
1.77 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Singapore Research Team Derek TAN Mervin SONG CFA
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 180
Singapore Company Guide
CDL Hospitality Trusts Version 6
Refer to important disclosures at the end of this report
| Bloomberg: CDREIT SP | Reuters: CDLT.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Unloved now but offers outstanding value
Last Traded Price ( 4 Jan 2017): S$1.36 (STI : 2,921.31) Price Target 12-mth: S$1.59 (17% upside and 6.6% yield)
Attractive valuations. We maintain our BUY call on CDL Hospitality Trusts (CDREIT) and TP of S$1.59. Although we now expect the Singapore market to only recover in 2018, we believe the current low share price has largely priced in the current downturn and CDREIT offers compelling long-term value given its Singapore portfolio trades on a heavily discounted implied price per key. In addition, CDREIT offers patient investors an attractive 6.8% yield (based on 90% payout ratio) ahead of the eventual upturn.
Potential Catalyst: Recovery in the Singapore hospitality market, and acquisitions Where we differ: Below due to assumption of excess supply of new rooms in Singapore Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Cheapest REIT to ride the eventual upturn. CDREIT’s implied price per key for its Singapore portfolio stands at less than c.S$500k which is below its replacement cost of c.S$700k, recent market transactions of above S$650k and that of other listed Singapore hospitality REITs of between S$650k and S$1m. Given the quality of the portfolio and CREIT’s long-term track record, we believe this discount is unwarranted. Thus, CDREIT is the cheapest REIT providing exposure to the eventual upturn in the Singapore hospitality market which we project will occur in 2018 as supply pressures ease.
Price Relative
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 172 137 58.4 109 8.99 (16) 10.1 (8) 159 15.1 7.4 0.9 36.2 5.6
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016F 175 136 89.6 103 9.02 0 9.37 (7) 159 15.1 6.9 0.9 35.9 5.7
2017F 174 135 85.5 99.3 8.56 (5) 8.95 (5) 159 15.9 6.6 0.9 35.7 5.4
2018F 182 143 90.2 104 8.97 5 9.33 4 159 15.2 6.9 0.9 35.5 5.6
0 9.50 B: 6
0 9.50 S: 2
0 9.80 H: 9
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Several mitigating factors during downturn in the Singapore hospitality market. While CDREIT’s core Singapore market faces a downturn, we believe this will be tempered by higher earnings contribution from New Zealand, following the appointment of Millennium & Copthorne Hotels as the new operator of CDREIT’s Auckland property and the negotiation of a more favourable lease structure. In addition, we see upside to our DPU estimates should it decide to utilise its S$382m debt headroom for acquisitions. Valuation: We maintain our TP and DPU forecast which have incorporated the delayed expectations of the recovery of Singapore’s hospitality market. Key Risks to Our View: Weaker-than-expected demand supply outlook in Singapore. The key risk to our view is a weaker-than-expected demand-supply outlook for the Singapore hospitality market. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Hospitality Holdings Pte Ltd Aberdeen M & C Reit Management Ltd Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
992 1,349 / 937 31.7 5.0 5.0 54.3 1.3
VICKERS SECURITIES Page 181
Company Guide CDL Hospitality Trusts Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Challenging near-term operating conditions in Singapore. CDREIT’s profitability is largely dependent on earnings from its Singapore hotels. Near term, we see headwinds to the group’s core operations due to the growth in new hotel room supply in Singapore (6-7% of existing supply). The more competitive landscape is likely to lead to pressure on ADRs (average room rates) and occupancies, which we estimate will result in a c.6% decline in RevPAR in 2016. Nevertheless, over the medium term, as the Singapore government has not released any land for hotel development over the past two years, supply pressures should ease from 2018 onwards. Softness from Maldives. The significant depreciation of the Russian rubble has resulted in a decline in the number of highyielding Russian guests into the Maldives. Combined with a recent slowdown in Chinese visitors, we expect softness in CDREIT’s Maldives operations on the back of more aggressive price competition by other resorts. Nevertheless, this could be partially offset by a weakening of the SGD versus USD, as forecast by our DBS economists. CDREIT’s income from the Maldives is generated in USD. Boost from Japanese and UK acquisitions as well as reopening of Claymore Link mall. The timely acquisitions of two Japanese business hotels, Hotels MyStays Asakusabashi and Hotel MyStays Kamata in December 2014 worth c.S$64m, should help CDREIT buffer against the slowdown in its core Singapore operations. The expected growth in tourist arrivals into Japan should translate into higher room rates and occupancies for CDREIT’s properties in medium term albeit near term there may be some volatility in performance due to the recent strength in the JPY. Furthermore, CDREIT should benefit from the acquisition of Cambridge City Hotel and the recent appointment of Hilton as its operator. Moreover, the recent reopening of the Claymore Link, a retail mall in the heart of Orchard Road (after a 1.5-year renovation), is another positive for CDREIT’s earnings. Asset optimisation. In the medium term, we believe CDREIT can further maximise the returns of its portfolio by undertaking AEIs such as those being conducted at Grand Copthorne Waterfront Hotel and M Hotel in Singapore. In addition, at end-FY16, CDREIT should receive an earnings boost, following the appointment of Millennium & Copthorne Hotels as the new operator at its Auckland property with a new lease structure.
ASIAN INSIGHTS
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2
Page 182
Company Guide CDL Hospitality Trusts
Balance Sheet: Gearing within optimal range. CDREIT’s gearing at endSeptember 2016 stood at c.36%, which is within its optimal gearing range of 35-40%. However, should CDREIT gear up to 40%, it will have c.S$140m worth of debt headroom to pursue acquisitions.
Aggregate Leverage (%)
Moderate exposure to rising interest rates. Approximately 60% of CDREIT’s borrowings are on fixed interest rates. Thus, CDREIT has moderate exposure to rising interest rates. Share Price Drivers: Near-term earnings risk priced in. While CDREIT’s earnings are expected to be under pressure near term due to projected supply and demand imbalance in Singapore, we believe this has largely been priced in. The implied price per key for CDREIT’s Singapore portfolio stands at c.S$510k, which is below its replacement cost of c.S$700k and recent market transactions of above S$650k. Unjustified discount to other hospitality REITs. Compared to other hospitality S-REITs, CDREIT offers the cheapest exposure to the eventual upturn in the Singapore market. The implied price per key for other S-REITs stands at between S$650k and S$1m versus c.S$500k for CDREIT. Given the mid-tier to luxury category of CDREIT’s room inventory and its successful track record, we believe this valuation discount is unjustified.
ROE (%)
Distribution Yield (%)
Key Risks: Interest rate risk. Any increase in interest rates will result in higher interest payments, which could result in lower distribution per unit (DPU) for unitholders. Currency risk. As CDREIT earns rental income in various currencies (AUD, GBP, JPY, NZD and USD), a depreciation of any foreign currency against the SGD could negatively impact distribution income, which is distributed in SGD.
PB Band (x)
Brexit. CDREIT’s hotel in Cambridge, UK contributed c.6% of 9M16 group NPI. With the UK voting to exit EU (Brexit), this may negatively impact business activities in the UK and CDREIT’s property. In addition, Brexit may result in a depreciation of the GBP versus SGD, which will negatively impact distributions in SGD. Company Background CDL Hospitality Trusts (CDREIT) is a stapled group comprising H-REIT and HBT. H-REIT is a real estate investment trust that invests in a portfolio of income-producing hospitality-related properties while HBT is a business trust.
ASIAN INSIGHTS
Source: Company, DBS Bank
VICKERS SECURITIES Page 3
Page 183
Company Guide CDL Hospitality Trusts
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016F
2017F
2018F
167 (26.3) 141 (17.8) 0.0 (16.4) 0.0 106 (1.4) 0.0 0.0 105 122 11.4 120
172 (35.4) 137 (25.2) 0.0 (22.3) 0.0 89.6 (0.9) 0.0 0.0 88.7 58.4 50.5 109
175 (39.3) 136 (21.5) 0.0 (22.6) 0.0 91.9 (2.3) 0.0 0.0 89.6 89.6 13.8 103
174 (38.6) 135 (21.5) 0.0 (25.0) 0.0 89.0 (3.5) 0.0 0.0 85.5 85.5 13.8 99.3
182 (39.0) 143 (21.7) 0.0 (27.3) 0.0 93.8 (3.6) 0.0 0.0 90.2 90.2 14.1 104
12.1 2.3 1.0 90.0 84.2 62.8 71.6 10.7 6.5 4.4 5.1 7.5
3.4 (2.5) (15.4) 90.0 79.5 51.4 63.2 14.6 5.6 3.5 4.5 5.0
1.6 (0.7) 1.0 90.0 77.6 51.1 59.0 12.3 5.7 3.5 4.4 5.1
(0.7) (0.4) (4.5) 90.0 77.8 49.1 57.1 12.3 5.4 3.3 4.3 4.6
4.5 5.5 5.5 90.0 78.5 49.6 57.4 11.9 5.6 3.5 4.6 4.4
Improvement in earnings in FY18 due to a recovery in the Singapore hospitality market
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 184
Company Guide CDL Hospitality Trusts
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
41.1 (8.0) 33.1 (6.8) 0.0 (4.7) 0.0 21.6 (0.3) 0.0 21.4 0.0 4.51 25.9
50.1 (12.3) 37.8 (8.6) 0.0 (7.2) 0.0 22.0 1.25 0.0 23.3 0.0 38.8 31.8
44.7 (11.0) 33.7 (5.5) 0.0 (6.3) 0.0 21.9 (1.0) 0.0 20.9 0.0 3.44 24.4
42.5 (11.1) 31.3 (6.2) 0.0 (6.3) 0.0 18.9 (1.0) 0.0 17.9 0.0 5.84 23.7
45.4 (10.6) 34.8 (6.5) 0.0 (5.8) 0.0 22.6 0.0 0.0 22.6 0.0 4.31 26.9
5 5 14 80.5 90.0
22 14 9 75.4 90.0
(11) (11) (10) 75.5 90.0
(5) (7) (15) 73.8 90.0
7 11 26 76.7 90.0
Balance Sheet (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
2,206 146 76.5 0.0 20.0 1.37 2,450
2,177 278 72.0 0.0 19.1 1.28 2,547
2,182 278 86.8 0.0 21.1 1.28 2,570
2,187 278 94.9 0.0 20.9 1.28 2,583
2,193 278 104 0.0 21.8 1.28 2,599
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
317 39.7 0.89 458 18.6 1,616 0.0 2,450
219 32.2 0.27 703 19.3 1,573 0.0 2,547
219 41.7 2.61 703 19.3 1,584 0.0 2,570
219 41.4 6.09 703 19.3 1,594 0.0 2,583
219 43.2 9.72 703 19.3 1,604 0.0 2,599
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(19.1) (698)
(12.1) (850)
(21.9) (836)
(25.3) (827)
(29.8) (818)
0.3 0.3 31.6 1.3
0.4 0.4 36.2 1.2
0.4 0.4 35.9 1.2
0.4 0.4 35.7 1.2
0.5 0.5 35.5 1.2
Gearing within optimal 35-40% range
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 185
Page 5
Company Guide CDL Hospitality Trusts
Cash Flow Statement (S$m) FY Dec Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
2014A
2015A
2016F
2017F
2018F
106 0.0 (0.2) 0.0 3.83 29.6 139 (93.0) 0.0 0.0 0.0 0.35 (92.6) (106) 83.2 0.0 (16.6) (39.1) 0.0 7.72
89.6 0.0 (1.0) 0.0 0.39 43.4 132 (150) 0.0 0.0 0.0 (2.0) (152) (103) 138 0.0 (19.7) 15.3 0.46 (4.0)
91.9 0.0 0.0 0.0 7.46 13.8 113 (5.3) 0.0 0.0 0.0 0.0 (5.3) (93.0) 0.0 0.0 0.0 (93.0) 0.0 14.9
89.0 0.0 0.0 0.0 (0.2) 13.8 103 (5.2) 0.0 0.0 0.0 0.0 (5.2) (89.4) 0.0 0.0 0.0 (89.4) 0.0 8.04
93.8 0.0 0.0 0.0 0.92 14.1 109 (5.5) 0.0 0.0 0.0 0.0 (5.5) (93.9) 0.0 0.0 0.0 (93.9) 0.0 9.53
13.9 4.75
13.4 (1.8)
10.6 10.9
10.3 9.75
10.7 10.3
Increase in capex due to acquisition of Cambridge City Hotel
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Mervin SONG CFA Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 186
Singapore Company Guide
Croesus Retail Trust Refer to important disclosures at the end of this report
Version 5 | Bloomberg: CRT SP | Reuters: CROE.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Onwards and upwards
Last Traded Price ( 4 Jan 2017): S$0.85 (STI : 2,921.31) Price Target 12-mth: S$0.99 (16% upside and 8.9% yield) Potential Catalyst: DPU accretive acquisitions Where we differ: Below on lower top line Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Price Relative S$
Relative Index
1.2 1.2
208
1.1
188
1.1 1.0
168
1.0
148
0.9 0.9
128
0.8
108
0.8 0.7 May-13
88 May-14
May-15
Croesus Retail Trust (LHS)
Forecasts and Valuation FY Jun (JPYm) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 7,635 4,681 7,579 3,358 3.22 (31) 7.64 (3) 103 26.4 9.0 0.8 47.3 3.3
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
May-16
Relative STI (RHS)
2016A 9,581 5,449 6,003 3,981 0.59 (82) 6.95 (9) 94.7 143.9 8.2 0.9 45.3 0.6
2017F 12,153 6,402 3,666 4,957 5.99 914 7.52 8 86.4 14.2 8.9 1.0 45.1 6.6
2018F 12,325 6,494 3,735 5,034 5.77 (4) 8.18 9 84.5 14.7 9.7 1.0 45.2 6.8
B: 4
0 9.3 S: 0
0 9.6 H: 0
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: AS, PY
Internally managed to improve alignment and removes one barrier to a takeover. We maintain our BUY call and TP of S$0.99. We believe the perception of a greater alignment between the interest of Croesus Retail Trust (CRT)’s unitholders and management following CRT’s move to be the first internally managed trust will help close the discount to our TP. This is despite dissatisfaction from some unitholders with the price paid to buy out CRT’s trustee-manager (c.S$50m) and concerns over the large upfront cash payment to the current management team for their stake in the trustee-manager. In addition, with CRT no longer having an external trustee-manager, we believe this may remove a hurdle to a potential takeover by a J-REIT as speculated by some market participants due to CRT’s persistent high yield and discount to its NAV. Boost from recent acquisitions. Going forward, CRT should benefit from the full-year contribution from the acquisition of Torius property in Fukuoka (7.8% yield based on net property income (NPI)) in Sep15 and recent purchase of three retail malls (Fuji Grand Natalie, Mallage Saga and Feeeal Asahikawa) on 7.1% NPI yield. In addition, with FY18 income hedged at SGD/JPY rate of 76.4, down from 83.6 in FY17, CRT has one of the highest growth rates among our SREIT universe with a two-year DPU CAGR of 8% in SGD terms. This is before any interest savings on the back of lower Japanese interest rates which we have yet to fully price in. Medium-term upside potential from asset enhancement initiatives (AEIs). Over the medium term, CRT should also receive a boost from potential AEI and/or tenant remixing at One’s Mall, Torius Mall and Feeeal Asahikawa. This is in addition to any further acquisitions. Valuation: We maintain our DCF-based TP of S$0.99. Key Risks to Our View: The key risks to our view include: (1) weaker JPY versus SGD, (2) higher-than-expected take-up of its Dividend Reinvestment Plan (DRP) which we have assumed c.25% take-up and (3) lower-than-expected uplift in rents At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) GKG Investment Value Partners Group Ltd DBS Group Holdings Ltd Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trusts
758 644 / 444 6.8 6.2 5.7 81.8 0.53
VICKERS SECURITIES Page 187
Company Guide Croesus Retail Trust Net Property Income and Margins (%)
Continued benefits from renewal of Mallage Shobu. CRT’s Mallage Shobu property which contributed c.26% of the trust’s 4Q16 NPI undertook a major renewal exercise in March 2015 which consisted of (1) AEI works including family-friendly improvement works to restrooms, nursing rooms and rest areas, as well as improved LED lightning facilities, (2) introduction of 69 new brands/tenants such as Toys R Us, Kurashiki Coffee and Majestic Legon (women’s apparel and fashion), (3) tenant renewal exercise for 155 out of 242 leases, and (4) positive rental reversions in the double digits. We believe CRT’s earnings should continue to benefit from this AEI as the mall gains further traction from its nearby residents. Favourable lease structures. Approximately 62% of the CRT’s leases are under fixed term leases. Under this lease structure, which are typically shorter in tenure (between 3-5 years), CRT has the flexibility to adjust rents and tenant composition upon expiry of leases. This compares to the standard lease, which is more favourable to tenants as upon expiry of the lease, the tenants can opt to stay and renew the lease at market rates. Medium-term upside at One’s Mall, Torius property and Feeeal Asahikawa. We understand there are opportunities to drive rents higher at One’s Mall, Torius property and Feeeal Asahikawa in the medium term. This will come primarily from the change in tenant mix as some tenants/anchor tenants are low yielding at the moment. At this stage, CRT has not provided any details on its AEI plans. Costs savings from internalisation. We expect CRT to benefit from its decision to bring in house its trustee-manager. This should result in costs savings as fees paid to a third party manager are now eliminated and replaced with lower internal overheads. Partially offset this benefit is the higher units on issue following the preferential offering use to help fund the purchase of the third party trustee-manager.
ASIAN INSIGHTS
70.0%
6,000 5,000
65.0%
4,000 60.0%
3,000 2,000
55.0% 1,000 0
50.0% 2014A
2015A
2016A
Net Property Income
2017F
2018F
Net Property Income Margin %
Net Property Income and Margins (%) 1,411 911
Net Property Income
1Q2017
4Q2016
3Q2016
2Q2016
1Q2016
4Q2015
3Q2015
-89 -589
2Q2015
411
1Q2015
Contribution from recent acquisitions and favourable hedges. Moving forward, CRT should also receive an earnings boost from the acquisition of Torius property in Fukuoka (7.8% NPI yield) in Sep15 and recent purchase of three retail malls (Fuji Grand Natalie, Mallage Saga and Feeeal Asahikawa) on a 7.1% NPI yield. In addition, with CRT having already hedged its FY18 income at SGD/JPY rate of 76.4, we project a two-year SGD DPU CAGR of 8%.
JPY m
4Q2014
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Strong cashflow visibility. CRT has a weighted average lease expiry (WALE) by net lettable area (NLA) of seven years, which is among the longest in the S-REIT market. Its occupancy of close to 100% provides investors with significant cashflow visibility. In addition, with c.88% and c.79% of FY17 and FY18 rents already locked in respectively, CRT offers a stable income stream. This, combined with lease expiry profile of 11.9%, 9.0% and 6.7% of leases (by NLA) in FY17, FY18 and FY19 respectively, gives CRT the opportunity to change the tenant mix and/or drive higher rentals. This in turn provides upside to our earnings and DPU estimates.
150% 100% 50% 0% -50% -100% -150% -200% -250% -300% -350%
Net Property Income Margin %
Distribution Paid / Net Operating CF 2.0
(x)
1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 2014A
2015A
2016A
2017F
2018F
2017F
2018F
Interest Cover (x) (x) 6.00 5.00 4.00 3.00 2.00 1.00 0.00 2014A
2015A
2016A
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2
Page 188
Company Guide Croesus Retail Trust
Balance Sheet: Gearing on downtrend. Following proceeds from the recent rights issue, CRT’s gearing fell to 44.6% from 45.3% at end June 2016. While this is high compared to other S-REITs, given that CRT’s underlying properties are located in Japan, the willingness of Japanese banks to extend credit to CRT and its business trust structure provides CRT the ability to sustain a gearing closer to 50% level.
Aggregate Leverage (%)
50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 2014A
2015A
100% hedged. To manage its interest exposure, CRT has fully hedged all its borrowings, with its all-in cost of debt standing at c.1.9%. Share Price Drivers: Re-rating on internally managed trust. With the recent buy-out of CRT’s trustee-manager, CRT will be the first trust in Singapore to be internally managed. We believe the improved perception that the management team of CRT is aligned with its unitholders, will help close the discount between CRT’s share price and its NAV per share of c.S$1.00 (JPY75.14).
2016A
2017F
2018F
2017F
2018F
ROE (%) 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
Inorganic growth through acquisitions. CRT continues to look for acquisition opportunities. Such DPU-accretive transactions should boost CRT’s DPU and help re-rate its share price. Near term it has the funding advantage to secure to pursue DPU accretive acquisitions as CRT is able to secure cheap debt (sub 1% interest rate). Key Risks: Downturn in Japanese economy. The quantitative easing (QE) programme initiated by the BOJ was designed to boost the Japanese economy and inflationary expectations. Should the QE fail to deliver on its objectives, there is risk that a weaker economy may negatively impact rents and capital values of CRT’s portfolio. FX risks. While CRT has hedged its projected distributable income until June 2018, should the JPY depreciate against the SGD, going forward, CRT’s DPU would be negatively impacted.
2014A
2015A
2016A
Distribution Yield (%) (%) 10.5 10.0 9.5
+2sd: 9.7%
9.0
+1sd: 9.2%
8.5
Avg: 8.6%
8.0
‐1sd: 8.1%
7.5
‐2sd: 7.6%
7.0 6.5 6.0 2014
2015
2016
PB Band (x) 1.2
(x)
1.1
+2sd: 1.06x 1.0
+1sd: 0.98x Avg: 0.91x
0.9
Company Background Croesus Retail Trust is a business trust that focuses on incomegenerating retail assets in Japan. Its portfolio comprises seven assets which are close to fully occupied and backed by a long lease expiry profile.
‐1sd: 0.84x
0.8
‐2sd: 0.76x 0.7 0.6 Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 189
Company Guide Croesus Retail Trust
Income Statement (JPYm) FY Jun Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
Source: Company, DBS Bank
2014A
2015A
2016A
2017F
2018F
6,261 (2,232) 4,029 (765) (44.4) (705) 0.0 2,515 (1,551) 0.0 0.0 964 4,793 2,215 3,180
7,635 (2,954) 4,681 (720) 370 (1,001) 0.0 3,330 (2,087) 0.0 0.0 1,242 7,579 2,116 3,358
9,581 (4,132) 5,449 (976) (1,239) (1,096) 0.0 2,137 (1,840) 0.0 0.0 297 6,003 3,684 3,981
12,153 (5,751) 6,402 (775) 0.0 (1,126) 0.0 4,501 (835) 0.0 0.0 3,666 3,666 1,290 4,957
12,325 (5,830) 6,494 (779) 0.0 (1,129) 0.0 4,586 (851) 0.0 0.0 3,735 3,735 1,298 5,034
N/A nm nm 100.0 64.3 15.4 50.8 12.2 6.0 2.5 3.6 4.6
21.9 16.2 28.8 100.0 61.3 16.3 44.0 9.4 3.3 1.4 1.9 4.0
25.5 16.4 (76.1) 100.0 56.9 3.1 41.5 10.2 0.6 0.3 0.6 4.1
26.8 17.5 1,134.5 100.0 52.7 30.2 40.8 6.4 6.6 2.8 4.2 5.0
1.4 1.4 1.9 100.0 52.7 30.3 40.8 6.3 6.8 2.8 4.3 5.1
ASIAN INSIGHTS Page 4
Growth arising from acquisition of One’s Mall, Torius property, Fuji Grand Natalie, Mallage Saga and Feeeal Asahikawa
VICKERS SECURITIES Page 190
Company Guide Croesus Retail Trust
Quarterly / Interim Income Statement (JPYm) FY Jun 1Q2016 2Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
3Q2016
4Q2016
1Q2017
2,007 (774) 1,233 (232) 0.0 (257) (584) 160 (174) 0.0 (13.7) (13.7) 932 919
2,434 (1,066) 1,368 (246) 0.0 (268) 136 989 (248) 0.0 741 794 179 973
2,466 (1,057) 1,409 (255) 0.0 (264) 29.2 919 (187) 0.0 732 732 289 1,021
2,675 (1,236) 1,440 (300) 0.0 (307) (821) 12.2 (1,231) 0.0 (1,219) 4,434 (3,366) 1,068
3,126 (1,529) 1,596 (787) 0.0 (316) 14.0 507 (245) 0.0 262 262 890 1,152
1 2 96 61.4 100.0
21 11 nm 56.2 100.0
1 3 (1) 57.1 100.0
9 2 nm 53.8 100.0
17 11 nm 51.1 100.0
Balance Sheet (JPYm) FY Jun
2014A
2015A
2016A
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
68,870 3,335 2,754 0.0 708 2,883 78,551
87,930 5,063 2,942 0.0 491 3,975 100,401
112,640 6,628 5,385 0.0 1,655 4,866 131,175
112,762 6,628 6,046 0.0 1,736 4,866 132,038
113,008 6,628 6,069 0.0 1,761 4,866 132,332
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
358 885 681 40,244 3,990 32,394 0.0 78,551
647 1,219 914 46,840 7,194 43,586 0.0 100,401
8,337 2,151 2,112 51,057 12,204 55,313 0.0 131,175
8,337 2,300 2,705 51,179 12,204 55,313 0.0 132,038
8,337 2,332 2,721 51,425 12,204 55,313 0.0 132,332
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
2,026 (37,848)
2,333 (44,546)
2,258 (54,010)
1,598 (53,471)
1,574 (53,694)
3.3 3.3 51.7 0.5
2.7 2.7 47.3 0.6
0.9 0.9 45.3 0.4
0.9 0.9 45.1 0.5
0.9 0.9 45.2 0.5
Decline due to asset revaluation gains
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 191
Page 5
Company Guide Croesus Retail Trust
Cash Flow Statement (JPYm) FY Jun Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
2014A
2015A
2016A
2017F
2018F
2,515 0.0 (148) 0.0 (2,661) 1,204 909 (66,053) 0.0 0.0 0.0 0.0 (66,053) (1,810) 40,305 29,404 0.0 67,898 0.07 2,754
3,330 0.0 (337) 0.0 (344) 561 3,210 (11,712) 0.0 0.0 0.0 0.0 (11,712) (3,101) 5,634 6,108 0.0 8,642 46.4 187
2,137 0.0 (400) 0.0 (1,588) 2,278 2,427 (19,004) 0.0 0.0 0.0 0.0 (19,004) (4,652) 13,420 10,273 0.0 19,040 (19.5) 2,443
4,501 0.0 (243) 0.0 68.4 1,290 5,617 (122) 0.0 0.0 0.0 0.0 (122) (4,957) 122 0.0 0.0 (4,835) 0.0 660
4,586 0.0 (835) 0.0 7.18 1,298 5,057 (246) 0.0 0.0 0.0 0.0 (246) (5,034) 246 0.0 0.0 (4,787) 0.0 23.4
17.3 (316)
9.21 (22.0)
7.98 (33.0)
9.06 8.98
7.80 7.43
Acquisition of Torius property, Fuji Grand Natalie, Mallage Saga and Feeeal Asahikawa
Two rights issues and placement for acquisitions and to fund internalisation of the trustee-manager
Source: Company, DBS Bank Target Price & Ratings History 0.92
S$
0.87
4 6 5 2
0.82
3
12- mt h T arget Rat ing Pric e
Dat e of Report
Closing Pric e
1:
11 Feb 16
0.79
0.86
2:
16 May 16
0.82
0.90
BUY
3:
13 J un 16
0.81
0.90
BUY
4:
29 Aug 16
0.86
0.99
BUY
5:
08 Nov 16
0.87
0.99
BUY
6:
11 Nov 16
0.85
0.99
BUY
S.No.
HOLD
1
0.77
0.72 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Mervin SONG CFA, Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 192
Singapore Company Guide
Far East Hospitality Trust Refer to important disclosures at the end of this report
Version 5 | Bloomberg: FEHT SP | Reuters: FAEH.SI
DBS Group Research . Equity
4 Jan 2017
HOLD
Headwinds still present
Last Traded Price (4 Jan 2017): S$0.595 (STI : 2,921.31) Price Target 12-mth: S$0.62 (4% upside and 6.6% yield) Potential Catalyst: Recovery in the Singapore hospitality market, and acquisitions Where we differ: Below consensus due to expected decline in RevPAR Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Price Relative S$
Relative Index
1.3
218
1.2
198
1.1
178
1.0
158
0.9
138
0.8
118
0.7
98
0.6
Competitive pressures to persist. While the majority of new hotel supply in Singapore this year is largely concentrated within the Singapore River precinct away from FEHT’s hotels, we believe the 5-6% increase in overall industry room inventory will still put pressure on FEHT’s operations. In addition, with new room supply not easing until 2018, corporate demand still soft and FEHT’s new hotel in Sentosa only completing in 2018, we expect FEHT’s DPU performance to remain muted over the coming year.
78
0.5 Jan-13
Jan-14
Jan-15
Far East Hospitality Trust (LHS)
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 115 104 33.2 82.2 4.20 (5) 4.60 (11) 93.9 14.2 7.7 0.6 32.4 4.4
DPU Chng (%): Consensus DPU (S cts): Other Broker Recs:
Jan-16
58 Jan-17
Relative STI (RHS)
2016F 111 100 65.5 76.6 3.65 (13) 4.26 (7) 93.7 16.3 7.2 0.6 32.8 3.9
2017F 109 97.9 62.8 73.8 3.48 (5) 3.95 (7) 93.1 17.1 6.6 0.6 33.3 3.7
2018F 114 103 68.2 79.5 3.75 8 4.23 7 92.6 15.9 7.1 0.6 33.3 4.0
4.2 B: 1
0 4.2 S: 2
4.4 H: 5
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: TH / sa: JC, PY
Limited re-rating catalysts. We maintain our HOLD call and TP of S$0.62. As a Singapore-focused REIT and with competitive pressures in the Singapore hospitality market that are expected to persist, we believe there are limited re-rating catalysts for Far East Hospitality Trust (FEHT) in the near term. This is despite the inherent long-term value given that FEHT is trading at 0.6x P/BV.
Strong balance sheet. Even though we are cautious on FEHT’s near-term earnings, there is significant upside to our forecast if FEHT deploys its strong balance sheet well. FEHT’s gearing as at end-September 2016 stood at approximately 32% and its sponsor provides a clear and visible ROFR pipeline of seven properties. Valuation: We maintain our DCF-based TP of S$0.62 which has incorporated the delayed expectations of the recovery of the Singapore office market from 2017 to 2018. Key Risks to Our View: Rebound in demand and acquisitions. Our cautious stance on FEHT is premised on a supply imbalance in the Singapore hospitality market. However, a significant rebound in demand, absorbing the new room supply, and FEHT utilising its strong balance sheet, would lead to upside risks to our DPU estimates and TP. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Golden Development Pte Ltd Golden Landmark Pte Ltd Far East Organization Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trusts
1,801 1,072 / 750 20.4 10.7 10.1 44.3 0.53
VICKERS SECURITIES Page 193
Company Guide Far East Hospitality Trust Net Property Income and Margins (%) 99.4% 97.4% 95.4%
93.4% 91.4% 89.4% 87.4%
85.4% 2014A
2015A
2016F
Net Property Income
2017F
2018F
Net Property Income Margin %
Net Property Income and Margins (%) 92%
29 28
91%
27
91%
26
90%
25 90%
24
Net Property Income
3Q2016
2Q2016
1Q2016
4Q2015
89%
3Q2015
22
2Q2015
89%
1Q2015
23
4Q2014
Some cushion from asset enhancement initiatives. Partially mitigating the effects of a supply imbalance in the Singapore hospitality market are the asset enhancement initiatives (AEI) that FEHT has undertaken. The refurbishments are expected to help maintain FEHT’s relevance in the market place as well as boost occupancy and ADR over the medium term. The following are the AEIs that FEHT has completed across its portfolio: (1) extension of outdoor refreshment area at Village Residence Robertson Quay, (2) soft refurbishment of club & suite rooms and meeting areas at Village Hotel Changi, (iii) reconfiguration of the serviced office space to create nine additional units as well as the upgrade of the main lobby, breakfast lounge and pantry at Central Square (Village Residence Clarke Quay), (iv) refurbishment of 2- and 3-bedroom units at Regency House, and (v) upgrading of the swimming pool, function rooms, lobby area and lobby bar.
200 180 160 140 120 100 80 60 40 20 0
3Q2014
Earnings Drivers: Downturn in the Singapore hospitality market. The Singapore hospitality market faces the challenge of navigating a 5-6% increase in hotel room supply this year but at the same time, only a modest recovery in total visitors days and weak corporate demand which is typically higher yielding. In such an environment, we believe hotels including those owned by FEHT, will face pressure on occupancy and ADRs. With supply expected to increase by 6% in 2017, we believe pressure on RevPAR will persist. Thus, we estimate that the price-heightened competition will lead to 5-7% and 4% declines in FEHT’s FY16F and FY17F hotel and serviced residence RevPAR/RevPAU.
S$ m
2Q2014
CRITICAL DATA POINTS TO WATCH
Net Property Income Margin %
Distribution Paid / Net Operating CF (x)
1.0 0.9
0.8 0.7 0.6 0.5 0.4
0.3
Medium-term outlook remains bright. Despite the short-term headwinds, the medium-term outlook for FEHT remains bright. With no new hotel land sites being released by the Singapore government over the last two years, supply could be constrained from 2018 onwards. In addition, FEHT should benefit from the opening of the 850-room Sentosa hotel development in 2018.
2014A
2015A
2016F
2017F
2018F
2017F
2018F
Interest Cover (x) (x) 6.00 5.00 4.00
3.00
Acquisitions yet to be priced in. With gearing at only 32%, FEHT is well positioned to expand its portfolio through acquisitions. Assuming FEHT gears up to the 40% level, we estimate the trust to have c.S$300-350m of debt headroom. Through its sponsor, Far East Organization, FEHT has a visible acquisition pipeline. In particular, it has the right of first refusal over seven properties.
ASIAN INSIGHTS
2.00 1.00
0.00 2014A
2015A
2016F
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2
Page 194
Company Guide Far East Hospitality Trust
Balance Sheet: Gearing unchanged. FEHT’s gearing at end-3Q16 was stable at c.32% which is comfortably below management’s 40% and MAS’s new 45% gearing limit.
Aggregate Leverage (%) 35.0% 30.0% 25.0%
Moderate exposure to rising interest rates. Currently, 71% of FEHT’s borrowings are under fixed rates, reducing its exposure to volatility in interest rates.
20.0% 15.0%
10.0% 2014A
Share Price Drivers: Negative near-term sentiment. FEHT’s share price has been weak over the past year due to a combination of soft tourist arrivals and large new room supply which has translated into a fall in RevPAR and DPU. While tourist arrivals are recovering, new hotel supply should continue to outpace demand. Thus, we believe there are limited re-rating catalysts for the stock in the near term.
2015A
2016F
2017F
2018F
2017F
2018F
ROE (%) 4.5%
4.0% 3.5%
3.0% 2.5%
2.0% 1.5%
Key Risks: Interest rate risk. Any increase in interest rates will result in higher interest payments that the REIT has to make annually to service its loans. This reduces the income available for distribution, which will result in lower distribution per unit (DPU) for unitholders.
1.0% 0.5%
0.0% 2014A
2016F
Distribution Yield (%) 9.9
Competitive landscape. The Singapore hospitality market has been impacted by a decline in tourist arrivals in 2014 and 2015 thus far. With an increase in new hotel supply in 2016 and 2017 and if demand does not recover, FEHT’s earnings may be impacted.
2015A
(%)
+2sd: 9%
8.9 7.9
+1sd: 7.5%
6.9
Avg: 6.1%
5.9 4.9
-1sd: 4.7%
3.9
Company Background Far East Hospitality Trust (FEHT) is a hospitality stapled group comprising Far East H-REIT and Far East H-Business Trust. Far East H-REIT is a Singapore-based real estate investment trust, which invests in hospitality assets including both hotels and serviced residences.
-2sd: 3.3%
2.9 1.9 2013
2014
2015
2016
PB Band (x) 1.4
(x)
1.3 1.2
+2sd: 1.12x
1.1 1.0
+1sd: 0.97x
0.9 0.8
Avg: 0.82x
0.7
-1sd: 0.67x
0.6
-2sd: 0.53x
0.5 0.4 Jan-13
Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 195
Company Guide Far East Hospitality Trust
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016F
2017F
2018F
122 (11.7) 110 (13.8) (0.8) (17.5) 0.0 78.0 0.0 0.0 0.0 78.0 71.3 20.2 91.5
115 (11.0) 104 (13.1) 4.93 (20.4) 0.0 75.0 0.0 0.0 0.0 75.0 33.2 48.9 82.2
111 (11.0) 100 (12.9) 0.0 (22.0) 0.0 65.5 0.0 0.0 0.0 65.5 65.5 11.1 76.6
109 (11.1) 97.9 (12.8) 0.0 (22.3) 0.0 62.8 0.0 0.0 0.0 62.8 62.8 11.0 73.8
114 (11.5) 103 (13.2) 0.0 (22.6) 0.0 68.6 (0.4) 0.0 0.0 68.2 68.2 11.3 79.5
(0.6) (1.7) (15.5) 100.0 90.4 64.1 75.2 11.3 4.5 3.1 3.9 5.5
(5.8) (5.8) (3.9) 100.0 90.4 65.4 71.7 11.4 4.4 3.0 3.6 4.4
(2.8) (3.1) (12.6) 100.0 90.1 58.8 68.7 11.6 3.9 2.6 3.5 4.0
(2.2) (2.5) (4.2) 97.0 89.8 57.6 67.7 11.8 3.7 2.5 3.4 3.8
5.0 5.2 8.6 97.0 90.0 59.6 69.5 11.5 4.0 2.7 3.6 4.0
The decline in earnings is largely a result of a projected decline in FEHT’s FY16 and FY17 serviced residence and hotel RevPAR
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 196
Company Guide Far East Hospitality Trust
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
29.7 (2.8) 26.9 (3.3) 2.78 (5.2) 0.0 21.1 0.0 0.0 21.1 21.1 0.45 21.6
28.9 (2.6) 26.3 (3.3) 0.60 (5.3) 0.0 18.3 0.0 0.0 18.3 (23.5) 2.38 20.7
27.4 (2.7) 24.7 (3.2) (7.5) (5.2) 0.0 8.82 0.0 0.0 8.82 8.82 10.6 19.4
26.1 (2.7) 23.5 (3.1) (1.2) (5.0) 0.0 14.2 0.0 0.0 14.2 14.2 4.10 18.3
28.0 (2.7) 25.4 (3.2) (1.9) (4.9) 0.0 15.4 0.0 0.0 15.4 15.4 4.87 20.3
3 3 30 90.7 100.0
(3) (2) (13) 91.1 100.0
(5) (6) (52) 90.2 100.0
(4) (5) 61 89.8 100.0
7 8 9 90.5 100.0
Balance Sheet (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
2,476 15.6 20.9 0.0 19.3 5.45 2,537
2,439 15.5 25.4 0.0 30.5 10.4 2,521
2,443 31.5 35.8 0.0 17.6 10.4 2,538
2,446 47.5 36.2 0.0 17.2 10.4 2,557
2,449 47.6 36.3 0.0 18.1 10.4 2,562
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
116 3.28 6.26 680 8.49 1,724 0.0 2,537
36.9 2.80 10.1 780 7.21 1,684 0.0 2,521
36.9 3.01 10.1 797 7.21 1,684 0.0 2,538
36.9 2.94 10.1 814 7.21 1,686 0.0 2,557
36.9 3.09 10.5 815 7.21 1,688 0.0 2,562
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
15.2 (774)
27.9 (792)
14.9 (798)
14.5 (815)
14.8 (816)
0.4 0.4 31.3 0.9
1.3 1.3 32.4 0.9
1.3 1.3 32.8 0.9
1.3 1.3 33.3 0.8
1.3 1.3 33.3 0.8
FEHT remains in a strong financial position with gearing in the low 30s
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 197
Page 5
Company Guide Far East Hospitality Trust
Cash Flow Statement (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
78.0 0.0 0.0 0.0 2.56 29.0 110 (8.1) 0.0 (15.6) 0.0 0.0 (23.7) (93.4) 15.6 0.0 (16.3) (94.1) 0.0 (8.3)
75.0 0.0 0.0 0.08 9.55 26.0 111 (5.0) 0.0 (21.3) 0.0 0.0 (26.3) (84.0) 21.3 0.0 (17.1) (79.8) 0.0 4.54
65.5 0.0 0.0 0.0 13.1 11.1 89.7 (3.3) 0.0 (16.0) 0.0 0.0 (19.3) (76.6) 16.6 0.0 0.0 (60.0) 0.0 10.4
62.8 0.0 0.0 0.0 0.32 11.0 74.1 (3.3) 0.0 (16.0) 0.0 0.0 (19.2) (71.6) 17.1 0.0 0.0 (54.5) 0.0 0.41
68.6 0.0 0.0 (1.5) (0.7) 11.3 77.7 (3.4) 0.0 0.0 1.30 0.0 (2.1) (77.1) 1.59 0.0 0.0 (75.5) 0.0 0.08
6.04 5.73
5.66 5.92
4.27 4.81
4.09 3.93
4.32 4.09
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
Equity contribution for FEHT’s 30% stake in the 850-room Sentosa hotel development
Source: Company, DBS Bank Target Price & Ratings History
0.70
S$
2
0.66 0.64
3 1
4
0.62
6 0.60
12- mt h T arget Rat ing Pric e
Dat e of Report
Closing Pric e
1:
21 J an 16
0.64
0.63
HOLD
2:
13 Apr 16
0.66
0.63
HOLD
3:
27 Apr 16
0.67
0.63
HOLD
4:
01 Aug 16
0.63
0.65
HOLD
5:
05 Sep 16
0.61
0.65
HOLD
6:
11 Nov 16
0.60
0.62
HOLD
S.No.
0.68
5 0.58 0.56 0.54 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Mervin SONG CFA, Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 198
Singapore Company Guide
Frasers Centrepoint Trust Version 6
Refer to important disclosures at the end of this report
| Bloomberg: FCT SP | Reuters: FCRT.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Fruits from Floating Rates
Last Traded Price ( 4 Jan 2017): S$1.93 (STI : 2,921.31) Price Target 12-mth: S$2.29 (19% upside and 6.1% yield) Potential Catalyst: Delay in rate hike expectations; better-than-expected rental reversion Where we differ: Lower cost of capital assumptions than consensus Analyst Singapore Research Team [email protected] Derek TAN +65 6682 3716 [email protected]
Price Relative S$
Relative Index 221
2.5
201
2.3
181
2.1
161
141 1.9
121 1.7
Ability to maintain stable DPUs. While many other S-REITs are expected to face declining DPUs over the next couple of years due to the slowing Singapore economy, Frasers Centrepoint Trust (FCT) offers investors a steady DPU profile. This is made possible by FCT’s conservative strategy of paying the majority of its management fees in cash, which enables FCT to temporarily increase payment of fees in units to sustain DPU. Near-monopoly of shopping malls in the north. Northpoint and Causeway Point together contribute c.70% of FCT’s Net Property Income (NPI). While it is still 15 months away until Northpoint completes its asset enhancement initiative (AEI), we believe strong rental reversion at Causeway Point will support earnings and cushion any pressures from any decline in occupancy rates.
101
1.5 Jan-13
Jan-14
Jan-15
Frasers Centrepoint Trust (LHS)
Forecasts and Valuation FY Sep (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 189 131 171 106 11.7 4 11.6 4 191 16.5 6.0 1.0 28.2 6.2
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
Jan-16
81 Jan-17
Relative STI (RHS)
2016A 184 130 123 108 10.3 (12) 11.8 1 193 18.7 6.1 1.0 28.3 5.4
2017F 186 132 95.7 109 10.4 0 11.8 0 191 18.6 6.1 1.0 30.5 5.4
2018F 204 146 107 112 11.6 12 12.1 3 191 16.7 6.3 1.0 30.6 6.1
B: 13
0 12.0 S: 1
0 12.2 H: 3
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Significant reduction in cost of debt. The Manager has proactively reduced the percentage of borrowings hedged into fixed rates to 59% from 74%, to benefit from their view that interest rates may stay low for an extended period. As such, we have brought down our cost of debt assumptions to account lower interest expense in the near term. Valuation: DCF-based TP of S$2.29. The stock offers a forward yield over 6.0%. Maintain BUY. Key Risks to Our View: Lease renewal in FY17. We estimate that 39.6% of total gross rent will be due for renewal in FY17. Reversion rate at Northpoint will test tenant’s confidence in the mall after AEI, whereas tactical lease management at Changi City Point and Bedok Point will help in the repositioning of the two malls. Interest rate risks. If expectations of rate hikes increase, the 41% exposure to floating interest rate will amplify the increase in the REIT’s cost of debt, putting pressure on valuation. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Frasers Centrepoint Ltd Schroders Plc Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
920 1,775 / 1,224 41.5 5.6 52.9 1.7
VICKERS SECURITIES Page 199
Company Guide Frasers Centrepoint Trust Net Property Income and Margins (%) S$ m
on Northpoint’s AEI, please refer to the Company Focus Report: Igniting the northern start, published on 7 Mar 2016).
75.8% 73.8%
71.8% 69.8% 67.8%
65.8% 2014A
2015A
2016A
Net Property Income
2017F
2018F
Net Property Income Margin %
Net Property Income and Margins (%) 73% 35
72%
34
71%
33
70% 69%
32
68%
31
67%
30
66%
Net Property Income
4Q2016
3Q2016
2Q2016
1Q2016
4Q2015
64%
3Q2015
65%
28
2Q2015
29
1Q2015
Northpoint AEI is the turnkey to accelerate growth. We remain excited about the planned AEI and integration of the Northpoint asset with the extension wing currently being built by the Sponsor. With an enlarged footprint, we see Northpoint as a key driver in accelerating growth in the medium term. We are positive on the AEI given that (i) the northern region has the lowest retail space density in Singapore; (ii) the fast population growth in the North region should support retail spending in the medium term; and (iii) relatively low occupancy costs in the 15-17% range. FCT is in a strong negotiating position with tenants who want a presence in the north where the group has close to 75% market share of retail malls (For detailed analysis
77.8%
4Q2014
Earnings Drivers: Strong rental reversion at Causeway Point. FCT’s largest asset (50% of top line) has achieved an average rental reversion of 9.6% in FY16, thanks to its low occupancy cost relative to its near-monopolistic position in Woodlands, one of Singapore’s most populous residential estates. FCT has a short Weight Average Lease Renewal (WALE) of 1.38/1.36 years by NLA/Gross Rent as 39.6% of the portfolio’s NLA will be due for renewal in FY17, out of which, 161,501sqft comes from Causeway Point. We believe the strong reversion trend at this mall is likely to continue and should cushion any pressures from declining portfolio occupancy rates and may even bring more earnings surprise on the upside in the next 12-18 months.
200 180 160 140 120 100 80 60 40 20 0
3Q2014
CRITICAL DATA POINTS TO WATCH
Net Property Income Margin %
Distribution Paid / Net Operating CF (x)
1.0
0.9 0.8 0.7
0.6 0.5
0.4
Acquisition growth potential from Sponsor’s pipeline. FCT is able to purchase retail assets from its Sponsor, Frasers Centrepoint Limited (FCL). We believe a potential target is Waterway Point, in which the Sponsor has a 33% stake, which was completed in Jan 2016 and well received by shoppers and tenants. Given a one- or two-year stabilisation period, a realistic timeline for this acquisition would be in 2017-18. An acquisition value of S$300-400m (given estimated development costs of S$1bn) would allow FCT to grow its portfolio considerably. We have not included this into our model.
2014A
2015A
2016A
2017F
2018F
2017F
2018F
Interest Cover (x) (x) 6.80 6.60 6.40 6.20 6.00 5.80 5.60
5.40 5.20 5.00 2014A
2015A
2016A
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 200
Company Guide Frasers Centrepoint Trust
Balance Sheet: Healthy balance sheet. Gearing to remain <30%, one of the lowest in the S-REIT universe, and well within the Manager’s comfortable level of 35%. Increased floating rates exposure. Percentage of borrowings on fixed rates has been reduced to 59% from 74% in 3QFY16. This enables the REIT to benefit from lower cost of debt due to lower expectations of rate hikes for now. Its average cost of borrowings of 2.1% is among the lowest in S-REITs.
Aggregate Leverage (%) 30.0% 25.0% 20.0%
15.0% 10.0% 2014A
2015A
2016A
2017F
2018F
2017F
2018F
ROE (%)
Share Price Drivers: Keep an eye on the risk-free rate. As a yield play, FCT’s share price is sensitive to fluctuations in the risk-free rate. Anticipated hikes in the US Fed Funds rate have a negative impact on the stock. Correspondingly, any delay in rate hikes would be a positive catalyst for share price performance. Key Risks: Near-term fall in NPI margin. As Northpoint’s average occupancy drops to 76% during its AEI period (Mar 2016-Sep 2017), some narrowing in the portfolio NPI margin is expected. While we have priced in a temporary decline in occupancy at Northpoint and generally weaker occupancy rates at other malls in the next 2 years, any unexpected sharp decline in occupancy and/or rents may drag down NPI margin and the share price.
6.0% 5.0% 4.0% 3.0% 2.0% 1.0%
0.0% 2014A
2015A
2016A
Distribution Yield (%) (%) 7.0
+2sd: 6.6%
6.5
+1sd: 6.2%
6.0
Avg: 5.8% 5.5
Interest rate risks. If expectations of rate hikes increase, the 41% exposure to floating interest rates will amplify the increase in the REIT’s cost of debt, putting pressure on valuation.
-1sd: 5.4% -2sd: 5%
5.0 4.5 4.0 2013
2014
2015
2016
2017
PB Band (x)
Company Background Frasers Centrepoint Trust (FCT) is a retail real estate investment trust with a portfolio of shopping malls located in suburban areas in Singapore. Its two largest assets are Causeway Point and Northpoint.
1.6
(x)
1.5 1.4
1.3
+2sd: 1.24x
1.2
+1sd: 1.15x
1.1
Avg: 1.06x
1.0
-1sd: 0.98x
0.9
-2sd: 0.89x
0.8 0.7 Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 201
Company Guide Frasers Centrepoint Trust
Income Statement (S$m) FY Sep Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016A
2017F
2018F
169 (50.7) 118 (14.6) 0.0 (18.4) 3.88 95.6 0.0 0.0 0.0 95.6 165 4.34 95.4
189 (58.2) 131 (15.7) 0.0 (19.2) 5.44 107 0.0 0.0 0.0 107 171 6.79 106
184 (54.0) 130 (15.9) 0.0 (17.2) (1.9) 95.0 0.0 0.0 0.0 95.0 123 (12.9) 108
186 (54.2) 132 (16.9) 0.0 (19.1) 0.0 95.7 0.0 0.0 0.0 95.7 95.7 12.9 109
204 (57.3) 146 (17.4) 0.0 (21.8) 0.0 107 0.0 0.0 0.0 107 107 4.97 112
6.8 5.8 3.8 100.0 70.0 56.6 56.6 8.6 6.0 4.1 4.6 5.6
12.1 11.0 12.4 100.0 69.2 56.8 56.2 8.3 6.2 4.2 4.6 6.0
(2.9) (0.9) (11.5) 100.0 70.6 51.7 58.8 8.6 5.4 3.7 4.5 6.6
1.1 1.4 0.7 100.0 70.8 51.5 58.5 9.1 5.4 3.6 4.5 6.0
9.6 11.3 12.2 100.0 71.9 52.7 55.1 8.5 6.1 4.0 4.9 5.9
Weak top line growth from the planned AEI at Northpoint over FY1617F
Expect lower interest expense due to a higher proportion of borrowings under floating rate interest vs fixed.
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 202
Company Guide Frasers Centrepoint Trust
Quarterly / Interim Income Statement (S$m) FY Sep 4Q2015 1Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
2Q2016
3Q2016
4Q2016
47.5 (15.8) 31.7 (3.9) 0.0 (4.4) 1.07 25.8 0.0 0.0 25.8 25.2 (64.1) 25.7
47.1 (13.5) 33.5 (4.0) 0.0 (4.4) 0.15 26.4 0.0 0.0 26.4 26.8 1.29 27.7
47.1 (13.4) 33.7 (4.0) 0.0 (4.4) (5.4) 21.1 0.0 0.0 21.1 29.2 7.88 29.0
45.0 (13.9) 31.2 (4.0) 0.0 (4.3) (0.4) 23.5 0.0 0.0 23.5 25.6 2.27 25.8
44.6 (13.2) 31.5 (3.9) 0.0 (4.1) (0.3) 24.0 0.0 0.0 24.0 89.8 (26.8) 25.6
1 (4) 1 66.8 101.9
(1) 6 2 71.3 95.0
0 0 (20) 71.5 96.3
(4) (7) 12 69.3 108.3
(1) 1 2 70.5 101.1
Balance Sheet (S$m) FY Sep
2014A
2015A
2016A
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
2,400 74.7 47.1 0.0 0.0 0.0 2,522
2,464 63.2 21.6 0.0 0.0 0.0 2,549
2,509 60.0 18.7 0.0 6.80 0.0 2,594
2,591 60.0 17.4 0.0 6.80 0.0 2,675
2,595 60.0 19.4 0.0 6.80 0.0 2,681
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
95.0 39.9 18.3 644 25.9 1,699 0.0 2,522
278 31.8 17.9 440 26.5 1,755 0.0 2,549
218 40.0 20.8 516 24.0 1,776 0.0 2,594
218 40.7 20.8 598 24.0 1,774 0.0 2,675
218 44.6 20.8 602 24.0 1,772 0.0 2,681
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(58.2) (692)
(49.7) (696)
(54.0) (715)
(54.7) (799)
(58.7) (800)
0.3 0.3 29.3 1.4
0.1 0.1 28.2 1.5
0.1 0.1 28.3 1.4
0.1 0.1 30.5 1.3
0.1 0.1 30.6 1.3
Payout ratios in 2HFY16 were greater than 100% thanks to cash conservation from the previous two quarters.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 203
Page 5
Company Guide Frasers Centrepoint Trust
Cash Flow Statement (S$m) FY Sep
2014A
2015A
2016A
2017F
2018F
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash
95.6 0.0 0.0 (6.6) (6.4) 17.6 100 (299) 0.0 0.0 4.58 (1.5) (296) (94.5) 150 162 (19.6) 197 0.0 2.03
107 0.0 0.0 (5.8) 2.25 16.1 120 (5.4) 0.0 0.0 4.60 0.18 (0.6) (106) (21.0) 0.0 (18.2) (145) 0.0 (25.5)
95.0 (0.5) 0.0 (0.1) 4.33 5.89 105 (22.6) 0.0 0.0 0.12 0.0 (22.5) (108) 22.6 0.0 0.0 (85.5) 0.0 (3.3)
95.7 0.0 0.0 (0.1) 0.73 10.9 107 (82.0) 0.0 0.0 0.12 0.0 (81.9) (109) 82.0 0.0 0.0 (26.7) 0.0 (1.3)
107 0.0 0.0 (0.1) 3.92 2.97 114 (3.7) 0.0 0.0 0.12 0.0 (3.5) (112) 3.66 0.0 0.0 (109) 0.0 1.92
Operating CFPS (S cts) Free CFPS (S cts)
12.6 (23.4)
12.8 12.5
10.9 8.93
11.5 2.74
11.9 11.9
Source: Company, DBS Bank Target Price & Ratings History 2.33
S$
6 7
2.13
8
4
2.03
9 5
2
1.93
3 1.83
12- mt h T arget Rat ing Pric e
Dat e of Report
Closing Pric e
1:
08 J an 16
1.83
2.04
BUY
2:
04 F eb 16
1.90
2.04
BUY
3:
07 Mar 16
1.93
2.11
BUY
4:
05 Apr 16
2.01
2.11
BUY
5:
25 Apr 16
2.00
2.10
BUY
6:
16 J ul 16
2.12
2.29
BUY
7:
18 J ul 16
2.17
2.29
BUY
8:
24 Oct 16
2.10
2.29
BUY
9:
07 Nov 16
2.03
2.29
BUY
S.No.
2.23
1 1.73 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst:
Singapore Research Team Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 204
Singapore Company Guide
Frasers Logistics & Industrial Trust Version 1
Refer to important disclosures at the end of this report
| Bloomberg: FLT SP | Reuters: FRAE.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Positioned to grow
Last Traded Price ( 4 Jan 2017): S$0.94 (STI : 2,921.31) Price Target 12-mth: S$1.10 (17% upside and 7.0% yield) Potential Catalyst: Acquisitions Where we differ: Estimates are more conservative than consensus Analyst Derek TAN +65 6682 3716 [email protected] Mervin SONG CFA +65 6682 3715 [email protected]
Price Relative S$
Maintain BUY, TP S$1.10. We believe that Frasers Logistics & Industrial Trust (FLT) offers good returns with a prospective yield of close to 7.0% which is attractive in the current low-yield environment. With an under-geared balance sheet, FLT is poised to grow through acquisitions from a visible pipeline of development and completed properties from their sponsor. Maintain BUY and TP at S$1.10. In addition, upside to earnings will come potentially from the rollover of forex hedges (currently A$1 to S$1) to current spot rates which are 6% higher.
Relative Index
1.1
Maiden distribution exceeds forecasts. FLT’s maiden distribution (DPU ) of 1.84 Scts exceeds IPO forecasts by close to 2.8%. This was mainly due to lower-than-projected interest costs at 2.8% vs 3.4% (forecasted during IPO). Revenue and net property income of A$43.1m and A$32.7m were marginally ahead of IPO forecasts at +0.8% and 0.02% respectively. Portfolio occupancy increased marginally to 99.2%. The forward outlook remains stable given limited expiries over the coming year.
207
1.1
187 1.0 167 1.0
147
0.9
127
0.9
107
0.8 Jun-16
87 Sep-16
Frasers Logistics & Industrial Trust (LHS)
Forecasts and Valuation FY Sep (A$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2016A 43.1 35.7 3.87 26.4 0.53 nm 1.85 nm 87.0 *15.8 *6.7 1.0 29.3 0.6
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
Dec-16
Relative STI (RHS)
2017F 162 137 83.3 95.0 6.07 nm 6.61 258 87.0 15.5 7.0 1.0 30.6 6.7
2018F 162 136 86.5 98.3 6.26 3 6.79 3 87.0 15.0 7.1 1.0 30.8 6.9
2019F 162 135 90.2 102 6.47 3 7.0 3 87.0 14.5 7.3 1.1 30.9 7.2
0 6.91 B: 4
0 6.70 S: 0
0 7.02 H: 1
Visible ROFR pipeline. The Sponsor has granted FLT a right of first refusal (ROFR) over any of the completed income-producing industrial properties it intends to divest. This currently comprises 11 properties which can be acquired in the medium term.
Valuation: BUY maintained, TP S$1.10. Our TP is based on DCF and we have not assumed any further acquisitions. Our TP offers 15% upside to current price. Key Risks to Our View: Currency risk. As the manager pays its distributions in SGD but earns in AUD, the REIT is exposed to currency fluctuations. The manager attempts to reduce foreign fluctuations by hedging distributions regularly.
*annualised Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: TH / sa: YM, PY
At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) FCL Investments (Industrial) Pte TCC Group Investments Limited Principal Financial Group Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Financials / Real Estate Investment Trusts
1,427 1,342 / 925 20.5 6.3 5.0 68.2 2.7
VICKERS SECURITIES Page 205
Company Guide Frasers Logistics & Industrial Trust Net Property Income and Margins (%) A$ m
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Unique pure-play Australia play. Frasers Logistics & Industrial Trust (FLT) offers investors the unique opportunity to invest in a portfolio of 53 assets (as at end of September 2016) that are concentrated within major industrial markets in Australia, including Melbourne, Sydney and Brisbane. Apart from a geographically diversified portfolio, the REIT’s tenants are mainly in the consumer and logistics sectors which are expected to remain resilient and continue growing as Australia’s economy transitions itself from being resource-led to consumption-led.
200 180 160 140 120 100 80 60 40 20 0
92.7% 90.7% 88.7% 86.7% 84.7% 82.7% 80.7% 78.7% 2016A
2017F
2018F
Net Property Income
2019F
Net Property Income Margin %
Net Property Income and Margins (%) 90%
37
80%
37
70% 36
In addition, FLT’s organic growth is underpinned by in-built rental escalations. All of the leases of the initial portfolio have fixed and/or Consumer Price Index-linked (CPI-linked) increments. The fixed rental increments, which are built into the existing leases, range from 2.5-3.75% which translates to an average annual rental increment of c.3.2% for the Initial Portfolio.
50%
35
40% 30%
35
20%
Net Property Income
4Q2016
3Q2016
2Q2016
1Q2016
4Q2015
3Q2015
2Q2015
0%
1Q2015
10%
34
4Q2014
34
3Q2014
Long WALE of 6.6 years with in-built organic growth a key trait in current uncertain environment. In our view, the long WALE by Adjusted Gross Rental Income of 6.6 years, which is longer than the majority of Singapore industrial REITs (between 2.9 and 4.7 years), provides strong cashflow visibility.
60%
36
Net Property Income Margin %
Distribution Paid / Net Operating CF 1.1
(x)
1.0 0.9 0.8 0.7 0.6
Predominantly freehold and long leasehold land tenure is a positive. FLT’s portfolio predominantly comprises properties on freehold (60.0% by appraised value) and long leasehold land (30.2% on leasehold land with a tenure of more than 80 years). FLT’s weighted land lease expiry of c.82 years is double that of other industrial S-REITs' average of 41 years. Based on our estimates, the component of capital return based on the remaining leasehold tenure on FLT’s annual distribution yield (at c.0.5%) is much smaller than the average of 2-3% for most industrial S-REITs.
0.5 0.4 0.3 2016A
2017F
2018F
2019F
Interest Cover (x) (x) 7.00 6.80 6.60 6.40
Strong Sponsor with long track record of development and management of Australian Industrial assets. FLT's subsidiary Frasers Property Australia Pty Limited (FPA) offers FLT access to a strong and fully integrated real estate platform. In particular, FPA’s industrial business has an end-to-end capability and leadership in the development of industrial assets, having developed over A$3.5bn worth of industrial assets since 2001.
6.20 6.00 5.80 5.60 2016A
2017F
2018F
2019F
Source: Company, DBS Bank
The Sponsor has granted FLT a right of first refusal (ROFR) over any of the completed income-producing industrial properties it intends to divest. This currently comprises eleven existing properties in Australia.
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 206
Company Guide Frasers Logistics & Industrial Trust
Balance Sheet: Balance sheet; gearing up for acquisitions. Gearing is projected to remain fairly stable at c.31% in the medium term. The low gearing level allows significant headroom for the manager to execute on opportunistic acquisitions when the time arises. The manager has a medium-term target gearing level of c.35-40%, implying there is headroom to gear up. Healthy financial metrics. The REIT has minimal debt expiries till FY19 with a weighted average cost of borrowing of 2.8%. Interest coverage ratio remains healthy at >7.0%. Close to 84% of the debt is hedged, implying minimal volatility to distributions in the event of an interest rate hike.
Aggregate Leverage (%)
30.0% 25.0% 20.0% 15.0% 10.0% 2016A
2017F
2018F
2019F
2018F
2019F
ROE (%) 7.0% 6.0% 5.0%
Share Price Drivers: Executing on acquisitions. FLT is looking to complete the planned acquisition of Martin Brower property in the coming quarter which will bring gearing up to the c.30-31% level. Despite this, we believe that the portfolio remains under-geared in relation to peers and optimal level. With opportunities abound in the market, we believe that the execution of more acquisitions which is projected to be accretive to earnings, will be a catalyst for its stock price.
4.0% 3.0% 2.0% 1.0% 0.0% 2016A
2017F
Distribution Yield (%) PB Band (x) (x)
Key Risks: Single-country concentration. While FLT provides exposure to the Australian industrial market, as a pure-play REIT, its portfolio is 100% concentrated in Australia. However, this risk is mitigated by the fact that its portfolio is diversified across five states in Australia and various industries.
20.3 19.3
+2sd: 19.1x
18.3 +1sd: 17.5x
17.3 16.3
Avg: 15.9x 15.3 14.3
Company Background Frasers Logistics & Industrial Trust (FLT) offers investors a unique opportunity to invest in a quality portfolio of industrial assets in Australia. FLT’s initial portfolio consists of 51 properties spread across five states in Australia with an appraised value of A$1,584.6m. The initial portfolio is well diversified across the key states of Victoria (40% of appraised value), New South Wales (28%) and Queensland (28%).
ASIAN INSIGHTS
-1sd: 14.2x
13.3 -2sd: 12.6x
12.3
27Oct2016
25Sep2016
24Aug2016
23-Jul2016
11.3
21Jun2016
The geographic and tenant diversity across various industries imply that the REIT is not dependent and over-reliant on the performance of any particular industry.
Source: Company, DBS Bank
VICKERS SECURITIES Page 3
Page 207
Company Guide Frasers Logistics & Industrial Trust
Income Statement (A$m) FY Sep Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
2016A
2017F
2018F
2019F
43.1 (7.4) 35.7 (12.8) (5.7) (3.8) 0.0 13.4 (6.1) 0.0 0.0 7.24 3.87 22.5 26.4
162 (24.9) 137 (14.0) 0.0 (18.1) (12.5) 92.5 (9.3) 0.0 0.0 83.3 83.3 11.7 95.0
162 (25.7) 136 (14.2) 0.0 (18.3) (7.7) 96.2 (9.6) 0.0 0.0 86.5 86.5 11.8 98.3
162 (26.5) 135 (14.2) 0.0 (18.3) (2.8) 100 (10.0) 0.0 0.0 90.2 90.2 11.8 102
N/A nm nm 100.0 82.9 16.8 61.3 29.7 0.6 0.4 0.7 6.0
276.3 284.2 1,049.9 100.0 84.6 51.4 58.6 8.7 6.7 4.7 6.3 6.8
0.0 (0.6) 3.9 100.0 84.1 53.4 60.7 8.7 6.9 4.8 6.1 6.7
0.0 (0.6) 4.2 100.0 83.6 55.7 62.9 8.7 7.2 5.0 6.1 6.6
Driven mainly by annual rental escalations coupled with acquisitions
Interest cost locked in
VICKERS SECURITIES Page 208
Company Guide Frasers Logistics & Industrial Trust
Quarterly / Interim Income Statement (A$m) FY Sep
4Q2016
Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%) Balance Sheet (A$m) FY Sep
43.1 (7.4) 35.7 (12.8) (5.7) (3.8) 0.0 13.4 (6.1) 0.0 7.24 3.87 22.5 26.4 N/A nm nm 82.9 100.0
2016A
2017F
2018F
2019F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
1,678 0.0 85.8 0.0 4.96 0.0 1,768
1,753 0.0 50.6 0.0 8.10 0.0 1,811
1,757 0.0 51.0 0.0 8.10 0.0 1,816
1,761 0.0 51.4 0.0 8.10 0.0 1,820
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
0.0 2.24 17.2 492 8.21 1,249 0.0 1,768
0.0 8.10 9.25 537 8.21 1,249 0.0 1,811
0.0 8.10 9.62 541 8.21 1,249 0.0 1,816
0.0 8.10 10.0 545 8.21 1,249 0.0 1,820
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%)
(14.5) (406)
(9.3) (486)
(9.6) (490)
(10.0) (493)
4.7 4.7 29.3
3.4 3.4 30.6
3.3 3.3 30.8
3.3 3.3 30.9
Maiden distributions
Gearing to remain stable
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 209
Page 5
Company Guide Frasers Logistics & Industrial Trust
Cash Flow Statement (A$m) FY Sep Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
2016A
2017F
2018F
2019F
13.4 0.0 0.0 0.0 12.1 6.69 32.1 (1,365) 0.0 0.0 0.0 (29.6) (1,394) (26.4) 491 982 (9.0) 1,438 0.0 75.8
92.5 0.0 (17.2) 0.0 2.72 11.7 89.8 (75.0) 0.0 0.0 0.0 0.0 (75.0) (95.0) 45.0 0.0 0.0 (50.0) 0.0 (35.2)
96.2 0.0 (9.3) 0.0 0.0 11.8 98.7 (4.0) 0.0 0.0 0.0 0.0 (4.0) (98.3) 4.00 0.0 0.0 (94.3) 0.0 0.36
100 0.0 (9.6) 0.0 0.0 11.8 102 (4.0) 0.0 0.0 0.0 0.0 (4.0) (102) 4.00 0.0 0.0 (97.9) 0.0 0.40
1.47 (97.6)
6.35 1.08
7.14 6.85
7.34 7.05
Assumed acquisition of Martin Brower property
Source: Company, DBS Bank Target Price & Ratings History 1.05
S$
1.00
S.No.
Dat e
Closing Pric e
T arget Price
Rat ing
1
29 J ul 16
0.99
1.10
BUY
0.95
0.90
0.85
0.80 Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Not e: Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Derek TAN Mervin SONG CFA
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 210
Singapore Company Guide
IREIT Global Version 5
Refer to important disclosures at the end of this report
| Bloomberg: IREIT SP | Reuters: IREI.SI
DBS Group Research . Equity
4 Jan 2017
HOLD
Waiting for new sponsor’s direction
Last Traded Price ( 4 Jan 2017): S$0.72 (STI : 2,921.31) Price Target 12-mth: S$0.75 (4% upside and 8.9% yield)
Uncertainty over IREIT’s new sponsor. We maintain our HOLD recommendation on IREIT Global (IREIT) and TP of S$0.75. While IREIT offers an attractive yield in excess of 8%, uncertainty over the direction of IREIT’s new sponsor Tikehau Capital, a European investment manager, will likely cap IREIT’s near-term share price performance. Furthermore, with IREIT’s gearing at c.42%, any growth plans are likely to entail an equity-raising exercise to fund the acquisition of new properties in Europe which may be DPU dilutive in the near term, given IREIT’s already high distribution yield.
Potential Catalyst: Acquisitions/increase in Germany’s CPI Where we differ: In line with consensus Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Price Relative
Strong cashflow visibility. With a weighted average lease expiry (WALE) by gross rental income of 6.2 years, IREIT provides strong cashflow visibility. The strength of its cashflows is also underpinned by its blue chip tenants, such as Allianz, Deutsche Telekom, Deutsche Rentenversicherung Bund and ST Microelectronics.
Forecasts and Valuation FY Dec (EURm) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 26.9 24.0 11.8 20.8 3.03 nm 5.24 155 61.8 23.8 7.3 1.2 42.3 5.2
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016F 33.1 30.3 23.4 25.4 5.77 90 6.32 21 63.4 12.5 8.8 1.1 42.0 9.2
2017F 33.4 30.6 22.6 25.6 5.49 (5) 6.41 1 62.7 13.1 8.9 1.1 42.2 8.8
2018F 33.7 30.9 23.9 25.9 5.78 5 6.34 (1) 62.2 12.5 8.8 1.2 42.4 9.3
0 6.34 B: 1
0 6.34 S: 0
0 H: 1
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: TH / sa: AS, PY
Full-year contribution from Berlin acquisition. IREIT's earnings this year should benefit from the full-year contribution from a Berlin property which was acquired in mid-2015 and on a proforma 7.1% NPI yield. We estimate that this will translate to a 21% uplift in FY16 DPU (SGD basis). Valuation: We maintain our DCF valuation of S$0.75 to account for the recent depreciation of the EUR versus SGD, after imputing a new EURSGD rate of 1.51. Key Risks to Our View: The key risk to our view is a significant depreciation of EUR versus SGD. For every 0.10 change in the EURSGD FX rate, our DCF valuation changes by 6%. In addition, a weaker-thanexpected inflation rate would also delay any increase in rents. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Jinquan Tong Chap Huat Lim Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Financials / Real Estate Investment Trusts
619 446 / 309 55.9 18.4 25.7 0.05
VICKERS SECURITIES Page 211
Company Guide IREIT Global Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Stable cash flow profile with inflation protection. IREIT’s portfolio of five properties has a WALE by gross rental income of 6.2 years (as at end-September 2016), which provides investors with significant cashflow visibility. The portfolio is also resilient as the majority of leases contain rent adjustment clauses which are subject to indexation to the German CPI. Rents are adjusted by a rise or a percentage of the change in CPI, upon the CPI crossing a prescribed hurdle rate or a prescribed percentage hurdle. Another attractive feature of IREIT’s portfolio is that the properties are leased to blue chip tenants such as Allianz, Deutsche Telekom, Deutsche Rentenversicherung Bund and ST Microelectronics which mitigate payment/credit risks for the REIT. Boost from acquisition of Berlin property. IREIT purchased a property in Berlin in mid-2015 for EUR144.2m (c.S$217.7m) on a 7.1% proforma NPI yield. The full benefits from the acquisition should accrue this year. Located in the district of Lichtenberg, 6km east of Berlin city centre, the freehold property consists of two fully connected building sections of eight and 13 storeys respectively. Close to fully occupied (c.99.2%), the property provides exposure to Berlin, one of the strongest economic regions in Germany. The acquisition further diversifies IREIT’s portfolio to five cities from its initial base of four (Munster, Bonn, Darmstadt and Munich) and lengthens IREIT’s WALE. Hedges in place to mitigate against FX volatility. IREIT distributes its income in SGD but its rental income is in EUR. To mitigate this risk, IREIT has entered into hedges for 100% of 2016 distributable income at an average hedge rate of S$1.53. Going forward, IREIT has also entered into hedges for 2017 distributions at an average hedge rate of S$1.55. New sponsor. Tikehau Capital, a pan-European asset management firm with over EUR9bn of assets under management of which EUR900m are in real estate, recently completed the purchase of an 80% stake in IREIT’s manager. While Tikehau Capital’s European pedigree and larger business potentially opens up greater opportunities for IREIT compared to its previous sponsor, there remains significant uncertainty on how Tikehau intends to grow the REIT and the strategic direction of the REIT given a widening of its investment mandate from purely office properties in Europe to now include retail and industrial assets.
ASIAN INSIGHTS
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2 Page 212
Company Guide IREIT Global
Aggregate Leverage (%)
Balance Sheet: Naturally hedged portfolio. As at end-September 2016, IREIT’s gearing stood at 42.5%. While its gearing is higher than other S-REITs, this risk is mitigated by the fact that all of IREIT’s borrowings are in EUR. In addition, interest rate risk is managed by having c.88% of its borrowings on fixed interest rates. Share Price Drivers: Uncertainty arising from IREIT’s new sponsor. Tikehau Capital, a European investment manager, recently completed the acquisition of an 80% stake in IREIT’s manager and announced plans to broaden IREIT’s investment mandate beyond European offices to include retail and industrial properties. Given the lack of details over which asset classes Tikehau Capital plans to focus on and how it intends to grow the REIT given IREIT’s already high gearing, we believe IREIT’s share price performance will be capped in the near term.
ROE (%)
Boost to capital values from negative interest rates. As negative interest rates in Europe incentivise investors to invest in riskier assets, we believe this will lead to further cap rate compression of European properties. As a German property REIT, IREIT is well positioned to capture the expected increase in property values. Distribution Yield (%)
Key Risks: Deflation risk. Should Germany experience another bout of deflation, this may cause a delay a potential rise in rents in the future. This would negatively impact projected distributions going forward.
10.0%
9.0%
+1sd: 8.3%
8.0% 7.0%
Avg: 6.5%
6.0%
5.0%
-1sd: 4.8%
4.0%
Interest rates risks. Any increase in interest rates will result in higher interest payments and reduce the income available for distribution, which will result in lower distribution per unit (DPU) for unitholders.
-2sd: 3%
3.0% 2.0% 1.0%
0.0% Dec-14
Jun-15
Dec-15
Jun-16
PB Band (x)
Single-tenant leases. IREIT is reliant on GMG, a wholly owned subsidiary of Deutsche Telekom for c. 60% of gross rental income (GRI). Non-performance by GMG will negatively impact distributions to unitholders. Changes in tax regime. Any changes in the tax regime could negatively impact IREIT’s distributions. Company Background IREIT is a Singapore REIT established with the investment strategy of principally investing, directly or indirectly, in a portfolio of income-producing real estate in Europe which is used primarily for office purposes.
ASIAN INSIGHTS
Source: Company, DBS Bank
VICKERS SECURITIES Page 3 Page 213
Company Guide IREIT Global
Income Statement (EURm) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2015A
2016F
2017F
2018F
26.9 (2.9) 24.0 (3.0) (1.0) (2.6) (5.2) 12.2 (0.4) 0.0 0.0 11.8 11.8 3.72 20.8
33.1 (2.8) 30.3 (3.3) 0.0 (4.0) 0.0 23.0 0.44 0.0 0.0 23.4 23.4 1.92 25.4
33.4 (2.9) 30.6 (4.5) 0.0 (4.0) 0.0 22.1 0.44 0.0 0.0 22.6 22.6 3.08 25.6
33.7 (2.9) 30.9 (3.4) 0.0 (4.0) 0.0 23.5 0.44 0.0 0.0 23.9 23.9 1.98 25.9
223.4 219.3 nm 100.0 89.2 43.9 77.2 11.1 5.2 3.1 5.8 8.0
22.9 25.9 98.2 100.0 91.4 70.8 76.6 9.9 9.2 5.0 6.2 6.8
1.0 1.0 (3.7) 100.0 91.4 67.5 76.7 13.3 8.8 4.7 6.0 6.6
0.9 1.0 6.0 100.0 91.5 70.9 76.8 9.9 9.3 5.0 6.2 6.8
Increase in earnings from the acquisition of the Berlin property
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 214
Company Guide IREIT Global
Quarterly / Interim Income Statement (EURm) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
7.35 (0.8) 6.54 (1.1) (1.0) (0.8) 0.0 3.68 0.74 0.0 4.43 (3.6) 9.14 5.60
8.62 (1.0) 7.66 (0.8) (0.2) (0.8) 0.0 5.81 (0.7) 0.0 5.11 6.65 (0.2) 6.46
8.80 (1.2) 7.61 (0.8) 0.41 (1.0) 0.0 6.25 (0.3) 0.0 5.91 5.83 0.58 6.41
8.48 (0.8) 7.65 (0.8) 0.71 (1.0) 0.0 6.54 (1.7) 0.0 4.85 13.0 (6.6) 6.41
8.54 (0.9) 7.68 (1.1) (0.4) (1.0) 0.0 5.12 (0.4) 0.0 4.70 4.60 1.74 6.34
36 34 35 89.0 100.0
17 17 16 88.8 100.0
2 (1) 15 86.5 100.0
(4) 0 (18) 90.2 100.0
1 0 (3) 89.9 100.0
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
441 2.30 21.2 0.0 1.56 0.0 466
450 2.30 19.8 0.0 2.76 0.44 475
452 2.30 19.8 0.0 2.79 0.44 477
454 2.30 19.8 0.0 2.81 0.44 479
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
0.0 3.90 12.5 197 1.66 251 0.0 466
0.0 4.14 12.5 199 1.66 257 0.0 475
0.0 4.18 12.5 201 1.66 257 0.0 477
0.0 4.22 12.5 203 1.66 257 0.0 479
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%)
(14.8) (176)
(13.4) (180)
(13.4) (182)
(13.4) (184)
1.4 1.4 42.3
1.4 1.4 42.0
1.4 1.4 42.2
1.4 1.4 42.4
Balance Sheet (EURm) FY Dec
Increase in gearing due to acquisition of the Berlin property
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 215
Page 5
Company Guide IREIT Global
Cash Flow Statement (EURm) FY Dec
2015A
2016F
2017F
2018F
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash
17.4 1.00 (0.4) 0.0 (0.2) 6.06 23.9 (156) 0.0 0.0 0.0 0.0 (156) (15.1) 101 58.0 (2.2) 142 0.0 9.94
23.0 1.00 0.44 0.0 (1.4) 1.92 25.0 (2.0) 0.0 0.0 0.0 0.0 (2.0) (25.4) 2.00 0.0 0.0 (23.4) 0.0 (0.4)
22.1 1.00 0.44 0.0 0.01 3.08 26.7 (2.0) 0.0 0.0 0.0 0.0 (2.0) (25.6) 2.00 0.0 0.0 (23.6) 0.0 1.01
23.5 1.00 0.44 0.0 0.01 1.98 26.9 (2.0) 0.0 0.0 0.0 0.0 (2.0) (25.9) 2.00 0.0 0.0 (23.9) 0.0 1.01
Operating CFPS (S cts) Free CFPS (S cts)
6.18 (33.9)
6.49 5.65
6.48 6.00
6.50 6.02
Acquisition of Berlin property
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Mervin SONG CFA Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 216
Singapore Company Guide
Keppel DC REIT Version 6
Refer to important disclosures at the end of this report
| Bloomberg: KDCREIT SP | Reuters: KEPE.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Destiny in its own hands
Last Traded Price ( 4 Jan 2017): S$1.20 (STI : 2,921.31) Price Target 12-mth: S$1.33 (11% upside and 6.0% yield) Potential Catalyst: Acquisitions Where we differ: Estimates are more conservative than consensus Analyst Derek TAN +65 6682 3716 [email protected] Singapore Research Team [email protected] Mervin SONG CFA +65 6682 3715 [email protected]
Acquisition of KDC SG 3 to power earnings forward; impact on DPUs estimated to be significant. The acquisition of KDC SG 3 further diversifies the REIT’s earnings base and fuels a stronger earnings growth trajectory of 5% going forward. Apart from being a significantly accretive deal, upside will come from the ability for management to garner tax transparency status, which allows an additional 3.5% upside to our estimates, which is not factored in.
Price Relative
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 102 86.9 105 57.5 7.17 32 6.51 20 92.1 16.7 5.4 1.3 33.7 8.0
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016F 102 83.5 57.9 60.2 6.55 (9) 6.81 5 92.1 18.3 5.7 1.3 40.3 7.1
2017F 136 115 80.0 80.3 7.98 22 7.15 5 97.0 15.0 6.0 1.2 29.7 8.4
2018F 141 120 84.2 84.5 7.50 (6) 7.52 5 97.0 16.0 6.3 1.2 35.1 7.7
0 6.60 B: 9
0 7.20 S: 0
0 7.40 H: 1
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: TH / sa: YM, PY
BUY with S$1.33 TP. Keppel DC REIT (KDC REIT) remains one of the few REITs in Singapore that is projected to deliver a solid 5% CAGR in distributions supported by positive market dynamics. Low gearing of c.30% and low cost of capital empower the REIT with financial capacity to acquire accretive assets. Maintain BUY and TP of S$1.33 which has already priced in the recently announced acquisition of Keppel DC Singapore 3 (KDC SG 3).
Further flexibility to acquire post balance sheet recapitalisation exercise. The S$279.5m in new equity raised improved the REIT’s liquidity and further strengthened its balance sheet, positioning KDC REIT for another year of strong growth driven from acquisitions. This is supported by low gearing of c.30% coupled with low cost of capital. We have not factored in further acquisitions in our estimates. Valuation: We currently have a BUY recommendation, with a DCF-backed TP of S$1.33. The stock offers attractive FY17F yields of 6.0% and upside will hinge on better-than-expected returns from acquisitions. Key Risks to Our View: Rising interest rates. A faster than anticipated rise in interest rates will negatively impact distributions. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Keppel Corp Ltd Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Financials / Real Estate Investment Trusts
1,125 1,350 / 938 27.5 72.5 2.0
VICKERS SECURITIES Page 217
Company Guide Keppel DC REIT Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Tapping on global data storage and usage growth. As an owner of data centres in key data gateways and financial centres across Asia Pacific and Europe, KDC REIT is poised to ride the wave of rising global data usage and demand for data centres. The Trust offers investors a stable and visible earnings growth profile, with 30% of NPI derived from long-dated master leases with embedded rental step-ups of 2-4% p.a. With 61% of leases by rental income due for renewal between 2015 and 2017, earnings will be further driven by positive rental reversions and higher occupancies at its co-location data centres in Singapore (T25, S25), Australia (part of Gore Hill), and Ireland (Citadel 100). As it stands, the Trust has a WALE of 2.6 years for co-location properties, 9.9 years for fully fitted properties, and 16 years for shell & core properties. Strong ambitions to grow portfolio. The acquisition of KDC SG 3 for S$202.5m is well anticipated but highly accretive to portfolio earnings estimates, given the high initial yield of 10.25%. The REIT raised S$279.5m which will fully fund the acquisition with equity. The remaining S$65m will be utilised to pay down short-term loans for the purchase of Intellicentre 2 (previously announced) and future acquisitions which are not factored in at this point.
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
We estimate the deal to be accretive and project the full-year impact from this acquisition to grow FY17F DPU by 5.0% (FY16F DPU estimate of 6.8 Scts vs FY17F DPU of 7.2 Scts). Assuming that IRAS approves tax transparency status for the REIT, impact to DPU is estimated to be close to 8.5%. Occupancy saw marginal improvement to 92.7% from 92.3%, mainly due to the take-up of half of the lease renewal (6,800 sqft in total or 6.2% of the property NLA) at Keppel DC Singapore 1 (aka S25) that was previously committed and announced. The remaining half is intended to be taken up in 2H17. WALE remains healthy at 8.6 years. Expansion to Italy and the UK: The REIT had recently announced acquisitions in two new markets, a shell and core building of a data centre in Milan, Italy, and another one in Cardiff, UK. Both backed by long master leases with embedded rental escalations, the former has been fully leased to one of the world’s largest telecommunications companies for 12 years, whereas the latter has been fully leased to one of the largest global cloud service providers for 15 years.
ASIAN INSIGHTS
Interest Cover (x)
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2
Page 218
Company Guide Keppel DC REIT
Balance Sheet: Conservative hedging policies. Major currencies that will impact earnings - AUD and EUR - have been hedged for two years at better-than-current spot rates, minimising any currency fluctuations going forward. While the Manager has hedged the majority of its foreign-sourced income until 1H17, we note that the REIT could face translation losses upon rolling forward these hedges if the AUD and EUR remain at current levels.
Aggregate Leverage (%)
Conservative balance sheet. KDC REIT’s gearing stands at below c.30%, with an all-in cost of debt of 2.4%. As at end-3Q16, 87% of the Trust’s borrowings were hedged into fixed rate debt, which will provide earnings visibility in a volatile interest rate environment.
ROE (%)
Share Price Drivers: Acquisitions to be a key share price driver. Given that earnings profile is fairly stable; growth in DPUs is likely to be driven by acquisitions, which the Manager alludes to be considering. Given its current share price, target acquisition returns of c.78% should mean that acquisitions are likely to be accretive. Key Risks: Higher maintenance capex relative to other asset classes. Due to the shorter lifespan of a datacentre’s infrastructure, it is possible that the REIT may have to rely on borrowings to fund maintenance capex at certain properties, which could impact gearing.
Distribution Yield (%)
Competition from larger third-party data centre players. The data centre market is dominated by several large international operators which have been aggressively expanding into markets where KDC REIT has a presence. KDC REIT may face higher barriers to entry and stiffer competition to attract and retain tenants.
PB Band (x)
Company Background Keppel DC REIT (KDC REIT) is a Singapore-based real estate investment trust (REIT), established with the principal investment strategy of investing, directly or indirectly, in a portfolio of income-producing real estate assets which are used primarily for data centre purposes, with an initial focus on Asia Pacific and Europe.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 219
Company Guide Keppel DC REIT
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2015A
2016F
2017F
2018F
102 (15.6) 86.9 (7.3) 0.77 (11.4) 0.0 69.0 (5.6) 0.0 0.0 63.3 105 (46.9) 57.5
102 (18.3) 83.5 (12.7) 0.0 (9.5) 0.0 61.3 (3.4) 0.0 0.0 57.9 57.9 2.30 60.2
136 (20.8) 115 (16.6) 0.0 (11.7) 0.0 87.0 (7.0) 0.0 0.0 80.0 80.0 0.30 80.3
141 (21.0) 120 (16.4) 0.0 (12.4) 0.0 91.5 (7.3) 0.0 0.0 84.2 84.2 0.30 84.5
28.2 28.8 32.3 100.0 84.8 61.8 56.1 7.1 8.0 5.4 6.4 7.0
(0.7) (3.9) (8.6) 100.0 82.0 56.9 59.1 12.5 7.1 4.6 5.3 7.5
33.8 38.2 38.2 100.0 84.7 58.8 59.0 12.2 8.4 5.6 6.4 8.4
3.8 4.3 5.2 100.0 85.1 59.5 59.7 11.6 7.7 5.3 6.0 8.4
Earnings growth mainly from KDC SG 3 acquisition
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 220
Company Guide Keppel DC REIT
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
25.7 (4.4) 21.4 (1.0) 0.0 (2.9) 0.0 17.5 (0.6) 0.0 16.9 16.9 (2.4) 14.5
24.6 (2.7) 21.8 (3.7) 0.0 (2.8) 0.0 15.3 (2.4) 0.0 12.9 54.8 (40.3) 14.5
24.8 (3.6) 21.2 (3.6) 0.64 (2.8) 0.0 15.5 (0.9) 0.0 14.6 14.6 0.13 14.8
24.9 (2.8) 22.1 0.31 0.0 (2.8) 0.0 19.6 (1.2) 0.0 18.4 18.4 (3.6) 14.7
22.7 (2.8) 19.9 4.87 0.0 (2.8) 0.0 22.0 (0.9) (0.1) 21.0 21.0 (4.3) 16.7
(1) (3) 10 83.0 100.0
(5) 2 (24) 88.9 100.0
1 (3) 13 85.5 100.0
0 4 26 88.9 100.0
(9) (10) 14 87.8 100.0
Balance Sheet (S$m) FY Dec
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
1,103 17.3 37.2 0.0 53.1 1.01 1,211
1,224 17.3 41.9 0.0 40.7 1.01 1,325
1,431 17.3 34.1 0.0 54.5 1.01 1,538
1,550 17.3 32.8 0.0 56.5 1.01 1,657
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
33.6 17.8 0.14 338 7.78 813 0.37 1,211
33.6 6.78 3.51 460 7.78 813 0.41 1,325
33.6 9.08 7.10 392 7.78 1,089 0.45 1,538
33.6 9.42 7.46 510 7.78 1,089 0.49 1,657
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
36.1 (335)
31.4 (451)
39.3 (391)
40.7 (511)
1.8 1.7 33.7 1.9
1.9 1.9 40.3 1.5
1.8 1.8 29.7 1.9
1.8 1.8 35.1 1.7
Gearing to remain within comfortable range
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 221
Page 5
Company Guide Keppel DC REIT
Cash Flow Statement (S$m) FY Dec
2015A
2016F
2017F
2018F
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash
69.0 0.0 (0.2) 0.0 (24.4) 11.9 56.3 (477) (8.8) 0.0 0.0 (47.6) (533) (31.4) 149 507 (118) 507 (0.7) 29.7
61.3 0.0 0.0 0.0 1.36 2.30 64.9 (121) 0.0 0.0 0.0 0.0 (121) (60.2) 121 0.0 0.0 61.2 0.0 4.76
87.0 0.0 (3.4) 0.0 (11.5) 0.30 72.5 (207) 0.0 0.0 0.0 0.0 (207) (80.3) (68.1) 275 0.0 127 0.0 (7.8)
91.5 0.0 (7.0) 0.0 (1.7) 0.30 83.1 (118) 0.0 0.0 0.0 0.0 (118) (84.5) 118 0.0 0.0 33.9 0.0 (1.3)
Operating CFPS (S cts) Free CFPS (S cts)
9.14 (47.6)
7.20 (6.4)
8.37 (13.4)
7.56 (3.1)
Investments in KDC SG 3 (2017) and mainCubes (2018)
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Derek TAN Singapore Research Team Mervin SONG CFA
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 222
Singapore Company Guide
Keppel REIT Version 6
Refer to important disclosures at the end of this report
| Bloomberg: KREIT SP | Reuters: KASA.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Money left on the table
Last Traded Price ( 4 Jan 2017): S$1.02 (STI : 2,921.31) Price Target 12-mth: S$1.23 (21% upside and 6.4% yield)
Recent rally to continue. Keppel REIT (KREIT)’s share price has rallied over 25% since its lows in January 2016. KREIT’s valuation is still attractive on the basis of its cheap valuation on a per square foot (sqft) basis and decent yield of c.6.5%. In addition, through proactive lease renewals, KREIT has derisked its portfolio to mitigate against potential downside from occupancies and rental rates. Thus, we maintain our BUY call with a TP of S$1.23.
Potential Catalyst: Better than expected rental reversions, resilient office property values Where we differ: In line with consensus Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Tenancy risk in 2017 and 2018 significantly reduced. The impact on DPU from the potential loss of key tenants in 2017 and 2018 has been reduced considerably. With forward renewal efforts year-to-date, there are only 5% of leases left for renewal in each of 2017 and 2018 with no further leases due for the remainder of 2016. While expiring rents over the next two years are in the low S$9 level, close to current Grade A rents of S$9.30, we believe premium status of KREIT’s properties will help mitigate the potential decline in overall office rents. Furthermore, with S$50-60m of disposal gains yet to be distributed, KREIT has the flexibility to stabilise its DPU going forward.
Price Relative S$
Relative Index
1.8
1.7
210
1.6
190
1.5
170
1.4 1.3
150
1.2
130
1.1
110
1.0 90
0.9 0.8 Jan-13
Jan-14
Jan-15
Keppel REIT (LHS)
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
Jan-16
70 Jan-17
Relative STI (RHS)
2014A 184 151 372 206 5.46 0 7.23 (8) 154 18.7 7.1 0.7 43.3 3.8
DPU Chng (%): Consensus DPU (S cts): Other Broker Recs:
2015A 170 137 337 217 3.71 (32) 6.76 (7) 143 27.5 6.6 0.7 40.0 2.6
2016F 159 130 161 212 4.95 33 6.51 (4) 139 20.6 6.4 0.7 38.9 3.5
2017F 158 129 158 216 4.77 (4) 6.51 0 136 21.4 6.4 0.7 38.9 3.4
B: 8
(2) 6.70 S: 4
(2) 6.50 H: 9
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
Compelling valuations on per sqft valuation basis. KREIT’s Singapore Grade A office portfolio is trading at an implied value of c.S$2,400 per sqft compared to recent office market transactions including the sale of Asia Square Tower 1, 60% interest in CapitaGreen and Straits Trading Building at between S$2,700 (adjusted for 99-year leasehold for CapitaGreen) to S$3,500 psf. With abundant liquidity as well as long term investors being positive on the Singapore office market and looking beyond short term supply headwinds, we believe capital values for office properties will remain resilient near term and KREIT’s discount to the physical market is unwarranted. Valuation: We maintain our DCF-based TP of S$1.23 which has incorporated higher number of shares on issue and near term drag from loss of California Fitness at Bugis Junction Towers. Our TP implies a valuation of c.S$2,500 per sqft for KREIT’s Grade A offices in Singapore. Key Risks to Our View: A key risk to our view is new offices supply causing spot rents to fall below S$7 per sqft, which will likely lead to lower asking rents, coming in below our expectations. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Keppel Land Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
ASIAN INSIGHTS ed: JS / sa: YM, PY
3,292 3,357 / 2,315 46.0 54.0 3.0
VICKERS SECURITIES Page 223
Company Guide Keppel REIT Net Property Income and Margins (%)
Long WALE offers income visibility. K-REIT has a long weighted average lease expiry (WALE) of c.6 years, with c.95% of leases due only from FY18F and beyond. Despite the increase in grade A office supply in Singapore in 2016-2017, the Manager remains optimistic on its future outlook as it believes that its assets will continue to be well coveted due to their location in Marina Bay.
200 180 160 140 120 100 80 60 40 20 0
89.5%
87.5% 85.5% 83.5%
81.5% 79.5% 77.5%
75.5% 2013A
2014A
2015A
Net Property Income
2016F
2017F
Net Property Income Margin %
Net Property Income and Margins (%) 84%
40
83%
38
82% 81%
36
80%
34 79% 32
78%
Net Property Income
3Q2016
2Q2016
1Q2016
4Q2015
3Q2015
2Q2015
1Q2015
77%
4Q2014
30
3Q2014
Earnings Drivers: Factors mitigating potential impact on occupancies and rents. On the back of forward renewals in 9M16, KREIT no longer has any leases up for renewal for the remainder of 2016. This is down from 13.6% at the start of the year. Thus, we believe KREIT’s risk profile near term has reduced significantly. In addition, the forward renewal strategy has also resulted in only 5% of leases up for renewal in 2017 and 2018 respectively, which in our view will help KREIT navigate the impending 2.8m sqft of new office supply. Furthermore, tenancy risks are partially mitigated by the fact that the majority of the leases due in 2017 and 2018 are in their first renewal cycle. With tenants in relatively new offices and having made considerable investments in fit-outs, there is potentially less incentive for them to relocate. In addition, we understand expiring rents for FY17 and FY18 leases are in the low S$9’s which means if Grade A office rents bottom out close to our expectations of around S$9 per sqft, risk of negative rental reversions will be minimised.
S$ m
2Q2014
CRITICAL DATA POINTS TO WATCH
Net Property Income Margin %
Distribution Paid / Net Operating CF 5.1
(x)
4.6
4.1 3.6
3.1 2.6 2.1 1.6
Stable income from Australia. KREIT's Australian properties have a WALE profile of c.10 years, with a majority of leases having annual rental escalation clauses, which provides income stability for the REIT. In 2016, KREIT should also benefit from the recently opened office tower on the Old Treasury Building site in Perth, which incidentally has been renamed as the David Malcolm Justice Centre. However, contribution in SGD terms could potentially be erorded due to the depreciation of the AUD against the SGD.
1.1
0.6 2013A
2014A
2015A
2016F
2017F
2016F
2017F
Interest Cover (x) (x) 6.00 5.00 4.00
3.00
Divestment gains to smooth future distributions. We understand KREIT has c.S$50-60m of divestment gains which it has yet to pay out to unitholders. These gains are from past disposals such as the sale of Prudential Tower and the recent sale of 77 George Street. We believe these gains provide KREIT with the flexibility to smooth future distributions, providing income stability in the event of an unexpected rise in interest rates and/or lower than projected rents.
ASIAN INSIGHTS
2.00 1.00
0.00 2013A
2014A
2015A
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2 Page 224
Company Guide Keppel REIT
Balance Sheet: Gearing now below 40%. With recent asset revaluation gains and the disposal of 77 King Street in Sydney, KREIT’s gearing is now at c.39%. Going forward, we expect gearing to remain below 40%.
Aggregate Leverage (%) 45.0% 40.0% 35.0%
30.0%
Decent debt maturity. KREIT has a weighted average debt to expiry of 3.7 years, with c.74% of debt on fixed rates.
25.0%
20.0% 2013A
Share Price Drivers: Sentiment too negative on office capital values? With the looming new office supply and spot Grade A office rents declining recently, investors have generally avoided the office sector. However, with KREIT’s share price having already corrected significantly from peak levels in 2013 causing KREIT to trade at 0.8x P/BV, and evidence that physical office asset values are unlikely to correct further near term based on recent market transactions, we believe KREIT’s decent 5.8% yield deserves another relook by investors.
2014A
2015A
2016F
2017F
2016F
2017F
ROE (%) 4.0% 3.5% 3.0% 2.5% 2.0% 1.5%
1.0% 0.5%
Key Risks: Risks to capital values. Should an increase in office supply and a persistently weak office market outlook lead to a larger than expected fall in rents, valuers could downgrade rental and growth outlook, and this could trigger a decline in capital values, which would put the REIT’s NAV at risk.
0.0% 2013A
2014A
2015A
Distribution Yield (%) (%) 8.3 7.8
+2sd: 7.4%
7.3
Interest rate risk. Any increase in interest rates will result in higher interest payments that the REIT has to make annually to service its loans. Nevertheless, the risk is partially mitigated by the fact that c.74% of the KREIT’s debt is on fixed rates.
6.8
+1sd: 6.8%
6.3
Avg: 6.3%
5.8
-1sd: 5.8%
5.3
-2sd: 5.3%
4.8
Currency risk. As KREIT earns rental income from its Australian assets in AUD, any depreciation in the AUD would result in relatively lower contributions from Australia to K-REIT's total distributable income. To manage this risk, almost all of KRETI’s income from Australia has been hedged for 2016.
4.3 2013
2014
2015
2016
2017
PB Band (x) 1.4
(x)
1.3 1.2
Company Background Keppel REIT is a real estate investment trust investing in predominantly commercial properties in Singapore and key gateway cities in Australia.
1.1 1.0
+2sd: 1.03x
0.9
+1sd: 0.91x
0.8
Avg: 0.8x
0.7
-1sd: 0.69x
0.6 0.5 Jan-13
-2sd: 0.58x Jan-14
Jan-15
Jan-16
Jan-17
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3 Page 225
Company Guide Keppel REIT
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2013A
2014A
2015A
2016F
2017F
174 (35.7) 138 (49.8) 28.0 (18.2) 0.0 163 (16.8) 0.0 0.0 146 535 132 214
184 (32.7) 151 (52.9) 12.6 (22.7) 12.3 171 (11.6) (0.1) 0.0 160 372 (166) 206
170 (32.9) 137 (56.8) 5.60 (30.4) 0.0 149 (28.0) (0.1) (1.2) 119 337 (120) 217
159 (28.9) 130 (50.0) 1.17 8.24 0.0 172 (3.7) 0.0 (7.5) 161 161 50.8 212
158 (28.8) 129 (50.0) (0.1) 7.29 0.0 170 (3.9) 0.0 (7.5) 158 158 57.5 216
10.9 10.9 25.5 100.0 79.5 83.8 123.0 28.6 4.0 2.3 1.3 4.9
5.8 9.5 9.4 100.0 82.3 86.7 112.0 28.8 3.8 2.3 1.3 4.3
(7.5) (9.2) (25.1) 100.0 80.7 70.1 127.5 33.3 2.6 1.6 0.9 2.7
(6.9) (5.7) 35.0 100.0 81.8 101.7 133.7 31.5 3.5 2.2 1.1 NM
(0.5) (0.6) (1.9) 100.0 81.7 100.3 136.8 31.7 3.4 2.2 1.1 NM
We expect distribution income to be fairly stable going forward, as KREIT’s portfolio average rents are below market. This limits downside from negative reversions as well as KREIT’s ability to payout past disposal gains
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 226
Company Guide Keppel REIT
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
42.2 (8.8) 33.4 (14.7) 1.37 (7.8) 0.0 34.6 (4.5) 0.0 30.1 51.0 3.42 54.4
42.8 (8.0) 34.8 (13.4) 1.32 (8.0) 0.0 36.7 (19.8) (0.1) 15.6 213 (159) 52.8
41.2 (8.3) 32.9 (14.9) 0.36 (7.4) 0.0 36.6 (7.0) 0.0 27.7 56.0 (1.6) 54.4
40.6 (8.1) 32.5 (13.2) 1.15 (9.5) 0.0 39.4 (3.0) 0.0 34.5 96.5 (44.0) 52.5
39.5 (8.0) 31.6 (15.7) 3.07 (9.7) 0.0 41.8 (1.8) 0.0 40.0 40.0 12.5 52.5
(2) (4) (19) 79.2 100.0
1 4 (48) 81.3 100.0
(4) (5) 77 79.9 100.0
(1) (1) 24 80.0 100.0
(3) (3) 16 79.9 100.0
Balance Sheet (S$m) FY Dec
2013A
2014A
2015A
2016F
2017F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
4,015 2,635 90.6 0.0 33.9 1.36 6,776
3,614 3,490 200 0.0 25.0 0.76 7,329
3,691 3,570 145 0.0 18.1 1.29 7,425
3,551 3,570 152 0.0 26.4 1.29 7,301
3,554 3,570 121 0.0 26.3 1.29 7,273
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
282 94.3 23.0 2,401 76.5 3,897 1.98 6,776
275 84.5 21.0 2,390 99.1 4,457 2.05 7,329
25.4 51.2 13.4 2,464 93.4 4,776 2.10 7,425
25.4 96.4 13.4 2,314 93.4 4,756 2.10 7,301
25.4 96.1 13.4 2,314 93.4 4,728 2.10 7,273
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(82.0) (2,592)
(79.7) (2,466)
(45.2) (2,345)
(82.1) (2,188)
(82.0) (2,219)
0.3 0.3 39.6 0.7
0.6 0.6 43.3 0.8
1.8 1.8 40.0 0.9
1.3 1.3 38.9 1.0
1.1 1.1 38.9 1.0
Expected decline in gearing due to recent revaluation gains and disposal of 77 George Street
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 227
Page 5
Company Guide Keppel REIT
Cash Flow Statement (S$m) FY Dec Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
2013A
2014A
2015A
2016F
2017F
163 0.0 (15.4) (64.2) (45.3) 22.6 60.3 504 0.0 (585) 65.4 (208) (224) (211) 258 173 (54.9) 165 (12.4) (11.3)
171 0.0 (14.3) (70.6) (74.0) 30.0 42.6 504 0.0 (585) 73.4 99.6 92.2 (215) (20.9) 225 (56.5) (67.4) 41.7 109
149 0.0 (7.6) (92.9) (5.5) 71.5 114 (12.1) 0.0 63.2 89.5 0.0 141 (204) (346) 150 0.0 (400) 0.0 (145)
172 0.0 (3.7) (83.3) 36.9 30.9 153 140 0.0 0.0 83.3 0.0 223 (212) (150) 0.0 (7.5) (369) 0.0 6.99
170 0.0 (3.9) (83.5) (0.2) 30.1 112 (3.2) 0.0 0.0 83.5 0.0 80.4 (216) 0.0 0.0 (7.5) (223) 0.0 (30.7)
3.95 21.1
3.99 18.7
3.72 3.18
3.57 9.00
3.39 3.29
Net gain of c.S$140m from the disposal of 77 George Street
Source: Company, DBS Bank Target Price & Ratings History
S$ 1.16
5
1.11
2
6
7
8
4
1.06
3 1.01
1
0.96 0.91
12- mt h T arget Rat ing Pric e
S.No.
Dat e of Report
Closing Pric e
1:
15 Apr 16
1.01
1.11
BUY
2:
20 J ul 16
1.08
1.26
BUY
3:
22 J ul 16
1.07
1.26
BUY
4:
29 Aug 16
1.07
1.26
BUY
5:
05 Sep 16
1.12
1.26
BUY
6:
26 Sep 16
1.10
1.26
BUY
7:
19 Oct 16
1.10
1.23
BUY
8:
08 Nov 16
1.09
1.23
BUY
0.86 0.81 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Mervin SONG CFA Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 228
Singapore Company Guide
Manulife US Real Estate Inv Refer to important disclosures at the end of this report
Version 3 | Bloomberg: MUST SP | Reuters: MANU.SI
DBS Group Research . Equity
4 Jan 2017
BUY
America’s office is great
Last Traded Price ( 4 Jan 2017): US$0.84 (STI : 2,921.31) Price Target 12-mth: US$0.93 (12% upside and 7.3% yield) Potential Catalyst: Exceeding IPO forecasts, and acquisitions Where we differ: na Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Price Relative
Forecasts and Valuation FY Dec (US$m) 2015P* Gross Revenue 71.0 Net Property Inc 44.2 Total Return 26.0 Distribution Inc 34.3 EPU (US cts.) 4.15 EPU Gth (%) nm DPU (US cts.) 5.48 DPU Gth (%) nm NAV per shr (US cts.) 78.4 20.1 PE (X) Distribution Yield (%) 6.6 P/NAV (x) 1.1 Aggregate Leverage (%) 36.6 ROAE (%) 10.6 Distn. Inc Chng (%): Other Broker Recs:
2016F* 78.7 48.7 27.2 35.4 4.32 4 5.61 2 82.0 19.3 6.7 1.0 36.2 5.4
2017F 79.3 48.6 30.8 38.4 4.84 12 6.05 8 80.8 17.2 7.2 1.0 37.1 6.0
2018F 80.7 49.5 33.9 38.8 5.29 9 6.06 0 80.2 15.8 7.3 1.0 37.6 6.6
B: 4
S: 0
H: 0
* FY15 numbers are on a proforma basis while FY16 are on an annualised basis Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
Play on exposure to an improving US office market. We maintain our BUY call and TP of US$0.93. We continue to like Manulife US REIT's (MUST) attractive prospective 7.3% yield, strong organic growth prospects and exposure to the favourable demand and supply fundamentals in the US office markets where MUST’s properties are located. This translates to an 8% DPU growth in FY17, one of the highest among REITs in Singapore. The expected strength of the USD/SGD exchange rate could also result in inflows into the stock. Increased confidence on the REIT’s ability to deliver. Our recent visit to properties in the US and meetings with various property brokers as well as MUST’s strong maiden results indicate that market fundamentals remain firm. We believe that MUST's properties in Midtown Atlanta and Downtown Los Angeles submarkets will continue to see steadily increasing rents, continued expansionary tenant demand, increased employment opportunities and also a lack of competitive new supply. Apart from upside when leases come due, 84.2% of leases (by NLA) have annual rental escalations of around 3%, and 15.0% have provisions for mid-term or period rent increases. Acquisitions to be the next driver of growth. The manager has been disciplined towards acquisitions and with the recent decline in gearing to 34.6%, MUST is well placed to execute on DPU-accretive acquisitions. Apart from that, we expect any acquisition to diversify the REIT’s geographic earnings base and tenant concentration. Markets that are of interest are core submarkets that enjoy demand from a diversified type of industries (i.e. manufacturing, financial, technology and law firms) which imply stability across market cycles. We have not priced in acquisitions in our forecasts. Valuation: TP is maintained at US$0.93 based on DCF. The stock offers attractive FY16-17F yields of 6.8-7.3%. Key Risks to Our View: Lower-than-expected rental income. The key risk to our view is lower-than-expected rental income, arising from the nonreplacement/renewal of leases and/or slower-than-expected recovery of office rents in the US. At A Glance Issued Capital (m shrs) Mkt. Cap (US$m) Major Shareholders (%) Manulife International Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Financials / Real Estate Investment Trusts
ASIAN INSIGHTS ed: TH / sa: YM, PY
628 524 7.5 92.5 0.98
VICKERS SECURITIES Page 229
Company Guide Manulife US Real Estate Inv Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Exposure to the recovery of US real estate market. According to Colliers International (Colliers), the office market outlook for Downtown Los Angeles, Orange County and Atlanta are attractive given (i) rising demand due to projected falling unemployment rates on the back of a pick-up in business activities, and (ii) a deep pool of local talents and skilled workers which attract companies to set up and maintain their presence there. The sub-markets where Manulife US REIT’s properties are located are also characterised by a lack of new competitive supply due to limited land availability and high construction costs. Given supportive market dynamics, Colliers expects Class A rents in the respective markets to improve by 1.5-23.0% per annum over 2015-2017. Through the initial portfolio and potential acquisitions in the future, we believe that MUST offers a cyclical recovery story, with rents and capital values at or close to an upswing, underpinned by improved business activity in the US and real estate values that are off previous highs.
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Inbuilt organic growth. MUST’s properties are well positioned to experience strong organic growth delivered through built-in rental escalations embedded into their lease contracts. As at 30 September 2016, (1) approximately 84.2% of leases (by NLA) for the initial portfolio had built-in annual rental escalations, mostly between 2.5% and 3.5%, and (2) 15% of leases (by NLA) had mid-term or period rent increases, thus providing a visible and growing rental income stream. Long WALE of 6.1 years offers strong income visibility. With leases typically signed on a 3- to 10-year lease and some in excess of 10 years, the initial portfolio enjoyed a long WALE of 6.1 years (by NLA) as at 30 September 2016. As such, the initial portfolio has minimal expiries in the following years - only 5.1% and 1.7% of its leases (by cash rental income) are expiring in 2017 and 2018 respectively, and we are expecting these leases to revert positively when leases are due for renewal. Growth through acquisitions by tapping into the expertise of its Sponsor. MUST’s Sponsor is The Manufacturer’s Life Insurance Company, which is part of Manulife Financial Group, a Canadabased financial services group. Through its subsidiary, Manulife Real Estate (MRE), the Sponsor has a strong acquisition capability and track record, demonstrated by the acquisition of 85 properties worth US$6.2bn since 2010. This has resulted in a CAGR of 17.5% per annum in the value of MRE’s AUM. Therefore, we believe MUST will be able to tap on its Sponsor’s real estate platform, to source deals, access local market expertise and gain assistance in securing financing to grow its portfolio through DPU-accretive acquisitions in the US.
ASIAN INSIGHTS
Interest Cover (x)
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2 Page 230
Company Guide Manulife US Real Estate Inv
Aggregate Leverage (%)
Balance Sheet: Stable gearing. Post recent portfolio revaluation gains, MUST’s gearing has fallen to 34.7% from 36.8% as at end-December 2015. This provides for a debt headroom of c.US$75m should MUST increase its gearing back up to 40%. Conservative interest rate profiles. To manage its interest rate risks, MUST has hedged 100% of its interest exposure at an average interest rate of 2.46% till 2019. Share Price Drivers: Establishing a track record. A key pushback from potential investors is the lack of familiarity with the US office market, which we believe after a few quarters of strong results, will allay most of investors' concerns. This may lead to a re-rating of the stock. Another key share price driver is the potential outperformance relative to MUST’s IPO forecast. This could be driven by stronger-than-expected recovery of the US office market leading to higher rental reversions. Key Risks: Risk of non-renewal and non-replacement of leases. MUST’s financials, results of operations, and capital growth may be adversely affected by bankruptcy, insolvency or downturn in the businesses of one or more of the tenants, as well as the decision by one or more of these tenants not to renew their lease/s at the end of a lease cycle.
ROE (%)
Distribution Yield (%) 7.2
(%)
7.1
+2sd: 7%
7.0 6.9
+1sd: 6.9%
6.8
Foreign currency risks. All of the REIT’s assets are located in the US and generate revenues in USD. Thus, investors who elect to receive distributions in SGD have exposure to volatility in the USD/SGD FX rate. This is mitigated should investors elect to receive distributions in USD. Regulatory risks. MUST's tax efficiency relies in part on its Parent US REIT and Sub-US REITs being able to maintain their status as US REITs as well as qualifying for US portfolio interest exemption when repatriating cashflows back to Singapore as interest. Should there be any changes in tax or REIT regulations in either the US or Singapore which affects the current REIT structure or ability to repatriate cash in a taxefficient manner, distributions paid to MUST’s unitholders may be adversely impacted. Company Background Manulife US REIT (MUST) is the first pure-play US office REIT listed in Asia. Its portfolio consists of three freehold, Class A or Trophy quality office properties in Atlanta, Los Angeles, and Orange County with aggregate net lettable area (NLA) of c.1.8m sqft.
ASIAN INSIGHTS
Avg: 6.7%
6.7 6.6
-1sd: 6.6%
6.5
-2sd: 6.4%
6.4 6.3 6.2 May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
PB Band (x) (x) 1.10
+2sd: 1.07x
+1sd: 1.05x
1.05
Avg: 1.03x -1sd: 1.01x
1.00
-2sd: 0.98x 0.95
0.90 May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Source: Company, DBS Bank
VICKERS SECURITIES Page 3 Page 231
Company Guide Manulife US Real Estate Inv
Income Statement (US$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2016F
2017F
2018F
78.7 (30.0) 48.7 (5.4) 0.0 (8.2) (6.6) 28.6 (1.3) 0.0 0.0 27.2 27.2 8.14 35.4
79.3 (30.7) 48.6 (5.4) 0.0 (8.3) (2.9) 32.1 (1.3) 0.0 0.0 30.8 30.8 7.65 38.4
80.7 (31.1) 49.5 (5.7) 0.0 (8.7) 0.0 35.2 (1.2) 0.0 0.0 33.9 33.9 4.91 38.8
11.0 10.4 4.9 100.0 61.9 34.6 44.9 6.9 5.4 3.3 5.3 5.3
0.8 (0.2) 13.1 100.0 61.3 38.8 48.4 6.8 6.0 3.7 5.2 5.2
1.7 1.9 10.2 100.0 61.4 42.1 48.2 7.0 6.6 4.0 5.2 5.1
Growth driven by recovery in the US office market
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 232
Company Guide Manulife US Real Estate Inv
Quarterly / Interim Income Statement (US$m) FY Dec
3Q2016
Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%) Balance Sheet (US$m) FY Dec
28.2 (10.6) 17.6 (1.7) 0.0 (3.1) 0.0 12.8 (12.0) 0.0 0.85 33.7 (21.1) 12.6 N/A nm nm 62.4 100.0
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
813 0.0 20.3 0.0 3.15 0.70 837
821 0.0 20.3 0.0 3.17 0.70 845
827 0.0 20.4 0.0 3.23 0.70 851
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
0.0 7.87 4.34 303 5.10 517 0.0 837
0.0 7.93 4.34 314 5.10 514 0.0 845
0.0 8.07 4.34 320 5.10 514 0.0 851
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%)
(8.4) (283)
(8.4) (294)
(8.5) (299)
2.0 2.0 36.2
2.0 2.0 37.1
2.0 2.0 37.6
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 233
Page 5
Company Guide Manulife US Real Estate Inv
Cash Flow Statement (US$m) FY Dec
2016F
2017F
2018F
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash
35.1 0.0 (1.3) 0.0 (4.3) 1.56 31.1 (0.6) 0.0 0.0 0.0 (8.8) (9.4) (35.4) 9.44 0.0 0.0 (25.9) 0.0 (4.3)
35.0 0.0 (1.3) 0.0 0.04 4.79 38.5 (2.1) 0.0 0.0 0.0 (8.4) (10.6) (38.4) 10.6 0.0 0.0 (27.9) 0.0 0.04
35.2 0.0 (1.2) 0.0 0.08 4.91 38.9 (0.8) 0.0 0.0 0.0 (5.0) (5.8) (38.8) 5.83 0.0 0.0 (33.0) 0.0 0.08
Operating CFPS (US cts.) Free CFPS (US cts.)
5.61 4.84
6.05 5.72
6.06 5.95
Minimal capex due to recently refurbished buildings
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Mervin SONG CFA, Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 234
Singapore Company Guide
Mapletree Commercial Trust Version 5
Refer to important disclosures at the end of this report
| Bloomberg: MCT SP | Reuters: MACT.SI
DBS Group Research . Equity
4 Jan 2017
BUY
An Eye on the Future
Last Traded Price ( 4 Jan 2017): S$1.42 (STI : 2,921.31) Price Target 12-mth: S$1.62 (14% upside and 6.2% yield)
MBC I is a rare gem. We believe the acquisition of Mapletree Business City – Phase 1 (MBC I) represents a rare gem, not only due Potential Catalyst: Stronger-than-expected rental reversion; further delay to the scarcity of supply in Grade A Business Parks, but also adds in interest rate hike expectations diversification to the portfolio by adding a new property type. After Where we differ: We have slightly more optimistic assumptions in our the acquisition, the portfolio breakdown by valuation will be 22.2% earnings forecast than consensus. for business parks, 58.2% office and 42.1% retail from 40.2% Analyst office and 59.8% retail. This acquisition is expected to be DPU Singapore Research Team [email protected] accretive and is reflected in our TP of S$1.62 and forecasted DPU Derek TAN +65 6682 3716 [email protected] which translates to DPU growth of 7-10% for the next two years Mervin SONG CFA +65 6682 3715 [email protected] from the pre-acquisition level in FY16. VivoCity a preferred retail destination: As anticipated, the REIT has utilised the opportunity of lease expiries to rebalance the tenant mix at VivoCity. This has enabled it to achieve a whopping rental reversion of 13.8% in 1H17 without compromising on the occupancy rate.
Price Relative
Forecasts and Valuation FY Mar (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
Adequate debt headroom: As the S$1.8bn acquisition of MBC I was financed by approximately 45/55 split in debt and equity, gearing edged up to 37.3% from 35.0%, which translates to a debt headroom of S$487.9m based on the regulatory cap of 45%. This gives the REIT adequate debt headroom to finance future asset enhancement initiatives. 2016A 288 221 299 172 7.46 1 8.13 2 130 19.0 5.7 1.1 35.1 5.9
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2017F 375 291 198 219 6.83 (8) 8.72 7 130 20.7 6.2 1.1 37.3 6.0
2018F 446 346 246 260 8.38 23 8.94 2 130 16.9 6.3 1.1 36.7 6.4
2019F 458 356 255 270 8.57 2 9.13 2 130 16.5 6.4 1.1 36.2 6.5
B: 10
19 8.80 S: 1
38 8.90 H: 3
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Valuation: We maintain our DCF-backed target price to S$1.62. The stock offers a dividend yield of 6.2-6.3% for FY17-18F at the current price. BUY call maintained. Key Risks to Our View: Weaker operational performance from VivoCity While VivoCity’s performance has been very encouraging, the mall is gradually phasing into a matured stage with potential decline in growth ahead. Nonetheless, the acquisition of MBC I, still a segment in high demand, would mitigate the slowdown in growth at VivoCity. At A Glance Issued Capital (m shrs) 2,870 Mkt. Cap (S$m/US$m) 4,061 / 2,800 Major Shareholders (%) Mapletree Investments Pte Ltd 38.38 AIA Group Ltd 6.00 Schroders Plc 5.98 Free Float (%) 49.64 3m Avg. Daily Val (US$m) 5.0 ICB Industry : Real Estate / Real Estate Investment Trusts
VICKERS SECURITIES Page 235
Company Guide Mapletree Commercial Trust Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: VivoCity a preferred destination mall in Singapore. MCT achieved a credible 12.3% in retail rental reversions in FY16 (from 142 leases) on the back of a retention rate of 87.9% despite the current tough operating climate. The success continues to 1H17 where 114 leases were renewed with a reversion rate of 13.8%. Occupancy cost for the mall was stable at 19%, in line with its peers. While the performance growth of the mall will gradually slowdown as it enters into a more matured stage, VivoCity will prove its resilience to the retail headwinds as one of the most popular retail destinations in Singapore. Minimal office expiries until FY17/FY18. Over FY16/17, office/business park’s lease expiries will only account for less than 10% of the Trust’s leases by gross rental revenue. This will help to minimise the risk of negative office rental reversions, particularly at Mapletree Anson, should CBD office rents start to decline across the market. Amid potential volatility in office rents and vacancies due to (a) lack of strong demand drivers, and (b) large office supply completing over the next two years, MCT offers investors both earnings visibility as well as downside protection.
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Potential acquisitions from the Sponsor. While we applaud to the yield accretive acquisition of Mapletree Business City – Phase 1, Mapletree Investments’ progressive redevelopment of the Harbourfront and Alexandra precincts ensures a steady pipeline of refurbished or newly developed assets ready to be injected into the REIT. Interest Cover (x)
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 236
Company Guide Mapletree Commercial Trust
Balance Sheet: MBC I acquisition edged up gearing slightly. As MBC was funded by approximately 45/55 in debt and equity, a healthy balance sheet is maintained with 37.7% aggregate leverage, up from 35.0%. This level is within the Management’s comfortable range of below 40% and gives adequate debt headroom based on the regulatory 45%.
Aggregate Leverage (%)
Average debt maturity extended to four years. MBC I’s acquisition has brought the weighted average all-in cost of debt down to 2.66% from 2.73%, and extended MCT’s debt tenure to 4.3 years from 3.7 years. More than 95% of its total debt will due only from FY18/19 onwards.
ROE (%)
Share Price Drivers: We have made a conservative assumption of low single-digit rental reversion at VivoCity over the next two years. Any improvement in the rent renewals may bring upside to share price. Moreover, the Management has guided for c.40% top line growth as a result of the MBC I acquisition. Better performance realised from the new asset could be a positive catalyst.
Distribution Yield (%)
Key Risks: Sustained drop in CBD office rents could impact office earnings in the medium term. Although the REIT’s office portfolio is largely located outside the CBD and therefore less exposed to the large office supply completing from 2016 onwards, any prolonged decline in CBD rents would have a negative spillover effect to the city fringe, as narrowing rental differentials could entice tenants to relocate to the CBD instead. PB Band (x)
Company Background Mapletree Commercial Trust (MCT) is a real estate investment trust that invests in income-producing office and retail properties in Singapore. The majority of its earnings are derived from VivoCity, the largest retail mall in Singapore, and the recent acquisition of Mapletree Business City – Phase 1.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 237
Company Guide Mapletree Commercial Trust
Income Statement (S$m) FY Mar Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2015A
2016A
2017F
2018F
2019F
282 (70.8) 212 (20.1) 0.0 (35.8) 0.0 156 0.0 0.0 0.0 156 312 12.5 168
288 (67.1) 221 (26.3) 0.0 (39.3) 3.63 159 0.0 0.0 0.0 159 299 13.7 172
375 (84.3) 291 (41.2) 0.0 (51.7) 0.0 198 0.0 0.0 0.0 198 198 21.3 219
446 (100) 346 (36.9) 0.0 (63.1) 0.0 246 0.0 0.0 0.0 246 246 14.6 260
458 (102) 356 (37.3) 0.0 (63.6) 0.0 255 0.0 0.0 0.0 255 255 14.8 270
5.7 8.4 9.3 100.0 74.9 55.1 59.6 7.1 6.2 3.7 4.6 5.4
1.9 4.3 1.9 100.0 76.7 55.2 59.9 9.1 5.9 3.7 4.5 5.0
30.3 31.7 24.6 100.0 77.5 52.8 58.4 11.0 6.0 3.7 4.7 4.8
18.9 19.0 24.3 100.0 77.6 55.1 58.4 8.3 6.4 3.9 5.0 4.9
2.6 2.8 3.6 100.0 77.7 55.7 58.9 8.1 6.5 4.0 5.1 5.0
Increase in top line due to MBC I acquisition
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 238
Company Guide Mapletree Commercial Trust
Quarterly / Interim Income Statement (S$m) FY Mar 2Q2016 3Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
4Q2016
1Q2017
2Q2017
71.3 (16.5) 54.8 (5.4) (6.9) (9.8) 8.57 41.3 0.0 0.0 41.3 41.3 10.1 42.8
73.8 (17.2) 56.6 (5.1) 0.0 (10.1) (0.2) 41.3 0.0 0.0 41.3 198 2.81 44.3
73.0 (18.0) 55.0 (8.2) 0.0 (9.9) 0.73 37.7 0.0 0.0 37.7 178 5.98 42.9
73.4 (17.1) 56.3 (5.5) (9.9) (10.6) 10.6 40.9 0.0 0.0 40.9 40.9 13.2 43.5
88.1 (19.7) 68.4 (6.7) (3.5) (12.0) 2.64 48.9 0.0 0.0 48.9 48.9 7.43 53.7
2 1 7 76.9 100.0
3 3 0 76.7 100.0
(1) (3) (9) 75.4 100.0
1 2 9 76.7 100.0
20 22 20 77.7 100.0
Balance Sheet (S$m) FY Mar
2015A
2016A
2017F
2018F
2019F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
4,199 4.91 54.9 0.0 3.29 0.57 4,263
4,342 3.52 63.6 0.0 5.04 1.08 4,415
6,129 3.52 92.7 0.0 6.56 1.08 6,302
6,140 3.52 110 0.0 7.81 1.08 6,332
6,152 3.52 113 0.0 8.01 1.08 6,346
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
189 61.7 5.15 1,358 32.3 2,617 0.0 4,263
355 51.8 5.15 1,197 42.8 2,764 0.0 4,415
355 65.1 5.15 1,993 42.8 3,841 0.0 6,302
355 77.3 5.15 1,972 42.8 3,880 0.0 6,332
355 78.9 5.15 1,944 42.8 3,921 0.0 6,346
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(63.0) (1,492)
(50.8) (1,488)
(62.6) (2,255)
(73.6) (2,216)
(75.0) (2,186)
0.2 0.2 36.3 1.3
0.2 0.2 35.1 1.2
0.2 0.2 37.3 1.2
0.3 0.3 36.7 1.2
0.3 0.3 36.2 1.3
Both new asset (MBC I) and existing assets contributed to the positive performance over the quarter
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 239
Company Guide Mapletree Commercial Trust
Cash Flow Statement (S$m) FY Mar
2015A
2016A
2017F
2018F
2019F
156 0.0 0.33 0.0 3.07 44.3 204 (7.9) 0.0 0.0 0.0 0.03 (7.8) (136) (40.0) 0.0 (34.9) (211) 0.0 (15.6)
159 0.0 0.0 0.0 3.81 50.1 213 (7.4) 0.0 0.0 0.0 0.46 (6.9) (157) 0.0 0.0 (40.3) (197) 0.0 8.72
198 0.0 0.0 0.0 11.8 21.3 231 (1,856) 0.0 0.0 0.0 0.0 (1,856) (186) 797 1,044 0.0 1,655 0.0 29.1
246 0.0 0.0 0.0 11.0 14.6 271 (11.2) 0.0 0.0 0.0 0.0 (11.2) (221) (21.7) 0.0 0.0 (243) 0.0 17.2
255 0.0 0.0 0.0 1.39 14.8 271 (11.4) 0.0 0.0 0.0 0.0 (11.4) (229) (27.6) 0.0 0.0 (257) 0.0 2.75
9.49 9.26
9.81 9.64
7.57 (56.1)
8.88 8.87
9.06 8.73
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Singapore Research Team Derek TAN Mervin Song
ASIAN INSIGHTS
VICKERS SECURITIES Page 240
Singapore Company Guide
Mapletree Greater China Commercial Trust Version 6
Refer to important disclosures at the end of this report
| Bloomberg: MAGIC SP | Reuters: MAPE.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Only a speed hump
Last Traded Price ( 4 Jan 2017): S$0.95 (STI : 2,921.31) Price Target 12-mth: S$1.11 (17% upside and 7.6% yield)
Quality will shine through. We maintain our BUY call and TP of S$1.11 for Mapletree Greater China Commercial Trust (MAGIC). While MAGIC faces the challenge of a stronger SGD and higher Potential Catalyst: Acquisitions and delivery of positive rental reversions property taxes at Gateway Plaza, we believe these factors are only despite concerns over a downturn in the HK retail market speed humps in the near term. As MAGIC cycles through these Where we differ: Below consensus due to impact of higher property taxes at headwinds over the next few quarters, the strength of core asset Gateway Plaza Festival Walk (c.70% of net property income (NPI)) as well as the Analyst boost from the Sandhill acquisition will shine through. Moreover, Mervin SONG CFA +65 6682 3715 [email protected] MAGIC offers an attractive yield in excess of 6% which we believe Derek TAN +65 6682 3716 [email protected] is high considering that its portfolio of quality properties is still delivering healthy (7-23%) rental reversions. Festival Walk’s defensive positioning. The strong market positioning of Festival Walk makes it well placed to weather the headwinds in the HK retail market. Located in Kowloon Tong’s mid to upper residential area and next to City University of Hong Kong, it serves the needs of the local community rather than mainland Chinese tourists which have been the main reason for the fall in HK retail sales. In addition, due to the mall’s strong track record, we understand there remains a queue of potential tenants eager to be located within the mall. Combined with occupancy costs of c.19% which is in the middle of the 16-22% range for other malls in HK, this bodes well for rents going forward. This is evidenced by rental reversions of 15% in 1H17.
Price Relative S$
Relative Index
1.3
220
1.2
200 180
1.1
160 1.0 140 0.9
120
0.8 0.7 Mar-13
100 80
Mar-14
Mar-15
Mar-16
Mapletree Greater China Commercial Trust (LHS) Relative STI (RHS)
Forecasts and Valuation FY Mar (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 281 229 319 178 4.55 4 6.54 4 120 20.8 6.9 0.8 36.2 4.0
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016A 337 277 415 200 6.40 41 7.25 11 124 14.8 7.7 0.8 39.4 5.3
2017F 351 283 152 200 5.46 (15) 7.17 (1) 123 17.3 7.6 0.8 39.3 4.4
2018F 365 295 155 205 5.54 1 7.27 1 121 17.1 7.7 0.8 39.3 4.5
B: 7
0 7.20 S: 0
0 7.30 H: 2
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: JC, PY
Full contribution from Sandhill Plaza yet to be realised. With the S$412m acquisition of Sandhill Plaza in Shanghai only completed in June 2015, MAGIC’s earnings should receive a boost over the coming year, which should help mitigate any potential slowdown in HK, negative drag from higher property taxes in Beijing, and a strengthening SGD. Valuation: We maintain our DCF-based TP of S$1.11 which has incorporated lower occupancy and higher taxes at Gateway Plaza partially offset by higher occupancies at Sandhill Plaza. Key Risks to Our View: The key risk to our view is a significant downturn in the HK and Chinese economies, causing a decline in rents at Festival Walk, Gateway Plaza and Sandhill Plaza. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Mapletree Investment Pte Ltd Norges Bank AIA Co Ltd Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trusts
2,787 2,633 / 1,816
VICKERS SECURITIES Page 241
30.6 7.7 6.0 55.7 3.9
Company Guide Mapletree Greater China Commercial Trust Net Property Income and Margins (%) 90.6%
250
88.6%
86.6%
200
84.6% 150 82.6% 100
80.6%
50
78.6%
0
76.6% 2014A
2015A
2016A
Net Property Income
2017F
2018F
Net Property Income Margin %
Net Property Income and Margins (%) 84%
75
83% 83%
70
82% 65
82% 81%
60
81% 80%
55
80%
Net Property Income
2Q2017
1Q2017
4Q2016
3Q2016
2Q2016
1Q2016
79%
4Q2015
50
3Q2015
Full-year contribution from Sandhill Plaza. This year, MAGIC’s earnings should receive a boost from the full year contribution of the Sandhill Plaza acquisition which was only completed in June 2015. MAGIC should also benefit from positive rental reversions as passing rents are approximately 10% below market rates.
300
2Q2015
Earnings Drivers: Festival Walk still the star. Investors have raised concerns over the slowing retail market in Hong Kong impacting MAGIC’s core property Festival Walk. However, we believe Festival Walk will continue to deliver, although achieving lower rental reversions (estimated at 10-15%) than the 20-21% delivered over the past two years. We believe overall rental income will remain on an uptrend and not turn negative due to the following factors: (1) the mall’s prime location in Kowloon Tong offering tenants exposure to nearby established upscale residential areas, students and staff from the nearby City University of Hong Kong, and high transit crowd as the mall is located next to Kowloon Tong Station which is an interchange between Kwun Tong Line (which serves Kowloon East) and East Rail Line (which connects to the Shenzhen border) and, (2) the mall’s strong track record and resiliency. During the SARS epidemic and GFC, tenant sales were flattish.
S$ m
1Q2015
CRITICAL DATA POINTS TO WATCH
Net Property Income Margin %
Distribution Paid / Net Operating CF 1.0
(x)
0.9 0.8 0.7
Past rental reversions still provide support to Gateway Plaza’s earnings. Gateway Plaza has achieved 25-33% uplift in rents over the past two years. The benefits from the positive rental reversions should continue to flow through, despite potential headwinds in the near term due to increase in supply within the Beijing office market and recent jump in vacancy. In the medium/long term, Gateway Plaza should remain well placed given the recent decision in August 2015 by the Beijing Municipal Commission of Development and Reform to ban new large-scale public developments including office buildings within the East Fifth Ring Road, West Fifth Ring Road, North Fifth Ring Road and South Fourth Ring Road which covers the central area of six urban districts of Beijing. Acquisition pipeline from sponsor. MAGIC’s sponsor has several malls, office buildings and business parks in China and HK which have yet to be stabilised or are in the process of being constructed. Subject to the price paid, these properties could potentially provide MAGIC with a pipeline of DPU-enhancing acquisitions.
ASIAN INSIGHTS
0.6 0.5 0.4 0.3
0.2 2014A
2015A
2016A
2017F
2018F
2017F
2018F
Interest Cover (x) (x) 6.00 5.00 4.00
3.00 2.00 1.00
0.00 2014A
2015A
2016A
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2 Page 242
Company Guide Mapletree Greater China Commercial Trust
Balance Sheet: Optimised gearing levels. As at end-September 2016, MAGIC’s gearing stood at c.40% which is at an optimal level. Nevertheless, given the new 45% gearing limit for S-REITs in January 2016, MAGIC’s ability to pursue further acquisitions without further equity raisings is constrained. Moderate exposure to rising interest rates. Currently, 85% of the MAGIC’s borrowings are on fixed rates which partially insulates the REIT against rising interest rates in the near term. Share Price Drivers: Festival Walk continuing to deliver. Investors have been concerned over the outlook for retail rents in Hong Kong and risk of negative rental reversions at Festival Walk. While acknowledging a moderating outlook, we think these fears are overplayed given Festival Walk’s suburban location, low exposure to tourists (c.10-15% of tenant sales) and lack of exposure to luxury products. Evidence of this can be seen by the ability to achieve 15% positive rentals reversions in 1H17. This and continued delivery of DPU growth over the coming few quarters should allay the growth fears and trigger a re-rating. Key Risks: Foreign exchange risks. While FX over the past two years has been a tailwind, the depreciation of the HKD and CNY would negatively impact MAGIC’s DPU and NAV per share on a lagged basis. MAGIC hedges its income to smooth out the volatility from movements in FX rates. Economic risks. A significant economic downturn in Hong Kong and China would cause a decline in rents for retail and office properties. This in turn would negatively impact MAGIC’s earnings and DPU.
Aggregate Leverage (%) 40.0%
35.0% 30.0% 25.0%
20.0% 15.0%
10.0% 2014A
2015A
2016A
2017F
2018F
2017F
2018F
ROE (%) 5.0%
4.0%
3.0%
2.0%
1.0%
0.0% 2014A
2015A
2016A
Distribution Yield (%) (%)
+2sd: 10.1%
10.0
8.0
+1sd: 8.1%
6.0
Avg: 6.1%
4.0
-1sd: 4.1%
2.0
-2sd: 2.1%
0.0 2013
2014
2015
2016
2017
PB Band (x)
Company Background MAGIC is a Singapore real estate investment trust (S-REIT) established with the investment strategy of principally investing, directly or indirectly, in a diversified portfolio of income-producing commercial real estate in the Greater China region.
1.4
(x)
1.3 1.2
1.1
+2sd: 1.04x
1.0
+1sd: 0.94x
0.9
Avg: 0.85x
0.8
-1sd: 0.75x
0.7
-2sd: 0.65x
0.6 0.5 Apr-13
Apr-14
Apr-15
Apr-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3 Page 243
Company Guide Mapletree Greater China Commercial Trust
Income Statement (S$m) FY Mar Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016A
2017F
2018F
268 (51.4) 216 (24.4) (2.0) (42.0) 0.0 148 (30.5) 0.0 0.0 117 387 50.9 168
281 (51.8) 229 (25.1) (7.0) (40.4) 0.0 157 (33.8) 0.0 0.0 123 319 55.0 178
337 (59.2) 277 (40.6) 40.7 (64.5) 0.0 213 (37.8) 0.0 0.0 175 415 24.6 200
351 (68.0) 283 (23.0) 0.0 (72.2) 0.0 187 (35.9) 0.0 0.0 152 152 48.4 200
365 (70.4) 295 (24.3) 0.0 (78.2) 0.0 192 (37.0) 0.0 0.0 155 155 49.9 205
137.0 140.7 113.4 100.0 80.8 43.8 62.9 9.1 4.4 2.5 3.5 4.6
5.1 6.1 4.9 100.0 81.6 43.8 63.3 8.9 4.0 2.4 3.3 5.1
19.7 21.0 42.5 100.0 82.4 52.1 59.4 12.1 5.3 3.0 3.6 3.7
4.2 1.8 (13.6) 100.0 80.6 43.2 57.0 6.6 4.4 2.5 3.7 3.6
4.1 4.3 2.4 100.0 80.7 42.5 56.2 6.6 4.5 2.5 3.9 3.5
Recovery in distributable income on the back of positive rental reversions at Festival Walk, improvement in occupancy at Gateway Plaza as well as increased contribution from the recently acquired Sandhill Plaza
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 244
Company Guide Mapletree Greater China Commercial Trust
Quarterly / Interim Income Statement (S$m) FY Mar 2Q2016 3Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
4Q2016
1Q2017
2Q2017
84.6 (15.1) 69.5 (6.8) (0.5) (16.6) 0.0 45.6 (7.1) 0.0 38.5 38.5 11.1 49.5
88.2 (15.7) 72.5 (7.3) 1.33 (17.0) 0.0 49.5 (7.5) 0.0 42.0 42.0 8.96 51.0
87.8 (14.8) 73.0 (7.8) 4.66 (17.3) 0.0 52.6 (16.4) 0.0 36.2 276 16.9 53.0
85.0 (15.5) 69.4 (6.0) 1.12 (17.5) 0.0 47.1 (7.7) 0.0 39.4 39.4 11.8 51.3
83.1 (15.8) 67.3 (5.2) 1.01 (17.3) 0.0 45.8 (7.6) 0.0 38.3 38.3 10.8 49.1
11 11 (46) 82.1 100.0
4 4 9 82.2 100.0
0 1 (14) 83.1 100.0
(3) (5) 9 81.7 100.0
(2) (3) (3) 81.0 100.0
Balance Sheet (S$m) FY Mar
2014A
2015A
2016A
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
4,722 8.00 133 0.62 8.33 0.87 4,873
5,349 1.00 125 0.77 11.1 0.80 5,488
5,922 9.30 207 0.85 10.7 4.05 6,154
5,927 9.30 208 0.85 11.2 4.05 6,160
5,932 9.30 203 0.85 11.6 4.05 6,161
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
0.0 64.0 37.6 1,853 79.0 2,840 0.0 4,873
274 76.3 45.2 1,710 122 3,260 0.0 5,488
462 147 37.9 1,960 130 3,416 0.0 6,154
462 153 37.9 1,960 130 3,416 0.0 6,160
462 154 37.9 1,960 130 3,416 0.0 6,161
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(91.8) (1,720)
(109) (1,859)
(169) (2,215)
(175) (2,214)
(175) (2,219)
1.4 1.4 38.0 0.9
0.3 0.3 36.2 0.7
0.3 0.3 39.4 0.6
0.3 0.3 39.3 0.6
0.3 0.3 39.3 0.6
Increase in gearing on the back of the debt-funded acquisition of Sandhill Plaza
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 245
Page 5
Singapore Company Guide
Mapletree Industrial Trust Version 7
Refer to important disclosures at the end of this report
| Bloomberg: MINT SP | Reuters: MAPI.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Bring on HP!
Last Traded Price (4 Jan 2017): S$1.65 (STI : 2,921.31) Price Target 12-mth: S$1.90 (15% upside and 6.8% yield) Potential Catalyst: Better than expected results Where we differ: Our estimates more conservative than consensus Analyst Derek TAN +65 6682 3716 [email protected] Singapore Research Team [email protected] Mervin SONG CFA +65 6682 3715 [email protected]
Steady set of results with upside from 3QFY17 onwards. 2QFY17 (FYE Mar) topline and net property income (NPI) was up 1.8% and 4.3% to S$84.2m and S$63.6m respectively, mainly on the back of higher rentals achieved coupled with better cost containment. As a result, NPI margins came in higher at 75.6% vs 73.8% a year ago. Interest costs were fairly stable. As a result, distributable income was 3.4% higher at S$50.6m, but DPU rose a slower 1.4% mainly due to higher units in issue (dividend reinvestment scheme coupled with management fees issued in units previously).
Price Relative S$
Relative Index
2.0 1.9
207
1.8
187
1.7 167
1.6 1.5
147
1.4
127
1.3
107
1.2 1.1 Jan-13
Jan-14
Jan-15
Mapletree Industrial Trust (LHS)
Forecasts and Valuation FY Mar (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2016A 332 245 273 198 10.6 4 11.2 8 137 15.6 6.8 1.2 30.3 8.0
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
Jan-16
87 Jan-17
Relative STI (RHS)
2017F 343 253 196 203 10.9 3 11.3 1 137 15.2 6.8 1.2 30.2 8.0
2018F 362 262 202 208 11.2 3 11.5 2 136 14.7 7.0 1.2 30.3 8.2
2019F 378 274 213 217 11.8 5 12.0 4 136 14.0 7.3 1.2 30.4 8.6
11.1 B: 9
11.8 S: 1
12.3 H: 7
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Maintain BUY, TP S$1.90. We maintain our BUY call and TP of S$1.90 on Mapletree Industrial Trust (MINT) on the back of a steady DPU growth profile of 2.3% over FY17-19F (vs 1.2% industrial REIT average). The REIT offers high earnings visibility and we have confidence that the Manager has the flexibility to execute on more developments to exploit its conservative balance sheet. This implies potential upside to earnings.
Flexibility from low gearing. MINT’s balance sheet is lowly geared at c.30%, which is one of the lowest in the industrial REIT sector, and gives the Manager significant debt-funded capacity for acquisitions or to undertake developments by taking part in built-to-suit projects (BTS) or asset enhancement initiatives. We have not assumed any further acquisitions or developments (apart from those announced) in our forecast. Valuation: MINT’s resilience is a value trait in this market and has yet to be reflected in its current share price. We maintain our BUY call and TP S$1.90. Key Risks to Our View: Rising interest rates An increase in refinancing rates will negatively impact distributions. However, we note that MINT has minimised these risks by having c.68% of its interest cost hedged into fixed rates. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Mapletree Investments Pte Ltd Schroders Plc AIA Group Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trusts
1,802 2,964 / 2,082 34.2 7.0 5.0 53.8 3.0
VICKERS SECURITIES Page 246
Company Guide Mapletree Industrial Trust Net Property Income and Margins (%) S$ m
Contribution from the new HP property will be timely just when the REIT is facing rental pressure on its portfolio. The restructuring of the rent free is a positive surprise. The redistribution of the six-month rent free for both phase 1 (completing in 4QCY16) and phase 2 (completing in 2QCY17) over the first 18 months will mean a more even distribution in topline and costs for the REIT. This implies minimal downside risk to DPUs in 2017 which has been a concern for investors. Instead, we now see a steady growth profile of 2.3% over FY17-FY19 vs industrial average of 1.2%.
76.8%
150
74.8%
100
72.8%
50
70.8%
0
68.8% 2015A
2016A
2017F
Net Property Income
2018F
2019F
Net Property Income Margin %
Net Property Income and Margins (%) 77%
71%
53
70%
Net Property Income
2Q2017
72%
55
1Q2017
73%
57
4Q2016
74%
59
3Q2016
75%
61
2Q2016
76%
63
1Q2016
65
4Q2015
MINT’s earnings growth outlook is double that of the industrial REIT average. With organic growth slowing, the next thrust of growth will come from the completion of its built-to-suit project from HP, which emerges from the redevelopment of the Telok Blangah cluster (expected TOP for phases 1 and 2 in 2H16 and 1H17 respectively).
78.8%
200
3Q2015
With the softening of market rents due to a slowing economy, we are forecasting rental reversions to moderate further and expect the Manager to be increasingly focused on maintaining occupancies, a strategy which we believe will result in the trust delivering steady dividends in an increasingly competitive environment.
80.8%
250
2Q2015
Earnings Drivers: Modest organic growth outlook. MINT has consistently delivered strong returns to shareholders post IPO, driven mainly from the marking to market of its leases which were below market rates. As most of its properties have already undergone at least one round of reversions, most of the leases are now at or near-market levels in our view.
300
1Q2015
CRITICAL DATA POINTS TO WATCH
Net Property Income Margin %
Distribution Paid / Net Operating CF 1.0
(x)
0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 2015A
2016A
2017F
2018F
2019F
2018F
2019F
Interest Cover (x) (x) 8.60
Development projects in Kallang Basin cluster to optimise portfolio rent. MINT has also kick-started the development of a new hi-tech building at Kallang Basin cluster 4 at an estimated cost of S$77m, returning c.8% when completed in 4Q17. We believe that demand for the property will be strong given the good location in the central part of Singapore. The Manager has ample headroom to fund this development.
8.50 8.40 8.30 8.20 8.10 8.00
7.90 7.80 7.70
Low gearing a positive. MINT’s gearing is low at close to 30%, makes it one of the lowest-geared industrial REITs, offering the Manager significant debt-funded capacity for acquisitions or to undertake development by taking part in built-to-suit projects (BTS) or asset enhancement initiatives. With a centrally located industrial portfolio, we believe that there is an opportunity to do more re-development projects which will be value accretive (to NAV and DPUs).
ASIAN INSIGHTS
2015A
2016A
2017F
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2 Page 247
Company Guide Mapletree Industrial Trust
Balance Sheet: Low gearing allows for opportunistic acquisitions, developments. Current gearing is conservative, implying that the Manager has the capability to take on debt-funded acquisitions when the opportunity arises. The Manager will be utilising its headroom towards higher-yielding development projects (built-to-suit project for HP and Kallang Basin cluster 4) which we estimate to yield 8-9%, which is higher than acquisitions. Post development, we believe gearing will still be within management's comfortable level at around 30%. Stable weighted average debt-to-maturity. MINT has a wellstaggered debt profile with a majority of debt due for repayment only from FY17/18 onwards. With c.68% of its borrowings on fixed interest rates, MINT is well protected against future increases in interest rates.
Aggregate Leverage (%) 30.0% 25.0% 20.0%
15.0% 10.0% 2015A
2016A
2017F
2018F
2019F
2018F
2019F
ROE (%) 8.0%
7.0% 6.0% 5.0% 4.0% 3.0%
Share Price Drivers: Better-than-expected rental reversions/acquisitions will boost earnings and share price. We are forecasting modest rental uplifts of 0-3%. The REIT's ability to maintain or beat expectations will mean upside to our/consensus forecasts. In addition, acquisitions or further development projects which are accretive to earnings will likely result in upside to TP and share price.
2.0%
1.0% 0.0% 2015A
2016A
2017F
Distribution Yield (%) (%) 8.2
7.7
+2sd: 7.6%
Key Risks: Rising interest rates. An increase in refinancing rates will negatively impact distributions. However, MINT has minimised the impact as c.80% of its interest cost has been fixed.
7.2
Economic risk. A deterioration of the economic outlook could have a negative impact on industrial rents and occupancies as companies cut back on production and require less space. Industrial rents have a strong historical correlation with GDP growth.
5.2 2013
Company Background Mapletree Industrial Trust (MINT) is a real estate investment trust which invests primarily in income-producing industrial assets located in Singapore. Its portfolio includes a diverse mix of business parks, science parks, ramp-up warehouses and flatted factories.
+1sd: 7.2% Avg: 6.9%
6.7
-1sd: 6.6% -2sd: 6.2%
6.2 5.7
2014
2015
2016
PB Band (x) 1.6
(x)
1.5
1.4
+2sd: 1.32x +1sd: 1.26x Avg: 1.19x -1sd: 1.13x -2sd: 1.06x
1.3 1.2 1.1 1.0 0.9 Jan-13
Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3 Page 248
Company Guide Mapletree Industrial Trust
Income Statement (S$m) FY Mar Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2015A
2016A
2017F
2018F
2019F
314 (85.3) 229 (27.1) 0.0 (23.6) 0.0 178 (1.1) 0.0 0.0 177 374 (194) 181
332 (86.5) 245 (28.9) 0.0 (25.6) 0.0 191 0.0 0.0 0.0 191 273 (74.8) 198
343 (90.1) 253 (30.5) 0.0 (26.4) 0.0 196 0.0 0.0 0.0 196 196 6.99 203
362 (99.8) 262 (31.0) 0.0 (28.8) 0.0 202 0.0 0.0 0.0 202 202 5.53 208
378 (103) 274 (31.5) 0.0 (30.4) 0.0 213 0.0 0.0 0.0 213 213 4.06 217
4.9 6.5 8.2 100.0 72.8 56.4 57.6 8.6 8.2 5.2 6.0 8.6
5.6 7.2 7.7 100.0 73.9 57.5 59.7 8.7 8.0 5.3 6.2 8.4
3.5 3.2 2.9 100.0 73.7 57.2 59.2 8.9 8.0 5.3 6.2 8.4
5.5 3.6 3.1 100.0 72.4 55.9 57.4 8.6 8.2 5.4 6.3 8.0
4.4 4.7 5.1 100.0 72.6 56.3 57.3 8.3 8.6 5.6 6.6 8.0
Driven mainly from the contribution from HP building
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 249
Company Guide Mapletree Industrial Trust
Quarterly / Interim Income Statement (S$m) FY Mar 2Q2016 3Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
4Q2016
1Q2017
2Q2017
82.7 (21.7) 61.0 (7.3) 0.0 (6.3) 0.0 47.4 0.0 0.0 47.4 47.4 1.51 48.9
83.3 (21.4) 61.9 (7.3) 0.0 (6.4) 0.0 48.2 0.0 0.0 48.2 48.2 2.08 50.3
84.0 (22.0) 62.0 (7.2) 0.0 (6.6) 0.0 48.3 0.0 0.0 48.3 130 (79.9) 50.4
84.1 (20.3) 63.8 (7.3) 0.0 (6.4) 0.0 50.1 0.0 0.0 50.1 50.1 1.38 51.5
84.2 (20.6) 63.6 (7.4) 0.0 (6.6) 0.0 49.7 0.0 0.0 49.7 49.7 0.89 50.6
1 1 2 73.8 200.0
1 1 2 74.3 200.0
1 0 0 73.8 200.0
0 3 4 75.9 200.0
0 0 (1) 75.6 200.0
2015A
2016A
2017F
2018F
2019F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
3,424 3.63 72.0 0.0 16.2 0.0 3,516
3,558 0.36 54.3 0.0 11.4 0.0 3,624
3,660 0.36 78.8 0.0 16.4 0.0 3,755
3,702 0.36 38.6 0.0 17.3 0.0 3,758
3,706 0.36 42.5 0.0 18.1 0.0 3,767
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
125 70.3 0.0 949 58.8 2,312 0.0 3,516
47.4 79.7 0.0 974 57.9 2,465 0.0 3,624
47.4 100 0.0 1,089 57.9 2,461 0.0 3,755
47.4 106 0.0 1,089 57.9 2,458 0.0 3,758
47.4 110 0.0 1,094 57.9 2,457 0.0 3,767
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(54.0) (1,003)
(68.3) (967)
(83.9) (1,057)
(88.5) (1,098)
(92.4) (1,099)
0.5 0.5 28.2 1.7
0.5 0.5 30.3 1.9
0.6 0.6 30.2 1.7
0.4 0.4 30.3 1.7
0.4 0.4 30.4 1.7
Balance Sheet (S$m) FY Mar
Gearing to remain steady at close to 30%.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 250
Page 5
Company Guide Mapletree Industrial Trust
Cash Flow Statement (S$m) FY Mar
2015A
2016A
2017F
2018F
2019F
178 0.0 (1.0) 0.0 (4.7) 32.5 205 (54.5) 0.0 0.0 0.0 0.0 (54.5) (97.5) (54.3) 0.0 (22.4) (174) 0.0 (23.8)
191 0.0 0.0 0.0 14.3 14.8 220 (43.5) 0.0 0.0 0.0 0.0 (43.5) (115) (53.5) 0.0 (25.7) (194) 0.0 (17.6)
196 0.0 0.0 0.0 15.6 2.79 215 (102) 0.0 0.0 0.0 0.0 (102) (203) 115 0.0 0.0 (88.1) 0.0 24.5
202 0.0 0.0 0.0 4.58 2.84 210 (42.1) 0.0 0.0 0.0 0.0 (42.1) (208) 0.0 0.0 0.0 (208) 0.0 (40.2)
213 0.0 0.0 0.0 3.90 2.89 219 (3.8) 0.0 0.0 0.0 0.0 (3.8) (217) 5.00 0.0 0.0 (212) 0.0 3.95
12.0 8.62
11.4 9.78
11.0 6.25
11.4 9.29
11.9 11.9
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
Source: Company, DBS Bank Target Price & Ratings History 1.90
S$
2
1.80
1.70
1.60
Dat e of Report
Closing Pric e
1:
26 Apr 16
1.64
1.64
BUY
2:
12 J ul 16
1.79
1.81
HOLD
3:
27 J ul 16
1.78
1.90
BUY
4:
22 Aug 16
1.77
1.90
BUY
4 3
12- mt h T arget Rat ing Pric e
S.No.
1
1.50
1.40 Oct-15
Feb-16
Jun-16
Oct-16
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Derek TAN Singapore Research Team Mervin SONG CFA
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 251
Singapore Company Guide
Mapletree Logistics Trust Refer to important disclosures at the end of this report
Version 5 | Bloomberg: MLT SP | Reuters: MAPL.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Firepower to acquire
Last Traded Price (4 Jan 2017): S$1.02 (STI : 2,921.31) Price Target 12-mth: S$1.15 (13% upside and 7.1% yield) Potential Catalyst: In line Where we differ: Estimates are in line with consensus Analyst Derek TAN +65 6682 3716 [email protected] Singapore Research Team [email protected] Mervin SONG CFA +65 6682 3715 [email protected]
Acquisitions and developments to drive growth The issuance of S$250m perpetual securities in May 2016 @ 4.18% has enabled MLT to lock in attractive long-term funding for the REIT. Since then, MLT has deployed close to S$161m and we see more acquisitions in the pipeline. We believe that opportunities will come from its Sponsor, and third parties in Australia, Korea, and China. Acquisitions should more than compensate for weaknesses in the various markets that MLT operates in.
Price Relative S$
Relative Index
1.5
222
1.4
202
1.3
182
1.2
162
1.1
142
1.0
122
0.9
102
0.8 Jan-13
Jan-14
Jan-15
Mapletree Logistics Trust (LHS)
Forecasts and Valuation FY Mar (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2016A 350 291 190 183 7.66 20 7.38 (2) 102 13.3 7.2 1.0 39.5 7.5
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
Jan-16
Maintain BUY, TP S$1.15. Mapletree Logistics Trust (MLT) is emerging stronger post balance sheet recapitalisation and we see acquisitions as a catalyst to drive earnings and share price upside. With firepower to execute on strategic purchases, MLT remains on a growth path. BUY maintained, yield of 7.0-7.2% is attractive for a strong quality name.
82 Jan-17
Relative STI (RHS)
2017F 360 299 172 179 6.91 (10) 7.19 (3) 101 14.8 7.1 1.0 37.0 6.8
2018F 375 316 182 185 7.29 5 7.41 3 101 14.0 7.3 1.0 37.5 7.2
2019F 390 327 187 188 7.53 3 7.57 2 101 13.5 7.4 1.0 37.5 7.4
7.30 B: 7
7.50 S: 0
7.80 H: 9
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
2Q16 results in line. Top line and net property income are up 4.7% and 5.3% y-o-y to S$91.5m and S$76.8m respectively. Higher revenues were mainly driven from acquisitions (portfolio expanded by six properties to 124 as of 2QFY17). Distributable income is up by 1.0% while DPU is flat mainly due to higher interest incurred on the issuance of close to S$250m worth of perpetual securities. Valuation: We upgrade our BUY call and TP at S$1.15 which has imputed acquisitions in our forecasts. Key Risks to Our View: Acquisitions ramping up faster than expected. A faster-thanprojected acquisition pace or a better-than-expected outlook for the Singapore warehouse market will translate to positive surprises to earnings estimates, and re-rate the stock higher. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Temasek Holdings Private Ltd
2,500 2,550 / 1,785 39.4
Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
ASIAN INSIGHTS ed: TH / sa: YM, PY
60.5 2.9
VICKERS SECURITIES Page 252
Company Guide Mapletree Logistics Trust Net Property Income and Margins (%) S$ m
400
CRITICAL DATA POINTS TO WATCH
350
91.0%
300
89.0%
250
85.0%
150
83.0%
100
81.0%
50
0
79.0% 2015A
2016A
2017F
Net Property Income
2018F
2019F
Net Property Income Margin %
Net Property Income and Margins (%) 86% 79
85%
77
85% 84%
75
84%
73
83%
71
83% 82%
69
82%
Net Property Income
2Q2017
1Q2017
4Q2016
3Q2016
2Q2016
1Q2016
81%
4Q2015
81%
65
3Q2015
67
2Q2015
Acquisitions to buffer against modest organic growth prospects. The issuance of S$250m perpetual securities in May 2016 was locked in at 4.18%, a good rate in our view. Since then, MLT has deployed close to S$161m into four properties in Australia (c.S$84.4m), and one each in Vietnam and Malaysia at yields of c.7.1-9.9%. The Manager remains on a lookout for acquisitions, targeting to deploy capital from its recent perpetual issuance. Based on a S$161m worth of deals announced year-to-date, the Manager is looking to deploy a further S$90m in opportunities. Markets of Australia and from the Sponsor's pipeline remain key sources of acquisition possibilities. Apart from that, the Manager is keen to re-deploy capital through selective divestments. They are reviewing potential sale of mature, lowyielding assets in Japan, China and Malaysia.
87.0%
200
1Q2015
Earnings Drivers: Pressure on margins to ease as pace of property conversions slow. We are forecasting a modest decline/flattish outlook for distributions over FY17F-18F on the back of ongoing headwinds from a weakening rental outlook in Singapore and also Korea. However, downside risk is expected to ease given the lower pace of conversions. This stems from efficiency loss and higher vacancy rates as master-tenants look to return un-utilised space in the assets. Looking ahead, with only 10.1% of leases left to be renewed in FY17, we believe downside risk should be marginal.
Net Property Income Margin %
Distribution Paid / Net Operating CF 1.0
(x)
0.9 0.8
0.7 0.6 0.5 0.4
In the longer term, we see a sizeable and growing pipeline of development properties from the Sponsor, Mapletree Investments that is available for MLT to acquire in the medium term. Potential assets for acquisitions are mainly in the development stages across Asia, especially in China, Japan, HK and Vietnam, where demand for logistics warehouses remains robust. China remains a key growth area, where the proliferation of e-commerce will drive demand for more logistic space.
0.3 2015A
2016A
2017F
2018F
2019F
2018F
2019F
Interest Cover (x) (x) 9.00 8.00 7.00 6.00 5.00 4.00
Development projects to drive value in the medium term. MLT has completed the AEI at Mapletree Logistics Hub in Toh Guan (GFA expanded by 2.7x to 63,500 sqm). Occupancy is estimated to be c.92% as of 2Q16. There is another development project in the works at 76 Pioneer Road, which will develop into a 5storey ramp-up warehouse, increasing its GFA by 1.8x to 72,000 sqm. This project will complete in 3QFY18F.
ASIAN INSIGHTS
3.00
2.00 1.00 0.00 2015A
2016A
2017F
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2 Page 253
Company Guide Mapletree Logistics Trust
Balance Sheet: Gearing of c.38% remains within management's comfortable range. Post the issuance of S$250m in perpetual securities to fund acquisitions, we project gearing to settle around c.38%. With a fairly optimised balance sheet, we believe that the Manager may need to raise new equity if any acquisition opportunity arises in the medium term. Well-staggered debt maturity profile; interest cost remains stable. Interest rates remain stable at 2.3%, and are expected to remain low given that a majority of its debts are in JPY, HKD and RMB, where interest rates in those currencies are still soft. To hedge against currency volatility, the Manager typically takes on local-denominated loans (pegged to the maximum of asset values in each overseas market). MLT has a long debt-to-maturity (3.76 years as at end-2QFY17) and proactively renews its loans ahead of time.
Aggregate Leverage (%) 40.0% 35.0% 30.0% 25.0% 20.0% 15.0%
10.0% 2015A
2016A
2017F
2018F
2019F
2018F
2019F
ROE (%) 7.0% 6.0%
5.0% 4.0% 3.0% 2.0%
Potential buy-back of perpetual in September 2017. Given the strong demand for launch of perpetual securities (S$250m @ 4.18%), we see the potential for MLT to refinance its first tranche of perpetual securities (S$350m @ 5.375%) to a lower rate. The first callable date will be in September 2017. A 1% drop in coupon will mean S$3.5m in savings (c.1.5% of distributions).
1.0% 0.0% 2015A
2016A
2017F
Distribution Yield (%) (%) 8.6 8.1
+2sd: 7.9%
7.6
Share Price Drivers: Ability to drive growth through acquisitions. We remain optimistic on the Trust's ability to drive growth through acquisitions. After its first foray into Australia, we see the Trust further deepening its exposure through strategic purchases over the medium term. The Manager is also looking to divest lowyielding assets in Singapore and Japan, and re-cycle the proceeds into higher-yielding assets. The deployment of proceeds from recent perpetual issues will mean upside to earnings. Key Risks: Rise in interest rates. The Manager has hedged the majority of its debt into fixed rates but is expected to see increased cost of funds when these loans are rolled over in the coming year. Company Background Mapletree Logistics Trust (MLT) is a real estate investment trust which invests in logistics warehouses in the Asia Pacific region. It currently owns warehouses in Singapore, Japan, China, South Korea, Vietnam, Australia and Hong Kong.
ASIAN INSIGHTS
+1sd: 7.3%
7.1
6.6
Avg: 6.7%
6.1
-1sd: 6.1%
5.6
-2sd: 5.5%
5.1 4.6 2013
2014
2015
2016
PB Band (x) 1.7
(x)
1.5
+2sd: 1.34x
1.3
+1sd: 1.23x 1.1
Avg: 1.11x
0.9
-2sd: 0.88x
-1sd: 1x
0.7 Jan-13
Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
VICKERS SECURITIES Page 3 Page 254
Company Guide Mapletree Logistics Trust
Income Statement (S$m) FY Mar Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2015A
2016A
2017F
2018F
2019F
330 (52.7) 277 (24.3) (15.4) (32.3) 0.0 205 (29.1) (0.5) (18.8) 157 241 (56.1) 185
350 (59.0) 291 (56.9) 34.0 (43.4) 10.8 235 (25.8) (0.5) (18.9) 190 190 (6.9) 183
360 (60.8) 299 (43.5) 0.0 (41.5) 0.0 214 (15.0) (0.5) (26.7) 172 172 2.00 179
375 (58.9) 316 (43.0) 0.0 (46.0) 0.0 227 (15.9) (0.5) (29.3) 182 182 1.00 185
390 (62.1) 327 (43.2) 0.0 (50.6) 0.0 234 (16.4) (0.5) (29.3) 187 187 1.00 188
6.2 3.7 (16.2) 100.0 84.0 47.6 56.0 7.4 6.4 3.4 4.9 7.8
6.0 4.8 21.1 100.0 83.1 54.4 52.4 16.3 7.5 3.8 4.3 5.4
2.9 2.9 (9.5) 100.0 83.1 47.8 49.8 12.1 6.8 3.3 4.6 6.2
4.2 5.7 5.5 100.0 84.3 48.4 49.2 11.5 7.2 3.4 4.9 5.9
3.8 3.5 3.3 100.0 84.0 48.1 48.4 11.1 7.4 3.5 5.0 5.6
Growth driven mainly from acquisitions as organic growth remains modest
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 255
Company Guide Mapletree Logistics Trust
Quarterly / Interim Income Statement (S$m) FY Mar 2Q2016 3Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
4Q2016
1Q2017
2Q2017
87.5 (14.5) 73.0 (19.2) (1.5) (10.0) 0.0 42.3 (4.5) (0.1) 32.9 32.9 13.2 46.2
88.9 (14.8) 74.2 (13.0) 3.44 (12.0) 0.0 52.6 (6.0) (0.2) 41.7 49.1 (2.6) 46.5
88.5 (15.8) 72.6 (18.1) (5.0) (12.1) 0.0 37.4 (11.8) (0.1) 20.9 57.2 (12.4) 44.8
89.6 (14.4) 75.2 (15.5) (17.2) (11.6) 0.0 30.9 (3.5) (0.2) 21.5 21.5 24.6 46.0
91.6 (14.8) 76.8 (19.0) (9.2) (11.4) 0.0 37.2 (4.8) (0.2) 24.8 24.8 21.8 46.6
3 3 (35) 83.4 100.0
2 2 27 83.4 100.0
(1) (2) (50) 82.1 100.0
1 4 3 84.0 100.0
2 2 15 83.9 100.0
2015A
2016A
2017F
2018F
2019F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
4,631 12.4 107 0.0 20.5 16.7 4,788
5,070 14.8 93.3 0.0 18.2 11.5 5,207
5,311 14.8 3.83 0.0 9.00 11.5 5,350
5,355 14.8 6.89 0.0 9.38 11.5 5,397
5,359 14.8 11.3 0.0 9.74 11.5 5,406
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
56.7 164 8.84 1,575 94.6 2,882 6.04 4,788
234 154 6.36 1,824 111 2,872 6.03 5,207
234 120 16.2 1,747 111 3,115 6.53 5,350
234 125 17.1 1,791 111 3,112 7.02 5,397
234 130 17.5 1,795 111 3,111 7.52 5,406
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(136) (1,525)
(130) (1,965)
(116) (1,978)
(121) (2,018)
(126) (2,018)
0.6 0.6 34.1 1.0
0.3 0.3 39.5 0.8
0.1 0.0 37.0 0.8
0.1 0.0 37.5 0.8
0.1 0.1 37.5 0.8
Balance Sheet (S$m) FY Mar
Gearing remains stable
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 256
Page 5
Company Guide Mapletree Logistics Trust
Cash Flow Statement (S$m) FY Mar
2015A
2016A
2017F
2018F
2019F
205 0.0 (3.9) 0.0 (0.8) 35.5 236 (247) 0.0 0.0 0.0 0.82 (246) (177) 207 0.0 (29.9) 0.08 2.78 (7.4)
235 0.0 (3.7) 0.0 (7.0) 6.28 231 (389) 0.0 0.0 0.0 (0.6) (390) (183) 426 17.9 (18.9) 242 0.0 83.3
214 0.0 (5.2) 0.0 (24.5) 0.0 185 (242) 0.0 0.0 0.0 0.0 (242) (179) (76.8) 0.0 223 (32.5) 0.0 (89.5)
227 0.0 (15.0) 0.0 4.65 0.0 217 (43.8) 0.0 0.0 0.0 0.0 (43.8) (185) 43.8 0.0 (29.3) (170) 0.0 3.06
234 0.0 (15.9) 0.0 4.45 0.0 222 (3.9) 0.0 0.0 0.0 0.0 (3.9) (188) 3.90 0.0 (29.3) (214) 0.0 4.39
9.63 (0.5)
9.59 (6.4)
8.40 (2.3)
8.52 6.95
8.74 8.76
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
Source: Company, DBS Bank Target Price & Ratings History
S$ 1.11
1.06
5 7
3 1.01
4 0.96 1
2
12- mt h T arget Rat ing Pric e
Dat e of Report
Closing Pric e
1:
08 J an 16
0.99
1.15
2:
04 F eb 16
0.94
1.15
BUY
3:
03 May 16
1.05
1.10
HOLD
4:
31 May 16
0.98
1.10
HOLD
5:
27 J ul 16
1.08
1.15
BUY
6:
22 Aug 16
1.08
1.15
BUY
7:
26 Oct 16
1.06
1.15
BUY
S.No.
6
BUY
0.91
0.86 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Derek TAN Singapore Research Team Mervin SONG CFA
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 257
Singapore Company Guide
OUE Commercial REIT Version 6
Refer to important disclosures at the end of this report
| Bloomberg: OUECT SP | Reuters: OUEC.SI
DBS Group Research . Equity
4 Jan 2017
HOLD
Concerns to weigh on share price
Last Traded Price ( 4 Jan 2017): S$0.70 (STI : 2,921.31) Price Target 12-mth: S$0.74 (6% upside and 7.5% yield)
Impediments to re-rating. We maintain our HOLD call for OUE Commercial REIT (OUECT) and a TP of S$0.74. While we see long term value in OUECT as it trades at over 20% discount to its book value and offers >7% yield, we believe the stock will be range bound near term, due to its above-average gearing (around 41%), relatively small capitalisation and fears over falling office rents ahead of new office supply in 2017.
Potential Catalyst: Better than expected results Where we differ: In line with consensus Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Uplift from One Raffles Place (ORP). With an income support arrangement providing income stability to OUE Bayfront, contributing a third of net property income (NPI) till 2018, earnings upside would come from driving a better performance at ORP. With initial yield estimated at 3.4%, the Manager is actively seeking to push occupancy rates closer to c.95% from c.91% currently.
Price Relative
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 101 75.6 79.2 56.1 5.09 nm 4.38 (8) 94.6 13.7 6.3 0.7 37.5 5.2
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016F 177 137 43.0 69.0 3.31 (35) 5.30 21 93.6 21.0 7.6 0.7 37.5 3.5
2017F 178 138 42.2 68.3 3.23 (3) 5.22 (2) 92.7 21.5 7.5 0.7 37.5 3.4
2018F 177 137 39.8 65.9 3.02 (7) 4.99 (4) 91.9 23.1 7.2 0.8 37.6 3.2
0 5.1 B: 1
0 5.2 S: 0
0 5.2 H: 3
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Earnings risk possible in FY17. As OUECT’s proactive forward renewals have reduced the number of leases expiring in FY16, the greatest earnings risk for OUECT is in FY17. There are approximately 16% of leases by net lettable area (NLA) at OUE Bayfront and 26% at ORP that are up for renewal in FY17. The risk of negative rental reversions arises as rents for these leases were signed during the better times in FY14/15. The potential magnitude of falling rents is still uncertain as it is unclear how aggressive the management of the new office buildings will be in discounting rental rates. Valuation: We maintain our DCF-based TP of S$0.74. Key Risks to Our View: The key risk to our view is a greater-than-expected fall in spot Grade A office rents to below S$7 per square foot per month (psf/mth). At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) OUE Realty Pte Ltd Tong Gordon Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Financials / Real Estate Investment Trusts
1,298 902 / 622 65.1 5.9 29.0 0.07
VICKERS SECURITIES Page 258
Company Guide OUE Commercial REIT Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Prime office assets in the Central Business District (CBD). OUE Commercial Trust (OUECT) comprises three Grade A commercial assets – OUE Bayfront Property and One Raffles Place (ORP) in downtown Central Business District in Singapore, and Lippo Plaza Property in Shanghai, China. The REIT’s total asset under management (AUM) is S$3.4bn, where Singapore contributes close to c.84% of the value. Net Property Income and Margins (%)
Better earnings diversity from the acquisition of a quality asset. The acquisition of ORP (completed in October 2015) was a significant milestone for OUECT as the acquisition more than doubled OUECT’s Singapore NLA (to c.1m sqft from c.400k presently) and portfolio size. From an operational standpoint, we see increased flexibility for the property manager to crosssell and expand its addressable tenant base, as ORP is a different office product when compared to OUE Bayfront. This will thus improve its product offerings to existing and prospective tenants, as well as result in a higher portfolio retention rate.
Distribution Paid / Net Operating CF
Immediate earnings uplift from ORP to drive earnings growth through operational optimisation. OUECT's acquisition of the c.68% beneficial interest in ORP at an average valuation of S$2,382 psf is attractive in our view. While initial yield is estimated to be c.3.4%, the Manager has continued to deliver operationally, through optimising occupancy and rents since taking over. Earnings visibility through Sponsor’s income support for OUE Bayfront till 2018. OUE Bayfront is under an income support arrangement, whereby the Sponsor has undertaken to top up any revenue shortfall below S$14.25m per quarter (or S$57m a year) for a period of five years, up to a maximum sum of S$50m. This provides earnings visibility and downside protection amid potential supply-induced market volatility in 2016-17.
Interest Cover (x)
With OUECT outperforming its initial estimates and thus drawing less from the annual income support amount, this demonstrates the Manager’s flexibility in leasing arrangements in order to maintain a steady earnings profile going forward. Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2 Page 259
Company Guide OUE Commercial REIT
Balance Sheet: Gearing remains high compared to peers. At c.41% post acquisition of ORP, OUECT has one of the highest gearing levels among S-REIT peers, which average in the mid-30’s.
Aggregate Leverage (%)
Long debt tenure minimises refinancing risk. OUECT’s weighted average debt-to-expiry was 1.8 years in 3Q16, with c.78% of debt hedged into fixed rates for 2.7 years. The REIT will have no debt expiring until FY17, reducing near-term refinancing risk. Share Price Drivers: Lower gearing level will partly allay concerns. We believe that the recent lacklustre share price performance could be due to OUECT’s higher gearing versus the S-REITs’ average of c.35%. Given a deteriorating office outlook, investors are concerned that OUECT may need to raise further equity to shore up its balance sheet in the event of deterioration in office values, resulting in the REIT breaching the 45% gearing limit. Rebound in operational results. The office market is on a downtrend, in our view, given looming supply in the midst of weak demand for space. While OUECT has still been able to achieve positive rental reversions for 9M16, we believe this will moderate with risk of negative reversions ahead.
ROE (%)
Distribution Yield (%)
Key Risks: Concentration risk. While the acquisition of ORP will diversify asset-specific risks, OUECT is still heavily exposed to Singapore’s CBD office market via ORP and OUE Bayfront, which account for >80% of earnings. Any downturn or weakness in the Singapore office market could have a significant negative impact on ORP, and the REIT. Decline in office rents. Given the expected increase in office supply over the next two years, there is risk that office rents could fall beyond our expectations, causing OUECT to miss our DPU estimates.
PB Band (x)
Interest rate risk. A rise in interest rate will have a negative impact on distributions. However, the Manager is actively overseeing its exposure through forward hedges and has c.78% of its interest cost hedged into fixed rates with a fairly long duration of 2.7 years. Company Background OUE Commercial REIT (OUECT) is an office REIT with a portfolio of office assets located in prime CBD locations in Singapore and China.
ASIAN INSIGHTS
Source: Company, DBS Bank
VICKERS SECURITIES Page 3 Page 260
Company Guide OUE Commercial REIT
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2015A
2016F
2017F
2018F
101 (25.4) 75.6 (12.5) 0.0 (26.0) 32.1 69.3 (10.4) (1.5) 0.0 57.4 79.2 (21.8) 56.1
177 (39.9) 137 (18.4) 0.0 (54.8) 0.0 63.7 (13.4) (7.3) 0.0 43.0 43.0 31.3 69.0
178 (40.3) 138 (17.1) 0.0 (57.5) 0.0 63.5 (13.9) (7.3) 0.0 42.2 42.2 31.4 68.3
177 (39.9) 137 (15.7) 0.0 (60.3) 0.0 61.0 (13.9) (7.3) 0.0 39.8 39.8 31.4 65.9
41.2 40.5 nm 100.0 74.9 56.8 55.5 12.3 5.2 2.2 2.1 2.4
75.0 81.0 (25.1) 100.0 77.4 24.3 39.0 10.4 3.5 1.2 2.7 2.2
0.8 0.8 (1.7) 100.0 77.4 23.7 38.3 9.6 3.4 1.2 2.8 2.1
(0.8) (0.8) (5.7) 100.0 77.4 22.5 37.3 8.9 3.2 1.1 2.7 2.0
Driven mainly by better performance at Lippo Plaza, offsetting weakness in Singapore
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 261
Company Guide OUE Commercial REIT
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
20.6 (5.1) 15.6 0.03 0.28 (5.5) 0.0 10.4 (1.3) 0.0 9.13 8.04 5.05 13.1
40.3 (10.7) 29.7 (9.3) 30.6 (11.4) 21.8 61.4 (6.5) 0.0 55.0 53.5 (34.6) 17.6
42.9 (9.7) 33.3 (3.5) (0.4) (13.7) 0.0 15.7 (3.9) 0.0 11.8 9.97 8.44 17.0
45.7 (10.5) 35.2 (4.4) (0.3) (13.8) 0.0 16.8 (4.5) 0.0 12.4 10.7 8.45 17.7
44.2 (8.9) 35.3 (4.1) 0.01 (14.2) 0.0 17.1 (4.4) 0.0 12.7 11.0 7.58 17.2
5 6 (3) 75.5 100.0
96 91 502 73.6 100.0
6 12 (79) 77.5 100.0
6 6 5 77.1 100.0
(3) 0 3 80.0 100.0
Balance Sheet (S$m) FY Dec
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
3,403 21.4 25.9 0.0 13.6 0.03 3,464
3,408 21.4 48.8 0.0 12.3 0.03 3,491
3,414 21.4 56.5 0.0 12.4 0.03 3,504
3,419 21.4 63.3 0.0 12.3 0.03 3,516
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
1.73 54.1 11.0 1,302 99.9 1,762 233 3,464
1.73 68.2 11.0 1,307 99.9 1,762 240 3,491
1.73 68.8 11.0 1,313 99.9 1,762 248 3,504
1.73 68.2 11.0 1,318 99.9 1,762 255 3,516
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%)
(51.4) (1,278)
(66.9) (1,260)
(67.3) (1,258)
(66.9) (1,257)
0.6 0.6 37.5
0.8 0.8 37.5
0.8 0.8 37.5
0.9 0.9 37.6
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 262
Page 5
Company Guide OUE Commercial REIT
Cash Flow Statement (S$m) FY Dec
2015A
2016F
2017F
2018F
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash
69.3 4.24 (1.6) 0.0 (3.4) 9.00 77.6 (594) 0.0 0.0 0.0 (1.2) (595) (50.2) 363 212 (12.6) 512 2.50 (2.8)
63.7 0.0 (13.4) 0.0 15.5 31.3 97.1 (5.3) 0.0 0.0 0.0 0.0 (5.3) (69.0) 5.31 0.0 (5.3) (69.0) 0.0 22.8
63.5 0.0 (13.9) 0.0 0.45 31.4 81.3 (5.4) 0.0 0.0 0.0 0.0 (5.4) (68.3) 5.35 0.0 (5.3) (68.2) 0.0 7.78
61.0 0.0 (13.9) 0.0 (0.5) 31.4 78.0 (5.3) 0.0 0.0 0.0 0.0 (5.3) (65.9) 5.30 0.0 (5.3) (65.9) 0.0 6.81
Operating CFPS (S cts) Free CFPS (S cts)
7.18 (45.8)
6.30 7.08
6.18 5.81
5.94 5.50
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Mervin SONG CFA Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 263
Singapore Company Guide
OUE Hospitality Trust Version 6
Refer to important disclosures at the end of this report
| Bloomberg: OUEHT SP | Reuters: OUER.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Keep the faith
Last Traded Price ( 4 Jan 2017): S$0.69 (STI : 2,921.31) Price Target 12-mth: S$0.72 (5% upside and 6.6% yield) Potential Catalyst: Acquisitions and better than expected results Where we differ: Below consensus on expectations of recovery in the Singapore hospitality market in 2018 Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Multiple levers to pull to drive earnings in 2017. We expect Mandarin Orchard Singapore (MOS) to report a 4% decline in revenue per available room (RevPAR) in FY17 versus 0% growth previously. However, we believe DPU growth is still achievable in 2017. This is underpinned by full year contribution of CPEX, draw down of S$7.5m income support for CPEX, as well as the increased contribution from Mandarin Gallery following the opening of the Michael Kors and Victoria Secret stores in 2H16.
Price Relative S$
Relative Index
1.0
215
1.0
195
0.9 175
0.9
155
0.8
135
0.8
115
0.7
95
0.7 0.6 Aug-13
75
Aug-14
Aug-15
OUE Hospitality Trust (LHS)
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 125 109 77.7 87.4 5.21 (6) 6.07 (3) 83.6 13.2 8.9 0.8 41.8 6.2
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
Aug-16
Relative STI (RHS)
2016F 116 101 62.5 77.2 3.86 (26) 4.30 (29) 80.1 17.8 6.3 0.9 37.6 4.7
2017F 120 105 67.8 81.6 3.76 (2) 4.52 5 79.4 18.2 6.6 0.9 37.7 4.7
2018F 125 109 69.6 83.7 3.84 2 4.60 2 78.7 17.8 6.7 0.9 37.7 4.9
(1) 44.5 B: 3
0 5.0 S: 0
5.2 H: 4
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Boost from timely acquisition. We reiterate our BUY call with a TP of S$0.72. While we now expect the recovery in the Singapore hospitality market to only occur in 2018 from 2017, OUE Hospitality Trust (OUEHT) is one of the best-positioned hospitality REITs to ride out near term headwinds. In fact, through the rebasing of its DPU in FY16 and its timely acquisition of Crown Plaza Changi Airport extension (CPEX) OUEHT should still deliver healthy 5% growth in DPU in 2017.
Removal of overhang. OUEHT’s share price corrected over the past year due to the overhang from (1) potential capital raising to fund the acquisition of CPEX, and (2) gearing that was over 40%. However, these concerns have now been addressed, following the recent rights issue which resulted in OUEHT’s gearing falling to c.37%. Valuation: We maintain our DCF-based TP of S$0.72 which has incorporated delayed expectations for a recovery in the Singapore hospitality market from 2017 to 2018. Key Risks to Our View: Competitive landscape. The key risk to our view is a weakerthan-expected outlook for the Singapore hospitality market. In addition, rents at Mandarin Gallery may fall below expectations if there is a significant deterioration in the Singapore retail scene. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) OUE Realty Ptd Ltd Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trusts
1,790 1,226 / 852 40.0 60.0 0.43
VICKERS SECURITIES Page 264
Company Guide OUE Hospitality Trust Net Property Income and Margins (%) 96.7% 94.7% 92.7%
90.7% 88.7% 86.7% 84.7%
82.7% 2014A
2015A
2016F
Net Property Income
2017F
2018F
Net Property Income Margin %
Net Property Income and Margins (%) 90%
30
89%
29
89%
28
88% 88%
27
87%
26
87%
25
86%
Net Property Income
3Q2016
2Q2016
1Q2016
4Q2015
85%
3Q2015
85%
22
2Q2015
86%
23
1Q2015
24
4Q2014
Stability from fixed rentals. Besides having a more diversified portfolio following the acquisitions of CPCA and CPEX, a significant proportion of OUEHT’s earnings is stable and visible. This arises from minimum S$45m rental from its Sponsor for Mandarin Orchard, and S$22.5m from Crown Plaza Changi Airport.
200 180 160 140 120 100 80 60 40 20 0
3Q2014
Earnings Drivers: Increased contribution from Crowne Plaza Changi Airport. The main earnings driver for OUEHT over the coming year is the increased contribution from the acquisition of the Crown Plaza Changi Airport extension (CPEX) in August 2016 which will add another 243 rooms to the 320-room Crowne Plaza Changi Airport (CPCA) acquired on 30 January 2015. The enlarged CPCA caters to transit passengers as well as visitors to the Singapore Expo and businesses at Changi Business Park. The property offers OUEHT exposure to a submarket that has limited competition, and is a diversification away from Mandarin Orchard which is more focused on the tourism market. While underlying contribution from CPEX is likely to be lower than originally anticipated, this is mitigated by S$7.5m worth of income support that OUEHT is available for draw down over three years.
S$ m
2Q2014
CRITICAL DATA POINTS TO WATCH
Net Property Income Margin %
Distribution Paid / Net Operating CF 1.2
(x)
1.1 1.0
Recovery at Mandarin Gallery. In 2016, Mandarin Gallery Mall suffered from a dip in occupancies, negative rental reversions and fit out period associated with the new Michael Kors and Victoria Secret stores. Nevertheless, earnings from the property should recover in 2016, as occupancies have since recovered and the retail mall will no longer contend with the loss of income from the fit out period for Michael Kors and Victoria Secret.
0.9 0.8 0.7
0.6 0.5 0.4 0.3 2014A
2015A
2016F
2017F
2018F
2017F
2018F
Interest Cover (x)
Short-term headwinds at Mandarin Orchard but supply constrained in the medium term. OUEHT’s Mandarin Orchard (MOS) hotel faces some short-term headwinds due to the 5-6% p.a. growth in new hotel rooms in 2016 and 2017 as well as weak corporate demand. This is likely to result in a decline in RevPAR for MOS. Nevertheless, with the Singapore government not releasing any new hotel sites for development over the last two years constraining supply in the medium term, and supply only projected to only increase by 0.3% in 2018, we expect a recovery for MOS and the Singapore hospitality market in a couple of years’ time. Expansion through acquisitions. Over the medium term, we expect OUEHT to make DPU-accretive acquisitions to expand its portfolio of properties. Its sponsor, OUE Limited, owns service residences at OUE Downtown and a 30% stake in Marina Mandarin, which are potential acquisition targets for OUEHT. In
ASIAN INSIGHTS
(x) 8.00 7.00 6.00 5.00
4.00 3.00 2.00 1.00
0.00 2014A
2015A
2016F
Source: Company, DBS Bank
addition, we understand the REIT is exploring acquisition opportunities in Europe, Japan and the US.
VICKERS SECURITIES
Page 2
Page 265
Company Guide OUE Hospitality Trust
Balance Sheet: Equity raising to fund acquisition. Following the recent S$239m rights issue (441.9m units at S$0.54 per unit) and acquisition of Crown Plaza Changi Airport extension, OUEHT’s gearing has settled around the 37% level.
Aggregate Leverage (%)
40.0%
35.0% 30.0%
25.0%
Share Price Drivers: Delivery of DPU. OUEHT’s share price corrected over the past year due to the overhang from (1) the potential capital raising to fund the acquisition of CPEX, (2) gearing that was over 40% and (3) weakness in the overall Singapore hospitality market. While the Singapore market is likely to remain weak, having taken the dilution associated with the rights issue and suffered lower occupancies and earnings at Mandarin Gallery to secure Michael Kors and Victoria Secret as tenants in 2016, OUEHT is poised to deliver DPU growth on the back of the acquisition of CPEX as well as full contribution from new stores at Mandarin Gallery. We believe the delivery of an increase in DPU in 2017, will re-rate OUEHT ahead of a potential recovery in the Singapore hospitality market in 2018.
20.0% 15.0%
10.0% 2014A
2015A
2016F
2017F
2018F
2017F
2018F
ROE (%) 6.0% 5.0%
4.0% 3.0% 2.0% 1.0%
0.0%
Influx of tourists and lack of new supply. The performance of hospitality REITs is correlated to the growth in tourist arrivals and hotel supply. Should Singapore receive an influx of tourists, sentiment towards OUEHT’s stock price will improve. In addition, with no hotel sites being released by the government over the last two years, this will constrain supply in the medium term which should increase OUEHT’s scarcity value over time.
2014A
2015A
2016F
Distribution Yield (%) (%)
+2sd: 11.5%
11.0 9.0
+1sd: 8.3%
7.0
Avg: 5.2%
5.0
Key Risks: Interest rate risk. Any increase in interest rates will result in higher interest payments that the REIT has to make annually to service its loan. This reduces the income available for distribution, which will result in lower DPU for unitholders. We understand c.90% of the group’s borrowings are on fixed rates. Competitive landscape. The Singapore hospitality market has been impacted by a decline in tourist arrivals this year. Any further deterioration in demand would pose a downside risk to our earnings estimates.
3.0
-1sd: 2% 1.0 -1.02013
2014
2015
2016
2017
PB Band (x) 1.3
(x)
1.2
1.1
+2sd: 1.1x
1.0
+1sd: 1.01x
Avg: 0.93x
0.9
-1sd: 0.84x
0.8
Company Background OUE H-Trust is a Singapore-based REIT, with the principal investment strategy of investing, directly or indirectly, in a portfolio of income-producing hospitality assets.
-2sd: 0.76x 0.7 0.6 Dec-13
Dec-14
Dec-15
Dec-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 266
Company Guide OUE Hospitality Trust
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016F
2017F
2018F
116 (12.7) 103 (11.1) 0.0 (13.4) 0.0 78.7 0.0 0.0 0.0 78.7 78.6 10.4 89.0
125 (15.5) 109 (12.1) 0.0 (22.2) 0.0 74.8 0.0 0.0 0.0 74.8 77.7 9.64 87.4
116 (15.0) 101 (13.4) 0.0 (25.2) 0.0 62.5 0.0 0.0 0.0 62.5 62.5 14.7 77.2
120 (15.3) 105 (10.1) 0.0 (27.3) 0.0 67.8 0.0 0.0 0.0 67.8 67.8 13.9 81.6
125 (15.8) 109 (10.2) 0.0 (29.6) 0.0 69.6 0.0 0.0 0.0 69.6 69.6 14.0 83.7
128.8 130.2 166.5 100.0 89.0 67.9 76.8 9.6 6.5 4.3 5.3 6.9
7.5 5.8 (5.0) 100.0 87.6 60.0 70.1 9.7 6.2 3.8 5.1 4.4
(6.8) (7.3) (16.4) 100.0 87.1 53.8 66.5 11.6 4.7 2.8 4.1 3.5
3.7 4.0 8.4 100.0 87.3 56.3 67.8 8.4 4.7 2.9 4.2 3.5
4.0 4.1 2.7 100.0 87.4 55.6 66.8 8.2 4.9 3.0 4.4 3.4
Growth in distributable income largely due to the full year contribution from recently acquired Crown Plaza Changi extension as well as drawdown of S$7.5m worth of income support.
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 267
Company Guide OUE Hospitality Trust
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
32.7 (3.9) 28.8 (3.1) 0.0 (5.7) 0.0 19.9 0.0 0.0 19.9 19.9 3.07 23.0
33.0 (4.1) 28.8 (3.0) 0.0 (6.6) 0.0 19.3 0.0 0.0 19.3 22.2 0.57 22.8
30.1 (3.9) 26.3 (3.0) 0.0 (6.5) 0.0 16.8 0.0 0.0 16.8 16.8 2.86 19.7
26.9 (3.7) 23.2 (2.9) 0.0 (7.1) 0.0 13.2 0.0 0.0 13.2 13.2 3.39 16.6
33.3 (3.9) 29.4 (3.6) 0.0 (5.8) 0.0 20.0 0.0 0.0 20.0 19.0 2.21 22.3
10 12 17 88.1 100.0
1 0 (3) 87.4 100.0
(9) (9) (13) 87.2 100.0
(11) (12) (22) 86.2 100.0
24 27 52 88.4 100.0
Balance Sheet (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
1,756 0.0 31.3 0.0 9.27 0.0 1,797
2,054 6.25 31.4 0.0 8.88 0.37 2,101
2,264 6.25 52.2 0.0 8.88 0.37 2,332
2,267 6.25 46.3 0.0 8.88 0.37 2,329
2,271 6.25 39.7 0.0 8.88 0.37 2,326
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
0.0 7.19 2.58 583 5.36 1,198 0.0 1,797
292 11.4 2.01 585 3.25 1,207 0.0 2,101
292 11.4 2.01 585 3.25 1,438 0.0 2,332
292 11.4 2.01 585 3.25 1,435 0.0 2,329
292 11.4 2.01 585 3.25 1,432 0.0 2,326
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(0.5) (552)
(4.1) (846)
(4.1) (825)
(4.1) (831)
(4.1) (838)
4.2 4.2 32.5 1.2
0.1 0.1 41.8 0.7
0.2 0.2 37.6 0.8
0.2 0.2 37.7 0.8
0.2 0.2 37.7 0.8
Decrease in gearing due to the recent S$239m rights issue
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 268
Page 5
Company Guide OUE Hospitality Trust
Cash Flow Statement (S$m) FY Dec Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
2014A
2015A
2016F
2017F
2018F
78.7 0.0 0.0 0.0 (13.8) 22.9 87.9 (0.1) 0.0 0.0 0.0 0.03 (0.1) (104) 0.0 0.0 (13.8) (117) 0.0 (29.5)
74.8 0.0 0.0 0.0 0.76 32.9 108 (293) 0.0 0.0 0.0 0.04 (293) (88.2) 292 0.0 (19.2) 185 0.0 0.06
62.5 0.0 0.0 0.0 0.0 11.9 74.4 (210) 0.0 0.0 0.0 0.0 (210) (77.2) 0.0 234 0.0 156 0.0 20.8
67.8 0.0 0.0 0.0 0.0 11.0 78.8 (3.0) 0.0 0.0 0.0 0.0 (3.0) (81.6) 0.0 0.0 0.0 (81.6) 0.0 (5.9)
69.6 0.0 0.0 0.0 0.0 11.2 80.8 (3.8) 0.0 0.0 0.0 0.0 (3.8) (83.7) 0.0 0.0 0.0 (83.7) 0.0 (6.6)
7.14 6.17
7.49 (12.8)
4.59 (8.4)
4.37 4.21
4.46 4.25
Net proceeds from recent right issue (441.9m units at S$0.54 per unit)
Source: Company, DBS Bank Target Price & Ratings History
0.78
S$
12- mt h T arget Rat ing Pric e
0.76
S.No.
Dat e of Report
Closing Pric e
0.74
1:
06 J an 16
0.71
0.85
BUY
2:
21 J an 16
0.69
0.85
BUY
3:
09 May 16
0.67
0.75
BUY
4:
02 Aug 16
0.69
0.75
BUY
5:
05 Sep 16
0.68
0.75
BUY
6:
01 Nov 16
0.69
0.72
BUY
0.72
4
0.70 1 2
6
0.68 0.66
3
5
0.64 0.62 0.60 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Mervin SONG CFA Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 269
Singapore Company Guide
Soilbuild Business Space Reit Version 6
Refer to important disclosures at the end of this report
| Bloomberg: SBREIT SP | Reuters: SBSR.SI
DBS Group Research . Equity
4 Jan 2017
BUY
A helping hand from the sponsor
Last Traded Price ( 4 Jan 2017): S$0.66 (STI : 2,921.31) Price Target 12-mth: S$0.75 (15% total return and 9.3% yield ) Potential Catalyst: Better than expected results Where we differ: More conservative estimates than consensus Analyst Derek TAN +65 6682 3716 [email protected] Singapore Research Team [email protected] Mervin SONG CFA +65 6682 3715 [email protected]
Acquisition of Bukit Batok Connection to drive earnings as portfolio undergoes tenant churn. The timely acquisition of Bukit Batok Connection from sponsor Soilbuild Group will diversify the REIT’s earnings and lengthen its weighted average lease expiry (WALE) to 4.7 years. This more than compensates for potential operational headwinds from other assets in the portfolio. In addition, the Manager is actively re-tenanting 72 Loyang Way where Technics is expected to progressively vacate. We understand that the Manager has found tenants for a substantial portion of the space but at lower rents.
Price Relative
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
Negatives priced in, BUY and TP of S$0.75 maintained. With a dividend yield of close to 9.0%, Soilbuild Business Space Reit (SBREIT) offers one of the highest in the industrial space. Despite operational headwinds, we believe that the worst is over. SBREIT’s recent asset acquisition will diversify its portfolio, and updates on back-filling of vacated space at 72 Loyang Way will increase investor confidence for the stock. Maintain BUY.
2015A 79.3 67.8 51.7 57.9 5.28 2 6.49 5 79.8 12.4 9.9 0.8 36.2 6.7
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016F 85.8 72.7 51.0 58.4 5.32 1 6.09 (6) 84.5 12.3 9.3 0.8 35.8 6.5
2017F 92.7 79.4 55.7 63.3 5.38 1 6.11 0 78.4 12.2 9.3 0.8 35.6 6.9
2018F 95.3 81.6 57.5 64.5 5.51 2 6.18 1 78.4 11.9 9.4 0.8 35.5 7.0
0 6.10 B: 4
0 6.30 S: 0
0 5.90 H: 1
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
Look out for asset revaluation. We believe that portfolio valuation could soften come year end, mainly from weaker net property income portfolio-wide, and from 72 Loyang Way after the loss of income from its master tenant. Based on our estimates, a 10%-20% drop in valuations in its properties will only result in gearing rising to 37% (from 36% currently), which is well within the REIT’s comfortable level. Valuation: We have a DCF-backed TP of S$0.75 which has factored in the likely NAV devaluation. Maintain BUY, supported by an attractive yield of over 9.0%. Key Risks to Our View: Interest rate risks. Rise in interest rates in the medium term will have a negative impact on distributions but the Manager has substantially hedged out these risks with a high percentage of fixed-rate borrowings. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Chap Huat Lim Schroders Plc Jinquan Tong Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trusts
ASIAN INSIGHTS ed: JS/ sa: YM, PY
1,042 683 / 471 24.9 8.0 6.9 59.4 0.68
VICKERS SECURITIES Page 270
Company Guide Soilbuild Business Space Reit Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Well-staggered lease expiry profile offers income stability. SBREIT has a healthy weighted average lease-to-expiry (WALE) profile of 4.7 years by gross rental income as at 3Q16. Within SBREIT’s portfolio, 49% of net property income is derived from master lease agreements that provide long-term leases ranging from 5-15 years which contain annual escalations in the range of 2.0-5.0%, ensuring a steady growth profile.
Net Property Income and Margins (%)
Steady occupancy rates; Manager to focus on tenant retention rate. In view of the increasing supply outlook, the Manager of SBREIT is looking to forward renew expiring leases with the aim of maintaining a high level of portfolio occupancy. Outlook remains modest with rental reversions expected to moderate for its main properties (West Park Biz Central and Tuas Connection). Given the competitive industrial landscape, the Manager is aiming to retain tenants rather than pushing rents higher, which in our view, is a right strategy to underpin earnings resiliency. Acquisitions to drive earnings. The acquisition of Bukit Batok Connection will contribute from 4Q16. We expect distributions (and DPUs) to increase q-o-q from the full-quarter contribution of Bukit Batok Connection. This is expected to compensate for the expected weakness in rental reversions from WestPark Biz Central and Tuas Connection 9 and back-filling of vacated space at 72 Loyang Way. While the property will be leased-back to the sponsor on a 7–year lease, we understand that underlying occupancy is improving, currently at c.43%-44% with tenants from diversified industries taking up space. We believe that the acquisition provides much needed stability and visibility to the REIT’s earnings especially coming from the uncertainty regarding 72 Loyang Way and the general negative rental reversions felt across the assets in the portfolio Technics re-tenanting update. Impact of Technics not paying rent is compensated by the drawdown of cash from 18-month deposit that SBREIT has called on. As at 3Q16, we understand that the Manager is already in discussions with a number of tenants who might be interested to take up the vacated space as 72 Loyang Way (Technics’ Property) is undergoing a judicial management process. If these discussions are concluded, most of the vacated space is expected to be filled up. However, rental rates are expected to be lower that the estimated c. S$3.0psf that Technics was paying. That said, we believe that the successful back-filing of space at 72 Loyang Way will provide investors with increased comfort on the income stability going forward.
ASIAN INSIGHTS
Distribution Paid / Net Operating CF
Interest Cover (x)
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2 Page 271
Company Guide Soilbuild Business Space Reit
Balance Sheet: Gearing remains within management's comfort level. SBREIT's current gearing remains at the lower end of management’s range of 35-40% which provides sufficient headroom and financial flexibility for the REIT to acquire opportunistically.
Aggregate Leverage (%)
Prudent capital management; 100% of interest costs hedged into fixed rates. All-in cost of debt fell marginally to 3.42% from 3.44%. Average debt maturity stays at 3.1 years and interest rate for 88.5% of borrowings has been fixed. Share Price Drivers: High yields of >8.0%; one of the highest among S-REITs. SBREIT currently offers one of the highest yields among industrial REITs. We believe this is unjustified given the REIT’s superior portfolio of high-quality industrial assets with a niche exposure in the business park segment, which is expected to deliver a more resilient performance than peers. In addition, with 49% of its income pegged to single-tenant properties, we believe that SBREIT offers one of the strongest income visibilities among industrial REITs. Better-than-expected operational performance. Better-thanprojected rental reversions from its main assets - namely West Park Biz Central and Tuas Connection - will mean upside to our DPU forecasts, implying higher TPs. In addition, with investors’ concerns of rising vacancy risks due to increased competition from new completing supply, the ability to maintain a sustained occupancy profile will lift investors’ confidence in SBREIT’s ability to deliver consistent returns over time.
ROE (%)
Distribution Yield (%)
Key Risks: Higher interest rates. Any increase in refinancing rates will negatively impact distributions. The Manager has put in place interest rate swaps/MTNs of 1-4 years to essentially convert c.98% of its debt into fixed rates.
PB Band (x)
Company Background Soilbuild Business Space REIT is a real estate investment trust that invests in income-producing real estate used primarily for business space purposes in Singapore. Its flagship asset is Solaris, located in the one-north business park. The REIT is backed by Soilbuild Group, a household name in the construction and real estate business in Singapore.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3 Page 272
Company Guide Soilbuild Business Space Reit
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016F
2017F
2018F
68.1 (10.8) 57.4 (6.5) 0.0 (9.7) 0.90 42.1 0.0 0.0 0.0 42.1 42.1 8.11 50.2
79.3 (11.6) 67.8 (7.8) 0.0 (12.8) 0.0 47.1 0.0 0.0 0.0 47.1 51.7 6.21 57.9
85.8 (13.1) 72.7 (8.5) 0.0 (13.2) 0.0 51.0 0.0 0.0 0.0 51.0 51.0 7.39 58.4
92.7 (13.3) 79.4 (8.5) 0.0 (15.2) 0.0 55.7 0.0 0.0 0.0 55.7 55.7 7.57 63.3
95.3 (13.6) 81.6 (7.6) 0.0 (16.5) 0.0 57.5 0.0 0.0 0.0 57.5 57.5 7.02 64.5
177.4 178.4 180.7 100.0 84.2 61.7 73.6 9.6 6.5 4.2 5.1 5.3
16.4 18.2 12.0 100.0 85.4 59.4 72.9 9.8 6.7 4.2 5.3 4.7
8.1 7.2 8.2 100.0 84.7 59.4 68.1 9.9 6.5 4.0 5.1 4.9
8.1 9.3 9.3 100.0 85.6 60.1 68.3 9.1 6.9 4.2 5.4 4.7
2.7 2.8 3.2 100.0 85.7 60.4 67.7 8.0 7.0 4.3 5.6 4.5
Driven by acquisitions
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 273
Company Guide Soilbuild Business Space Reit
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
20.7 (2.9) 17.8 (1.8) 0.0 (3.5) 0.0 12.5 0.0 0.0 12.5 12.5 2.65 15.1
20.4 (2.9) 17.5 (2.4) 0.0 (3.1) 0.0 12.0 0.0 0.0 12.0 16.5 (1.4) 15.1
20.1 (2.9) 17.2 (1.8) 0.0 (3.1) 0.0 12.4 0.0 0.0 12.4 12.4 2.24 14.6
19.6 (2.2) 17.3 (1.7) 0.0 (3.2) 0.0 12.4 0.0 0.0 12.4 12.4 2.31 14.7
19.7 (2.5) 17.3 (1.8) 0.0 (3.4) 0.0 12.1 0.0 0.0 12.1 12.1 2.47 14.6
6 6 8 85.9 100.0
(1) (2) (4) 85.6 100.0
(1) (2) 3 85.4 100.0
(3) 1 0 88.5 100.0
1 0 (3) 87.5 100.0
Balance Sheet (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
1,031 0.96 21.0 0.0 0.82 0.55 1,054
1,191 3.41 16.8 0.0 2.44 1.24 1,215
1,289 3.41 23.1 0.0 0.86 1.24 1,318
1,291 3.41 27.0 0.0 0.93 1.24 1,324
1,293 3.41 29.9 0.0 0.95 1.24 1,329
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
94.6 8.68 2.58 274 23.0 651 0.0 1,054
0.0 10.1 2.72 399 57.2 746 0.0 1,215
0.0 8.58 2.72 439 57.2 811 0.0 1,318
0.0 9.27 2.72 439 57.2 816 0.0 1,324
0.0 9.53 2.72 439 57.2 821 0.0 1,329
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(9.9) (348)
(9.2) (382)
(9.2) (415)
(9.8) (412)
(10.1) (409)
0.2 0.2 35.8 0.9
1.6 1.5 36.2 1.0
2.2 2.1 35.8 1.0
2.4 2.3 35.6 1.0
2.6 2.5 35.5 1.1
Gearing to remain steady
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 274
Page 5
Company Guide Soilbuild Business Space Reit
Cash Flow Statement (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
42.1 0.0 0.0 0.0 3.41 8.40 53.9 (94.8) 0.0 0.0 0.0 0.0 (94.8) (49.4) 91.5 (0.1) 0.0 41.9 0.0 1.00
47.1 0.0 0.0 0.0 (0.7) 10.7 57.1 (124) 0.0 0.0 0.0 0.0 (124) (55.7) 29.6 90.0 (1.6) 62.3 0.0 (4.2)
51.0 0.0 0.0 0.0 0.04 5.59 56.6 (98.3) 0.0 0.0 0.0 0.0 (98.3) (58.4) 40.0 66.4 0.0 48.0 0.0 6.33
55.7 0.0 0.0 0.0 0.63 5.77 62.1 (2.0) 0.0 0.0 0.0 0.0 (2.0) (63.3) 0.0 7.07 0.0 (56.2) 0.0 3.90
57.5 0.0 0.0 0.0 0.23 5.22 63.0 (2.0) 0.0 0.0 0.0 0.0 (2.0) (64.5) 0.0 6.52 0.0 (58.0) 0.0 2.95
6.24 (5.1)
6.48 (7.5)
5.90 (4.3)
5.93 5.80
6.01 5.84
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Derek TAN Singapore Research Team Mervin SONG CFA
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 275
Singapore Company Guide
SPH REIT Refer to important disclosures at the end of this report
Version 4 | Bloomberg: SPHREIT SP | Reuters: SPHR.SI
DBS Group Research . Equity
4 Jan 2017
HOLD
Potential influx of new traffic to Paragon
Last Traded Price ( 4 Jan 2017): S$0.96 (STI : 2,921.31) Price Target 12-mth: S$1.00 (4% upside and 5.9% yield) Potential Catalyst: Better-than-expected rental reversion; acquisition of Seletar Mall Where we differ: More bullish on rents at selected Orchard Rd malls Analyst Singapore Research Team Derek TAN +65 6682 3716 [email protected]
Price Relative
Forecasts and Valuation FY Aug (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 205 156 154 139 6.08 (29) 5.47 1 94.3 15.7 5.7 1.0 25.5 6.5
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016A 210 161 128 141 5.02 (17) 5.55 1 93.4 19.0 5.8 1.0 25.5 5.3
2017F 226 164 127 145 4.97 (1) 5.66 2 92.7 19.2 5.9 1.0 26.0 5.3
2018F 231 168 129 148 5.02 1 5.72 1 92.1 19.0 6.0 1.0 26.2 5.4
B: 3
5.7 S: 0
5.7 H: 3
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: TH / sa: JC, PY
Stock is fairly priced. We currently have a HOLD recommendation, with TP of S$1.00. SPH REIT's dividend yield of 5.7% reflects the strength of its assets and stability of earnings. However, at this point we believe that comparable retail S-REITs offer more attractive yields. Paragon to continue to drive earnings growth. We believe that Paragon will continue to outperform the rest of Orchard Road for both retail and office assets, due to its (a) location and frontage in the prime Orchard Road shopping district, as well as (b) proximity to the Mount Elizabeth medical cluster. As such, we assume reversions of 3.5-4.0% for Paragon. A linkbridge connecting Cairnhill redevelopment and Paragon, to be opened in November/December 2016, may draw new traffic to the mall. At Clementi Mall, more than 50% lease expirations in FY17 could set a new base for rent. Potential acquisition a catalyst. With a healthy gearing of 25.7% and cost of debt of 2.82%, SPH REIT is well poised for debtfunded acquisitions. The next growth catalyst for the REIT will be the acquisition of the Sponsor’s 70% stake in Seletar Mall. However, we believe this acquisition is likely to be more of a medium term-prospect, as the mall was only completed in December 2014 and is still on its first lease cycle. Valuation: We have a DCF-backed target price of S$1.00, implying a dividend yield of 5.7% for FY17F-18F. Due to the lack of nearterm catalysts and limited upside to TP, we maintain our HOLD call. Key Risks to Our View: Short WALE due to lease expirations at Clementi Mall. The portfolio has a relatively short WALE of 2.3 years by NLA. 18.5% of portfolio NLA (c.166,000 sqft) will expire in FY17. The majority comes from Clementi Mall where more than 50% or close of 104,000 sqft of the mall’s NLA are due in the next 12 months. At A Glance Issued Capital (m shrs) 2,551 Mkt. Cap (S$m/US$m) 2,436 / 1,692 Major Shareholders (%) Singapore Press Holdings 68.7 Free Float (%) 31.3 3m Avg. Daily Val (US$m) 0.70 ICB Industry : Real Estate / Real Estate Investment Trusts
VICKERS SECURITIES Page 276
Company Guide SPH REIT Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Maximising mall efficiency to generate higher yields. At the Paragon, the additional 7k sqft of net lettable area (NLA) to be generated by the chiller decanting project is progressing as scheduled. Once completed, it is expected to generate additional revenue of c.S$1m p.a. and ROI of >7%. This project will be spread over three years from September 2015 to March 2018, in order to coincide with various lease expiries of tenants in the area. Stable earnings profile over FY17 and FY18. SPH REIT secured overall rental reversions 5.4% for FY16 (5.2% for Paragon; 7.8% for Clementi Mall) while maintaining a track record of 100% occupancy. As at 31 August 2016, the REIT’s portfolio had a weighted average lease expiry (WALE) of 2.3 years and 2.2 years by NLA and gross rental income respectively. We expect earnings to be stable over the next two years. The next largest leasing tranche will be in FY17, when 51.6% of the mall’s NLA will come up for renewal. Regardless of the results, earnings next year should be stable due to the income support from the Sponsor at Clementi Mall. However, reversion levels are still crucial as they could set a new base for Clementi Mall when the income support ends in 2018. Healthy occupancy costs ensure a vibrant medium-term outlook for the malls. While Paragon’s occupancy costs rose to 19.6% as tenant sales grew at a slower rate than rents, we note that this is still within the healthy range for a mall in Orchard Road, where tenants are typically willing to count higher rents as part of marketing costs. Higher sales growth in subsequent years will allow the REIT to generate higher rental revenue in a sustainable manner.
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Revitalised tenant mix. The REIT has a strategy to continuously restructure the tenant mix to keep its investment properties relevant to respective target shoppers. The aim is to enable the REIT to reap better tenant synergies to improve traffic and potentially boost the attractiveness of its malls which can lead to higher rental reversions and renewals.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2 Page 277
Company Guide SPH REIT
Aggregate Leverage (%)
Balance Sheet: Gearing. SPH REIT has maintained a healthy gearing ratio at 25.7% that is well within the Manager’s comfortable range of up to 40%. This provides the REIT with significantly larger headroom for debt financing should it decide to gear up on acquisitions. Net Asset Value (NAV) per unit. NAV of S$0.94 is underpinned by stable asset valuations. Share Price Drivers: Potential acquisitions. With a healthy gearing at 25.7% and cost of debt of 2.82%, SPH REIT is well poised for debt-funded acquisition activities. The next growth catalyst for the REIT will be the acquisition of the Sponsor’s 70% stake in Seletar Mall, which was completed in December 2014. However, this acquisition is likely to be more of a medium-term prospect, as the mall is still in its first leasing cycle and has yet to stabilise.
ROE (%)
Key Risks: Interest rate risk. The REIT has muted exposure to changes in interest rates with no debt maturing until 2018 and 85.9% of its S$850m debt facility on a fixed rate basis. Distribution Yield (%)
Visitor traffic is trending down by 2.5% and 2.4% for FY16 full year at Paragon and Clementi Mall respectively. However, we do not believe it is a concern. Paragon’s tenant sales registered a positive growth of 1.4%, and more traffic could be drawn from the opening of the linkbridge. Decline at Clementi Mall was most likely from the unproductive traffic as a new MRT exit at Clementi station opened early in the year provides an alternative route for the train passengers.
6.3
(%)
+2sd: 6.1%
6.1 5.9
+1sd: 5.8%
5.7
Avg: 5.5%
5.5 5.3
-1sd: 5.2%
5.1 4.9
-2sd: 4.9%
4.7 4.5 2013
2014
Short WALE mainly due to Clementi Mall. The portfolio has a relatively short WALE of 2.3 years by NLA. 18.5% of portfolio NLA (c.166,000 sqft) will expire in FY17. The majority comes from Clementi Mall.
2015
2016
PB Band (x)
Management fees payable in units. The REIT is one of the few S-REITs that pays 100% of management fees in units as opposed to cash (S$16.3m in FY16, 11.7% boost to distributions). We believe that DPU growth may not be sustainable in the longer term due to continuous share dilution and the Management has no plans to tweak the payment structure. Source: Company, DBS Bank
Company Background SPH REIT is a real estate investment trust that invests in income-producing retail malls in Singapore. It currently owns the Paragon Mall within the Orchard Road district, as well as Clementi Mall, located in the west of Singapore.
ASIAN INSIGHTS
VICKERS SECURITIES Page 3 Page 278
Company Guide SPH REIT
Income Statement (S$m) FY Aug Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016A
2017F
2018F
202 (51.6) 151 (17.2) 0.0 (19.6) 103 217 0.0 0.0 0.0 217 217 22.5 136
205 (49.5) 156 (17.7) 0.0 (21.0) 36.6 154 0.0 0.0 0.0 154 154 21.6 139
210 (48.7) 161 (17.9) 0.0 (23.1) 7.69 128 0.0 0.0 0.0 128 128 21.2 141
226 (62.0) 164 (16.9) 0.0 (19.6) 0.0 127 0.0 0.0 0.0 127 127 18.2 145
231 (63.6) 168 (17.2) 0.0 (21.3) 0.0 129 0.0 0.0 0.0 129 129 18.4 148
(6.7) (5.2) 85.0 100.0 74.5 107.1 67.4 8.5 9.6 6.8 4.2 6.8
1.4 3.3 (29.1) 100.0 75.9 74.9 67.5 8.6 6.5 4.7 4.2 6.6
2.2 3.4 (16.9) 100.0 76.8 60.9 67.3 8.6 5.3 3.9 4.4 6.2
7.7 1.8 (0.3) 100.0 72.5 56.3 64.4 7.5 5.3 3.8 4.5 7.5
2.4 2.4 1.7 100.0 72.5 55.9 63.9 7.4 5.4 3.9 4.6 7.1
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 279
Company Guide SPH REIT
Quarterly / Interim Income Statement (S$m) FY Aug 4Q2015 1Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
2Q2016
3Q2016
4Q2016
50.8 (12.6) 38.2 (4.3) 0.0 (5.8) 36.6 64.7 0.0 0.0 64.7 132 5.42 33.6
52.1 (12.0) 40.1 (4.5) 0.0 (5.8) 0.0 29.8 0.0 0.0 29.8 28.6 5.48 35.3
53.1 (12.5) 40.6 (4.6) 0.0 (5.8) 0.0 30.3 0.0 0.0 30.3 30.7 6.18 36.4
52.2 (12.2) 40.0 (4.6) 0.0 (5.8) 0.0 29.6 0.0 0.0 29.6 29.3 5.36 35.0
52.2 (12.0) 40.2 (4.3) 0.0 (5.7) 7.69 37.9 0.0 0.0 37.9 28.1 4.17 34.4
(1) (3) 121 75.1 104.8
3 5 (54) 77.0 95.4
2 1 1 76.5 97.5
(2) (1) (2) 76.6 98.8
0 0 28 77.0 104.5
Balance Sheet (S$m) FY Aug
2014A
2015A
2016A
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
3,159 13.5 90.7 0.0 5.91 0.0 3,269
3,213 14.4 77.4 0.0 5.01 0.37 3,310
3,230 7.99 67.4 0.0 5.89 0.0 3,311
3,240 7.99 43.3 0.0 5.89 0.0 3,297
3,245 7.99 46.6 0.0 5.89 0.0 3,305
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
0.0 35.1 0.0 843 37.7 2,353 0.0 3,269
249 30.2 0.0 596 36.7 2,398 0.0 3,310
0.0 34.2 0.0 846 42.7 2,389 0.0 3,311
0.0 11.9 0.0 856 42.7 2,387 0.0 3,297
0.0 12.2 0.0 866 42.7 2,385 0.0 3,305
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(29.2) (752)
(24.9) (768)
(28.3) (779)
(6.0) (813)
(6.3) (819)
2.7 2.7 25.8 3.5
0.3 0.3 25.5 3.4
2.1 2.1 25.5 3.5
4.1 4.1 26.0 3.5
4.3 4.3 26.2 3.5
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 280
Page 5
Company Guide SPH REIT
Cash Flow Statement (S$m) FY Aug
2014A
2015A
2016A
2017F
2018F
114 0.12 0.0 0.0 21.0 39.5 175 (2.7) (0.2) 0.0 0.0 0.21 (2.7) (115) 0.0 (9.0) (17.8) (142) 0.0 29.8
117 0.16 0.0 0.0 1.28 40.0 158 (15.3) (0.1) 0.0 0.0 0.61 (14.8) (138) (0.2) (18.8) 0.0 (157) 0.0 (13.3)
120 0.21 0.0 0.0 (1.9) 16.1 134 (8.5) (0.1) 0.0 0.0 0.85 (7.8) (139) (1.0) (22.3) 0.0 (162) 0.0 (35.6)
127 0.0 0.0 0.0 (22.3) 16.3 121 (9.9) 0.0 0.0 0.0 0.0 (9.9) (145) 10.0 0.0 0.0 (135) 0.0 (24.1)
129 0.0 0.0 0.0 0.29 16.5 146 (5.0) 0.0 0.0 0.0 0.0 (5.0) (148) 10.0 0.0 0.0 (138) 0.0 3.37
6.10 6.82
6.22 5.66
5.36 4.95
5.61 4.35
5.66 5.48
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Singapore Research Team Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 281
Singapore Company Guide
Suntec REIT Version 5
Refer to important disclosures at the end of this report
| Bloomberg: SUN SP | Reuters: SUNT.SI
DBS Group Research . Equity
4 Jan 2017
HOLD
Fairly priced
Last Traded Price ( 4 Jan 2017): S$1.65 (STI : 2,921.31) Price Target 12-mth: S$1.71 (4% upside and 6.1% yield) Potential Catalyst: Better-than-expected operational results Where we differ: Estimates in line with consensus Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Weak retail outlook to cap upside from asset enhancement initiative. Assuming a typical 3-year lease cycle, tenants at phase 1 and 2 of the Suntec mall will be entering their first reversionary cycle in 2016 and 2017. We understand that rental reversion trends have been mixed, given the weak operating climate. The Manager is looking to tweak the tenant mix going forward.
Price Relative
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2014A 282 192 317 230 9.18 (8) 9.40 1 216 18.0 5.7 0.8 34.7 4.3
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2015A 330 229 354 252 8.95 (2) 10.0 6 215 18.4 6.1 0.8 35.8 4.2
2016F 344 243 192 256 7.56 (16) 10.0 0 210 21.8 6.1 0.8 37.5 3.6
2017F 352 250 200 259 7.77 3 10.0 0 206 21.2 6.1 0.8 38.0 3.7
B: 0
0 10.0 S: 9
0 10.0 H: 12
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: JC, PY
Range bound for now. We maintain our HOLD call with a TP of S$1.71. We believe Suntec REIT’s share price will be range bound in the near term due to headwinds in the retail sector, which will likely cap its earnings as Suntec mall’s rents have underperformed the Manager’s initial target. In addition, there could be downside risk for the REIT’s office assets, which are expected to see some volatility in rents and occupancies when new office supply enters the CBD from 2016 onwards.
But expect stable DPU through increased contribution from Australian assets and capital distributions. Despite potential downside risk to earnings at Suntec REIT’s Singapore properties, we expect a stable DPU profile going forward. This will be achieved through (i) increased earnings contribution from the completion of 177 Pacific Highway (Sydney) project in 2H16 and the recent acquisition of a 25% stake in the Southgate Complex in Melbourne, and (ii) payout of proceeds from the disposal of Park Mall. Valuation: With limited upside to our DCF-based TP of S$1.71 we maintain our HOLD recommendation. Key Risks to Our View: Upside risk from acquisitions and better rental performance. The key risks to our neutral view are DPU accretive acquisitions and/or better rental performance achieved despite the headwinds in the Singapore office and retail market. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Gorden Tang Ltd Blackrock ARA Re Investment Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
2,534 4,180 / 2,904 11.0 6.9 6.0 71.1 6.5
VICKERS SECURITIES Page 282
Company Guide Suntec REIT Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Office portfolio faces some earnings risk. Suntec REIT currently owns three office assets in Singapore’s CBD – Suntec Office, One Raffles Quay (ORQ; 33%), and MBFC Towers 1 and 2 (33%). With the expected oversupply of the Singapore office market upon the completion of several new offices at the end of 2016 and 2017, Suntec REIT’s properties may face stiffer competition for its tenants as well as downward pressure on rents. Partially mitigating this is the significant forward renewals already completed at ORQ and MBFC Tower 2 as well as the strong positioning of Suntec Office which has the advantage of ample car parking spaces, connectivity to two MRT stations and a wide choice of amenities given its location next to Suntec City Mall. Retail headwinds. With Singapore consumers cutting back on discretionary spending and compared to the initial rents signed at Suntec Mall during more buoyant times, rents at Suntec Mall will likely continue to be under pressure. Nevertheless, with the recent appointment of Mr Chan Kong Leong formerly of CapitaMalls Asia, recent changes in tenant mix including the introduction of new to market retail brands, improved marketing, greater number of events as well as better engagement with its tenants, tenant sales and foot traffic have improved. This should largely arrest the decline in rents, signaling a potential a stabilisation of retail rents if the improvement in tenant sales and foot traffic is sustained. Secure income contribution from 177 Pacific Highway. Suntec REIT’s 177 Pacific Highway property located in North Sydney which was finally completed in August 2016 will provide geographic diversification to its portfolio and improve the REIT’s income stream. The property is anchored by Leighton Holdings will take up 76% of the net lettable area for an approximate lease period of 10 years. 30% stake in redevelopment of Park Mall offers development upside. Suntec REIT completed the sale of Park Mall for S$412m in 4Q15, and has taken a 30% stake in the JV which will completely redevelop Park Mall into a commercial development comprising two office towers with an ancillary retail podium. Suntec REIT will subsequently have the option to acquire one of the two office towers. While details of this redevelopment project have yet to be finalised, acquisition of the office tower will be a long-term growth driver for the REIT.
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Source: Company, DBS Bank
Recent acquisition of Southgate property in Melbourne. Suntec REIT recently announced the acquisition of 25% stake in Southgate, a mixed office retail property in Melbourne for A$154.9m. This acquisition adds another leg of growth that will mitigate the slowdown faced by Suntec REIT in Singapore.
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2 Page 283
Company Guide Suntec REIT
Balance Sheet: Comfortable level of gearing. Post the acquisition of 25% interest in the Southgate Complex, Suntec REIT’s gearing is expected to stabilise around the 37% level.
Aggregate Leverage (%)
Minimal refinancing needs in FY16-17. Suntec REIT has more than 60% of its borrowings hedged and minimal refinancing requirements for the remainder of FY16 and in FY17. As such, the REIT is fairly well protected against near-term interest rate volatility. ROE (%)
Share Price Drivers: Better-than-expected performance at Suntec City retail. Higher occupancy rates at Suntec City retail, as well as better-thanexpected rental reversions, would present upside to our earnings estimates. Acquisitions. The Manager could redeploy remaining proceeds of c.S$284m from the divestment of Park Mall into yieldaccretive acquisitions, which would boost DPU growth and diversify the REIT’s earnings base. Key Risks: Retail rental reversion risk. With a slowdown in retail sector, rents at Suntec City Mall may face downward pressure causing weakness in Suntec REIT’s DPU.
Distribution Yield (%)
Vacancies at Suntec office. While we have flagged MBFC and ORQ as key earnings risks in the Trust’s office portfolio, we believe that occupancy and rents will remain stable at Suntec Towers (office) due to its more differentiated product offerings. Thanks to Suntec office’s staggered lease expiry profile, any decline in rents will not be evident immediately. However, higher vacancies could present some downside risks to our earnings assumptions.
PB Band (x)
Company Background Suntec REIT has a portfolio of office and retail properties in Singapore and Australia. Its most prominent asset is Suntec City, which comprises four office towers, a retail mall, and a convention centre, located close to the city area of Singapore.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3 Page 284
Company Guide Suntec REIT
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2013A
2014A
2015A
2016F
2017F
234 (85.4) 149 (57.7) 20.1 (55.3) 11.0 239 4.72 (17.6) 0.0 226 364 (172) 211
282 (90.8) 192 (77.2) 19.3 (44.8) (3.4) 225 (7.0) 1.75 0.0 219 317 (97.6) 230
330 (100) 229 (59.1) 13.8 (47.2) 7.34 244 (6.7) (12.1) 0.0 225 354 (121) 252
344 (101) 243 (46.0) 0.0 (43.6) 0.0 210 (10.2) (7.5) 0.0 192 192 63.8 256
352 (102) 250 (46.8) 0.0 (54.4) 0.0 219 (11.7) (7.9) 0.0 200 200 58.9 259
(10.6) (9.0) (6.7) 100.0 63.5 96.4 90.2 24.7 4.7 2.8 1.1 1.6
20.6 28.9 (2.8) 100.0 67.9 77.7 81.5 27.3 4.3 2.6 1.3 2.6
16.7 19.6 2.7 100.0 69.6 68.4 76.5 17.9 4.2 2.6 1.9 3.6
4.3 5.8 (14.6) 100.0 70.6 56.0 74.6 13.4 3.6 2.1 2.1 4.5
2.5 3.1 3.8 100.0 71.0 56.7 73.5 13.3 3.7 2.2 2.1 3.7
Driven mainly from the contribution of 177 Pacific Highway and Southgate in Australia
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 285
Company Guide Suntec REIT
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
86.1 (27.6) 58.5 (12.4) 1.01 (14.8) 5.08 51.2 (2.0) (2.3) 46.9 46.9 12.1 63.6
87.5 (25.1) 62.5 (12.6) 1.17 (10.6) (2.9) 94.1 (1.6) (5.4) 87.1 216 11.8 228
78.3 (24.4) 54.0 (12.3) 0.0 (20.5) (2.1) 35.0 (1.3) (1.3) 32.4 32.4 14.7 51.1
78.9 (26.3) 52.7 (12.2) 0.0 (9.1) (1.7) 46.2 (1.4) (1.4) 43.4 43.4 16.0 67.4
82.4 (25.1) 57.2 (13.0) 0.0 (10.9) 1.33 55.3 (1.7) (1.4) 52.2 52.2 8.13 64.3
6 3 6 67.9 100.0
2 7 86 71.4 100.0
(11) (14) (63) 68.9 100.0
1 (2) 34 66.7 100.0
4 9 20 69.5 100.0
Balance Sheet (S$m) FY Dec
2013A
2014A
2015A
2016F
2017F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
5,741 2,370 181 0.01 29.1 0.0 8,322
5,948 2,488 150 0.0 16.7 0.14 8,602
5,800 2,704 445 0.0 12.8 3.04 8,965
5,852 2,859 396 0.0 13.4 3.04 9,123
5,854 2,859 395 0.0 13.7 3.04 9,125
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
772 91.2 20.8 2,389 64.0 4,844 141 8,322
0.0 107 23.3 2,981 73.0 5,305 113 8,602
370 108 21.7 2,843 60.2 5,444 119 8,965
370 109 30.6 3,048 60.2 5,380 126 9,123
370 110 32.1 3,098 60.2 5,321 134 9,125
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(82.9) (2,980)
(113) (2,831)
(114) (2,767)
(123) (3,022)
(125) (3,072)
0.2 0.2 38.0 0.8
1.3 1.3 34.7 0.9
0.9 0.9 35.8 0.9
0.8 0.8 37.5 0.8
0.8 0.8 38.0 0.8
Gearing to inch higher to 38%
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 286
Page 5
Company Guide Suntec REIT
Cash Flow Statement (S$m) FY Dec Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
2013A
2014A
2015A
2016F
2017F
239 0.0 (4.1) (172) (1.3) 91.2 153 (189) 0.0 0.0 0.0 (32.6) (222) (208) 260 0.0 (1.0) 50.6 0.0 (18.6)
225 0.0 0.0 (139) 14.4 95.7 196 (96.4) 0.0 0.0 0.0 30.5 (65.9) (224) 98.2 342 (376) (160) (1.7) (31.6)
244 0.0 (1.8) (100) 3.70 85.3 231 (40.8) 304 (15.0) 56.2 (123) 181 (247) 139 0.0 (7.1) (115) (1.7) 296
210 0.0 (1.3) (57.2) 0.25 0.0 152 (52.0) 0.0 (155) 57.2 0.0 (150) (256) 205 0.0 0.0 (51.4) 0.0 (49.2)
219 0.0 (10.2) (70.5) 0.87 0.0 140 (2.0) 0.0 0.0 70.5 0.0 68.5 (259) 50.0 0.0 0.0 (209) 0.0 (0.8)
6.81 (1.6)
7.59 4.15
9.04 7.57
5.96 3.93
5.39 5.34
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Mervin SONG CFA Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 287
Singapore Company Guide
YTL Starhill Global REIT Version 4
Refer to important disclosures at the end of this report
| Bloomberg: SGREIT SP | Reuters: STHL.SI
DBS Group Research . Equity
4 Jan 2017
BUY
The Magic of Payout Ratio
Last Traded Price ( 4 Jan 2017): S$0.76 (STI : 2,921.31) Price Target 12-mth: S$0.87 (15% upside and 6.9% distribution BUY for asset diversification and high income visibility from master leases. We like YTL Starhill Global REIT (SGREIT) for its yield) diversified portfolio of prime retail and office assets in the Asia Pacific region. Singapore, Australia, and Malaysia which accounted for 62.6%, Potential Catalyst: Turnaround signals at Wisma Atria; appreciation of 19.5%, and 14.6% of net property income (NPI) in FY16 (FYE June) MYR and/or AUD against SGD respectively, limiting exposure and thereby risk to any single country. Where we differ: We are largely in line with consensus With c.45% of top line derived from master leases or long leases, the Analyst REIT offers investors income stability and visibility, as well as upside Singapore Research Team [email protected] potential from rental reversions embedded in the master leases. Derek TAN +65 6682 3716 [email protected] Wisma Atria turning positive as occupancy edged back up. Wisma Atria (Retail)’s occupancy improved to 99.5% from 94.9% over the last three quarters and footfall has increased by 6.6% y-o-y, thanks to the tenant mix reconfiguration and the reopening of Isetan department store in the same mall. We understand that the decline in revenue was a result of converting level 1 from Fashion into F&B, which consists of stickier tenants but yields lower rents. This is expected to drive higher footfall for the floor going forward. The gradual re-opening of Isetan should drive more footfall into the mall and eventually translate to higher rents on other floors.
Price Relative
Forecasts and Valuation FY Jun (S$m) 2015A* Gross Revenue 295 Net Property Inc 238 Total Return 175 Distribution Inc 172 EPU (S cts) 7.68 EPU Gth (%) 40 DPU (S cts) 7.60 DPU Gth (%) 52 NAV per shr (S cts) 91.6 PE (X) 9.8 Distribution Yield (%) 10.1 P/NAV (x) 0.8 36.0 Aggregate Leverage (%) ROAE (%) 8.3 Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016A 220 170 164 117 3.94 (49) 5.18 (32) 92.5 19.2 6.9 0.8 36.1 4.3
2017F 228 176 117 117 5.37 36 5.20 0 92.7 14.1 6.9 0.8 36.1 5.8
2018F 234 182 122 122 5.59 4 5.43 4 92.8 13.5 7.2 0.8 36.2 6.0
B: 8
0 5.20 S: 0
0 5.40 H: 3
*FY2015A contains six quarters due to rebasing of financial year. Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: JC, PY
Tasting the sweetness of prudent payout. SGREIT has been retaining 3-5% of distributable income to fund working capital, and it therefore has certain flexibility to manage future distributions without touching its capital. In addition, it has been paying management fees in cash, not units, hence there is no pressure from any dilution in its equity base. Valuation: Our DCF-derived TP is S$0.87. Maintain BUY. Key Risks to Our View: Upside risk from AUD and MYR currency appreciation. As c.34% of net property income is derived from assets in Malaysia and Australia, an appreciation of any of these currencies versus SGD would present upside to our estimates. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) YTL Corp Bhd AIA Group Ltd Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
2,181 1,647 / 1,135 35.8 8.0 56.2 1.3
VICKERS SECURITIES Page 288
Company Guide YTL Starhill Global REIT Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Strong performance from local assets. SGREIT is primarily exposed to Ngee Ann City and Wisma Atria in Singapore, which together account for 63% of top line and 68% of asset value. These assets offer a mix of stability from Toshin’s master lease at Ngee Ann City and upside potential from Wisma Atria, whose shorter leases provide exposure to strong retailer demand for prime Orchard Road space in Singapore. Weaker reversions for Wisma Atria on the horizon. That said, we would not be surprised if reversions in upcoming quarters turn negative, as a portion of leases expiring in the year ahead will come from fashion tenants on the first floor, whose performances have been generally weak. These tenants are more reticent about committing to space given (a) lacklustre fashion sales, and (b) uncertainty over the outcome of the newly renovated Isetan. However, we expect earnings at Wisma to still see good growth, driven by stronger reversions from tenants on the basement and second floors (selling watches & jewellery). Growing presence in Australia. The REIT acquired Myer Centre Adelaide for A$288m, located in Adelaide’s prime CBD retail core, in May 2015. With the inclusion of the Myer Centre acquisition, rental income contribution from Australia doubled from 10% to 20% in FY16. Visible earnings growth from rental reviews at master leased assets. In FY16, the base rent for Toshin (master tenant at Ngee Ann City, Singapore) increased 5.5%, whereas Katagree (master tenant at Starhill Gallery and Lot 10, Malaysia) extended its lease with 6.7% rental uplift. Looking ahead, SGREIT has annual rent review for key tenants in Australia; David Jones’ next lease review is in August 2017.
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2 Page 289
Company Guide YTL Starhill Global REIT
Balance Sheet: Future acquisitions to be partly funded via equity. Gearing rose to 35% after the acquisition of Myer Centre Adelaide. Given the Manager’s comfortable range of 35% gearing, any further acquisitions or developments could trigger an equity fund raising exercise.
Aggregate Leverage (%)
Debt free in FY2017. Weighted debt tenure is 3.4 years at an average interest cost of 3.06%. With 96% of debt hedged into fixed rates and less than 1% of total debt requiring refinancing in FY16/17, exposure to volatile short rates is minimised. ROE (%)
Share Price Drivers: Development/ AEI opportunities in Singapore and Australia. The Manager has several AEI opportunities to improve portfolio performance in the near and medium term. SGREIT will be undertaking AEI works in Central Plaza, Perth, renovating the shop façade to incorporate anchor tenants, as well as converting some of the upper floors from office and storage to retail use. Other potential development/AEI opportunities include activating 116k sqft of vacant retail space in the fourth and fifth floors of Myer Centre, Adelaide, as well as developing the Spanish Steps between Wisma Atria and Ngee Ann City, where the REIT has unutilised gross floor area of c.100k sqft.
Distribution Yield (%)
Key Risks: Currency risk. SGREIT’s overseas properties have been affected by forex volatility and operational headwinds. In Malaysia and Australia, stable underlying asset performance has been masked by the depreciation of the MYR and AUD against the SGD, resulting in currency translation losses and weaker DPU performance. Macroeconomic risks in China – retail oversupply and austerity hits Chengdu asset. Contributions from Chengdu have been hit by ongoing austerity measures and oversupply of retail space, resulting in steady declining earnings contribution since 2013. The property in Chengdu has revalued downwards from S$66.3m to S$44.7m as at 30 Jun 2016. The property will be converted from a fashion retailer to a home furnishing mall, with a 10-year tenancy. While the asset’s contribution to portfolio NPI is expected to drop to 1% from 1.5%, we believe the long-term tenancy has mitigated any further downside risk. Company Background Starhill Global REIT is a real estate investment trust that invests in income-producing upscale retail and/or office assets in the Asia Pacific region. In Singapore, it owns portions of Ngee Ann City and Wisma Atria. It also owns assets in Malaysia, Australia, Japan and China.
ASIAN INSIGHTS
PB Band (x)
Source: Company, DBS Bank
VICKERS SECURITIES Page 3 Page 290
Company Guide YTL Starhill Global REIT
Income Statement (S$m) FY Jun Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016A
2017F
2018F
201 (42.8) 158 (17.6) 0.0 (29.6) 4.68 115 (2.9) 0.0 0.0 112 250 (139) 111
295 (57.2) 238 (26.5) 0.0 (45.3) (1.0) 165 0.56 0.0 0.0 165 175 (3.0) 172
220 (49.4) 170 (48.9) 0.0 (37.9) 0.0 83.6 2.32 0.0 0.0 85.9 164 (47.4) 117
228 (52.4) 176 (21.8) 0.0 (37.3) 0.0 117 0.40 0.0 0.0 117 117 0.0 117
234 (52.5) 182 (21.8) 0.0 (38.2) 0.0 122 0.41 0.0 0.0 122 122 0.0 122
7.9 6.3 5.1 97.3 78.7 56.1 55.3 8.8 5.8 3.9 4.8 4.7
46.9 50.5 47.1 95.6 80.6 56.1 58.2 9.0 8.3 5.4 7.0 4.7
(25.5) (28.3) (48.1) 97.0 77.5 39.1 53.0 22.2 4.3 2.7 3.8 3.2
3.8 3.2 36.2 97.0 77.0 51.3 51.3 9.5 5.8 3.7 4.8 4.1
2.7 3.4 4.2 97.0 77.6 52.1 52.1 9.3 6.0 3.8 5.0 4.2
FY2015 consists of 6 quarters due to the revision of its financial year end.
Room to increase payout ratio in order to maintain DPU when necessary
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 291
Company Guide YTL Starhill Global REIT
Quarterly / Interim Income Statement (S$m) FY Jun 1Q2016 2Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
3Q2016
4Q2016
1Q2017
56.8 (13.2) 43.6 (4.9) 0.0 (9.4) (2.2) 27.1 (0.9) 0.0 26.2 0.0 3.81 28.6
55.6 (11.9) 43.7 (4.9) 0.0 (9.5) 1.74 31.1 (0.9) 0.0 30.2 0.0 (0.2) 28.8
53.6 (12.1) 41.6 (4.7) 0.0 (9.8) (9.7) 17.4 (0.2) 0.0 17.2 0.0 10.7 27.5
53.7 (12.3) 41.4 (4.8) 0.0 (9.2) (19.4) 8.03 4.21 0.0 12.2 0.0 (61.8) 28.1
55.3 (12.4) 42.9 (4.9) 0.0 (9.3) (3.3) 25.4 (0.3) 0.0 25.1 0.0 4.33 28.4
10 6 (7) 76.8 95.1
(2) 0 15 78.6 95.8
(4) (5) (43) 77.5 98.3
0 0 (29) 77.2 98.9
3 4 105 77.6 96.3
Balance Sheet (S$m) FY Jun
2014A
2015A
2016A
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
2,854 20.5 58.0 0.0 10.2 0.03 2,943
3,116 20.4 51.6 0.0 5.18 0.12 3,193
3,137 2.54 77.0 0.0 5.93 0.14 3,222
3,139 2.54 18.4 0.0 29.7 0.14 3,190
3,151 2.54 19.0 0.0 30.5 0.14 3,203
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
53.6 43.0 2.14 792 41.9 2,010 0.0 2,943
146 37.2 2.23 983 41.9 1,983 0.0 3,193
15.4 39.5 2.66 1,108 39.5 2,018 0.0 3,222
15.4 3.53 2.66 1,108 39.5 2,021 0.0 3,190
25.4 3.63 2.66 1,108 39.5 2,025 0.0 3,203
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(35.0) (788)
(34.1) (1,078)
(36.1) (1,046)
23.6 (1,105)
24.3 (1,114)
0.7 0.7 29.4 1.1
0.3 0.3 36.0 1.0
1.4 1.4 36.1 0.9
2.2 2.2 36.1 1.0
1.6 1.6 36.2 1.0
Revenue consists of a one-off compensation of S$1.9m from an early termination at Wisma Atria which has been filled up
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 292
Page 5
Company Guide YTL Starhill Global REIT
Cash Flow Statement (S$m) FY Jun
2014A
2015A
2016A
2017F
2018F
115 0.0 (3.5) 0.0 24.6 4.68 141 (59.4) 0.0 0.0 0.0 0.53 (58.9) (100) 38.4 0.0 (39.9) (102) (1.8) (21.3)
165 0.0 (3.8) 0.0 52.3 (1.0) 212 (317) (0.8) 0.0 0.0 1.55 (316) (162) 308 0.0 (45.9) 99.8 (2.8) (6.5)
83.6 0.28 (1.7) 0.0 73.1 0.0 155 27.2 0.0 0.0 0.0 0.92 28.0 (113) (9.8) 0.0 (37.3) (160) 2.15 25.4
117 0.0 0.40 0.0 (59.8) 0.0 57.3 (2.3) 0.0 0.0 0.0 0.0 (2.3) (114) 0.0 0.0 0.0 (114) 0.0 (58.5)
122 0.0 0.41 0.0 (0.7) 0.0 121 (12.3) 0.0 0.0 0.0 0.0 (12.3) (118) 10.0 0.0 0.0 (108) 0.0 0.62
5.69 3.99
7.44 (4.8)
3.77 8.36
5.37 2.52
5.59 5.00
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
S$10m AEI on Australia property
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Singapore Research Team Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 293
Industry Focus Singapore Developers & REITs Research Team Directory Analyst Regional Timothy Wong Joanne Goh Paul Yong, CFA Ben Santoso Sachin Mittal Lim Sue Lin Chong Tjen-San, CFA Hong Kong / China Carol Wu Alice Hui, CFA Addison Dai Alexander Lee, CFA Alison Fok Andy Yee, CFA Chris Ko Danielle Wang, CFA Dennis Lam Eric Yee Ian Chui Jeff Yau, CFA Keith Tsang Ken HE, CFA Mark Kong, CFA Mavis Hui Patricia Yeung Rachel Miu Susanna Chui Tam Tsz-Wang, CFA Tony Wu, CFA Trista Qin Indonesia Maynard Arif Tiesha Narandha Putri William Simadiputra Benedictus Agung Swandono Research Team Malaysia Wong Ming Tek Bernard Ching Cheah King Yoong, CFA Quah He Wei, CFA Toh Woo Kim Lynette Cheng Marvin Khor Ruzanna Faruk Inani Rozidin Singapore Janice Chua Andy Sim, CFA Derek Tan Ho Pei Hwa Mervin Song, CFA Rachel Tan Suvro Sarkar Allfie Yeo Thailand Chanpen Sirithanarattanakul Thanawat Patchimkul Thaninee Satirareungchai Chaipat Thanawattano Namida Artispong Wasu Mattanapotchanart Apichaya Ketruttanaborvorn Research Team Korea Lee Eun Young
Sector
E-mail
Head, Group Research Regional Equity Strategist Transport Plantations, Animal Protein Telecoms Banking infrastructure, Conglomerates
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Head of Research, China Property Deputy HOR, Consumer Basic materials, Clean energy (wind power, nuclear) Strategy Consumer China Property Small Mid Caps China Property Small Mid Caps Consumer Hong Kong Property Hong Kong Property Automobile, Infrastructure, Machinery China Property Healthcare Consumer Environmental, Industrial Automobile, Infrastructure, Machinery Telecom/Media/Tech Telecom/Media/Tech Small Mid Caps China Property
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Head of Research, Strategy, Automotive, Consumer Infrastructure, Transportation, Consumer Telecommunications, Mining Banks and Multifinance Infrastructure, Transportation, Consumer, Bank & Multifinance Plantation, Animal Protein, Telecommunications, Property & Industrial Estate, Healthcare
[email protected] [email protected] [email protected] [email protected]
Executive Director Head of Malaysian Research Consumer, Gaming Property, Utilities Telecommunication, Media, Technology Banks, Non-bank Financials Transport , Plantation Auto, Rubber Glove Oil & Gas
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Head of Research, Strategy, Industrials Consumer Services Property, Reits Industrials Property, Reits Property, Healthcare Industrials, Transport Consumer Services
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Head of Research, Strategy, Property, REITs Oversea research Banking & Finance Energy & Utilities, Petrochemicals Food and Beverage, Tourism, Commerce Telecom, Property, REITs Construction, Healthcare, Small-caps Commerce, Electronics, Air Transportation, Small-caps
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Basic Materials, Utilities
[email protected]
ASIAN INSIGHTS
[email protected]
VICKERS SECURITIES
Page 103
Page 294
Industry Focus Singapore Developers & REITs
DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends Completed Date: 6 Jan 2017 18:50:56 (SGT) Dissemination Date: 6 Jan 2017 20:15:55 (SGT) GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) (b)
such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
ASIAN INSIGHTS
VICKERS SECURITIES
Page 104
Page 295
Industry Focus Singapore Developers & REITs
ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in the report. The DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. As of 6 Jan 2017, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates have proprietary positions in CapitaLand Commercial Trust, Frasers Commercial Trust, Keppel REIT, Suntec REIT, CapitaLand Retail China Trust, CapitaLand Mall Trust, Croesus Retail Trust, Frasers Centrepoint Trust, SPH REIT, Mapletree Commercial Trust, Mapletree Greater China Commercial Trust, YTL Starhill Global REIT, Ascendas REIT, Cache Logistics Trust, Cambridge Industrial Trust, Frasers Logistics & Industrial Trust, Mapletree Industrial Trust, Mapletree Logistics Trust, Soilbuild Business Space Reit, Ascendas Hospitality Trust, Ascott Residence Trust, CDL Hospitality Trusts, Far East Hospitality Trust, Frasers Hospitality Trust, OUE Hospitality Trust, Parkway Life Real Estate Investment Trust, RHT Health Trust, Keppel DC REIT, Manulife US REIT, CapitaLand, City Development, Global Logistic Properties, UOL Group, Wing Tai recommended in this report as of 30 Nov 2016. 2.
DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
3.
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share capital in Frasers Commercial Trust, CapitaLand Retail China Trust, Croesus Retail Trust, Mapletree Greater China Commercial Trust, YTL Starhill Global REIT, Ascendas REIT, Frasers Logistics & Industrial Trust, Mapletree Logistics Trust, Soilbuild Business Space Reit, Ascott Residence Trust, CDL Hospitality Trusts, Frasers Hospitality Trust, RHT Health Trust, Keppel DC REIT, Manulife US REIT, CapitaLand recommended in this report as of 30 Nov 2016.
4.
DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common equity securities of Frasers Commercial Trust, Croesus Retail Trust, YTL Starhill Global REIT, Frasers Logistics & Industrial Trust, Soilbuild Business Space Reit, Ascott Residence Trust, CDL Hospitality Trusts, Frasers Hospitality Trust, Keppel DC REIT, Manulife US REIT as of 30 Nov 2016.
5.
DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 5% of any class of common equity securities of Croesus Retail Trust as of 30 Nov 2016.
6.
7.
8.
9.
Compensation for investment banking services: DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from CapitaLand Commercial Trust, Frasers Commercial Trust, OUE Commercial REIT, CapitaLand Mall Trust, Croesus Retail Trust, Mapletree Commercial Trust, Mapletree Greater China Commercial Trust, YTL Starhill Global REIT, Ascendas REIT, Frasers Logistics & Industrial Trust, Mapletree Industrial Trust, Mapletree Logistics Trust, Soilbuild Business Space Reit, Ascendas Hospitality Trust, Ascott Residence Trust, Frasers Hospitality Trust, OUE Hospitality Trust, Parkway Life Real Estate Investment Trust, RHT Health Trust, Keppel DC REIT, Manulife US REIT, City Development, United Engineers as of 30 Nov 2016. DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for CapitaLand Commercial Trust, Frasers Commercial Trust, Suntec REIT, CapitaLand Mall Trust, Croesus Retail Trust, Mapletree Commercial Trust, Mapletree Greater China Commercial Trust, YTL Starhill Global REIT, Ascendas REIT, Frasers Logistics & Industrial Trust, Mapletree Industrial Trust, Mapletree Logistics Trust, Soilbuild Business Space Reit, Ascendas Hospitality Trust, Ascott Residence Trust, Frasers Hospitality Trust, OUE Hospitality Trust, Parkway Life Real Estate Investment Trust, RHT Health Trust, Keppel DC REIT, Manulife US REIT, City Development, United Engineers in the past 12 months, as of 30 Nov 2016 DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
Directorship/trustee interests Euleen Goh Yiu Kiang, a member of DBS Group Holdings Board of Directors, is a Non-Exec Director of CapitaLand as of 1 Jan 2017.
ASIAN INSIGHTS
VICKERS SECURITIES
Page 105
Page 296
Industry Focus Singapore Developers & REITs
10
Disclosure of previous investment recommendation produced DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.
RESTRICTIONS ON DISTRIBUTION This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of General or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia
This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong
This report is being distributed in Hong Kong by or on behalf of, and is attributable to DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission and/or by DBS Bank (Hong Kong) Limited which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission. Where this publication relates to a research report, unless otherwise stated in the research report(s), DBS Bank (Hong Kong) Limited is not the issuer of the research report(s). This publication including any research report(s) is/are distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS Bank (Hong Kong) Limited. This report is intended for distribution in Hong Kong only to professional investors (as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and any rules promulgated thereunder.) For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at [email protected].
Indonesia
This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.
Malaysia
This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR
ASIAN INSIGHTS
VICKERS SECURITIES
Page 106
Page 297
Industry Focus Singapore Developers & REITs
Singapore
This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.
Thailand
This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.
United Kingdom
This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.
Dubai
This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
United States
This report was prepared by DBS Bank Limited. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.
Other jurisdictions
In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
DBS Bank Ltd. 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 e-mail: [email protected] Company Regn. No. 196800306E
ASIAN INSIGHTS
VICKERS SECURITIES
Page 107
Page 298
Industry Focus Singapore Developers & REITs Asian Equities Sales, Sales Trading and Research Contacts Sales Heads
Tel:
Email:
Kenneth Tang Andrew Au Graham Booth Elaine Yu Narisara Viseskosin
65-6398 6951 852-2820 4992 44-20-7618 1881 1-212-826 3553 662 657 7759
[email protected] [email protected] [email protected] [email protected] [email protected]
Sales Trading Contacts
Tel:
Email:
Vivian Goh Franco Law Charles Davies Brenda Wong
65-6398 6927 852-2971 1828 44 20 7618 1883 1 212 826 3558
[email protected] [email protected] [email protected] [email protected]
Research Contacts
Tel:
Email:
Timothy Wong Janice Chua Carol Wu Wong Ming Tek Chanpen Sirithanarattanakul Maynard Priajaya Arif
65 6682 3691 65 6682 3692 852-2863 8841 603-2711 0956 662-657 7824 6221 3003 4930
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Singapore Hong Kong London New York Thailand
Singapore Hong Kong London New York
Regional Singapore Hong Kong Malaysia Thailand Indonesia
DBS Vickers Securities – Regional Offices HONG KONG DBS Vickers (Hong Kong) Ltd 18th Floor Man Yee Building 68 Des Voeux Road Central Central, Hong Kong Tel: 852-2820 4888 Fax: 852-2868 1523 Member of The Stock Exchange of Hong Kong
MALAYSIA AllianceDBS Research Sdn Bhd 19th Floor, Menara Multi-Purpose Capital Square, 8 Jalan Munshi Abdullah 50100 Kuala Lumpur Tel: 603 2604 3333 Fax: 603 2604 3921
INDONESIA PT DBS Vickers Securities (Indonesia) DBS Bank Tower, Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5, Jakarta 10350, Indonesia Tel. 6221-3003 4900, Fax: 6221-3003 4943
THAILAND DBS Vickers Securities (Thailand) Co Ltd 15th Floor Siam Tower 989 Rama 1 Road Pathumwan, Bangkok 10330 Tel: 66-2-658 1222 Fax: 66-2-658 1269
UNITED STATES DBS Vickers Securities (USA) Inc 777 Third Avenue Suite 26A New York, New York 10017 Tel: 1-212-826 1888 Fax: 1-212-826 8704 Member of FINRA and SIPC
UNITED KINGDOM DBS Vickers Securities (UK) Ltd 4th Floor Paternoster House 65 St Paul's Churchyard London EC4M 8AB United Kingdom Tel: 44-20-7618 1888 Fax: 44-20-7618 1900 The Financial Conduct Authority (FCA)
ASIAN INSIGHTS
SINGAPORE DBS Bank Ltd 12 Marina Boulevard Level 40, Marina Bay Financial Central Tower 3 Singapore 018982 Tel: 65-6878 8888
VICKERS SECURITIES
Page 108
Page 299
Singapore Developers & REITs Refer to important disclosures at the end of this report
DBS Group Research . Equity
6 Jan 2017
Rocky Road, Take me home
STI : 2,880.76
Analyst Derek TAN +65 6682 3716 [email protected]
Mervin SONG CFA +65 6682 3715 [email protected]
Rachel TAN +65 6682 3713 [email protected]
Singapore Research Team [email protected]
Luxury residential and office subsectors to bottom out ahead of other subsectors in 2017
Diversification remain a key strategy for most real estate companies, cheap valuations could spark M&A
Deleveraging trend to kick in from 2017
Luxury residential and office are our sector picks in 2017. While the Singapore property market is expected to remain on a declining trend (suburban residential homes, industrial, retail and hospitality), we see green shoots in the office and luxury residential subsectors. This is mainly coming from expected higher transaction volumes and take-up rates for new buildings in 2017. Continued focus on diversification while cheap valuations could spark M&A. We see continued interest from S-REITs and developers to invest overseas but see fewer completed deals given higher currency volatility. In Singapore, land-hungry developers are likely to turn towards the En-bloc market given limited sites in the public land tenders. S-REITs are likely to seek asset recycling in order to fund growth as cost of equity edge higher. Fueled by strong capital flows and attractive valuations of listed firms, we also see a sector consolidation as larger players look to gain access to land banks and income-producing properties at attractive prices. Deleveraging trend in 2017 and beyond. With higher rates on the horizon, we expect selected developers and REITs to pare down debt over time when the opportunity arises. Of focus is close to c.S$6.3bn worth of bonds expiring in 2017-2018, where refinancing could prove difficult for some given investor risk aversion post recent defaults in the oil & gas space. Developers – too cheap to ignore. We see a myriad of catalysts for developers especially from M&A activities which will lift investor sentiment for the sector. Our picks are CDL and UOL. A wildcard could be a potential unwinding of government policies. Singapore REITs – capital preservation is key. We prefer those with good earnings visibility and minimal downside to our/consensus estimates. Picks are K-REIT, A-REIT and MCT. Small cap picks are FLT, KDC REIT and Croesus.
ASIAN INSIGHTS ed: TH / sa:JC, PY
STOCKS Price S$
Mkt Cap Target Price Performance (%) 3 mth 12 mth US$m S$
Rating
Developers City Developments UOL Group REITs Ascendas REIT Keppel REIT Mapletree Commercial Trust Frasers Logistics & Industrial Trust Keppel DC REIT Croesus Retail Trust
8.39 6.12
5,341 3,448
9.90 7.20
(8.5) 7.5
11.8 1.2
BUY BUY
2.31 1.02
4,597 2,315
2.65 1.23
(6.1) (8.0)
3.1 11.3
BUY BUY
1.42
2,800
1.62
(8.0)
10.6
BUY
0.94
925
1.10
(5.0)
N.A
BUY
1.20 0.85
938 452
1.33 0.99
2.5 (1.2)
20.4 3.9
BUY BUY
Closing price as of 4 Jan 2017 Source: DBS Bank, Bloomberg Finance L.P.
VICKERS SECURITIES Page 1
Industry Focus Singapore Developers & REITs
The DBS Asian Insights SparX report is a deep dive look into thematic angles impacting the longer-term investment thesis for a sector, country or the region. We view this as an ongoing conversation rather than a one-off treatise on the topic, and invite feedback from our readers, and in particular welcome follow-on questions worthy of closer examination.
Table of Contents 1. Investment Summary
3
2. Peer Comparisons
5
3. Key Charts
7
4. Developers – Catalysts abound to lift valuations from multi-year lows
10
4.1 Attractive valuations with upcoming catalysts. 4.2 Diversification to remain a key strategy for developers. 4.3 Improved transactions in the luxury end of the market to continue. 4.4 Looming ABSD deadlines not a precursor for a significant price cuts. 4.5 Potential land-banking opportunities in Singapore. 4.6 More En-bloc transactions in 2017. 4.7 Merger and Acquisition (M&A) activities could pick up. 4.8 Will Developers need to deleverage?
5. Singapore REITs – Déjà vu
31
5.1 Impact of higher interest rates on prices and distributions 5.2 Modest DPU growth. 5.3 Potential risk to property values in the industrial and hospitality sectors. 5.4 Acquisitions may be difficult to execute with redevelopments an attractive option.
6. Residential Subsector Outlook: Luxury home prices to bottom out in 2017
47
6.1 Trends, demand and supply outlook 6.2 Scenarios where government could relax policy measures
7. Office Subsector Outlook: Grade A office space to bottom by end 2017
55
7.1 Trends, demand and supply outlook
8. Retail Subsector Outlook: Hampered by weakening retail sales
63
8.1 Trends, demand and supply outlook
9. Industrial Subsector Outlook: Year of consolidation post supply spikes
67
9.1 Trends, demand and supply outlook
10. Hospitality Subsector Outlook: No turnaround in sight yet
74
10.1 Trends, demand and supply outlook
11. Charts: S-REIT yield and P/Bk NAV Charts: Developers P/Bk NAV Stocks Profiles
83 102
Note: Prices used as of 04 Jan-2017
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 2
Industry Focus Singapore Developers & REITs
Investment Summary 2017 remains a tenants' market as heightened supply completion poses a risk for most real estate sectors. It will be another year of moderation for the Singapore property market as we believe that most real estate subsectors will continue to see downside in rents and/or prices on the back of soft demand given the current economic slowdown. Meanwhile, heightened supply completion in 2017 means that it will remain a tenants' market. Key Themes 1.
Luxury-end of residential market and office sectors bottoming out
Luxury residential and office sectors the brighter spot. However, among the real estate sectors, we see brighter prospects in the luxury end of the residential market and office subsectors. We believe that luxury residential prices in Singapore are attractive on a relative basis compared to home prices in the region which we expect higher investment transaction volumes in 2017. The office sector is projected to see slower rental declines of (5-10%) mainly due to betterthan-projected take-up in upcoming new office buildings and see the sector bottoming out by end of 2017. However, the retail, hospitality and industrial sectors are still expected to feel the pressure from projected negative net absorption, given excess supply outlook.
2.
Developers and REITs to continue seeking overseas opportunities; en-bloc deals to pick up in 2017
Diversification remains a key strategy but opportunities limited as currency volatility arises. We believe that property developers and REITs will continue their strategy to diversify overseas for growth but expect the acquisition momentum to taper on the back of increased currency volatility, coupled with higher cost of funds. Countries that we believe remain attractive on a currency-adjusted basis are London, Australia (Melbourne and Sydney) and selected Tier 1 cities of China like Shanghai. Apart from acquisitions, REITs could also capitalize on the increased development limits (25% cap vs 10% previously subject to conditions) accorded by Monetary Authority of Singapore (MAS) to take on more asset enhancements to rejuvenate their portfolios and boost returns. Developers are hungry for land in Singapore, more en-bloc deals in 2017. We expect continued increased participation from developers in the upcoming first half 2017 government land sales program (GLS) as developers look to replenish diminishing land banks which will mean that land prices are likely to remain firm. In addition, we expect to see more enbloc deals for opportunities, especially in the luxury end of the market. These activities in our view, likely signal expectations that home prices should remain fairly stable in the coming years.
Singapore Property Clock 3.
Privatisations, mergers and acquisitions to pick up
Privatizations, mergers and acquisitions (M&A) in the developer space to pick up. We believe that more listed property developers will take the delisting route along with the wave of privatizations that we saw in recent years. This puts valuations for property developers again in the spot light. Developers are trading at an attractive average 0.75x P/NAV, close to the -1SD of their historical trading range. Reasons that drive this trend could be (i) sea of capital looking to deploy in Asian real estate, and (ii) strategic capital partners or major shareholders looking to recalibrate their strategies given the lacklustre capital markets and thus capturing the upside in the medium term. Source: DBS Bank
ASIAN INSIGHTS
We believe that such M&A activities highlight the attractive valuations of listed developers, namely City Developments, CapitaLand, Global Logistics Properties and UOL which are trading at close to -1 standard deviation (SD) to their 5-year historical trading range.
VICKERS SECURITIES
Page 3
Page 3
Industry Focus Singapore Developers & REITs
4.
Deleveraging a focus as interest rate risks loom
Balance sheet deleveraging a major wildcard; spike in bond expiry in 2017-2018 a key data-point to watch. In view of the uncertainty of the pace of interest rate hikes in 2017, we believe that the early refinancing and hedging of interest rates will be a key focus for developers and REITs going forward. Of noteworthy is close to S$6.3 worth of bonds (S$4.0bn among developers) expiring over 2017-2018 where issuers will need to source for refinancing or alternative means to repay the bonds. While we believe that refinancing for REITs are likely to be more straight forward given that credits are backed by consistent recurring cash flows, we believe that certain developers, especially those in the mid-cap space which have been more opportunistic in tapping the bond market in recent years could face more hurdles. The recent bond defaults in 2016 among the oil & gas firms have cooled investors’ interest in bonds and we believe that investors will be more selective on the credit for future bond issuances. As such, the inability to refinance these expiring bonds could mean that issuers (developers or REITs) might seek alternative financing sources such as banks or even issuance of equity. Strategies for:
Our picks are Ascendas REIT (A-REIT), Keppel REIT (K-REIT), and Mapletree Commercial Trust (MCT). Among the mid-cap space, we like Croesus Retail Trust (CRT) , Keppel DC REIT (KDC REIT) and Frasers Logistics Trust (FLT). Singapore Developers – Catalysts abound to re-rate Potential policy relaxation and M&A could lift sentiment on developer stocks. Our call on the developers is mainly due to valuations supported by an improved outlook. Firstly, we view current trading levels of (P/Bk NAV of 0.75 and 0.65x P/RNAV) as attractive given that developers are trading at close to historical -1SD level. We believe that re-rating opportunities will come from the following data-points: (i) improved sell-through rates for existing developments on the back of improved transaction momentum, (ii) potential relaxation of selective government policy in 2017 driving higher demand for homes and investors’ sentiment, and (iii) potential privatization, M&A activities among developers or value-locking events like asset divestments which will provide a lift for NAVs and thus share prices for developers. Our picks are City Developments and UOL. Risks 1.
Faster-than-projected rise in shorter-term interest rates which will negatively impact earnings and potentially capital values in the medium term.
2.
External shocks impacting on GDP outlook and unemployment rates in Singapore which will have an overhang on demand/supply dynamics.
Singapore REITs – Capital preservation a key strategy Projected more hawkish four FED hikes to limit upside performance. We see increasing road-bumps to further outperformance for Singapore REITs (S-REITs) going into 2017, especially faced with a slowing DPU growth profile of 1.0% amidst a rising interest rate environment. DBS economist projects four FED rate hikes over the course of the year and as a result, the Singapore 10-year yield is expected to increase another 0.7% to a normalized c.3.0%. Forward FY17F yield spreads of 4.0% are already at historical mean levels which indicate that valuations for REITs are fair. Capital preservation is key. In an environment of low growth and rising interest rates, we believe that investors will look at stock-specific catalysts to maintain relative outperformance with the sector. These are S-REITs that provide (i) higher confidence in earnings sustainability and visibility, (ii) stronger relative growth, and (iii) lower gearing which limits impact of rising rates on distributions.
ASIAN INSIGHTS
VICKERS SECURITIES
Page 4
Page 4
Industry Focus Singapore Developers & REITs
2.
Peer Comparison
Singapore REITs Peer Comparisons REIT
FYE
Price
Rec
(S$) Office CCT FCOT KREIT OUECT Suntec Retail CRCT CMT CRT FCT SPH REIT MCT MAGIC SGREIT Industrial a-itrust A-REIT Cache CREIT FLT MINT MLT SBREIT Hospitality ASCHT ART CDREIT FEHT FHT OUEHT Healthcare P-Life Others IREIT KDCREIT Manulife US REIT Sector Average
Dec Sep Dec Dec Dec Dec Dec Jun Sep Aug Mar Mar Dec Mar Mar Dec Dec Sep Mar Mar Dec Mar Dec Dec Dec Sep Dec Dec Dec Dec Jan
Target Price (S$)
Mkt Cap S$'Bn
Total Return (%)
4.5 1.0 3.5 0.9 4.3 1.2 6.9 0.6 1.8 2.4 4.1 2.7 1.6 1.0 6.7 0.7 0.7 1.3 2.9 2.5 0.7 0.8 1.9 1.3 1.1 1.2 1.2 1.5 0.4 1.4 0.7
18% 25% 26% 15% 9%
1.505 1.270 1.020 0.695 1.650
BUY BUY BUY HOLD HOLD
1.70 1.49 1.23 0.74 1.71
1.385 1.930 0.850 1.930 0.955 1.415 0.945 0.755
BUY BUY BUY BUY HOLD BUY BUY BUY
1.60 2.25 0.99 2.29 1.00 1.62 1.11 0.87
1.010 2.310 0.815 0.540 0.940 1.645 1.020 0.655
BUY BUY HOLD HOLD BUY BUY BUY BUY
1.13 2.65 0.93 0.54 1.10 1.90 1.15 0.75
0.700 1.155 1.360 0.595 0.645 0.685
BUY BUY BUY HOLD BUY BUY
0.84 1.32 1.59 0.62 0.75 0.72
2.390
BUY
2.75
0.720 1.200 0.835
HOLD BUY BUY
0.75 1.33 0.93
22% 21% 26% 23% 9% 19% 24% 21% 18% 19% 22% 6% 23% 23% 19% 22% 27% 21% 23% 10% 15% 13% 20% 1% -3% 19%
DPU (S Cts)
CAGR
FY16/ 17F
FY17/ 18F
FY18F/ 19F
9.0 9.8 6.5 5.3 10.0 10.3 11.2 7.5 11.8 5.5 8.7 7.2 5.2 5.9 15.7 7.9 4.1 6.6 11.3 7.2 6.1 5.5 8.2 9.4 4.3 5.2 4.3 12.1 6.3 6.8 5.6
9.3 9.8 6.5 5.2 10.0 10.5 11.2 8.2 11.8 5.7 8.9 7.3 5.2 6.4 15.6 7.5 4.2 6.6 11.5 7.4 6.1 5.4 8.1 9.0 4.0 5.0 4.5 12.2 6.4 7.2 6.0
9.2 9.8 6.5 5.0 10.0 10.3 11.3 8.5 12.1 5.7 9.1 7.4 5.4 6.2 15.7 7.5 4.2 6.8 12.0 7.6 6.2 5.6 8.3 9.3 4.2 5.3 4.6 12.3 6.3 7.5 6.1
FY16/ 17F
Yield (%) FY17/ 18F
FY18F/ 19F
(x)
1%
5.9% 7.8% 6.3% 7.7% 6.0% 6.4% 7.4% 5.8% 8.8% 6.0% 5.8% 6.0% 7.5% 6.8% 6.3% 5.8% 6.7% 9.6% 7.5% 7.0% 6.9% 7.0% 9.2% 7.1% 7.8% 7.1% 6.9% 7.1% 8.0% 6.4% 7.2% 5.1%
6.1% 7.8% 6.3% 7.6% 6.0% 6.3% 7.6% 5.8% 9.6% 6.0% 5.9% 6.2% 7.7% 6.8% 6.4% 6.3% 6.6% 9.2% 7.6% 7.0% 7.0% 7.2% 9.3% 7.1% 7.6% 7.0% 6.6% 6.6% 7.7% 6.7% 7.1% 5.1%
6.1% 7.8% 6.3% 7.3% 6.0% 6.4% 7.4% 5.8% 10.0% 6.2% 5.9% 6.3% 7.8% 7.1% 6.5% 6.1% 6.7% 9.2% 7.6% 7.2% 7.3% 7.3% 9.4% 7.2% 8.0% 7.2% 6.8% 7.0% 8.2% 6.8% 7.4% 5.1%
0.87 0.83 0.74 0.71 0.78 0.80 0.78 1.01 0.88 1.02 1.00 1.11 0.77 0.81 0.97 1.52 1.14 0.81 0.79 1.10 1.18 0.99 0.80 1.07 0.81 0.81 0.84 0.62 0.85 0.78 0..80 1.47
0% 5% n/a
8.7% 5.6% 6.7%
8.8% 5.8% 7.2%
8.7% 6.1% 7.2%
1.16 1.33 1.06
6.8%
6.8%
6.9%
0.95
1% 0% 0% -3% 0% 0% 0% 7% 2% 2% 2% 1% 2% 3% 0% -2% 1% 1% 3% 3% 1% 1% 1% 0% 0% 2% 3%
P/NAV
Note: Prices used as of 04 Jan-2017 Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 5
Page 5
Industry Focus Singapore Developers & REITs
Singapore Developers Peer Comparisons Company
Mkt Cap (S$m)
Price 4-Jan-17 (S$)
RNAV (S$)
*Assumed Discount (%)
Dec Dec Sep
13.0 7.5 4.4
3.06 8.39 1.60
4.80 11.90 2.86
Mar
10.1
2.24
Dec
4.7
Dec Dec Dec Dec Jun Dec Dec Dec Dec Dec
10.9 3.9 1.4 1.8 1.3 1.2 1.6 0.4 0.3 0.1
FYE
Developers Capitaland City Dev Frasers Centrepoint Ltd Global Logistics Properties UOL Average Non-Covered Guocoland UIC Ho Bee Wheelock Wing Tai Bukit Sembawang United Engineers Tuan Sing Hiap Hoe Heeton Holdings Average Average sector
12-mth Target Price (S$)
Upside %
Rcmd
P/RNAV (x)
Latest Qtr P/NBV
-25% -17% -30%
3.60 9.90 2.00
17% 19% 31%
BUY BUY BUY
0.64 0.70 0.53
0.77 0.84 0.67
3.53
-30%
2.47
14%
BUY
0.61
0.83
6.12
10.23
-30%
7.20
23%
BUY
0.57 0.57
0.59 0.75
2.40 2.79 2.04 1.49 1.62 4.48 2.57 0.29 0.72 0.39
-
-
-
-
-
na na na na na na na na na na na
0.90 0.66 0.50 0.60 0.40 0.90 0.90 0.39 0.51 0.41 0.63 0.68
Note: Prices used as of 04 Jan-2017 Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 6
Page 6
Industry Focus Singapore Developers & REITs
2. Key Charts Outlook – Positive (Luxury) Negative (Suburban)
Residential
Price differential across major cities (luxury hoe prices)
Luxury end of the residential market bottoming out 1,800
Units
Units Sold in Core Central Region (LHS)
Rolling 4 Quarters Growth (%)
20%
US$ psf 5,000
2,500 2,000 1,500 1,000
2016Q3
2016Q2
2016Q1
2015Q4
2015Q3
-
2015Q2
-25% 2015Q1
500
2014Q4
-20% 2014Q3
200 2014Q2
-15%
2014Q1
400
2013Q4
-10%
2013Q3
600
2013Q2
-5%
2013Q1
3,000
800
2012Q4
0%
2012Q3
3,500
1,000
2012Q2
5%
2012Q1
4,000
1,200
2011Q4
10%
2011Q3
4,500
1,400
2011Q2
15%
2011Q1
1,600
Monaco
130.0
180
120.0
160
110.0
140
100.0
120
90.0
100
80.0
80
5.0%
70.0
4.0%
60.0
(%)
Index Value
9.0% 8.0% 7.0%
Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 4Q16
6.0%
Vacancy Rate (Non-Landed) (LHS)
London New York
Los Angeles
Japan Singapore Toronto
Home prices in the suburbs to see more downside
A tenants' market as vacancy rates spike 10.0%
Hong Kong
Rental Index (Non-Landed) (RHS)
30%
(2010=100) Af fordability Cur bed but spread is closing
10%
60
High Demand F r om Upgraders
5%
40
(P ublic to Private)
0% -5%
20 0 1Q2004
-10% 3Q2005
1Q2007
3Q2008
1Q2010
3Q2011
1Q2013
3Q2014
1Q2016
Spread vs HDB
Risks Looming from higher mortgage rates, diminishing rental spreads amidst higher market vacancy rates could worsen the holding power for households. • External shocks causing a downturn in the Singapore economy and a loss of jobs, resulting in a significant decline in the property market.
Source: URA, CBRE, DBS Bank
ASIAN INSIGHTS
20% 15%
Property Price index (Outside Central Area)
Key Assertions DBS project prices for luxury residential homes (0% to +1%) to bottom out as transaction volumes and foreigner interests pick up within the Core Central region. Prices for homes in suburban region to fall further by as much as -3 to -5% as affordability remain curbed for upgraders given higher-than-average differential in prices between HDB resale prices and prices of suburban homes. Potential policy relaxation in 2017 given macro uncertainties in 2017 coming on the back of the pace of interest rate increases and its impact on mortgages.
25%
VICKERS SECURITIES
Page 7
Page 7
Industry Focus Singapore Developers & REITs
Retail
Outlook - Neutral
Rental reversions to moderate as RSI declines
Upcoming supply are mainly in the fringe 2.50
m'sqft
2.00 1.50 1.00 0.50 2016
Key Assertions Muted retail sales outlook poses a risk to landlords’ occupancy costs and rental reversions. • Consolidation among retailers to intensify in 2017 amid rising labour costs and labour shortage. • Better-performing malls with sizeable operational scale, strong record of recurring traffic which will continue to attract retailers.
2017
2018
Downtown Core
Fringe Area
Orchard
Outside Central Region
2019
2020
Rest of Central Area
Risks • Increased penetration of e-commerce causing decline in retail sales. • Weaker-than-expected economic growth (GDP), affecting consumer sentiment and expenditure. • Weaker-than-expected tourist arrivals which will have an impact on retail sales performance in Orchard Road malls.
Source: DBS Bank
Outlook - Positive
Office
Two-tier Market with Premium Grade A office leading
Supply to fall off from 2018 onwards 2,500
'000 sqft
S$ psf pm
Post GFC 2010‐2014 average: 2015‐2019 average: 1.10m sqft 1.15m sqft
2,000 1,500
20.0 18.0
S$ psf / mth 13.00
16.0
12.00
14.0 1,000
12.0
500
10.0 8.0
Net supply: Downtown Core (LHS)
‐1,000
Net demand: Downtown Core (LHS) CBRE Grade A office rents (RHS)
‐1,500
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
‐500
2000
0
12% 10% 8% 6% 4% 2% 0% -2% -4%
11.00 10.00 9.00 8.00 7.00
6.0 4.0
Spread between Premium Grade vs Grade A (RHS)
2.0
Colliers Premium Grade Raffles Place/New Downtown (LHS)
‐
Key Assertions • Demand outlook remains uncertain with a merry-goround of tenants gravitating towards Grade A office space. • A two-tier market to emerge; with Grade A office space leading the pack and Grade B office space needing to drop rents or undergo refurbishments to attract tenants. • Office rents could bottom by end of 2017 as precommitment rates for key office buildings remain strong.
CBRE Grade A Core CBD (LHS)
Risks • Earlier completion of new office supply. • Shadow space from further contraction in demand from the financial services sector.
Source: DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 8
Page 8
Industry Focus Singapore Developers & REITs
Outlook – Negative (Factory & Warehouse Space) Positive (Business Parks) Rental reversions remain negative
Industrial Time to absorb supply that entered the market 35.0
m' sqft
30.0 25.0
12%
50%
10%
40%
8%
30%
6%
20%
4%
10%
20.0 15.0 10.0
2%
5.0
0% 2009
0%
2,007
2,008
2,009
2,010
2,011
2,012
2,013
2,014
2,015
2016F 2017F 2018F 2019F 2020F
2010
2011
2012
2013
Business Park Demand
Supply
2014
2015
2016F
2017F
2018F
-10% Warehouse
Factory
-20%
Vacancy Rate (RHS)
Key Assertions Market rents to moderate 5% p.a. due to time needed to absorb supply completion in 2016-2017. Market vacancy rates to hit a high of 10%. Business Park space to remain stable; given lack of new supply but downside risk persists if CBD office rents weaken further. Industrial REITs' rental reversions to remain generally negative over 2017-2018.
Risks Weaker than-expected Singapore economy resulting in further-than-expected declines in rents. Shadow space in the single-user factory/warehouse sectors which result in increased competition for tenants.
Source: DBS Bank
Hospitality
Outlook - Negative
Supply to continue outpace demand growth in 2017
RevPAR to remain under pressure in 2017
Rooms 75,000 70,000 65,000 60,000
6.0% 4.1%
61,287
3,857
2.0%
1,355
y-o-y growth 10.0% 8.0% 7% 6.0%
9% 7%
7% 6% 4% 3%
4.0%
2,520
4% 3.4%
6% 5% 4%
1%
2.0%
4% 4% 3% 2%
0.0%
55,000
-2.0%
50,000
-4.0%
45,000
-6.0%
2015
2016F 2017F Hotel rooms Expected net additions
2018F
Key Assertions We expect demand in 2017 to grow by 4% y-o-y. However, as corporate demand is expected to remain soft, projected demand for accommodation growth should remain modest. Persistent supply pressures arising from a 6% increase in room stock will pressure room and occupancy rates. We project RevPAR to fall by 4% in 2017 before rebounding thereafter.
-1%
-1% -3% 2013
2014 Visitor Arrivals
-2% -4% -5% 2015
2016F
Visitor Days
-4% 2017F
Room supply
2018F RevPAR
Risks Slower-than-expected rebound in Chinese tourist arrivals and greater level of competition from regional markets would cause RevPAR to drop more than expected. Upside risk would come from delays in opening of new hotels.
Source: DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 9
Page 9
Industry Focus Singapore Developers & REITs
4. Developers – Catalysts abound to lift valuations from multi-year lows Key Points Developers to continue looking for opportunities overseas, high-end residential space M&A and potential policy relaxation could lift sentiment for the sector Top picks: City Developments Limited (CDL), UOL Range bound in 2016. The Singapore Property Developers (measured by the FSTREH index) has fallen by close to 5% since the start of 2016 and prices are generally c.9% below prices from the start of 2015. The FSTREH lagged the S-REITs for the most of 2016 but caught up after the recent spike in bond yields saw S-REIT prices weaken on the back of market expectations of a more hawkish FED rate hike momentum in 2017.
4.1 Attractive valuations with upcoming catalysts Looking forward, we believe that the Singapore developers (SG Developers) can outperform the S-REITs, especially with expected headwinds from the uncertainty in the number of
subsequent FED hikes over 2017 to mean limited re-rating opportunities for the S-REITs. We see re-rating catalysts for Singapore Developers come 2017 on the back of (i) improved investor sentiment on increasing expectations of a government policy easing in 2017 as property prices fall by as much as 12-15% from the peak (currently 11%) (ii) potential merger and acquisition (M&A) activities, and (iii) improved balance sheets on the back of expected asset recycling/deleveraging trend. The Singapore Developers, which are trading at an average P/NAV of 0.7x, close to its -1SD is attractive. Current P/NAV valuations are close to multi-year lows. At a 0.7x P/NAV, valuations for developers are similar during past periods of economic stress in 1997, 2003 and 2009, which we believe will not be the case going forward, especially with the Singapore GDP projected to grow by c.1.3% in 2017 according to our DBS economists. While we continue to expect Singapore residential prices to fall marginally in 2017, most negatives are priced in, in our view. We believe that we are closer to the trough, especially with expectations that the government will likely tweak policy measures to negate a further fall in prices.
Figure 1: Developers underperformed S-REITs in 2016 but caught up in 4Q16 6%
Index Value
Relative Performance (%)
4%
900.00
850.00
2% 0% 1/1/15
800.00 1/4/15
1/7/15
1/10/15
1/1/16
1/4/16
1/7/16
1/10/16
‐2%
750.00
‐4%
700.00
‐6% 650.00
‐8% Relative Performance
Developers
‐10%
600.00
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 10
Page 10
Industry Focus Singapore Developers & REITs
Figure 2: Valuations attractive as developers still trade at close to past 3 market down-cycle troughs 2.50
P /N AV (x)
2.00
1.50
+1 SD: 1.30x Me a n: 0.95x
2002-2003 Dot Com Crash
1.00
-1 SD: 0.60x
0.50
2011 Euro Crisis
2008-2009 Global Financial Crisis Jan-97
1997-98 Asian Financial Crisis
Jan-99
Jan-01
P/NAV (w/o GLP)
Jan-03
Jan-05
Jan-07
Mean
Jan-09
- 1 SD
Jan-11
Jan-13
+1 SD
Jan-15
Jan-17
P/NAV (with GLP)
Source: Bloomberg Finance L.P., DBS Bank
Figure 3: Historical developers Price-to-Bk NAV vs PPI 180.0 160.0
Index Value
Property Price Index
Developer P/Bk NAV
140.0
Figure 4: Developers trading at 45% discount to RNAVs (-1.0 standard deviation) (x)
2.50
2.00
-10%
1.50
-20%
120.0 100.0 80.0
0% 2006
1.00
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
-30%
60.0 40.0
0.50
20.0
-40% -50%
-
-60%
Discount to RNAV
Mean
+1 SD
- 1 SD
Source: URA, DBS Bank
ASIAN INSIGHTS Page 11
VICKERS SECURITIES Page 11
Industry Focus Singapore Developers & REITs
4.2 Diversification to remain a key strategy for developers
Diversification remains a key strategy. Singapore Property Developers have been acquiring and diversifying overseas over the past few years, driven mainly by the lack of opportunities in Singapore and also the attractive prospects of higher returns overseas. Based on our estimates, out of a sample size of 22 listed Singapore Property Developers with total assets amounting to an aggregate S$143bn, only 44% of their assets are in Singapore with the remaining invested overseas in China (28%), United States (8%) and Australia (4%) as shown in Figure 5.
properties being the main target asset class. One of the key reasons was the relative attractive returns when compared to Singapore, boosted by a strong exchange rate and low cost of funds as funding rates remain anchored at low levels. Figure 5: Developer exposure by geography
This diversity in exposure has been mainly built over the past three years post a series of cooling measures that were put in place on purchasing residential properties in Singapore. Based on our estimates, we saw close to S$8.1bn of capital invested overseas, in contrast to S$7.6bn invested in Singapore over the past few years. The trend was different prior to 2013 when a majority of capital were vested within Singapore and Asia. Australia, London and Japan have been the main markets of interest in recent years, with commercial (office/hotels)
Source: Companies, DBS Bank
Figure 6: Investment Destinations for Singapore Developers
(2013-YTD)
USA: S$0.3bn
U.K.: S$4.6bn Europe: S$0.7bn
China: S$1.2bn
Japan: S$0.2bn
Singapore S$7.6bn
Australia: S$1.4bn
Source: Companies, DBS Bank
ASIAN INSIGHTS Page 12
VICKERS SECURITIES Page 12
Industry Focus Singapore Developers & REITs
DBS economist believes that most major currencies will depreciate against the US dollar over 2017, as the normalization of the US monetary policy and hawkish policies from new President Trump might lead to flows from emerging markets back to the US. Looking forward, currency volatility will continue to have a big impact on total returns for investors diversifying into real estate outside their home markets, and it is important to closely monitor currency movements.
Overseas capital deployment to continue but opportunities limited as currency volatility impact returns. While we believe that developers will continue to seek higher returns overseas, the yield compression seen for prime assets over the past few years will mean that market focus will likely change. According to JLL, an SGD investor total foreign currency (FX) adjusted total return will diminish over 2016-2018 and is forecasted to yield in the -3% to 10% range with Shanghai, Sydney and Melbourne offering the highest returns which will continue to feature regularly on developers’ horizon over time.
In Singapore, developers could turn to M&A and en-bloc opportunities to land bank. Developers who are looking to replenish their property land banks in Singapore have turned up in force in the government land sales program (GLS) in 2016 and have also ventured into the En-bloc market to gain access to land banks. Looking ahead, we believe that another avenue will be in the listed space, especially with listed developers trading at 0.7x P/NAV and certain mid-cap developers trading below that.
We believe that London will remain one of the key investment markets, despite Brexit going forward and JLL expecting returns to moderate, mainly due to weak GBP in the medium term. Developers are likely to be still keen on the UK if it maintains its financial hub status in Europe. As developers are expected to continue targeting to grow their recurring income base, we believe that core assets in the commercial space which offer stable cash flows will be key acquisition targets.
As pressure from additional buyer stamp duties (ABSD) on land purchase and Qualifying Charges (QC) increase from 2017 onwards, we believe this could spark merger and acquisition (M&A) activities going forward.
Figure 7: FX adjusted returns over time 20%
2016
15%
2018
2017
10% 5%
FX gain/loss
-20%
Property Return
FX adjusted total return
Source: JLL, DBS Bank
ASIAN INSIGHTS Page 13
VICKERS SECURITIES Page 13
Kuala Lumpur
Delhi
-15%
Mumbai
Beijing
Shanghai
New York
Tokyo
London
Seoul
Sydney
Hong Kong
Singapore
Melbourne
Kuala Lumpur
Delhi
Mumbai
Beijing
Shanghai
London
New York
Tokyo
Seoul
Sydney
Hong Kong
Singapore
Melbourne
Delhi
Kuala Lumpur
-10%
Mumbai
Beijing
Shanghai
New York
Tokyo
London
Seoul
Sydney
Hong Kong
Singapore
-5%
Melbourne
0%
Industry Focus Singapore Developers & REITs
Figure 8: Prime Yields for commercial real estate 8.0% 7.0% 6.0% 5.0% 1Q14 4.0%
2Q15 2Q16
3.0% 2.0% 1.0% 0.0% Beijing
Shanghai
Tokyo
Singapore
Sydney
Mebourne
Brisbane
Source: JLL, DBS Bank
Figure 9: Singapore Developers' Exposure (% of RNAV)
Remarks
Developers
SG Residential
SG Commercial
Overseas
Total
CapitaLand
9%
25%
66%
100%
City Dev
27%
52%
21%
100%
Ho Bee
15%
56%
29%
100%
Wheelock
30%
39%
32%
100%
UOL Limited
7%
85%
8%
100%
OUE Ltd
9%
56%
35%
100%
Wing Tai
19%
20%
60%
100%
Global Logistics Properties
0%
0%
100%
100%
SG Developers' exposure to domestic residential sector is generally <10% with the exception of the likes of City Dev, Ho Bee Wheelock, and Wingtai, which have exposure in excess of 15%.
Source: JLL, DBS Bank
ASIAN INSIGHTS Page 14
VICKERS SECURITIES Page 14
Industry Focus Singapore Developers & REITs
4.3 Improved transactions in the luxury end of the market to continue Pick-up in transactions in the luxury residential market. We believe that the luxury end of the market is approaching a near-term bottom, judging by the increased number of transactions seen in the core central region. According to URAlodged caveats, YTD 9M16 transactions by Foreigners (excluding Singapore permanent residents) rose by close to 12% compared to the same period a year ago. We note that the increase in transactions mainly come from buyers in China, Malaysia and Indonesia, up more than 15% y-o-y respectively. If transaction volumes sustain, it will imply investors’ confidence in Singapore’s fundamentals and prospects of longterm capital gains from current levels. Attractive relative pricing compared to other popular investment destinations. According to JLL, Singapore remains an attractive investment destination, especially with additional
25% 20%
2016Q3
2016Q2
2016Q1
2015Q4
2015Q3
2015Q2
2015Q1
2014Q4
-25% 2014Q3
2014Q2
-10%
-20% 2014Q1
-15%
200 2013Q4
400
2013Q3
-5%
2013Q2
-10%
2013Q1
0%
600
2012Q4
-5%
2012Q3
5%
800
2012Q2
0%
2012Q1
10%
1,000
2011Q4
5%
2011Q3
10%
1,200
2011Q2
15%
1,400
2011Q1
1,600
% Change (Rolling 4 Quarters)
2016Q3
2016Q2
2016Q1
2015Q4
2015Q3
2015Q2
2015Q1
2014Q4
2014Q3
2014Q2
2014Q1
2013Q4
2013Q3
2013Q2
2013Q1
2012Q4
2012Q3
15%
2012Q2
20%
2012Q1
Rolling 4 Quarters Growth (%)
2011Q4
Units Sold in Core Central Region (LHS)
2011Q3
Units
Figure 11: Core Central Region transactions outpacing overall total Singapore market
2011Q2
1,800
Therefore, we believe that Singapore luxury home is attractive from a relative pricing across countries with potential capital upside in the medium term once the current over-supply situation normalizes.
2011Q1
Figure 10: Transactions in Core Central region growing
stamp duties recently levied on foreign purchases by other popular residential investment destinations such as London, Melbourne, Sydney which somewhat makes Singapore attractive again for international investors looking for real estate purchases. In addition, we note that (figure 1212) Singapore luxury home prices have corrected 11% over the past few years and the gap has widened over time, when compared to other residential investment destinations such as Hong Kong, London and New York, where prices have continued to increase over the past few years (figure 13).
-15% -20% -25%
Overall Transactions
Core Central Region
-30%
Source: Companies, DBS Bank
Figure 12: % Growth in prices 230.0
Figure 13: Prices of luxury residential homes
Index Value
US$ psf
210.0
5,000
190.0
4,500
170.0
4,000 3,500
150.0
3,000
130.0
2,500 1,500
Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q1 2016 Q2 2016 Q3 2016
2,000
90.0 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
110.0
1,000 500 Monaco
Hong Kong
Korea
Malaysia
Singapore
Taiwan
Thailand
Hong Kong
London New York
Los Angeles
Japan
Singapore Toronto
Source: URA, MAS, Christie Real Estate, JLL, Knight Frank, DBS Bank
ASIAN INSIGHTS Page 15
VICKERS SECURITIES Page 15
Industry Focus Singapore Developers & REITs
4.4 Looming ABSD deadlines not a precursor for a significant price cuts for all developments. Selected impact of ABSD deadlines as most projects continue to enjoy healthy margins. Developers with projects that are subjected to deadlines on the ABSD remission on residential sites in 2017-2018 have also done well, in our view. Based on our analysis of selected projects with significant unsold inventories at the start of 2016 and are likely to be under pressure to clear stock due to looming ABSD deadlines in 2017-2018, most have cleared a substantial portion of their inventory. This is mainly coming from more aggressive marketing activities while prices dipped slightly by 4-12%, with some staying steady as shown in Figure 15. This is against investors’ initial concern that developers might have to suffer deep cuts in prices in order to move unsold inventories.
Strong sales in the core central region could mean firmer prices going forward. There were close to 22,502 unsold units (both completed and uncompleted) as of 3Q16 of which 24% of 5,464 units were located in the Core Central region as of 3Q16. The strong sales seen in recent quarters (especially for recently re-launched completed projects – Gramercy Park, OUE Twin Peaks near downtown Orchard) have brought the number of available units for sale down by 6% q-o-q, which is one of the fastest fall compared to homes in other regions. Based on the current run-rate for residential transactions, we estimate that total transactions in 2016 will likely come in at close to 15,500 (c.8,000 primary sales and 7,500 secondary sales), which implies close to 10% growth y-o-y. The increase is mainly driven from a marked increase in both the primary and secondary transactions. The former is mainly due to generally more aggressive marketing activities and price discounts. The improvement seen in the secondary market mainly came from i) higher transactions in the Core Central region and ii) innovative financing schemes and price discounts offered by developers for selected de-licensed projects which resulted in fairly good response from buyers (see figure 14).
The pick-up in sales momentum, in our view, will likely give developers more optimism to continue marketing existing projects while upcoming property launches in the Central region could also increase in order to capture the current improved sentiment in that space. We believe that developers are likely to pay the ABSD for most projects come 2017 as margins are expected to remain healthy (figure 16).
Figure 14. Pipeline supply of unsold private homes (excluding executive condominiums) as of end of 3rd quarter 2016 Total Units Units Available for sale (3Q16): Unsold uncompleted units Unsold completed units Total unsold units % Chg Q-o-Q Demand : Primary Sales (YTD 9M16) Secondary Sales Total Sales
Ratio (Supply/ annualised primary sales) Primary Sales (2015) Secondary Sales (2015) Ratio of Supply/Demand Average Primary Sales (2013-2016) Average Secondary Sales (2013-2016)
(units)
Core Central Region (units)
Rest of Central Region (units)
Outside Central Region (units)
20,577 1,925 22,502 -3%
4,711 753 5,464 -6%
7,130 543 7,673 1%
8,736 629 9,365 -5%
5,253 6,337 11,590
444 1568 2,012
1,715 1792 3,507
3,094 2977 6,071
3.2
9.2
3.4
2.3
7,440 6,677 14,117 3.0
407 1,452 1,859 13.4
1,884 1,944 3,828 4.1
5,147 3,281 8,428 1.8
7,030 7,475 14,505
530 1,572 2,102
4,400 2,071 6,471
2,100 3,464 5,564
Remarks
Ratios for CCR and RCR regions improved while OCR ratios declined.
Ratios for CCR highest due to low number of primary sales.
Source: URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 16
Page 16
Industry Focus Singapore Developers & REITs
Figure 15: ABSD payable for selected projects with high unsold inventory in 2017 / 2018 ABSD liability
Region
Project
Developer
Total Units
Unsold (Jan’16)
Unsold
Unsold (Nov’16)
(%)
Unsold
Units Sold in 2016
(%)
Land Cost
Estimated ABSD
(S$’m)
(S$’m)
ABSD Payable for projects from government land sites Jan’17
OCR
The Trilinq
IOI Properties
755
528
70%
303
40%
225
408
52.1
Feb’17
RCR
Mon Jervois
Singapore Land
140
61
44%
45
32%
16
118.9
15.2
Mar’17
OCR
Kingsford
512
249
49%
22
4%
227
243.2
31
Jun’17
OCR
Capital Devt.
463
172
37%
84
18%
88
211
26.9
Jul’17
CCR
Kingsford Hillview Peak Vue 8 Residences Pollen & Bleu
Singapore Land
106
94
89%
93
88%
1
113.2
14.4
Jul’17
RCR
Sant Ritz
Santarli Corp
214
24
11%
10
5%
14
114.8
14.7
Sep’17
CCR
The Siena
Far East Org.
54
22
41%
12
22%
10
45.8
5.8
Sep’17
RCR
The Crest
Wingtai,Metro, UE
469
366
78%
325
69%
41
516
65.9
Oct’17
OCR
The Glades
Keppel Land
726
343
47%
134
18%
209
434.6
55.5
Dec’17
RCR
Singapore Land
429
173
40%
152
35%
21
332.7
41.6
Jan’18
OCR
Alex Residences The Panorama
Wheelock
698
126
18%
28
4%
98
550
70.2
Apr’18
OCR
UOL Group
555
188
34%
64
12%
124
262.1
50.2
Jun’18
RCR
Apr’18 Sep’18
Keppel Land
500
320
64%
215
43%
105
550.3
105.3
OCR
Riverbank @ Fernvale Highline Residences The Santorini
MCC Land
597
390
65%
328
55%
62
289.7
55.5
CCR
Sophia Hills
Hoi Hup
493
437
89%
346
70%
91
442.3
84.7
16
15
94%
15
94%
0
9.4
1.2
92
26
28%
6
7%
20
54
6.8
28
13
46%
10
36%
3
24
3.1
48
15
31%
5
10%
10
27
3.4
84
67
80%
64
76%
3
46
5.9
260
144
55%
107
41%
37
190
24.5
65
22
34%
7
11%
15
22.6
2.8
11
8
72%
7
64%
1
18
2.3
120
51
43%
25
21%
26
130
16.6
ABSD Payable for projects from private land sites Mar’17
CCR
Meyer Melodia
Cang Properties Robin25 Pte Ltd
Mar’17
CCR
Robin Suites
Jan’17
RCR
Ascent @ 456
Quest Homes
Apr’17
OCR
Jun’17
RCR
The Bently Residences Neem Tree
Sep’17
OCR
Sep’17
OCR
The Creek @ Bukit Rezi3Two
Goodland Group Aylesbury Pte Ltd Chiu Teng Group Tee, KSH and Heeton
Oct’17
OCR
Lotus Ville
JVA Venture
Nov’17
CCR
The Rise @ Oxley
Hao Yuan
Source: URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 17
Page 17
Industry Focus Singapore Developers & REITs
Figure 16: Selling prices indicate that most projects will still earn good margins after payment of ABSD Project
Est. Breakeven
Est. Breakeven with ABSD
Selling Prices < 2016
Selling prices in 2016
% Chg
Average Prices
Margins (q/o ABSD)
Margins (with ABSD)
(S$’psf)
(S$’psf)
(S$’psf)
(S$’psf)
(%)
(S$’psf)
(%)
(%)
ABSD Payable for projects from government land sites The Trilinq
920
990
1,405
1,404
0%
1,404
53%
42%
Mon Jervois
1,265
1,400
1,981
1,832
-8%
1,907
51%
36%
Kingsford Hillview Peak
1,010
1,090
1,367
1,286
-6%
1,326
31%
22%
780
830
983
992
1%
988
27%
19%
Pollen & Bleu
1,450
1,575
1,922
1,801
-6%
1,862
28%
18%
Sant Ritz
1,000
1,080
1,419
1,358
-4%
1,388
39%
29%
The Siena
1,500
1,650
2,067
1,826
-12%
1,947
30%
18%
The Crest
1,350
1,470
1,698
1,718
1%
1,708
27%
16%
The Glades
1,530
1,675
1,454
1,412
-3%
1,433
-6%
-14%
Alex Residences
1,350
1,500
1,705
1,943
14%
1,824
35%
22%
The Panorama
1,180
1,300
1,243
1,220
-2%
1,232
4%
-5%
850
940
976
992
2%
984
16%
5%
1,600
1,800
1,879
1,735
-8%
1,807
13%
0%
950
1,035
1,131
1,082
-4%
1,106
16%
7%
1,450
1,650
1,995
1,916
-4%
1,955
35%
19%
510
530
2,226
-
0%
1,113
>100%
>100%
Robin Suites
1,450
1,600
2,496
2,276
-9%
2,386
65%
49%
Ascent @ 456
1,400
1,580
1,506
1,527
1%
1,516
8%
-4%
The Bently Residences
1,000
1,050
1,408
1,229
-13%
1,319
32%
26%
Neem Tree
1,180
1,285
1,616
1,756
9%
1,686
43%
31%
The Creek @ Bukit
1,180
1,400
1,589
1,656
4%
1,622
37%
16%
Rezi3Two
1,000
1,050
1,507
1,533
2%
1,520
52%
45%
Lotus Ville
775
830
803
754
-6%
779
0%
-6%
1,525
1,685
2,335
2,283
-2%
2,309
51%
37%
Vue 8 Residences
Riverbank @ Fernvale Highline Residences The Santorini Sophia Hills
ABSD Payable for projects from private land sites Mayer Melodia
The Rise @ Oxley
Source: URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 18
Page 18
Industry Focus Singapore Developers & REITs
4.5 Potential land-banking opportunities in Singapore Developers could turn towards the en-bloc sites or even M&A to grow. The government residential land tenders have remained competitive, driving land bid prices high, following the dearth of land supply since the property market peaked in 2013, coupled by developers having pre-sold most of their inventory on their balance sheets on hand. Looking ahead, as the government continues to maintain a low supply in the upcoming 1H17 land tenders, we believe that developers could turn towards the en-bloc market or even look to M&A to continue land banking and to seek growth. Apart from government land sales, developers have turned to opportunities in the private market as evidenced by the recent pick-up in en-bloc transactions. Smaller developers, some of which on average trade at a 50% discount to book values, could be attractive acquisition or privatisation candidates. Limited government land sales (GLS) to result in sticky land bid prices
tendered out in 2016 has reached its lowest level at approximately 4.4m sqft, 75% below the peak in 2012. Unsold inventory at the lowest since 2001. With the government moderating the land supply for a few years now, unsold inventory of residential properties has reached its lowest levels since 2001. As at 3Q2016, unsold inventory had almost halved since its peak in 2011. Land prices have remained sticky. While land prices from the government land tenders have moderated marginally in 2014 to 2015 (highest land prices within the respective year fell c.27% to close to S$900psf ppr levels from a high of S$1,163 psf ppr in 2013), we saw land prices in 2016 achieve a record high of S$1,239 psf ppr. Land bids are increasingly more competitive as spreads thin. The spreads between the winning bid compared to the 2nd and median bids have also narrowed from 15% back in 2013 (peak of 62% in 2009) to 3% in 2016. The number of bids has increased to an average of 12 in 2016, above the historical average of eight bids.
Government residential land sales at its lowest level since GFC. Since the property market peaked in 2013, the government has been moderating the land supply into the market. Total GFA of government residential land sales Figure 18: Land prices remain steady as competition remains high
100
2,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
-
GLS by GFA (sqft)
Average Land Price (S$'psf)
Source: Realis, DBS Bank
ASIAN INSIGHTS
200 -
533
809
350 463 463 413 436 285 268 404 350 310 241 256 418 489 438 483 481 350 318 320 291 228 203 280 197 245
Min
Average
Max
Source: Realis, DBS Bank
VICKERS SECURITIES
Page 19
Page 19
2016
4,000
400
460
681 724 650 695
2015
200
507
600
607
2014
6,000
639
2013
300
849 871
2012
8,000
800
2011
400
1,239
1,163
869
2010
10,000
1,000
2009
500
2008
12,000
1,200
2007
600
2006
14,000
1,108
2005
700
2003
16,000
1,400
2002
800
Pric e (S$psf)
18,000
A v erage Land Prices (S$'psf)
G ov ernment Land Sales by GFA (sqft)
Figure 17: Shortage of land supply from the government
Industry Focus Singapore Developers & REITs
Figure 19: Winning margin and average range of bid have narrowed 200%
18
winning bid margin and average range of bid has narrowed
180% 160% 140%
14
60% 40% 20% 0%
12
12 A verage no. of bids = 8
10 8
8
8
8
Date of Award
Location
Type of Development
Lease (yrs)
No. of Name of Successful Tenderer Bids
Developer
6-Dec-16 (tender closed) 1-Oct-16
Margaret Drive
Residential
99
14
MCL Land (Regency) Pte Ltd
Fernvale Road
Residential
99
14
Anchorvale Lane Martin Place
Executive Condominium Residential
99
16
99
13
30-May-16
Bukit Batok West Avenue 6
Commercial & Residential
99
11
13-Apr-16
Jalan Kandis
Residential
99
29-Feb-16
Yio Chu Kang Road New Upper Changi Road (Parcel B) Siglap Road
Executive Condominium Residential Residential
18-Jan-16
2016
2015
2014
Source: Realis, DBS Bank
Figure 21: GLS Sites awarded in 2016
26-Feb-16
2013
2009
2008
2007
-
2006
2
2005
Highest vs 2nd
Average
2016
2015
2014
2013
2012
2011
2010
2008
2007
2006
2005
2009
Highest vs Median
Source: Realis, DBS Bank
1-Jul-16
8
4
Highest vs Lowest
5-Sep-16
10
6
6
6
10
8
2012
80%
12
2011
100%
2010
120%
-20%
16
16
Av erage no. of bids
av erage range of bid (%)
Figure 20: Number of bidders has increased
Total
Successfu l Tender Price (S$'m)
$S$ psf per plot ratio
Units
SG Listed
238.4
997.8
275
SG Listed
287.1
517.2
575
Foreign
240.9
355.2
635
SG Listed
595.1
1,239.4
450
Foreign
301.2
634.8
425
9
Sing Development (Pte) Ltd and Wee Hur Development Pte Ltd Hoi Hup Realty Pte Ltd and Sunway Developments Pte Ltd First Bedok Land Pte Ltd (Guocoland) Qingjian Realty (BBR) Pte Ltd. And Qingjian Realty (BBC) Pte Ltd Dillenia Land Pte Ltd
Foreign
51.1
481.2
110
99
10
Hoi Hup Realty Pte Ltd
Foreign
183.8
331.1
520
99
8
CEL Residential Development Pte Ltd
SG Listed
419.4
760.8
570
99
8
FCL Topaz Pte Ltd, Sekisui House Ltd and KH Capital Pte Ltd
SG Listed
624.2
858.3
800
2,702.8
4,085
Source: Companies, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 20
Page 20
Industry Focus Singapore Developers & REITs
Figure 22: 1H17 Government Land Sales Program
S/N
Site area (ha)
Proposed GPR
Est. No. of Housing Units
Est, No. of hotel rooms
Estimated commercial space (sqm)
Estimated launch date
Sales agent
1.87 2.17 1.31 1.72 1.96
1.4 2.8 Landed 2.5 3
325 715 50 505 735 2,330
-
-
Feb-17 Mar-17 Apr-17 May-17 May-17
URA URA URA URA URA
2.11 0.47 2.71 2.17 1.38 1.33 2.02 1.72
4.2 2.1 3 2.8 3.5 3.8 1.8 3
1110 115 775 715 605 515 455 575
-
1,500 -
Available Available Available May-17 Jun-17 Jun-17 Jun-17 Jun-16
URA URA HDB URA URA URA URA URA
2.3
2.6
570
-
13,500
Available
URA
2.1 2.24
4.2 3.5
260
-
88,200 60,030
Available Available
URA URA
Total (Reserve List)
5,135
-
158,080
Total (Confirmed List and Reserve List)
7,465
-
158,080
Location
CONFIRMED LIST 2H15 Residential Sites 1 2 3 4 4
Toh Tuck Road Tampines Avenue 10 (Parcel C) Lorong 1 Realty Park Serangoon North Avenue 1 Woodleigh Lane Total (Confirmed List)
RESERVE LIST Residential sites 1 Stirling Road 2 Bartley Road / Jalan Bunga Rampai 3 Sumang Walk (EC) 4 Yishun Avenue 9 5 Owen Road 6 Jiak Kim Street 7 Fourth Avenue 8 Commercial & Residential Sites 9 Holland Road Commercial Sites 10 Beach Road 11 Woodlands Square
Source: URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 21
Page 21
Industry Focus Singapore Developers & REITs
4.6 More En-bloc transactions in 2017 S$639m (S$557 psf ppr), ii) Raintree Gardens, Potong Pasir second en-bloc sale of privatised former HUDC estate at S$334m (S$593psf ppr) to UOL / UIC JV, iii) No.3 Cuscaden Walk, Orchard at S$103.8m (S$1,826 psf ppr) to SL Capital, a consortium led by Sustained Land, iv) No. 120 Grange Road, Orchard at S$48.5m (S$1,841 psf ppr) to Roxy-Pacific Holdings, and v) No. 8 Hullet Road, Orchard at S$38.2m (S$2,073 psf ppr) to a consortium led by Patrick Kho of Lian Huat Group. Media / news reported properties for sale including two apartments at The Claymore, Lakeside Towers in Jurong, Villa D’Este on Dalvey Road and Cairnhill Mansion on Orchard Road.
Increase in en-bloc transactions in 2016. From 2005-2007, we saw a pick-up in en-bloc transactions when there was a shortage of government land supply. Following the implementation of property cooling measures, en-bloc transactions have dwindled down since 2011 to no transactions in 2014. In 2015, only one successful transaction (the sale of Thong Sia building) was recorded. Nevertheless, we have seen a pick-up of en-bloc transactions in 2016 with Harbour View Gardens being successfully transacted in August 2016 at an average price of S$1.3k psf, five en-bloc deals announced, and increasing media / news on property owners engaging property consultants (such as JLL and CBRE) to set up collective sales committee. The five en-bloc deals announced (excluding en-bloc sales for asset recycling purposes or specifically to be exempted from ABSD or QC charges) were i) Shunfu Ville, Bishan which was the first enbloc sale of privatised former HUDC estate in nine years at
Despite the tighter rules on en-bloc sales and more tedious process to complete an en-bloc transaction, developers are now willing to undertake these properties, implying that i) developers are hungry for land bank, and ii) developers are taking a more positive outlook in the medium term.
Figure 23: Shortage of land supply from the government
Figure 24: Land prices remain high due to competitive bids
Source: URA, DBS Bank
Figure 25: Pick-up in en-bloc sales during shortage of government land supply
Figure 26: Total land transactions has fallen from 2013 onwards, post the implementation of cooling measures
Source: URA, DBS Bank
ASIAN INSIGHTS
Source: URA, DBS Bank
Source: URA, DBS Bank
VICKERS SECURITIES
Page 22
Page 22
Industry Focus Singapore Developers & REITs
4.7 Merger and Acquisition (M&A) activities could pick up With the recent proposed privatisation of various propertyrelated companies and news reports on potential takeovers of United Engineers (UE) (please refer to our report: Another Centenarian for Sale) and Global Logistic Properties (GLP), we believe that some of the smaller-cap developers which are trading at deep discounts to NAV could look attractive for potential M&A as an alternative to acquire assets / land
banking. We reviewed a list of smaller-cap developers with the key summary of each of the developers below. The smaller-cap developers are trading at an average discount to NAV of 29% with most trading at a range of 40-93% discount to NAV. Companies that are in deep discounts with attractive assets includes Bukit Sembawang (93% discount), Wing Tai (60%), Hiap Hoe (51%), and Hobee (50%).
Figure 27: Sample list of mid-cap developers that could head the M&A route Bukit Sembawang
Bloomberg / Reuters Market Cap (S$'m) Shareholding Structure
Disc / (Prem) to NAV Debt / Equity
BS SP / BSES.SI
Cash % of Market Cap Assets by business units
Assets by countries
Key assets
44% Cheng Family 11% Others 5% Free Float
93%
39% no debt
Cash balance (S$'m)
no debt 401
Development properties Investment properties
HIAP SP / HIAP.SI
WINGT SP / WTHS.SI 1,177
Lee Family Aberdeen Asia Fountain Inv (Guoco Grp) Free float
Net debt / Equity
Hiap Hoe
Wing Tai
34%
99.6% Development properties 0.4% Investment properties Retail
n/a
Others
1,298
335
50% Teo Family 2% Others 48% Free float
60% 0.4 0.1 966 74%
70% 1% 29%
51% 0.7 0.6 23 7%
57.0% Investment properties 39.0% Hotel 2.0% Development properties
45% 11% 8%
2.0% Construction
4%
Leisure
0%
Others
31%
SG
47% SG
82%
HK
29% AU
18%
CH
11%
MY
13%
Paterson Collection, Orchard, SG Resi St Thomas Walk, River Valley, SG Resi Luxus Hill, Seletar, SG - Landed resi
The Crest, SG - Resi
Signature At Lewis, SG - Resi
Le Nouvel KLCC, MY - Resi
HH @ Kallang, SG - Industrial
Winsland House, SG - comm
Watercove, Sembawang, SG Landed resi
Development in Suzhou Industrial Park - Comm Lanson Place, Shanghai - hospitality
Zhongshan Park Integrated, Novena, SG - Mixed
Source: DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 23
Page 23
Industry Focus Singapore Developers & REITs
Figure 27: Sample list of mid-cap developers that could head the M&A route (continued)
Bloomberg / Reuters Market Cap (S$'m) Shareholding Structure
Disc / (Prem) to NAV Debt / Equity Net debt / Equity Cash balance (S$'m) Cash % of Market Cap Assets by business units
Assets by countries
Key assets
Hobee
Roxy
HOBEE SP / HBEE.SI
ROXY SP / RXYP.SI
1,477
Chua Family
76% Teo Family
Others Free float
1% Others 23% Free float 50%
Commercial Residential Industrial
0.5 0.5 77 5%
Wheelock WP SP / WPSL.SI
501
1,789
72% Wheelock and Company Limited 6% Aberdeen 22% Free Float 45% 1.9 1.2 327 65%
76% 6% 18% 40% 0.0 (0.4) 1,319 74%
63% Development properties 35% Hotel 1% Investment properties Others
58% 35% 7%
SG UK CH
57% Development properties 11% Investment properties 16% Investments 17%
55% SG 29% AU 12% JP
80% 20%
AU
42% SG 36% Other 8%
4% TH
4%
MY
4%
HK
5%
ID
1%
Turquoise, Seascape & Cape Royale, Sentosa Cove, SG Residential projects in Shanghai, Tangshan, Zhuhai 6 commercial buildings in London The Metropolis, Buona Vista, SG Comm / Retail HB Centre 1 & 2, SG - Ind
Hotel properties in SG, JP, AU, TH & Maldives Sunnyvale Residences, SG - Resi
Ardmore Three, Orchard, SG - Resi
Trilive, SG - Resi / Retail New World Towers, South Brisbane, AU - Resi Land banks in SG, AU, ID
Fuyang project, Hangzhou, CH Wheelock Place, SG - Comm / Retail
Scotts Square, Orchard, SG - Resi
Source: DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 24
Page 24
Industry Focus Singapore Developers & REITs
Figure 27: Sample list of mid-cap developers that could head the M&A route (continued) Metro
Bloomberg / Reuters Market Cap (S$'m) Shareholding Structure
Disc / (Prem) to NAV Debt / Equity
METRO SP / MTHL.SI
Cash % of Market Cap Assets by business units
1,676
ASP SP / ASPA.SI
Free float
49%
37%
15%
0.0
0.6
Retail
Key assets
UEM SP / UTES.SI 36% 10%
Property
Assets by countries
844
Aspial
Ong Family Ngee Ann Dev Pte Ltd Others
Net debt / Equity Cash balance (S$'m)
UE
6%
4%
79% 15% 7%
9% Free float
WBL Corp
3%
Free float
65%
properties Investment properties Technology & Manufacturing Corporate Services & Other Assets SG CH USA
0.3 671 40%
47% Financial service
14% Others
1%
ASEAN (ex SG & MY) HK
0% 0%
Rest of Asia
0%
Others
2%
Free float
12% 15% 1% -63%
4.2
3.1 2.6 367 29% 68% 13% 7% 12% 97% 2% 1%
Japan
0%
Cambodia
0%
Others
1%
UE Bizhub City, SG - Mixed
Middlewood Locks, Manchester, UK - Resi Metro Tower / City, Shanghai - Comm / retail GIE Tower, Guangzhou, CH - Comm
Land banks in Brisbane & Penang
Kensington Square, SG Retail / Resi City Gate, SG - Retail / Resi Nova City, Cairns, AU Mixed
The Flow, East Coast, SG Comm The Rise@Oxley, Oxley Rise Rd, SG - Residences / Retail Floraville / Floraview / Floravista, Ang Mo Kio, SG Mixed Space@Tampines, SG Industrial Novotel & Ibis on Stevens,SG - hospitality Development properties in Cambodia, Malaysia, Myanmar, etc
Source: DBS Bank
ASIAN INSIGHTS
43% 29%
-60%
Nanchang Fashion Mark, Jiangxi, CH - Mixed The Crest at Prince Charles Crescent, SG - Resi Sheffield Digital Campus, Sheffield, UK - Comm
UE Bizhub West, SG - Ind / Comm Mixed Development One North, SG - Mixed
1,282
99.9% SG 0.1% MY UK
85% Singapore 10% Malaysia 1% 1%
5% Investment properties 41% Corporate
17% Jewellery
TW
3.9 72 14% 44% Development properties 10% Hotel
22% Real estate
MY
525
OHL SP / OXHL.SI 84% Ching Chiat Kwong 6% Low See Ching (Liu Shijin) 11% Tee Wee Sien (Zheng Weixian) Others
13% Koh Family 10% Others
Lee Foundation
(0.3) 418 50% 96% Development
CH ASEAN Others
Great Eastern OCBC
Oxley
VICKERS SECURITIES
Page 25
Page 25
Industry Focus Singapore Developers & REITs
Past transaction multiples imply that 1x P/NAV and 0.8x P/RNAV are levels at which most deals are struck. Based on selected privatisation transactions between 2010 and the latest practicable date involving property developers listed on the SGX (list may not be exhaustive), the deals were
transacted at an average P/NAV multiple of 1.0x and P/RNAV of 0.8x as shown in the table below. However, we note that there may be differences in terms of size, market capitalisation, financials and portfolios that could change the potential valuations for M&A.
Figure 28: Historical Transactions involving listed Property Developers (2010-now) Announcement Date
Target Company
Acquirer
Aug-2016
Sim Lian
Final Offer Price
Deal Value
S$'m
Premium/ Disc 1-mth VWAP
P/NAV
P/RNAV
(x)
(x)
Coronation 3G
1.08
216
16.8%
0.9x
n.a.
Jan-2015
Keppel Land
Keppel Corp
4.38
2,749
25.0%
0.88x
0.66x
Apr-2014
Hotel Properties Limited
Wheelock
4.05
200
33.8%
1.32x
0.79x
Apr-2014
CapitaMalls Asia
CapitaLand Limited
2.35
3,025
35.8%
1.26x
0.89x
Feb-2014
Singapore Land Limited
9.40
650
16.9%
0.72x
0.67x
Dec-2012
1.80
318
57.2%
1.15x
0.8x
May-2012
SC Global Developments Limited Wing Tai
United Industrial Corporation Limited MYK Holdings Pte Ltd Ascend Capital Limited
1.39
1,104
14.3%
0.55x
0.62x
May-2011
Allgreen Limited
1.60
1,060
40.6%
0.99x
0.81x
Sep-2010
Soilbuild Limited
Brookevale Investment Pte Ltd Dolphin Acquisitions
0.80
113
15.6%
1.26x
1.07x
Aug-2010
MCL
Hong Kong Land Holdings Limited
2.45
189
27.3%
0.96x
0.75x
Min
14.3%
0.62x
0.62x
Mean
28.3%
0.78x
1.0x
Median
26.1%
0.79x
1.0x
Max
57.2%
1.07
1.32
Source: DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 26
Page 26
Industry Focus Singapore Developers & REITs
4.8 Will Developers need to deleverage? Average indebtedness across developers over time remain stable; larger-cap developers have been generally more conservative. Property developers have generally been conservative in their approach towards capital management and over the past few years, kept net gearing in the range of 0.4-0.6x. Tracking the average indebtedness across developers over time, we found that mid-sized developers (defined as those with market capitalisation of up to S$2bn) have generally taken more debt in recent years and thus average gearing of c.0.8x in the last four years, higher than the sector’s average of c.0.7x over the same period.
capital. Firstly, we expect the land-banking climate to remain competitive in Singapore given limited land sites available for tender from the government, which means that most midsized developers could be crowded out by their larger competitors or foreign developers. Secondly, increased currency volatility going forward is expected to be a drag on returns when deploying more capital overseas. As such, given limited avenues to deploy capital and fairly strong balance sheets, we believe that a possible avenue where developers could look to deleverage their balance sheet or if not pay higher dividends going forward.
On average, over the same period, the large-cap developers have an average net gearing ratio of c.0.5x.
The recent spike in swap-offer rates (SOR) could imply higher refinancing costs going forward. As such, faced with a slowing top-line growth and increasing prospects of higher interest obligations, we believe that a viable strategy will be to utilise proceeds that are recognised from subsequent years’ pre-sales to pare down on debt obligations when they come due in 2017-2018.
Developers that stand out in terms of higher gearing than their peers as of the latest reported quarter are the likes of Guocoland (large-sized developer) at 1.2x and in the mid-sized developer space - Oxley, Tee Land and Roxy-Pacific which all have net gearing in excess of 1.0x (Fig. 30). Chip Eng Seng and Tuan Sing also have high net gearing of above 0.9x. Developers to deleverage as outlook remains subdued. 2017 will turn out to be a tough year for developers to deploy
Figure 29: Gearing levels of Property Developers over time have remained fairly stable
In our interest rate analysis, we estimate impact on PATMI for the developers from a 1% increase in interest rates result in a 4-40% impact on PATMI.
Figure 30: Net gearing of Selected Mid-Cap Developers (Latest Quarter)
0.50
2.50
0.45
2.15
2.00
0.50
0.47
0.50
0.54
OUE
0.25
Hiap Hoe
1.00
0.71
0.85
0.94
0.98
Tuan Sing
0.30
Chip Eng Seng
1.50
0.35
Hobee
1.07
1.16
Large cap
Mid cap
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS Page 27
Average
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES Page 27
Oxley
Roxy-Pacific
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
0.10
TEE Land
0.00
0.15
Heeton
0.20 Fragrance
N e t Debt/Equity (x)
0.40
Industry Focus Singapore Developers & REITs
Figure 31: Summary of Developers Financial position (As of latest quarter ended Sept-2016) Developer
Type*
Market Cap
Total Assets
Total Debt
Total Equity
Cash
Total Debt/ Equity
Net Debt/ Equity
Net Debt/ EBITDA
(x)
Total Debt/ EBITDA (TTM) (x)
(x)
EBITDA/I nterest expense (TTM) (x)
(S$'bn)
(S$'bn)
(S$'bn)
(S$'bn)
(S$'bn)
(x)
Capitaland
Large
13.56
46.21
15.58
23.88
4.24
0.7
0.5
11
8
3.0
GLP
Large
8.77
27.73
6.21
18.30
2.47
0.3
0.2
10
6
3.0
Citydev
Large
7.40
19.93
6.35
11.02
3.29
0.6
0.3
5
3
11.8
UOL
Large
4.52
11.60
2.57
8.51
0.27
0.3
0.3
8
7
9.8
FCL
Large
4.32
24.20
9.80
11.84
2.17
0.8
0.6
12
9
5.1
UIC
Large
3.86
8.62
1.31
6.98
0.08
0.2
0.2
4
4
28.9
Guocoland
Large
2.21
8.15
4.05
3.47
1.13
1.2
0.8
22
16
3.9
Wheelock
Mid
1.78
3.28
0.02
3.02
0.40
0.0
(0.1)
0l0
(7)
55
OUE
Mid
1.57
8.09
2.97
4.59
0.21
0.6
0.6
17
14
1.5
Perennial RE
Mid
1.49
6.71
2.52
3.64
0.19
0.7
0.6
221
1
1.2
Ho Bee
Mid
1.44
4.29
1.39
2.79
0.08
0.5
0.5
9
8
21
Wingtai
Mid
1.31
4.71
1.13
3.34
0.97
0.3
0.0
89
13
0.3
Oxley
Mid
1.23
4.48
2.43
0.96
0.37
2.5
2.1
8
7
8.4
Bukit Sembawang
Mid
1.16
1.42
-
1.27
0.40
-
(0.3)
0.0
(4)
0.0
Fragrance
Mid
1.09
2.00
0.82
1.06
0.06
0.8
0.7
93
85
1.6
Roxy-Pacific
Mid
0.53
1.50
0.89
0.48
0.33
1.8
1.2
12
8
4.8
Chip Eng Seng
Small
0.39
2.18
1.17
0.75
0.46
1.6
0.9
12
7
5
Tuan Sing
Small
0.35
2.09
1.04
0.89
0.16
1.2
1.0
16
14
2.4
Hiap Hoe
Small
0.33
1.30
0.45
0.69
0.02
0.7
0.6
8
6
4.4
SingHaiyi
Small
0.30
0.95
0.30
0.47
0.12
0.6
0.4
-29
-17
-1.3
Heeton
Small
0.14
0.72
0.31
0.33
0.03
0.9
0.9
-85
-77
-0.2
TEE Land
Small
0.09
0.42
0.21
0.17
0.03
1.2
1.1
153
135
0.3
Total Debt/ Equity (x)
Net Debt/ Equity (x)
Average Sector
0.6
0.4
Average Large Cap
0.6
0.4
Average Mid Cap
0.7
0.5
Average Small Cap
1.1
0.9
*Large Cap denotes Market Cap > S$2.0bn, Mid-Cap Developers refer to those with market cap > S$0.5bn to less than S$2.0bn, Small Cap <S$0.5bn in market cap Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 28
Page 28
Industry Focus Singapore Developers & REITs
Bond markets issuances have increased in recent years. With strong investor demand for yields in recent years amidst the low interest rate environment, we have seen an increase in new bond issuances in Singapore. In the real estate space, we saw close to S$34bn of new issues over the past five years, which is more than 20% of the total amount of new bond issuances over the preceding five years. In the real estate sector, bond issuances peaked in 2011, and again reached new highs in 2012 and 2015. In 2015, bond issuances totalled S$8.7bn across the real estate sector. We also note that mid-sized developers have also been tapping the bond markets in recent years. A total of S$3.5bn worth of bonds will be due in 2017. Average cost of funds has also been falling over time, hovering at about 3% since 2008.
Figure 32: Bond issuances by developers peaked in 2015
9,000
4.0%
8,000
3.5%
7,000
We note that among the bonds due in 2017, developers like Guocoland and OUE will need to refinance expiring bonds. Developers such as OUE and Heeton’s existing cash balances and receivables may not be sufficient for repayment of bonds. Additional financing may be required in due time for bond repayments.
Figure 33: Bonds Expiry profile 4.5%
10,000 S $'m
S$3.4bn worth of bonds from developers due in 2017 that need to be refinanced. Continued access to funding is a key enabler to a healthy real estate development and investment market. However, recent bond defaults in the oil & gas space has resulted in heightened risk aversion among investors in bonds. In addition, the market for future bond issues appears to be shut for most aspiring issuers for now. If the current riskoff sentiment remains in the medium term, it might be a headwind for issuers in the real estate sector who need to refinance upcoming bond expires in 2017-2018 which total S$6.3bn, out of which S$4.0bn will be from real estate developers.
Developers
S$'BN
REITs
3.0% 3.2
6,000
2.5%
5,000 2.0%
4,000
1.5%
3,000
1.3
2,000
1.0%
1,000
0.5% 0.0%
0
0.8
2.9
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total amount issued (S$m)
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Average cost of debt
2017
1.2
1.5
1.3
3.6
6.0 1
2.1
0.9
2.6 1.1
1.2
2018
2019
1.4
0.7 2020
2021
2022
2023
0.9 2024
>20 24
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 29
Page 29
Industry Focus Singapore Developers & REITs
Figure 34. Selected property developers’ outstanding bonds, 2017-2018 (S$m) Issuer
Maturity
Amount Outstanding (S$'m)
SingHaiyi Group Ltd
Jan-17
100
Fragrance Group Ltd
Jan-17
85
OUE Ltd
Feb-17
300
City Developments Ltd
Feb-17
250
GLL IHT Pte Ltd (Guocoland)
Feb-17
160
UOL Group Ltd
May-17
75
Oxley Holdings Ltd
May-17
150
Jun-17
60
Jul-17
50
GLL IHT Pte Ltd (Guocoland)
Aug-17
170
Keppel Land Ltd
Aug-17
100
GLL IHT Pte Ltd (Guocoland)
Sep-17
105
Chip Eng Seng Corp Ltd
Oct-17
150
TEE Land Ltd
Oct-17
30
Heeton Holdings Ltd CapitaLand Treasury Ltd
Hongkong Land
Dec-17
50
City Developments Ltd
Mar-18
100
Perennial Treasury Pte Ltd (Perennial)
Mar-18
100
UOL Treasury Services Pte Ltd (UOL)
Apr-18
175
Global Logistic Properties Ltd
May-18
67
Jul-18
65
Centurion Corp Ltd Roxy-Pacific Holdings Ltd GLL IHT Pte Ltd (Guocoland)
Jul-18
60
Sep-18
75
Citydev Nahdah Pte Ltd
Sep-18
50
City Developments Ltd
Sep-18
50
Perennial Real Estate Holdings Ltd
Oct-18
300
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 30
Page 30
Industry Focus Singapore Developers & REITs
5.
Singapore REITs: Déjà vu Key Assertions Back to square one with REITs facing expectations of rising interest rates Some buffer with yield spreads at average levels even after accounting for 3% 10-year bond yield Combination of growth and/or large discount to book best positioned to ride out 2017 Large-cap picks: A-REIT, KREIT, MCT, Mid-cap picks: CRT, FLT, KDCREIT
Negative 2016 outlook for S-REITs fails to materialise until towards later half of the year. At the end of 2015 after the first rate hike by the US Federal Reserve in December 2015, the market was pricing in three rate hikes. These expectations resulted in S-REITs correcting in January 2016. However, as the year progressed, the impact of (1) negative interest rates in Europe and Japan, (2) further correction in oil prices, (3) disappointing nonfarm payroll data in May, and (4) uncertainty caused by Brexit, caused expectations for rate hikes to be dialed back significantly. Consequently, the S-REIT index (excluding dividends) rallied by 11% till early September, outperforming the 0.4% rise in the STI and 2% fall in the property developers index. However, with an improving US economy causing interest expectations to rise, further accelerated by the victory by President-Elect Trump on 8 November 2016, the S-REIT index fell by 8%, underperforming the 0.4% and 0.3%% drop in both the STI and developers index. DBS more hawkish on interest rates means S-REITs performance to be capped. Going into 2017, consensus expectations are for three rate hikes with our DBS economists being more hawkish, forecasting the US Federal Reserve to increase the Fed Funds rate by 25bps once every quarter next with the US 10-year bond yield rising to 3.25% versus current spot rate of 2.3% and consensus forecasts of 2.5%. The Singapore 10-year bond yield is also expected to increase in tandem to 3.05%. Should our DBS house view come to fruition, we believe the performance of S-REITs will likely be capped. Deteriorating rental outlook for most real estate subsectors. Revenues across the office, retail, industrial and hospitality sectors were under pressure in 2016 due to a combination of sluggish demand as well as increase in physical completions and anticipated supply. Demand for the more cyclical sectors office, hotel and industrial sectors were also negatively
ASIAN INSIGHTS
impacted by the uncertain economic environment. Meanwhile, the retail sector was affected by Singaporeans spending their disposable income overseas and shopping online. Going into 2017, we believe these negative trends are likely to continue, resulting in a modest 1.1% growth in DPU for the sector. Current forward yields offer some buffer with yield spread at average levels assuming a normalised 10-year yield of 3.0%. While S-REITs are likely to face headwinds in the form of falling rents and rising interest rates, we believe the recent correction has provided some downside buffer. The current FY17F yield spread to a normalised 3% bond yield stands at 4.0% which is slightly above the historical average spread of 3.8% and close to the 4.1% average since 2010. Full impact on DPU from rise in interest rates will not be felt immediately. While investors are rightfully concerned about the impact of an increase in interest rates on DPU, based on our analysis, the full impact will only be felt over the course of the next two to three years. This is because S-REITs in general have hedged 75-85% of their debt into fixed rates and have only 9%, 21% and 20% of total debt up for refinancing over 2017, 2018 and 2019 respectively. We estimate that a 1% rise in interest rates will have a 2.9% and 4.9% impact on distributions in 2017 and 2018 respectively. Sector preferences – (1) Office, (2) Retail, (3) Industrial, and (4) Hospitality. In terms of sectors, our preference is for the office REITs despite the expected decline in office rents given that the sector trades at 20% discount to book value and 10-30% discount to recent market transactions. In addition, we think the sector remains under-owned relative to other sectors. Our second preference is the retail sector for its resilient income stream (i.e. exposure to suburban necessity shopping malls) and the fact that it now trades close to 1x P/BV versus the sector’s typically 10-20% premium to book value. The industrial sector's third ranking is mainly attributed to our positive view on the larger REITs such as Ascendas REIT which offer a combination of strong balance sheets, decent yields and growth options. While we see long-term value in the hospitality sector given that the sectors trades at 20-40% discount to book, we believe there is limited re-rating catalyst at least for 1H17 as RevPAR is expected to remain under pressure. However, we recommend that investors look for opportunities to re-enter in 2H17 on the
VICKERS SECURITIES
Page 31
Page 31
Industry Focus Singapore Developers & REITs
back of a potential recovery in 2018 as the oversupply situation in Singapore normalises. Stocks with growth and/or trading at a discount to recent market transactions/book to outperform. With a challenging 2017 to come, we believe REITs with a clear and visible growth driver will do well. On that front in the large-cap space, Mapletree Commercial Trust (MCT) stands out given its DPUaccretive acquisition of Mapletree Business City Phase I which is under-rented as well as continued growth at its core asset Vivocity. We also believe the risk reward for Ascendas REIT (AREIT) is favorable given its exposure to the business park space which is supply constrained. Moreover, AREIT will be under geared balance sheet post conversion of the outstanding convertible bonds next year which will allow AREIT to further deepen its presence in Australia through acquisitions.
Figure 35: Price performance of Singapore REITs vs Singapore Developers and STI Index
+12%
1.15 1.10 1.05 1.00 0.95 0.90 0.85 0.80 0.75
In the mid-cap space, Frasers Logistics and Industrial Trust (FLT) and Keppel DC REIT (KDCREIT), with inbuilt annual rental escalations and the ability to deploy their lowly geared balance sheets, offer visible growth in DPU. Growth in DPU is also evident at Croesus Retail Trust (CRT) which will benefit from favorable hedges, with additional upside should it be taken over. Finally, our top pick for stocks that trade at a discount relative to book and recent market transactions is Keppel REIT (KREIT). The implied value for KREIT’s Singapore portfolio on a per sqft basis stands at S$2,250 versus recent market transactions of S$2,700 and above, and it trades at 0.76x P/BV.
Figure 36: S-REIT yields and yield spread chart 14% Sector Yield spread
12%
Sector Yield
10%
MAS 10 Year
8% 6% 4% 2% 0%
FSTREI (ex dividend)
STI Index
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Developers Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 32
Page 32
Industry Focus Singapore Developers & REITs
Key Issues in 2017 With a sense of déjà vu, as we approach 2017, we are faced with the similar issues confronting investors at the start of 2016 and 2015. These include risk of rising interest rates, slowing growth, higher cost of capital potentially constraining the ability to raise capital to fund growth plans, and heightened risk of write-downs of property values given falling rents. With economic outlook now softer than at the start of 2015 and 2016, we believe that S-REITs with stronger relative growth will command an increasing premium. In addition, SREITs which offered resiliency in the past and trade at a premium but are now only able to offer flattish DPU growth might be vulnerable, given rising risks of earnings disappointment. Key themes in 2017 are as follows:
5.1
Impact of an increase in interest rates on share price, distributions
DBS economists project interest rates to rise faster than consensus. We believe investors’ attention is now focused on the pace of interest rates in 2017. Thus far, consensus is expecting three rate hikes with the US 10-year bond yield forecast to rise to 2.5-2.6%. With share prices for S-REITs having already corrected in anticipation of this outcome, we believe S-REITs will likely deliver steady returns. In contrast, the more hawkish forecasts by our DBS economists, who anticipate four rate hikes (25bps once a quarter), would take the Fed funds rate to 1.5% by end-2017, the US 10-year bond yield to 3.25% and the Singapore 10-year bond yield to 3.05%. Under our house view, the overall performance of S-REITs will likely to capped. Figure 37: DBS Interest Rates Forecasts Current (8 Dec'16)
1Q17F
2Q17F
3Q17F
4Q17F
But expectations could be dialled back again. While the market remains focused on rate hikes, there is a possibility that 2016 could repeat again, with interest rate expectations being reduced. This could arise from the European Central Bank (ECB) and Bank of Japan’s (BOJ) decision to push interest rates further into negative territory and concerns over the potential breakup of the Euro on the back of victories by nationalist parties in several European elections next year. Furthermore, the policies actually implemented by President-elect Trump may not be as inflationary as first thought and/or concerns over impact on curtailment of global trade/economies weigh more on long-term bond yields. Potential return of capital to the US a headwind (Figure 38). The SGD strengthened against the USD between 2009 and 2013, when the US Federal Reserve implemented three rounds of quantitative easing. During this period, the carry trade was prevalent with USD-based investors taking advantage of the stronger SGD by taking positions in yield instruments including S-REITs. This resulted in the FSTREI Index rallying c.44% to its peak in May 2013. However, with the end of the quantitative easing by the US Federal Reserve and the interest rate up cycle commencing from December 2015, the FSTREI Index has become more volatile, moving in sync with changes in interest rate expectations and movements in the USD. Going forward, should US interest rates continue on an aggressive path upwards, in line with our DBS economists view, capital from Asia would likely return back to the US, presenting a headwind to the performance of S-REITs.
Figure 38: Singapore REITs vs currency 1,200
P e riod when stre ngthening S GD a tailwind
1,000
US 10Year Bond
2.35%
2.65%
2.85%
3.05%
3.25%
US 2-year bond
1.10%
1.50%
1.70%
1.90%
2.10%
600
US yield Curve
1.25%
1.15%
1.15%
1.15%
1.15%
400
SG 10 year bond
2.34%
2.65%
2.75%
2.85%
3.05%
SG 2-year bond
1.17%
1.50%
1.65%
1.80%
1.95%
SG Yield Curve
1.17%
1.15%
1.10%
1.05%
1.10%
We a ker S GD a pote ntial he a dwind
800
1.70 1.60 1.50 1.40 1.30 1.20
200
1.10 1.00
-
FSTREI Index (LHS)
USDSGD Rate (RHS)
Source: Bloomberg Finance L.P., DBS Bank Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
1.80
VICKERS SECURITIES
Page 33
Page 33
Industry Focus Singapore Developers & REITs
Yield spread below historical averages assuming normalised 3.05% yield. The current FY17F yield spread to the spot 10year bond yield stands at 4.7% which is above the historical average spread of 3.8% and 4.1% average since 2010. However, assuming a normalised 3.05% bond yield, the yield spread will drop to 4.0% which will be in line with its historical mean. This implies that current share prices have priced in rates inching back to normalised levels.
REITs in general may face some volatility. However, we believe S-REITs with clear visible growth drivers have the potential to experience a compression in yield spread, with absolute yields stable or even compressing. This would be similar to the experience during the last interest rate up-cycle. Using Capital Mall Trust (CMT) as an example, from 2004-2007, CMT’s yield spread fell from over 4% to 0.4% in mid-2007, while the US Federal Reserve raised the Fed Funds Rate from 1% to a peak of 5.25%, and CMT generated annual DPU growth in excess of 7%.
Potential for yield spreads for REITs with growth to compress during rising interest rate environment. Assuming the long bond yield spikes to 3.05% by end-2017, share prices of S-
Figure 39: CMT experienced a compression in interest rates during an up-cycle in interest rates 6.0%
20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%
Increase in interest rates
5.0% 4.0% 3.0% 2.0% 1.0%
Fall in yield spread
0.0%
CMT yield spread (LHS)
SG 10 year bond yield (LHS)
US Fed Funds Rate (LHS)
y-o-y DPU growth (RHS)
Source: Bloomberg Finance L.P., Thomson Reuters, DBS Bank
Figure 40: Forward S-REIT yield spread at a new normal
6.0% Sector Yield spread
5.5%
+ 2 SD
5.0% + 1 SD 4.5% M ean
4.0%
- 1 SD
3.5% 3.0%
- 2 SD
2.5%
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 34
Page 34
Industry Focus Singapore Developers & REITs
Figure 41. Historical S-REIT yield and S-REIT yield spread (2005-current) Period
Years
10 Year bond (%)
S-REIT Yields (%)
S-REIT Yield Spreads (%)
2005
2.9%
4.8%
2.1%
“High Growth”
2006
3.4%
5.0%
1.6%
2007
2.9%
4.1%
1.2%
“Aberration in valuations due to the GFC”
“Liquidity driven recovery”
2008
2.8%
7.3%
4.5%
2009
2.3%
9.6%
7.3%
2010
2.4%
6.3%
3.9%
2011
2.2%
6.4%
4.2%
2012
1.5%
6.5%
5.0%
2013
2.0%
5.8%
3.8%
2014
2.4%
6.2%
3.8%
2015
2.4%
6.3%
3.9%
Comments
2006-2008 was a period of high growth for the S-REITs where average distribution growth was c.13% over 2006-2008. Key catalysts were acquisitions Yield spread expanded to >5.1% due to financial crisis
Post-global financial crisis period, the sector saw yield compression in 20122013 before the Fed hinted of rate hikes in mid-2013
Periods 2005-cuurent
2.5%
6.2%
3.8%
2006-2008
3.0%
5.4%
2.4%
2010-current
2.1%
6.3%
4.1%
Forward Current (FY17F)
2.3%
7.0 %
4.7%
Forward(FY17F)
3.0%
7.0%
4.0%
Source: Bloomberg Finance L.P. Finance L.P, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 35
Page 35
Industry Focus Singapore Developers & REITs
Figure 42. Implied share price based on average yield spread and normalised 3.05% 10-year bond yield Yield (-1SD)
Forward DPU (Scts)
Current Price (S$)
Current Forward Yield
Implied Yield (Average Yield Spread + 3.05%)
7.2% 6.5% 8.1% 7.8%
5.4% 5.1% 6.7% 6.2%
6.5 9.3 5.2 9.8
1.020 1.505 0.695 1.270
6.1% 6.1% 7.7% 7.7%
7.1% 6.7% 8.1% 7.9%
0.92 1.39 0.64 1.24
-11% -9% -7% -2%
6.8% 5.3% 9.4% 5.3% 5.6%
7.4% 5.7% 10.1% 5.7% 5.9%
6.1% 4.9% 8.7% 4.9% 5.3%
10.5 11.2 7.5 11.8 5.7
1.385 1.930 0.850 1.930 0.955
7.6% 5.7% 9.0% 6.0% 5.9%
7.6% 6.2% 10.1% 6.8% 6.3%
1.38 1.81 0.74 1.74 0.90
-1% -7% -13% -11% -7%
3.8% 4.8% 4.4% 4.2%
5.8% 7.1% 6.6% 6.3%
6.4% 7.7% 7.1% 7.3%
5.3% 6.4% 6.0% 5.3%
8.7 7.2 5.2 10
1.415 0.945 0.755 1.650
6.0% 7.4% 6.9% 5.9%
6.8% 7.8% 7.4% 7.2%
1.28 0.92 0.70 1.39
-12% -3% -8% -16%
Hospitality ART ASCHT CDREIT FEHT FHT OUEHT
5.1% 5.4% 4.8% 4.0% 5.2% 4.9%
7.2% 7.5% 6.9% 6.2% 7.5% 7.2%
7.9% 8.4% 7.8% 6.9% 7.8% 7.8%
6.5% 6.6% 6.0% 5.5% 7.1% 6.5%
8.1 5.5 8.9 4 5 4.5
1.155 0.700 1.360 0.595 0.645 0.685
7.1% 7.9% 6.8% 6.8% 9.6% 6.9%
8.1% 8.4% 7.8% 7.0% 8.2% 7.9%
1.00 0.65 1.14 0.57 0.61 0.57
-14% -8% -17% -5% -6% -16%
Industrial AIMS a-itrust A-REIT Cache CREIT FLT MINT MLT SBREIT
6.3% 4.7% 4.2% 5.9% 5.9% 5.0% 5.1% 5.0% 5.8%
8.5% 6.8% 6.3% 8.0% 8.0% 6.9% 7.2% 7.1% 8.1%
9.8% 7.4% 6.8% 8.9% 9.3% 7.2% 7.7% 8.2% 8.8%
7.1% 6.2% 5.9% 7.2% 6.8% 6.7% 6.7% 6.0% 7.5%
11.3 5.9 15.7 7.5 4.2 6.6 11.3 7.2 6.1
1.310 1.010 2.310 0.815 0.540 0.940 1.645 1.020 0.655
8.7% 5.6% 6.7% 9.2% 7.8% 7.2% 6.9% 7.1% 9.5%
9.3% 7.7% 7.2% 8.9% 8.9% 8.0% 8.1% 8.0% 8.8%
1.22 0.77 2.18 0.84 0.47 0.83 1.40 0.90 0.69
-7% -25% -7% 3% -14% -13% -15% -13% 5%
Healthcare P-Life
3.3%
5.4%
6.0%
4.9%
12.2
2.390
5.0%
6.3%
1.94
-19%
Others IREIT KDCREIT MUST
6.3% 3.9% 4.9%
8.6% 6.1% 6.9%
9.2% 6.7% 7.2%
7.9% 5.5% 6.6%
6.3 7.2 6
0.720 1.200 0.835
8.8% 5.8% 7.3%
9.3% 6.5% 7.9%
0.68 1.11 0.80
-6% -10% -5%
Avg Yield Spread
Avg Yield
Yield (+1SD)
Office KREIT CCT OUECT FCOT
4.1% 3.7% 5.1% 4.9%
6.3% 5.8% 7.4% 7.0%
Retail CRCT CMT CRT FCT SPH REIT
4.6% 3.2% 7.1% 3.8% 3.3%
Commercial MCT MAGIC SGREIT Suntec
Implied Share Price (S$)
Upside / downside from current share price
Green boxes denote downside limited to <5% Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 36
Page 36
Industry Focus Singapore Developers & REITs
Impact of interest rates on distributions Still some breathing room as impact of interest rates will be felt over time. While interest rates are anticipated to rise next year, the majority of S-REITs have hedged 75-85% of their borrowings and with a weighted average debt maturity of 2-3 years. For FY17, on average about 9% of debt is due to be refinanced, thus the full impact from higher costs of borrowings will not be felt in 2017 but over the next few years. In addition, the impact from a rise in interest rates is likely to be felt by the REITs which predominantly borrow in SGD. In contrast, REITs with exposure to European, Japanese and Australia assets with commensurate debt in EUR, JPY and Australia, may even report declining or face a slower
increase in borrowing costs as they refinancing their debt. This is due to current interest rates in Europe, Japan and Australia being lower than when the REITS first borrowed in the respective local currencies. Assuming a 1% lift in the cost of borrowing above our current estimates (we have already assumed up to a 25-bp increase in cost of debt compared to FY16) and the impact only occurs when the various S-REITs refinance 9% and 21% of all loans outstanding in 2017 and 2018 respectively, as well as only impacting the current outstanding floating rate debt, we estimate up to 2.9% and 4.9% impact on FY17F and FY18F overall S-REIT DPU respectively.
Figure 43. Potential impact on DPU with 1% increase in interest rates REIT Ascendas Hospitality Trust Ascendas India Trust Ascendas REIT Ascott Residence Trust Cache Logistics Trust Cambridge Industrial Trust CapitaLand Commercial Trust* CapitaLand Mall Trust* CapitaLand Retail China Trust CDL Hospitality Trust Croesus Retail Trust Far East Hospitality Trust Frasers Centrepoint Trust Frasers Commercial Trust Frasers Hospitality Trust Frasers Logistics & Industrial Trust IREIT Global Keppel REIT* Keppel DC REIT Manulife US REIT Mapletree Commercial Trust Mapletree Greater China Commercial Trust Mapletree Industrial Trust Mapletree Logistics Trust OUE Commercial REIT OUE Hospitality Trust Parkway Life REIT Soilbuild Business Space REIT SPH REIT Suntec REIT* YTL Starhill Global REIT Total S-REIT Debt
Percentage Fixed rate debt (%)
Percentage floating rate debt (%)
Percentage of debt ue for refinancing (%) 2017 2018 31 37 11 12 6 22 13 11 14 43 0 29 5 16 7 16 43 10 0 35 14 41 30 28 30 8 24 24 14 15 0 0 12 0 0 14 1 44 0 0 2 2
97 100 78 80 64 88 80 90 53 60 100 71 59 85 86 84 88 74 86 100 74
3 22 20 36 12 20 10 47 40 29 41 15 14 16 12 26 14 26
85
15
9
69 81 78 68 98 88 86 60 96 77
31 19 22 32 2 12 14 40 4 23
1 1 27 0 0 0 0 3 35 9
Change in DPU FY17F -2.8% -0.6% -2.2% -4.9% -3.9% -1.1% -3.0% -1.5% -9.6% -3.7% -1.8% -6.6% -4.8% -3.7% -2.7% -0.9% -1.8% -4.0% -0.6% 0.0% -2.5%
FY18F -5.6% -1.4% -3.8% -6.4% -7.2% -4.0% -4.7% -2.9% -10.7% -6.6% -6.3% -9.1% -5.2% -6.0% -4.0% -0.8% -1.8% -6.1% -2.4% 0.0% -2.6%
29
-2.8%
-6.1%
9 15 49 34 14 33 38 37 28 21
-3.3% -2.2% -9.1% -3.4% -0.2% -0.9% -0.8% -5.0% -3.8% -2.9%
-4.0% -3.8% -18.9% -6.8% -1.4% -3.2% -3.0% -9.2% -6.2% -4.9%
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 37
Page 37
Industry Focus Singapore Developers & REITs
S-REIT debt maturity profile Figure 44. Debt Expiry Profile
Figure 45. S-REIT debt by sector
S$bn
14.0
29.7%
30.0%
12.0 10.0
21.3%
20.4%
8.0 6.0
0.0
20.0% 15.0% 10.0% 5.0%
1.1% 2016
0.0% 2017
Industrial 27%
Retail 24%
25.0%
18.6%
8.8%
4.0 2.0
Healthcare 3%
35.0%
2018
2019
2020
Office 33%
Hospitality 13%
>2020
Source: Bloomberg Finance LLP, DBS Bank
Source: Bloomberg Finance LLP, DBS Bank
Figure 46. Debt maturity profile for individual S-REITs (%) REIT AIMS AMP Capital Industrial REIT Ascendas Hospitality Trust Ascendas India Trust Ascendas REIT Ascott Residence Trust Cache Logistics Trust Cambridge Industrial Trust CapitaLand Commercial Trust* CapitaLand Mall Trust* CapitaLand Retail China Trust CDL Hospitality Trust Croesus Retail Trust Far East Hospitality Trust First REIT Frasers Centrepoint Trust Frasers Commercial Trust Frasers Hospitality Trust Frasers Logistics Trust IREIT Global Keppel REIT* Kepple DC REIT Manulife US REIT Mapletree Commercial Trust Mapletree Greater China Commercial Trust Mapletree Industrial Trust Mapletree Logistics Trust OUE Commercial REIT OUE Hospitality Trust Parkway Life REIT Religare Health Trust Soilbuild Business Space REIT SPH REIT Suntec REIT* YTL Starhill Global REIT Total S-REIT Debt
Total Debt (S$bn) 0.61 0.54 0.40 3.37 1.98 0.53 0.53 3.28 3.84 1.00 0.93 0.78 0.82 0.46 0.73 0.75 0.80 0.52 0.30 3.32 0.34 0.30 2.34 2.42 2.11 2.05 1.28 0.86 0.68 0.18 0.47 0.85 2.99 1.14 44.37
2016 0% 4% 0% 10% 0% 0% 0% 0% 0% 4% 0% 0% 5% 0% 0% 0% 0% 0% 0% 0% 9% 0% 0% 0% 0% 0% 0% 0% 2% 0% 0% 0% 0% 1% 1.1%
2017 0% 31% 11% 6% 13% 14% 0% 5% 7% 43% 0% 14% 30% 31% 30% 24% 14% 0% 12% 0% 1% 0% 2% 9% 1% 1% 27% 0% 0% 5% 0% 0% 3% 35% 8.8%
2018 31% 37% 12% 22% 11% 43% 29% 16% 16% 10% 35% 41% 28% 34% 8% 24% 15% 0% 0% 14% 44% 0% 2% 29% 9% 15% 49% 34% 14% 54% 33% 38% 37% 28% 21.3%
2019 40% 0% 21% 15% 8% 34% 19% 21% 13% 18% 24% 14% 12% 26% 16% 28% 70% 34% 49% 28% 38% 36% 12% 16% 26% 16% 22% 31% 31% 35% 6% 15% 27% 9% 20.4%
2020 13% 28% 20% 16% 15% 10% 30% 37% 12% 10% 20% 17% 0% 9% 10% 10% 0% 32% 39% 23% 8% 23% 19% 16% 30% 14% 0% 34% 27% 7% 39% 33% 10% 15% 18.6%
>2020 16% 0% 36% 31% 53% 0% 21% 20% 53% 15% 22% 14% 24% 0% 36% 13% 0% 34% 0% 36% 0% 41% 65% 30% 34% 54% 2% 0% 27% 0% 21% 15% 22% 12% 29.7%
Source: Various REITs, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 38
Page 38
Industry Focus Singapore Developers & REITs
5.2
Moderating DPU performance
Grinding out DPU growth in 2017. On the back of an increasingly uncertain economic environment, supply pressures across various property segments and an uptick in borrowing costs, delivery of DPU growth will increasingly become more challenging in 2017. Nevertheless, we still expect S-REITs in general to grind out a 1.1% y-o-y growth in DPU. This is marginally higher than 0.4% DPU growth in FY16, which was partially impacted by several rights issues, predominantly in the hospitality sector. The slightly higher growth in 2017 is also a function of a low-base effect from a fairly challenging 2016 This came from several industrial REITs facing lower rents on the renewal of master leases and/or loss of income from the conversions of single-tenanted buildings to multi-tenanted buildings. Figure 47: Office/Commercial REITs forecasted to deliver strongest growth in DPUs
However, the office/commercial sector provides the strongest DPU growth in 2017. This is largely due to stronger performances from CCT and MCT which will benefit from the full-year contribution from the acquisitions of CapitaGreen and Mapletree Business City respectively. Despite the headwinds in 2017, there are several REITS with attractive growth prospects next year. These include CCT, MCT, AIT, CRT, OUEHT and KDCREIT.
Figure 48: DBSV forecasts vs consensus estimates
-1.3% Hospitality
-6.7%
-1.3%
Industrial
Singapore Retail
0.5% 1.2%
Singapore Retail
Retail
1.1% 1.2%
Retail
Office/ Commercial
1.3%
FY17/18
-4.0%
-2.0%
Source: Bloomberg Finance LLP, DBS Bank
0.0%
2.0%
1.2%
0.5%
-2.0%
-1.0%
2.3%
1.1% 1.3%
S-REITs
4.0%
2.5%
0.8%
-0.2% Office/ Commercial
2.5%
1.1% 0.4%
S-REITs
FY16/17 -6.0%
-0.7%Hospitality
0.8% 0.0%
Industrial
-8.0%
Meanwhile, the slowdown for the retail sector is largely due to CMT and FCT being in a transition as they embark on the redevelopment of Funan and Northpoint respectively. For the office/commercial sector, DPU growth is expected to moderate on the back of the decline in office rents.
0.0%
1.1% 1.0%
1.5%
Consensus FY17/18
2.0%
Source: Bloomberg Finance LLP, DBS Bank
Figure 49: Selected S-REITs offer strong growth profiles REIT
Sector
Sector Growth
Growth driver
1.3%
FY16-17F DPU growth 3.7%
CCT
Office
MCT
Office/ Commercial
1.3%
2.5%
Acquisition of Mapletree Business City
AIT CRT
Industrial
0.8%
8.1%
New developments and acquisition of BlueRidge Phase II
Retail (Japan)
1.1%
8.7%
Hospitality
-1.3%
5.0%
KDCREIT
Data-centre (industrial)
0.8%
5.0%
Improved SGD/JPY hedge rate Acquisition of Crown Plaza Changi Airport Extension, opening of Michael Kors and Victoria Secret store and lowbase effect Acquisition of data centres in Milan and Singapore
OUEHT
MUST
Office (USA)
1.3%
7.8%
Improvement in US office market
Acquisition of 60% remaining interest in CapitaGreen
Source: Various REITs, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 39
Page 39
3.0%
Industry Focus Singapore Developers & REITs
5.3 Potential risk to property values in the industrial and hospitality sectors Capital values most resilient for office and retail sector. Cap rates have generally been compressing over the past few years due to low interest rates and ample liquidity boosting transactions velocity and value. Looking ahead, with projected decline in rents and RevPAR for the industrial and hotels in 2016, there is potential downside to the capital values for some industrial and hospitality REITs. While rents for the office and retail sector are under pressure near term, we expect capital values to remain steady, given abundant liquidity chasing both these asset classes. This can be seen by recent office transactions such as the sale of Asia Square Tower 1 and Straits Trading Building for approximately S$2,700 and S$3,500 per sqft respectively. In addition, the implied price for the Central Boulevard land tender made by IOI Properties was over S$3,000 per sqft.
For retail space, CityVibe at Clementi was sold at a net yield of slightly above 4% while vendors for Jurong Point is seeking to sell the mall for over S$2bn at a sub-4% net yield. The values ascribed to these transactions are in line or above the valuations of the properties of the various office and retail REITs. Figure 50: Implied price per sqft of NLA for Singapore portfolio on completed basis REIT
Price (S$)
CCT KREIT OUECT Suntec
1.505 1.020 0.695 1.650
Total attributable SG NLA (m sqft) 3.1 2.6 1.0 2.4
Implied psf (S$) 1,850 2,250 2,320 2,050
*Calculated as EV less value of non Grade A office properties divided by attributed property
Figure 51: Recent office transactions Date
Property
Location
Land tenure
Aug-14
Equity Plaza
Raffles Place
74 years remaining
Net Lettable Area (sq ft) 252,135
Price ($)
Price per NLA (S$)
550,000,000
2,181
Jul-14
Anson House
82 years remaining
76,362
172,000,000
2,252
Sep-14
MBFC Tower 3
Tanjong Pagar Area Marina Bay
92
447,327
1,248,000,000
2,790
Jan-15
AXA Tower
Tanjong Pagar
66.5 remaining (2015)
675,000
1,170,000,000
1,733
Jun-15
One Raffles Place
Raffles Place
99/FH
600,000
1,429,166,667
2,382
Nov-15
CPF Building
79 Robinson Road
99 LH (2067)
324,000
550,000,000
1,698
May-16
Remaining 60% interest in CapitaGreen
Raffles Place
57 remaining expiring 31Mar2073
703,122
1,600,500,000*
May-16
Straits Trading Building
9 Battery Road
999 LH
158,897
560,000,000
2,276 (2,700 assuming 99 year leasehold) 3,524
Jun-16
Asia Square Tower 1
Marina Bay
99 LH from 2007
1,200,000 sqft office & 40,000 sqft retail
3,400,000,000
2,668
*Based on 100% equity interest Source: Various press reports, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 40
Page 40
Industry Focus Singapore Developers & REITs
Figure 52: Cap rates for office 4.2%
(%)
4.0%
Remarks
4.1%
Transaction cap rates have compressed down to low-3.0% level as demand for
3.9%
quality offices remain high due to
3.8% 3.6%
foreign investors willing to price in a
3.8%
3.6%
recovery of the sector in the medium
3.6%
term.
3.4%
More transactions in the pipeline could 3.3%
3.2%
mean that cap rates in the interim will likely remain stable.
3.0% Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Source: URA, DBS Bank
Figure 53: Cap rates for retail sector 6.4% 6.2%
(%)
Remarks
6.1%
Cap rates have also been compressing over time and is now close to 70bps
6.0%
below the peak of 6.1% back in 2009.
5.8%
5.7%
Transactions in the retail sector is mainly
5.7%
5.8%
driven by related party deals – Sponsors
5.6%
divesting the malls to their REITs.
5.4%
5.4%
5.4%
5.2%
5.3%
Cap rates expected to remain steady or even compress depending on the potential sale of Jurong Point Mall in
5.0%
2017.
4.8%
Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
Source: URA, DBS Bank
Figure 54: Cap rates for industrial sector 7.6%
7.5%
(%)
7.4%
Remarks Cap rates for factory and warehouse space have compressed over time to a
7.3%
7.2%
peak back in 2013. Since then, it has
7.1%
7.0%
6.9% 6.8%
6.8%
Any downside to valuations are likely due to unforeseen increase in vacancy
6.4% Factory
6.4%
6.2% 6.0% Mar-2009
stable since.
6.7%
6.5%
6.6%
expanded slightly but remained fairly
Warehouse Mar-2010
Mar-2011
Mar-2012
Mar-2013
Mar-2014
Mar-2015
rates from property conversions (singleuser to multi-user) properties.
Mar-2016
Source: URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 41
Page 41
Industry Focus Singapore Developers & REITs
5.4 Acquisitions may be difficult to execute with redevelopments an attractive option Slowdown in acquisitions in 2016.At the end of 2015, we expected the high cost of equity to potentially constrain the ability of S-REITs to raise equity to fund acquisitions. This partially came to fruition with total announced acquisitions dropping 16% y-o-y to S$6.2bn. The most active sectors were the Industrial (S$3.0bn), followed by Office/Commercial (S$1.9bn) and Hospitality (S$0.8bn). Notable transactions include MCT’s purchase of Mapletree Business City Phase I (S$1.8bn), CCT’s acquisition of the remaining 60% interest in CapitaGreen (S$1.6bn) and CRCT’s purchase of Galleria Mall (S$0.3bn).
acquisitions worth S$861m as industrial REITs such as AREIT, FLT and MLT sought freehold properties with annual rental escalations. Suntec and FHT also bought a 25% interest in Southgate, Melbourne (S$289m) and Novotel Melbourne (S$246m) respectively. In 2016, the S-REIT sector made its maiden acquisition in Italy with KDCREIT’s purchase of a data centre in Milan. S-REITs increased the number of assets sold from S$306m in 2015 to S$555m in 2016 as AREIT exited China and redeployed its capital to Australia, while RHT sold its 51% economic interest in its Gurgaon property given the inability of the trust to obtain the necessary regulatory approval to buy a direct 51% equity interest in the hospital.
In terms of country allocation, Singapore returned as the primary market (66% of total acquisitions worth S$3.8bn) for acquisitions. This was mainly driven by the purchase of Mapletree Business City Phase I and 60% interest in CapitaGreen. Australia remains a popular destination with total
Meanwhile, the share of properties acquired from the S-REITs' sponsors jumped to 72% in 2016 from 49% in 2015 as MCT and CCT bought from their respective sponsors. Stripping out these two transactions, the majority of acquisitions were made from third parties.
Figure 55: Acquisition value marginally down
Figure 56: Acquisitions were mainly Singapore-centric
8,000
S $' m
2015
7,000 6,000
Singapore
Others
5,000
Indonesia
4,000
Australia
3% 14%
3,000
Singapore
1,000 2013
2014
2015
2016
Figure 57: Industrial REITs remain most active
Healthcare 2016 2015
Industrial
2014 Retail
2013 2012
Office/Commercial
S$m 0
2,000
4,000
Source: Various REITs, DBS Bank
ASIAN INSIGHTS
6,000
Others
Australia Indonesia Others
Figure 58: Sponsor remains key source of acquisitions in 2016
Total
Hospitality
6%
Japan 66%
Indonesia 5% 3%
Source: Various S-REITs, DBS Bank
Singapore
15%
Australia 2%
38%
0 2012
8%
China
Japan
China
2,000
3%
China 36%
Japan
2016
8,000
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
49%
43%
51%
57%
2013
2014
68%
32% 2012
Sponsor/Strategic partner
28% 51%
72% 49%
2015
2016
3rd party
VICKERS SECURITIES
Page 42
Page 42
Industry Focus Singapore Developers & REITs
Figure 59: Announced acquisitions by S-REITs in 2016 REIT
Property
Country
Sector
LMRT LMRT FIRT ART AIT P-Life CRT FHT CRT CCT MLT MLT SBREIT MCT OUEHT Suntec KDCREIT CRCT FLT
Lippo Mall Kuta Lippo Plaza Jogja Siloam Hospitals Yogyakarta Sheraton Tribeca New York Hotel Building at CyberVale, Chennai Silver Heights Hitsujigaoka Ichiban-kan & Niban-kan Fuji Grand Natalie Maritim Hotel Dresden, Germany Mallage Saga and Feeeal Asahikawa Remaining 60% interest in CapitaGreen Four dry warehouse facilities located in Sydney, NSW, Australia Mapletree Shah Alam Logistics Park Bukit Batok Connection Mapletree Business City (Phase 1) Crowne Plaza Extension Southgate Complex Data Centre in Milan, Italy Galleria 111 Indian Drive, Keysborough, Melbourne & Lot 1 Pearson Road, Yatala, Brisbane (Call option properties) Novotel Melbourne on Collins, Australia 197-201 Coward Street, Sydney & Stage 4, Power Park Estate, Dandenong South, Melbourne Mapletree Logistics Park Phase 2, Vietnam Keppel DC Singapore 3 Siloam Hospitals Labuan Bajo 2 Science Park Properties 4 warehouses in Australia
Indonesia Indonesia Indonesia US India Japan Japan Germany Japan Singapore Australia Malaysia Singapore Singapore Singapore Australia Italy China Australia
Retail Retail Healthcare Hospitality Industrial Healthcare Retail Hospitality Retail Office Industrial Industrial Industrial Industrial/Office Hospitality Office/Retail Industrial Retail Industrial
Australia Australia
Hospitality Industrial
245.9 170.8
3rd Party 3rd Party
Vietnam Singapore Indonesia Singapore Australia
Industrial Industrial Healthcare Business Park Industrial Total Industrial Retail Office Hospitality Healthcare
20.6 141.0 20.0 420.0 151.9 5,696 3,162 393 1,277 551 313
Sponsor Related Sponsor Related Sponsor Related Sponsor Related 3rd Party
Country India
Sector Healthcare
Value (S$m) 299.8
Buyer Sponsor Related
Singapore China Indonesia Philippines Singapore Japan
Industrial Industrial Healthcare Hospitality Industrial Healthcare
27.0 228.1 35.7 7.2 25.5 48.9
3rd Party 3rd Party Sponsor Related 3rd Party 3rd Party 3rd Party
FHT AREIT MLT KDCREIT FIRT AREIT MLT
Value (S$m) 81.6 51.0 40.8 218.0 13.2 13.6 40.2 90.4 74.5 960.0 84.4 53.2 96.3 1,780.0 205.0 289.0 57.3 304.9 71.2
Vendor Sponsor Related Sponsor Related Sponsor Related 3rd Party 3rd Party 3rd Party 3rd Party 3rd Party 3rd Party Sponsor Related 3rd Party Sponsor Related Sponsor Related Sponsor Related Sponsor Related 3rd Party 3rd Party 3rd Party Sponsor Related
Source: Various REITs, DBS Bank
Figure 60: Announced disposals by S-REITs in 2016 REIT RHT CIT AREIT FIRT ART Cache PREIT
Property 51% economic interest in Gurgaon Clinical Establishment and Shalimar Bagh Clinical Establishment 23 Tuas Avenue 10 & 2 Ubi View A-REIT City @ Jingqiao Siloam Hospitals Surabaya - Plot A and existing hospital Salcedo Residences Changi Districentre 3 4 Nursing Homes
Source: Various REITs, DBS Bank
More redevelopments to potentially occur. Given depressed share prices causing difficulty in raising equity to fund acquisitions and potential investor reluctance to gear up
ASIAN INSIGHTS
balance sheets in a rising interest rate environment, we believe the pace of acquisitions may slow further in 2017.
VICKERS SECURITIES
Page 43
Page 43
Industry Focus Singapore Developers & REITs
Nevertheless, redevelopments may come to fore especially with the increase in the development limit from 10% previously to 25%. To date, we have seen CMT redevelop Funan and CCT announce plans to building a Grade A office building at its
existing Golden Shoe property. For 2017, we anticipate that CRT will announce plans to maximise its One’s Mall and Torius property, while FCOT may redevelop Alexandra Technopark should the anchor tenant HP move out.
Figure 61: S-REITs' gearing headroom and sponsor pipeline REIT
Gearing end FY16/17F*
Headroom 40%
Sponsor
Potential Pipeline
Remarks
CCT
38%
316
CapitaLand
36%
137
Frasers Centrepoint Land
Contingent on performance of CapitaGreen High likelihood for Australand's properties though subject to FCOT share price
KREIT OUECT Retail
39% 38%
141 91
Keppel Land OUE Limited
Remaining stake in CapitaGreen Valley Point/Alexandra Point/Cecil Street Office property/Australand properties N/A OUE Downtown
FCOT
CRCT
36%
180
CapitaLand
Malls in China
CMT
35%
831
CapitaLand
CRT
45%
n/a
FCT
28%
423
SPH REIT
26%
798
Croesus Group, Daiwa House, Marubeni Frasers Centrepoint Limited SPH
Westgate, Star Vista, Bedok Mall, Ion Orchard Mallage Saga, China properties
Subject to valuation and malls being stabilised Possible acquisition of Westgate
MCT
37%
344
MAGIC
39%
70
SGREIT
35%
277
Suntec
38%
304
Office
No immediate plans to purchase Chinese properties
Waterway Point, Northpoint City
Pipeline assets under construction
Seletar Mall
Seletar Mall yet to be stabilised as it only opened in Dec-14
Commercial Mapletree Mapletree Business City Investments (MBC) 1&2 Mapletree Kowloon East Office Investments YTL Corporation Cheung Kong / ARA
Limited near-term pipeline from sponsor Potential in 2017-2018
-
MBC 2 under construction Kowloon East Office under construction, MAGIC looking at opportunities in China Focused on existing assets at the moment No acquisitions expected
Source: Various REITs, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 44
Page 44
Industry Focus Singapore Developers & REITs
Figure 62: S-REITs' gearing headroom and sponsor pipeline (cont’d) REIT
Gearing end FY16/17F
Headroom 40%
Sponsor
Potential Pipeline
Remarks
Industrial a-itrust
36%
78
Ascendas Group
Other Ascendas Group Indian properties
A-REIT
34%
921
Ascendas Group
Industrial assets
Cache
41%
n/a
CWT/ARA
Ramp up warehouses from CWT
CREIT
38%
56
N/A
MINT
30%
612
Mapletree Group
Tai Seng development
MLT
37%
223
Mapletree Group
Properties in Hong Kong, China
Subject to share price performance and stabilisation of INR Acquisitions likely to be from sponsor (business park properties in Singapore) Unlikely to acquire from sponsor Exploring opportunities in Australia, Japan and Malaysia Under development and not likely to be acquired in the near term High likelihood of M&A to supplement growth, given headwinds in Singapore
SBREIT
33%
152
Soilbuild Group Holdings
Various industrial properties
Hospitality ASCHT
33%
196
Ascendas Group/Accor
Asia Pacific properties
ART
41%
n/a
Ascott Group
CDREIT
36%
176
City Developments
FEHT
33%
303
Far East Organisation
FHT
34%
46
OUEHT
38%
92
Frasers Centrepoint Limited and TCC Group OUE Limited
Serviced apartments in Europe, Quest apartments in Australia St Regis, South Beach project 7 hotels & serviced residences 17 hotels and serviced residences
Healthcare P-Life
38%
66
IHH
Hospitals in the region including Novena Mt Elizabeth
Others KDCREIT IREIT
29% 42%
300 n/a
Keppel T&T Stella Holdings, Shanghai Summit, Mr Lim Chap Huat
T27
OUE Downtown serviced apartments
Potential disposal of Pullman Cairns to provide additional financial flexibility Subject to ability to recycle capital and raise equity Lower gearing provides firepower for acquisitions Assets not ready to be injected Subject to ability to raise equity Limited, given proposed acquisition of Crowne Plaza Changi and extension
Asset not stabilised yet Low likelihood, given current share price
Source: Various REITs, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 45
Page 45
Industry Focus Singapore Developers & REITs
Figure 63: S-REITs with development potential and/or asset recycling potential REIT
Assets with redevelopment potential
Office
CCT FCOT KREIT OUECT
Golden Shoe Alexandra Techno Park if HP/Microsoft moves out n/a n/a
Retail
CRCT CMT CRT FCT SPH REIT
n/a Funan One’s Mall and Torius Mall Integration with Northpoint extension n/a
Commercial
MCT MAGIC SGREIT Suntec
n/a n/a n/a Park Mall
Industrial
a-itrust A-REIT Cache CREIT MINT MLT SBREIT
n/a Selected properties with unutilised GFA n/a Selected properties with unutilised GFA Selected properties with unutilised GFA Selected properties with unutilised GFA Selected properties with unutilised GFA
Hospitality ASCHT
n/a
ART CDREIT FEHT FHT OUEHT
n/a n/a n/a n/a n/a
Healthcare P-Life RHT
n/a n/a
Other
KDCREIT IREIT
n/a n/a
Potential asset recycling opportunity
n/a n/a n/a n/a
n/a n/a n/a n/a n/a
n/a n/a n/a n/a
n/a Older properties with limited medium upside n/a Older properties with limited medium upside Older properties with limited medium upside Older properties with limited medium upside n/a
Rental properties in Japan / Assets in lower-tier cities in Europe n/a n/a n/a n/a
n/a n/a
n/a n/a
Source: Various REITs, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 46
Page 46
Industry Focus Singapore Developers & REITs
6. Residential Subsector Outlook: Luxury home prices to bottom out
Key Assertions Luxury residential home prices (CCR) to bottom out on the back of improved transaction velocity & foreigner buying interest.
Suburban home prices (OCR) to see up to a 3%5% further drop in prices impacted by higher mortgage rates and market vacancy rates.
Government could relax policy given uncertain macro-outlook and pace of interest rate rise.
Prices for luxury residential homes to further stabilise come 2017; downside for home prices in the suburbs. We believe that the property market may have stabilised at these low levels in the near term with further downside risk likely to come only from a deterioration of the economic outlook for Singapore. The bright spots are that luxury and central market segments have likely bottomed out, while we expect up to a further 5% drop for property prices in the Outside Central Region (OCR).
We believe the stabilisation of the market could be led by the following: 1.
PPI has declined 11.4% from the peak in September 2013 (with the inclusion of net prices in 3Q), inching closer to the government’s trigger point for intervention at c.13% decline from the peak based on historical incidences. Potential relaxation of government policies which will be supportive of prices.
2.
At these price levels, sales volume has improved (+9.8% in 9M16) largely led by executive condominium (EC) and secondary sales which may moderate further decline in property prices.
3.
Vacancy rate remains high with continued pressure on rental rates.
4.
While the 3Q16’s economic data were worse than expected, coupled with unemployment concerns, our economist believes that the downside risk is beginning to moderate (DBS Economics: Singapore: down but not out).
Figure 64: Residential Market Summary Key Indicators Price Index Rental Index Transactions* Pipeline of supply Vacancy rate
% Chg -1.5%
1Q16 140.6
2Q16 140.0
3Q16 137.9
-1.2%
107.5
106.9
105.6
-12.2%
1,419
2,256
1,981
-7.5%
53,512
47,250
43,693
-0.2% points
7.5%
8.9%
8.7%
*Excludes Executive condominiums Source: URA
ASIAN INSIGHTS
VICKERS SECURITIES
Page 47
Page 47
Industry Focus Singapore Developers & REITs
6.1 Trends, demand & supply Outlook Price Trends
Transactions
3Q16 Property Price Index saw the sharpest drop partly due to the inclusion of net prices of de-licensed projects (Chart 1). Private property prices saw the largest q-o-q decline of 1.5% in 3Q16 since the streak of falling prices following the September 2013 peak. This was partly due to the inclusion of net prices of de-licensed projects for the first time which does not present a ‘clean’ q-o-q price movement for this quarter. The landed private property price index (PPI landed) recorded the largest decline of 6.9% y-o-y and a 2.3% q-o-q decrease in 3Q16. The PPI has declined 11.4% since peaking in September 2013 with landed PPI and non-landed PPI dropping by 15.9% and 9.8% respectively.
Total transactions inch up as secondary volumes lead the way (Charts 2 and 3). Total residential transactions rose by 11% yo-y and 1% q-o-q to 4,596 units. This was mainly due to a rise in resale transactions of 53% y-o-y to 2,615 units while executive condominiums saw a 15% increase to 1,398 units. Primary sales volumes (excluding EC) fell 18% after four quarters of improved y-o-y transactions.
PPI has fallen 11.4% from September 2013 peak (Chart 1). Following the new inclusion, PPI has declined 11.4% from the peak in September 2013 with landed properties recording the largest decline of 15.9%, followed by RCR (-11.0%) and CCR (10.6%). Based on the past two incidences (AFC in 1998 and dot com collapse in 2000), the government has been seen to intervene when property prices fell c.13% from the peak. If history is a good indicator, the quantum of the decline is inching closer to the government’s trigger point. Central region bottoming out (Chart 1). Property prices fell in all three regions in Singapore partially due to the inclusion of net prices with Core Central Region (CCR) recording the highest decline at 1.9% q-o-q. Property prices in Rest of Central Region (RCR) and Outside Central Region (OCR) each recorded a 1% decline q-o-q. With the inclusion of net prices, property prices in CCR and RCR recorded 10.6% and 11.0% declines from their peaks. OCR, which previously held up better than the central region, is now inching closer at 9.8%. Nevertheless, we believe the central region is bottoming out as previously, property prices in the central region saw two consecutive quarters of marginal increase in PPI of 0.3% q-o-q in the CCR in both 1Q16 and 2Q16, while RCR saw three consecutive quarters of flat-to-marginal increase of 0.2% q-o-q (2Q16: +0.2% q-o-q).
ASIAN INSIGHTS
Higher 9M16 transactions lead by EC and secondary sales. Total residential transactions rose by 9.8% y-o-y to 12,000 units led by a 65% increase in EC sales and a 25% increase in secondary sales. Primary sales volumes fell 3.1%. We believe that signs of transactions returning to the market albeit from a lower base, implies that after a close to 10% drop in price index, buyers are seeing value in the current market. Supply Supply completion to start moderating from 2017 onwards. The cut in the number of sites available for tender in the government land sales programme and lack of collective sales in recent years mean that supply growth will peak in 2016 at 51,210 units (25,000 public housing units, 21,650 private units and 4,560 ECs) and moderate from 2017 onwards. The total supply under construction stands at 155,750 units (88,000 public housing units, 53,150 private units and 14,600 ECs). Given the declining completion outlook, we believe that the oversupply situation in the residential market will also start to improve and normalise over the coming years. We expect vacancy rates to inch up from 8.9% as of 2Q16 to 9-10% over 2016-2017 before reversing.
VICKERS SECURITIES
Page 48
Page 48
Industry Focus Singapore Developers & REITs
Rentals Increased supply and weak employment outlook to result in further pressure on rental yields. The 3Q16 residential rental index fell 1.2% q-o-q led by non-landed residential homes rental (-1.4%) while rental for landed homes was flat. The residential rental index (non-landed) for residential homes (non-landed) declined by 1.4% compared to a quarter ago and is now more than 10.7% down from its 3Q13 peak. The q-o-q fall is evenly spread across the various parts of the island, with rental for residential homes in OCR leading the decline at 2.4% followed by CCR's -1.4% and RCR's -0.6%.
Vacancy rates improved marginally by 0.2ppt to 8.7% as at end of 3Q16, still above the historical average of 6.6%. The weakness in rental can be attributed to the ramp-up in supply completions in recent years. Despite the marginal improvement, we continue to expect vacancy to rise and further downward pressure for rents but at a more muted rate. The uncertainty in the employment outlook, and the ongoing job rationalisation at financial institutions and tighter regulations impacting expatriates’ employment in Singapore may add pressure on demand for some homes, especially those in the CCR.
Figure 65: Residential Price Indices – Gradual decline in prices Period
3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 %yoy Chg (3Q16) % Chg (Peak) 3Q16 (index)
AllResidential Index
Landed
Non-Landed
Index
Index
0.4% -0.9% -1.2% -1.1% -0.7% -1.1% -1.0% -0.9% -1.3% -0.5% -0.7% -0.4% -1.5%
0.3% -1.0% -0.7% -1.7% -1.8% -1.3% -0.9% -1.0% -0.4% -1.8% -1.1% -1.9% -2.3%
-3.1%
Non-Landed Index
HDB
Core Central Region
Rest of Central Region
Outside Central Region
0.6% -0.9% -1.3% -0.8% -0.4% -1.0% -1.1% -0.8% -1.5% -0.2% -0.6% -0.1% -1.2%
-0.3% -2.1% -1.0% -1.5% -0.8% -0.9% -0.4% -0.6% -1.2% -0.3% 0.3% 0.3% -1.9%
-0.9% 0.4% -3.3% -0.3% -0.4% -1.3% -1.7% -0.6% -2.2% 0.2% 0.0% 0.2% -1.0%
2.2% -0.9% -0.1% -0.9% -0.4% -0.8% -1.1% -1.1% -1.6% 0.0% -1.3% -0.5% -1.0%
-0.9% -1.6% -1.6% -1.4% -1.7% -1.5% -1.0% -0.4% -0.3% 0.1% -0.1% 0.0% 0.0%
-6.9%
-2.0%
-1.6%
-0.6%
-2.8%
0.1%
-11.4%
-15.9%
-9.8%
-10.6%
-11.0%
-9.8%
-9.4%
137.9
152.4
134.9
126.9
139.2
154.9
134.7
Source: URA, HDB, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 49
Page 49
Industry Focus Singapore Developers & REITs
Charts on Property Transactions Figure 66: Developers' Sales by Type 6,000
120.0%
Units
5,000
100.0%
4,000
80.0%
3,000
60.0%
2,000
40.0%
1,000
20.0%
Remarks
We note that given increased transactions in recent months, there has been an increase in sales launches. Developers sold 73% of total new units launched in 3Q16, an improved q-o-q take-up rate led by new launches.
0.0%
‐ 1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
Private Residential Units Launched (uncompleted) Total Direct Sales (Uncompleted)
Source: URA, DBS Bank
Figure 67: Developers' Sales by Type 9,000
U nits Secondary Market (Private)
8,000
Remarks
3Q16 was one of the more active quarters in recent years.
Primary Sales (Private) Executive Condominiums
7,000 6,000 5,000 4,000
Resale Transactions (Secondary Market) contributed close to 57% of total transactions in 3Q16, one of the highest since 2013.
3,000 2,000 1,000
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
Source: URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 50
Page 50
Industry Focus Singapore Developers & REITs
Figure 68: Developers' Sales by Region 9,000
units
Remarks
Transactions in the Rest of Central Region (RCR) and Core Central Region (CCR) contributed 27% and 17% of total transactions respectively in 3Q16.
8,000 7,000 6,000 5,000
4,000 3,000 2,000 1,000 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
CCR
RCR
OCR
Source: URA, DBS Bank
Charts on Residential Supply Outlook Figure 69: Supply of new residential units by expected year of completion 60,000
Un its
40,000
30,000 20,000
Close to 29,000 units were completed in 1H16.
Public housing supply remains fairly constant at close to 19,000-25,000 new units completing each year.
10,000
Remarks
Looking ahead, we are looking at a more modest rate of increase in new units completing, due to fewer units available for sale as a result of the cuts in land for tenders from the government's land sale program.
50,000
2H16 Competed
Source: MND, DBS Bank
2017 Private Residential
ASIAN INSIGHTS
2018 Executive Condo
2019 Public Housing
VICKERS SECURITIES
Page 51
Page 51
Industry Focus Singapore Developers & REITs
Charts on Residential Rents Figure 70: Rental index has been weakening since 4Q13, in line with property prices 15%
% Chg
Index Value
180.0
Remarks
The residential rental index remains in decline, dropping further by 1.2% in 3Q16.
160.0 10%
140.0
Given the positive correlation between rental and prices, we expect prices to continue moderating as rentals weaken further.
120.0 5%
100.0 80.0
0%
60.0 40.0
-5%
20.0 -10%
-
Q0Q Chg in Rental Index
`Source: URA, HDB, DBS Bank
PPI Index
Figure 71: Rental index remains weak on high vacancy rates 10.0%
(%)
Index Value
130.0 120.0
9.0%
110.0
8.0%
Remarks
With expectations that the residential vacancy rate will continue to inch up towards the 8-10% level from the current 8.7%, we expect rentals to remain weak.
100.0 7.0% 90.0 6.0%
80.0 70.0
4.0%
60.0
Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 4Q16
5.0%
Vacancy Rate (Non-Landed) (LHS)
Rental Index (Non-Landed) (RHS)
Source: URA, HDB, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 52
Page 52
Industry Focus Singapore Developers & REITs
6.2 Scenarios where government could relax policy measures Government to tinker only if “material stress” is seen in the system. The Singapore property prices have been in a controlled and modest decline of approximately c.5% per annum from the peak of 3Q13. With prices now fallen by 11% from the peak in 3Q13 and we expect the market to remain on a downside bias in 2017. The government’s key focus is still the overall health of the Singapore’s economy and its intertwining relationship with property prices. With property forming close to 45% of total household wealth as of 3Q16, it is not in the government’s interest to have a rapidly declining property market. Emerging risk in the horizon stemming from increased volatility in interest rates, coupled with a weak rental outlook due to heightened supply completion outlook, will likely warrant the government to consider tweaking its macro prudential policies. What are potential scenarios or datapoints that could lead to a policy easing? A marked drop in prices in a quarter or a peak-to-trough price drop of 13-15% might point to a first round of policy unwinding. If history is a good indicator, the current PPI, having fallen close to 11% from the peak, is inching closer to the government’s trigger point of c.13%. Historically (during the Asian Financial Crisis (AFC) in 1998 and the dot com collapse in 2000), the government has been seen to intervene when property prices fell c.13% from the peak over a period of approximately one year. Current mortgage-to-household income ratio stands at 1.5x (mortgage-to-household income ratio ranged from 1.4-1.9x from 1997-2014). The government’s initial responses were: 1) suspend the seller stamp duty during the AFC; and 2) tax exemptions (capital
gains tax and property tax for land under development) were given and the government opened the market to foreigners again by allowing them to obtain loans in SGD during the dot com collapse. However, we believe the scenarios that may warrant a re-look at policies will be a marked drop in prices in a certain quarter or a potential tweak in certain policies on a selective basis. On that front, we believe that “cyclical measures” such as the buyer stamp duties/seller stamp duties which have been effective in curbing speculative demand, could be re-looked if transaction volumes continue to remain tepid over 2017. Singapore citizen unemployment rate rising towards 4.0%. The uncertain employment outlook in Singapore might be a dampener for prospects for price increases in 2017. As of 3Q16, it was reported that unemployment rate among Singapore citizens rose by 0.6ppt to 3.0% as of June 2016 but has held steady (fallen marginally to 2.9% as of September 2016) since. While not sounding any alarm bells at this point, we caution that prices tend to weaken in the event that unemployment rate rises to 4.0% and above (figure 74). DBS economist believes that the unemployment outlook is likely to remain fairly stable at the 3.0% level and not expected to deteriorate in a big way. Sharp increase in interest rates. The recent spike in SIBOR rates, which a majority of home loans is a risk for prices in our view given that it will a rise in mortgage payments going forward. The pace of increase in base rates are likely to be closely watched by the government in order to avoid an unwarranted fallout in property prices which might pose a risk to an already weak economic outlook.
Figure 72: Summary of possible Scenarios that could warrant a potential policy action Scenario 1.
Description A peak-to-trough fall in property price of 1315%.
Potential Impact on property market Usually accompanied with a weakening GDP outlook, this will dampen homebuyer sentiment as the “loss of wealth” effect on home-owners could cascade to a downward spiral in prices.
What has history taught us? Government had back in 1998 and 2000 intervened when property price dropped 13% from the peak.
2.
Unemployment Rate rising towards 4.0%.
Given the high ownership rate of c.91%, an increase in unemployment will impact on households’ ability to maintain mortgage payments.
A rise in unemployment rate to close to 4.0% and beyond typically results in a fall in property prices.
3.
Sharp increase in interest rates.
Impact on affordability as a larger portion of disposable income is channelled to mortgage repayments.
No real correlation historically but likely be one of the key reasons of assessing household affordability.
Source: URA, HDB, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 53
Page 53
Industry Focus Singapore Developers & REITs
Figure 73: Measures that government tweaked during previous fall in the Singapore Property Price Index 8.00
Jun 98: deferral of buyer stamp duty
7.00
Series of tightening Sept 02: EC measures downpayment ‐ 10% cash and 10% CPF Dec 02: 2 yrs property tax exempt on land under dev; Jul 05: LTV raised from 80% to 30% reduction in 90%; cash payment reduced fr May 99: 2nd stamp duty 10% to 5%; relax foreign CPF housing ownership rules; relaxation on Oct 01: CGT lifted; grant cut non‐related singles joint foreigners can use purchases SGD loans; property Nov 05: Waived security tax exempted for requirement of developers on land under dev DPS
6.00 5.00 1997: seller stamp duty suspended
4.00 3.00
Feb 00: tax exemption on land dev removed; DC rates on resi land increased
2.00 Nov 98: 10% CPF housing grant cut
1.00
Dec 06: buyer stamp duty concession removed
Jun 00: HDB tightened regulations
Oct 07: DPS removed
Jun‐15
Sep‐14
Dec‐13
Mar‐13
Jun‐12
Sep‐11
Dec‐10
Mar‐10
Jun‐09
Sep‐08
Dec‐07
Mar‐07
Jun‐06
Sep‐05
Dec‐04
Mar‐04
Jun‐03
Sep‐02
Dec‐01
Mar‐01
Jun‐00
Sep‐99
Dec‐98
Mar‐98
Jun‐97
Sep‐96
Dec‐95
Mar‐95
‐
Blue denotes relaxation measures Source: URA, HDB, DBS Bank
Figure 74: Unemployment spikes to close to 4% typically result in a slide in property prices 0.0% 1.0%
Sep’97-Dec’98 Unemployment Rate: 1.9% - 4.7% Property Price Index: Fell by 36%
( %)
Sep’07-Sep’09 Unemployment Rate: 2.4% - 4.9% Property Price Index: Fell by 25%
180 Index Value
160 140
2.0%
120
3.0%
100
4.0%
80 60
5.0% Property Price Index
Sep’00-Dec’01 Unemployment Rate: 2.6% - 5.2% Property Price Index: Fell by 17%
6.0% 7.0% Mar-92
Mar-94
Mar-96
Mar-98
Mar-00
Mar-02
40
Unemployment Rate (Inverse)
20 0
Mar-04
Mar-06
Mar-08
Mar-10
Mar-12
Mar-14
Mar-16
Source: URA, HDB, DBS Bank
Figure 75: Sensitivity of interest rates to mortgage payments Monthly Mortgage Payments** Typical Property Type HDB BTO
Price S$’000 500
Loan S$’000* 400
2.0%
3.0%
4.0%
5.0%
$1,695
$1,897
$2,111
$2,338
Resale
600
480
$2,035
$2,276
$2,534
$2,806
Resale/EC
800
640
$2,713
$3,035
$3,378
$3,741
EC / Private
1,000
800
$3,391
$3,794
$4,223
$4,677
Private
1,250
1,000
$4,239
$4,742
$5,278
$5,846
Private
1,500
1,200
$5,086
$5,691
$6,334
$7,015
Private
1,750
1,400
$5,934
$6,639
$7,390
$8,184
Private
2,000
1,600
$6,782
$7,587
$8,445
$9,353
* Assumed 80% loan for a tenure of 25 years Source: URA, HDB, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 54
Page 54
Industry Focus Singapore Developers & REITs
7. Office Subsector Outlook: Grade A office space to bottom by end 2017 Key Assertions Office rents projected to bottom in 2017 as new supply sees good pre-commitment. Improving pre-commitment rates for key new buildings mainly driven by tenant relocation rather than a net office absorption. A two-tier market to emerge with Grade A office to emerge out of the downtown first; Business Park space remain attractive.
7.1 Trends, Demand and Supply outlook Office rents to bottom in 2017. With Marina One slated to be completed in the first half of next year, we project office rents to bottom in mid or late 2017. Our base scenario assumes Grade A office rents to hit a trough at c.S$8.50 per square foot per month (psf/mth) from S$9.30 psf/mth currently. Not only is this reflective of the expected spike in vacancy rates in the
overall Downtown Core area but is also at a market clearing level to entice a company to move into a new office given fitout costs of S$2.00-2.50 psf/mth and office rents of between S$10.40-11.40 psf/mth over the past year. In our bear case scenario, we project Grade A office rents to hit a low of S$7.50-8.00 psf/mth, which is 14-19% below current Grade A office rents of S$9.30 psf/mth. Office rents continued to trend down in 3Q16. Office rents continued on their downward trajectory since peaking in the first quarter of 2015. According to CB Richard Ellis (CBRE), Grade A office rents fell 2% q-o-q (-15% y-o-y) to S$9.30 psf/mth after falling 4% q-o-q in the second quarter of 2016. Grade B rents also dropped 2% q-o-q to S$7.50 psf/mth. Meanwhile, Grade A occupancies improved to 95.9% from 94.8% in the second quarter of 2016 as CBRE reported positive net absorption of 820k sqft islandwide which ended four consecutive quarters of negative absorption numbers.
Figure 76 Office rents and occupancies Rents
3Q15
2Q16
3Q16
q-o-q
y-o-y
URA Office Rental Index: Central Area
187.0
174.1
172.0
-1%
-8%
URA Office Rental Index: Fringe Area
147.8
135.3
135.0
0%
-9%
CBRE Grade A Core CBD (psf/mth)
10.90
9.50
9.30
-2%
-15%
CBRE Grade B Core CBD (psf/mth)
8.35
7.65
7.50
-2%
-10%
Occupancy
3Q15
2Q16
3Q16
q-o-q (bps)
y-o-y (bps)
URA occupancy private sector: Central Downtown Core
91.1%
90.9%
88.5%
-235
-260
URA occupancy private sector: Central Fringe Area
86.7%
88.8%
89.6%
76
287
CBRE Grade A
94.8%
94.8%
95.9%
110
110
CBRE Core CBD
95.8%
95.1%
95.9%
80
10
Source: URA, Corporate Locations, CBRE, various REITs and corporate, press reports, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 55
Page 55
Industry Focus Singapore Developers & REITs
Demand
Forecasts
Uncertain outlook for new office demand. Over the past three years, employment growth in the four key sectors driving office demand were (1) Financial Services, (2) IT and other information services, (3) Legal, Accounting and Management Services, and (4) Insurance Services, and had been healthy. The three-year compound annual growth rate (CAGR) for those sectors ranged from 3-9% to end-September 2016. However, given a slowing economy, announced job losses in the financial services industry and businesses moving out of the CBD to business parks/suburban locations, we believe the demand for new office space will be sluggish but still positive. This is evidenced by c.13,000 sqm of net new space in Downtown Core area during the first nine months of the year. In addition, the number of people employed in the services sector continues to grow, expanding by 2% in the nine months to September compared to the same period last year.
Spike in vacancy but market moves to two-tier market. On the back of sluggish demand and jump in supply, we anticipated Private Sector Downtown Core vacancy rate to potentially spike from 11.5% at the end of September 2016 to 17% in 2017 and 18% in 2018, approaching the levels seen in 2004 and surpassing the 14% vacancy level in 2010 and 2011. While the headline vacancy rate is high, the figure will be composed of two very different markets. One would consist of the older buildings such as those in Shenton Way and Raffles Place where there will be a “structural” or persistent high vacancy potentially in excess of 20% as these buildings are unable to compete against the new buildings currently under construction or recently completed due to less efficient floorplates and modern specifications. In contrast, vacancy at the newer buildings or those defined as Category 1 office buildings by URA will enjoy substantially lower vacancies, closer to the 10% level, as the “flight to quality” takes place, i.e. tenants seeking better quality offices to cater to their expansion plans or consolidate their various offices into a single location. According to URA, Category 1 office buildings are defined as those located in core business areas in Downtown Core and Orchard Planning Area which are relatively modern or recently refurbished, command relatively high rentals, and have large floor plate sizes and gross floor areas.
Improving pre-commitment rates for key new buildings. Compared to earlier this year where the pace of securing tenants for new offices was muted, the environment has since improved. Guoco Tower, according to press reports, has now been 80% pre-leased, while pre-commitments level has increased to 30-40% for Marina One with Duo Tower stable at 30%. With less urgency for Guoco Tower to secure tenants and Marina One potentially increasing pre-commitment levels in the coming months, the incremental pressure on Premium Grade A rents may start to ease. Supply 16% jump in downtown core office supply. Approximately 5.4m sqft of office net lettable area (NLA) will be completed within Singapore’s downtown core between 2016 and 2018; translating into a 16% increase in existing downtown CBD stock, or at a three-year CAGR of 5%. Approximately 73% of new office supply (by NLA) will be concentrated in four assets: (a) DUO Tower located in Bugis; (b) Guoco Tower, located in Tanjong Pagar; (c) Marina One in Marina Bay; and (d) Frasers Tower, located at Tanjong Pagar (Table 1). Based on press reports, the majority of the remaining developments will likely be sub-divided and strata sold to end-users.
Recovery from 2018 onwards. While we expect office vacancy rates to peak in late 2017 or early 2018, with new office supply easing from 2018 onwards, we anticipate rents to start recovering as early as the end of 2017, as both tenants and landlords anticipate vacancies to drop due to a fall in supply. However, we expect a recovery in rents to largely occur in the premium spectrum of Grade A office space, as the older buildings at Shenton Way and Raffles Place will unlikely be able to raise rents due to their still high occupancies and uncompetitive products. On that front, we expect Grade A office rents to recover from the S$8.50 psf/mth low in 2017 towards S$10 psf/mth in 2018, similar to the 14% rise in office rents experienced between mid-2013 and 2015 as we approached a dearth of new supply in 2015 and demand normalises to historical average in 2019. The projected recovery in Grade A office rents is also partially a result of the increased proportion of premium quality office stock commanding higher office rents.
ASIAN INSIGHTS
VICKERS SECURITIES
Page 56
Page 56
Industry Focus Singapore Developers & REITs
Key Charts Figure 78: Office supply in the Central Business District (CBD) Office (CBD)
Location
Developer
2016
Remarks Estimated NLA (sqft)
Property Type
Guoco Tower
Peck Seah Street
Guocoland
890,000
Leasing
EON Shenton
Shenton Way
Roxy Pacific Holdings
101,045
Strata Sale
SBF Center
Robinson Road
Far East
353,480
Strata Sale
DUO Tower
Rochor Road
M+S
570,475
Leasing
GSH Plaza
Cecil Street
GSH/TYJ/Vibrant/DB2
282,000
Strata Sale
OUE Downtown 1
Shenton Way
OUE
50,000
Leasing
2,247,000 2017 Marina One
Marina Bay
M+S
1,876,000
Leasing
UIC Building
Shenton Way
UIC
278,000
Strata Sale
Oxley Tower
Robinson Road
Oxley Consortium
112,000
Strata Sale
Crown @ Robinson
Robinson Road
WyWy Developments
70,000
Strata Sale
2,299,000
2018 Redevelopment of International Factors Building and Robinson Towers Frasers Tower
Robinson Road
Tuan Sing
194,380
Strata Sale
Cecil Street
Frasers Centrepoint Limited
645,000
Leasing
Estimated 5.4m sqft of office net lettable area (NLA) is expected to complete within the Downtown Core between 2016 and 2018, representing a 16% total increase in current Downtown Core office stock. Around 4.0m sqft of NLA will be held for leasing purposes, while the rest will likely be strata sold. Key office projects to watch out for are Guoco Tower (2016), DUO Tower (2016), Marina One (2017) and Frasers Tower (2018). Following the easing of supply in 2018 and 2019, a pickup in new CBD supply will only occur in 2020/2021 when CPF Building, Golden Shoe and Central Boulevard White site are scheduled to be completed.
858,380 2019 Funan
North Bridge Road
CapitaLand Mall Trust
204,000
Leasing
204,000 2020 CPF Building
Shenton Way
Ascendas-Singbridge, Mitsui and Tokyo Tatemono
500,000
Leasing
500,000 2021 Golden Shoe
Market Street
Central Boulevard White Site
Marina Bay
CapitaLand Commercial Trust In bidding stage
800,000
Leasing
1,070,000
Leasing
1,870,000
Source: URA, Corporate Locations, CBRE, various REITs and corporate, press reports, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 57
Page 57
Industry Focus Singapore Developers & REITs
Figure 79: Decentralised office supply Office (Decentralised) 2016 M18 Havelock II
Remarks
Location
Developer
Estimated NLA (sqft)
Property Type
Eastern Suburbs - Paya Lebar River Valley / Havelock
Mapletree
56,000
Leasing
Guthrie GTS
64,850
Strata Sale
Over the next few years, supply of decentralised office space will be steady. Given a large majority of this new supply is being sold as strata units potentially for smaller users and owner occupiers, they will compete directly with CBD space.
120,850 2017 Arc 380
Eastern Suburbs - Jalan Besar Western Suburbs - Jurong
Vision Exchange
2018 Paya Lebar Central
2019 Woods Square
Tong Eng Group
103,500
Strata Sale Strata Sale
500,000 603,500
Eastern Suburbs - Paya Lebar
Lend Lease / ADIA
Northern Suburbs - Woodlands
Far East Organisation
750,000
However, in 2018, Paya Lebar Central may pose some form of competition to CBD office space if Lend Lease/ADIA is able to position the property as a viable alternative.
Leasing
750,000 534,500
Strata Sale
534,500
Source: URA, Corporate Locations, CBRE, various REITs and corporate, press reports, DBS Bank
Figure 80: Average new supply per annum over 2015-2019 in line with average from 20102014 2,500
'000 sqft
S$ psf pm
Post GFC 2010‐2014 average: 2015‐2019 average: 1.10m sqft 1.15m sqft
2,000 1,500
20.0 18.0 16.0 14.0
1,000
12.0 10.0
500
While the headline supply is expected to be large from 2015-2019, the average supply of 1.15m sqft p.a. is comparable to 2010-2014’s average of 1.10m sqft p.a. Despite the large supply in 2010-2014, central area office rents still recorded positive growth.
8.0
Net supply: Downtown Core (LHS)
‐1,000
Net demand: Downtown Core (LHS) CBRE Grade A office rents (RHS)
‐1,500
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0 ‐500
Remarks
6.0 4.0 2.0 ‐
Source: URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 58
Page 58
Industry Focus Singapore Developers & REITs
Figure 81: URA rental index (central) growth vs. changes in employment for financial institutions (1998 – present)
70%
20%
60% 50%
15%
40% 30%
10%
20% 10%
5%
0% ‐10%
0%
‐20% ‐30%
‐5% URA rental inde x ‐ central (LHS)
Remarks Between 1998 and 2015, there was 90% correlation between changes in the URA rental index (central) and employment growth in the financial services sector. Lower correlation in rents and financial services employment from 2012 onwards (73%) reflects a diversification in demand for CBD office space from other sectors such as technology, media and telecommunications, commodities/resources and professional services. Employment in the financial institution sector will still have a large influence on the direction of rents in the CBD.
Employment ‐ Financial & Insurance Services (RHS)
Source: URA, Singstat, CEIC, DBS Bank
Figure 82: Business Park rents still cheaper than Grade A but pricing advantage has narrowed 20
50%
S$ ps f/mth
45%
16
40%
14
35%
12
30%
10
25%
8
20%
6
15%
4
10%
2
5%
0
0%
Business Park rents have stayed fairly flattish over the past five years, and the pricing advantage expanded when Grade A rents increased by around 20% from 3Q13 to its peak in 1Q15-2Q15. Firms which wanted to achieve significant cost savings and were eligible to be located in business parks, had thus relocated from the CBD while maintaining a leaner presence in the CBD.
1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
18
Remarks
Grade A and BP rent spread (RHS) Business Park rent (LHS)
Grade A office rent (LHS)
Source: CBRE, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 59
Page 59
Industry Focus Singapore Developers & REITs
Figure 83: Uncertain demand outlook for key sectors that drive CBD office demand
Ke y sectors for CBD office demand
Key drivers of CBD office demand include financial services, legal and accounting sectors, as well as IT and other information services.
Legal, IT and Other Accounting information and Services, 21% Management Services, 30%
Insurance Serivces, 8%
Between 2012 and 2015, these key sectors led CBD office demand, and reported headcount increases of between 3-9% p.a.
Financial Services, 41%
3‐year headcount CAGR (2012‐2015) Total
Outlook
5%
Legal, Accounting and Management Services
8%
Insurance Serivces
5%
Financial Services
Remarks
With an uncertain economic environment ahead, the outlook across these sectors has turned more cautious. Nevertheless, given still positive GDP growth ahead as projected by our DBS economists, we expect net positive demand for space though at a slower pace than the more buoyant times during 2012-2013. For 9M16, the amount of occupied space in the Downtown Core area rose by 237k sqft, according to the latest URA statistics.
3%
IT and Other information Services
7%
0.0%
5.0%
10.0%
Source: Singstat, CEIC, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 60
Page 60
Industry Focus Singapore Developers & REITs
Figure 84: Office vacancies to spike on sluggish demand and increase in supply 3,000
Remarks
S$ psf pm 20.0
'000 sqft
We expect the soft demand outlook to result in c.40k sqft of net demand for space in the Downtown core region for the next three years.
18.0
2,500
16.0
2,000
14.0
1,500
Given the large increase in supply, this will result in Downtown Core vacancy rates spiking to 17% and 18% in 2017 and 2018 respectively from 11.5% as at the end of September 2016.
12.0
1,000
10.0 500
8.0
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
-500
2000
0
-1,000
6.0
Vacancy rates should start trending down from 2019 onwards as demand normalises back up to historical averages, and supply eases.
4.0 2.0
Net Supply: Downtown Core (LHS) Net demand: Downtown Core (LHS) CBRE Grade A office rents (RHS)
-1,500
Source: URA, CBRE, DBS Bank
-
Figure 85: DBS Grade A office rental forecast (2016-2017)
3,000
Remarks
S$ psf pm
'000 sqft
2,500 2,000
15.0 While overall vacancy rates are
likely to remain elevated in 2018, we believe Grade A rents will recover to c.S$10 as the proportion of Premium Grade 10.0 buildings (which typically charge higher rents) become an increasing proportion of the Grade A category.
1,500 1,000 500
-1,000 -1,500 Source: URA, CBRE, DBS Bank
ASIAN INSIGHTS
Net Supply: Downtown Core (LHS) Net demand: Downtown Core (LHS) CBRE Grade A office rents (RHS) DBS Base case (RHS) DBS Bear Case (RHS)
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0 -500
Based on the projected increase in vacancies, we expect Grade A 20.0 rents to bottom out at around S$8.50 in 2017 before recovering to c.S$10 by end2018.
5.0
In our bear-case scenario, rents could fall to S$7.50-8.00, from S$9.30 currently before recovering to S$9.00 in 2019.
-
VICKERS SECURITIES
Page 61
Page 61
Industry Focus Singapore Developers & REITs
Figure 86: Two-tier Grade A office market to develop S$ psf / mth 13.00
Remarks 12% 10%
12.00
8%
11.00
6%
10.00
4% 2%
9.00
0%
8.00
-2%
7.00
-4%
Spread between Premium Grade vs Grade A (RHS) Colliers Premium Grade Raffles Place/New Downtown (LHS) CBRE Grade A Core CBD (LHS)
While we expect overall Downtown Core vacancy rate to rise to c.18% by 2018, we believe a two-tier market will develop. The first submarket will be related to the older buildings in Shenton Way and Raffles Place where vacancy levels will be structurally higher given an uncompetitive product (lower efficiency and older specifications) resulting in lower rents. The other category will be the premium grade buildings, largely consisting of new buildings currently under construction or built over the past 5-6 years. These will command higher rents and achieve lower vacancies. This can already be evidenced by the increasing spread between Premium Grade rents as reported by Colliers and overall Grade A core CBD rents as estimated by CBRE. Going forward, Premium Grade offices will continue to command 11% higher rents relative to overall Grade A offices, and this spread may widen.
Source: URA, CBRE, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 62
Page 62
Industry Focus Singapore Developers & REITs
8. Retail subsector Outlook: Hampered by weakening retail sales Key Assertions Retail sector outlook tempered by impact of e commerce and dampened consumer sentiment.
More demand in the outskirts; Orchard road expect to remain weak.
Rental reversion remain flattish to marginally negative.
8.1 Trends, demand and supply outlook We see the next supply spike in 2018 adding more pressure in rental and occupancy. The years 2013 and 2014 saw Singapore’s largest influx of retail space since 2006. Recent supply has been largely located outside the central region (Figure 88), an indication that the government’s push towards a live, work and play concept in regional hubs is bearing fruit. The recently completed Waterway Point (95% tenanted) continues to see good demand, an indication that retailers remain keen to tap into suburban demand for goods and services. Much more limited supply is expected in 2016 and 2017, before another spike in completions in 2018, stemming from two key projects: Changi Jewel and Northpoint City (Figure 89-90). Demand Tempered by retail headwinds. Despite strong take-up rates in recently completed malls, net absorption has been negative since 2015 (Figure 92). Existing malls have, in general, been under occupancy and rental pressure. As of 3Q16, shop occupancy rates across the country had fallen to 91.3%, from a high of 95.5% in 2013. Occupancy for Frasers Centrepoint Trust fell by 1ppt on-year to 94.9% (adjusted to exclude Northpoint which is undergoing an asset enhancement initiative); though occupancy for CapitaLand Mall Trust was more stable, down marginally to 98.6% from 98.8% at the end of 2014, its rental reversions dropped to 1.3% for 9M16, Figure 87: Retail Market Summary Key Indicators Price Index Rental Index Pipeline of supply Vacancy rate
% Chg -0.6% -1.5% -11.2% +0.6% points
significantly below the 6% average over the past few years, and the lowest since 2009. Retailers have been hit by several factors: (a) declining sales efficiency (revenue per square foot) as a result of e-commerce and leakage from residents travelling abroad; (b) a manpower shortage due to government restrictions on foreign labour; and (c) rising labour costs from minimum wage policies. Faced with declining revenues and rising costs, retailers have, since 2014, begun to consolidate their operations, cutting down on the number of stores they operate while maintaining a presence in better-performing malls. The impact of retail headwinds will not be felt evenly across all malls, in our view. We believe that in order for a mall to outperform, it needs to be well located with a strong track record of recurring footfall and tenant sales, and have active asset management and advertising and promotion efforts. Supply Moving to the outskirts. The retail experience for locals will be an increasingly suburban affair. The majority of shopping mall completions in the past year have been located in the suburbs: One KM in Tanjong Katong, Big Box in Jurong East, Paya Lebar Square in Paya Lebar and Seletar Mall in Seletar, for example. Looking ahead, new retail space will still be largely focused in the suburbs. Waterway Point in Punggol opened in January 2016, and Northpoint City in Yishun (2018) and Changi Jewel (2018) are largest suburban developments in the pipeline. Just as we have seen in Jurong East, the government has been actively encouraging the continued development of regional centres in decentralised areas as key working and leisure destinations, as a means of relieving the congestion in the central business district and Orchard Road. As a result, we have seen many retailers that were previously only in the Orchard Road area moving into suburban shopping malls in order to directly cater to residents living in those areas. Examples include Zara, Coach, Kate Spade and Isetan.
2Q16 123.1 107.0 734k sqm GFA 7.8%
3Q16 122.3 105.4 652k sqm (GFA) 8.4%
Source: URA
ASIAN INSIGHTS
VICKERS SECURITIES
Page 63
Page 63
Industry Focus Singapore Developers & REITs
Figure 88: Net Additions to Shop Space Supply - suburban retail stock has been growing at a quicker pace than that in the central region 1.40 1.20
Retail supply additions in recent years have been mainly in the Outside Central Region (a.k.a. OCR; dark grey column) and Fringe of City Centre (pink column).
m' sqft
1.00
In the OCR, major completions since 2013 include Westgate, JEM, Sports Hub, One KM, Seletar Mall, Paya Lebar Square, Capitol Piazza and Big Box.
0.80 0.60 0.40 0.20 (0.20)
Remarks
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 9M16
(0.40)
Waterway Point, the latest mall to obtain its temporary occupation permit – in 4Q2015 –added around another 30,000 square metres (sqm) of space to the retail sector.
(0.60) Downtown
Orchard
Rest of Central
Fringe
Outside Central Region
Source: URA, CEIC, DBS Bank
Figure 89: Upcoming retail developments by planning region (478,230 sqm of gross floor area)
Remarks New retail supply will be heavily skewed to the suburbs (OCR) with around 46% of total gross floor area (GFA). This is in line with the government’s strategy of decentralising and creating regional “work, live, play” hubs.
Rest of Central Area 2.1%
East Region 25.6%
Outside Central Region 46.0% F ringe Area 31.7% Orchard 5.0% Orchard 5.0%
North Region 14.9%
Large proportion of OCR retail supply will be in the East Region (i.e. Changi Jewel). New supply of Downtown Core is concentrated on Funan Redevelopment (2019), OUE Downtown (2016) and Marina One (2017).
West Region 9.1% North East Region 6.6%
Source: URA, CEIC, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 64
Page 64
Industry Focus Singapore Developers & REITs
Figure 90: New Retail Space Supply by regions 2.50
Remarks
m'sqft
Most of the pure-play retail supply had already entered the market in 2014 and 2015.
2.00 1.50
Going forward, most of the supply will be part of mixed-use developments (including both office and retail components).
1.00 0.50
Key mall supply will come from Northpoint City in Yishun, and Changi Jewel in Changi. These are slated for completion in 2018.
2016
2017
2018
2019
Downtown Core
Fringe Area
Orchard
Outside Central Region
2020
Rest of Central Area
Source: URA, CEIC, DBS Bank
Figure 91: Net Absorption of retail supply and Occupancy Rate 150
Remarks 96%
sqm
95% 100 94% 50 93% 0
92% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 9M16 91%
‐50 90% ‐100
Net additions of shop space outpaced net absorption which has turned negative since 2015 and has been declining further in 2016 as landlords take more time to fill up the space in recently completed malls. We expect net absorption to continue to fall going forward, as retailers are consolidating their operations amid headwinds in the sector. Likewise, occupancy rates should continue to moderate in the next 1-2 years.
89% ‐150
88% Net Supply: Shop Space (LHS)
Net Absorption: Shop Space (LHS)
Occupancy (RHS)
Source: URA, DBS Bank
Figure 92: URA property rental index (shop) 140
Remarks
1998=100
Rents in the central region have been weakening at a faster pace than rents in the fringe area.
130 120
Rentals in the Central Area have fallen c.15% from the peak in June 2008 and c.11% from December 2014, as retailers’ consolidation efforts accelerate.
110 100 90 80 70 60
Property Rental Index: Shop: Fringe Area
Property Rental Index: Shop: Central Area
Source: URA, CEIC, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 65
Page 65
Industry Focus Singapore Developers & REITs
Figure 93: Upcoming retail developments by project name Project Name
Street Name
Developer
Region
Total Retail Space (000'sqft) 548.0
Hillion Mall
Jelebu Road
Sim Lian JV
Outside Central Region
221.1
OUE Downtown 1
Shenton Way
Alkas Realty Pte Ltd
Downtown Core
237.2
Guoco Tower (retail)
Wallich Street
GuocoLand
Downtown Core
77.0
2016
Others
12.69
2017
1,316.8
DUO Galleria
Bencoolen Street
Kah Motor Co Sdn Bhd
Rest of Central Area
Marina One
Yishun Ring Road
Outside Central Region
Northshore Plaza
Punggol Way
Northern Resi Pte Ltd/Northern Retail Pte Ltd Housing & Development Board
North East Region
79.8 197.9 91.2
Oasis Terraces
Punggol Drive
Housing & Development Board
North East Region
Office/retail development
Hoe Chiang Road
Fragrance Grandeur Pte Ltd
Central Region
120.2
96.6
Singapore Post Centre (AEI)
Eunos Road 8
Singapore Post Limited
Central Region
269.0
Tripleone Somerset (AEI)
Somerset Road
Perennial (Somerset) Pte Ltd
Central Region
122.3
Others
339.7
2018
2,323.7
City Gate
Beach Road
Bayfront Ventures Pte Ltd
Central Region
101.7
Frasers Tower
Cecil Street
FC Commercial Trustee Pte Ltd
Central Region
30.9
Changi Jewel
Airport Boulevard
East Region
IMall
Marine Parade Central
Changi Airport Group (S) Pte Ltd Marine Parade Central Pte Ltd
Central Region
74.5
Mapletree 18
Tai Seng Street
Mapletree Trustee Pte Ltd
North East Region
63.4
Northpoint City
Yishun Central 1
Fraser Centrepoint Limited
North Region
Office/retail development
Robinson Road
Superluck Properties Pte Ltd
Central Region
79.7
Oxley Tower
Robinson Road
Oxley Consortium Pte Ltd
Central Region
49.8
Paya Lebar Quarter
Paya Lebar Road/Sims Avenue
Central Region
475.5
Woods Square
Woodlands Square
Roma Central Pte Ltd/Milano Central Pte Ltd/Verona Central Pte Ltd Woodlands Square Pte Ltd
968.4
420.2
North Region
59.7
2019 and onwards
957.6
Office/retail development
Hoe Chiang Road
Funan (redevelopment)
North Bridge Road
Wisteria Mall
Yishun Ring Road
Mansfield Developments Pte Ltd HSBC Institutional Trust Services (S) Limited Northern Resi Pte Ltd/Northern Retail Pte Ltd
Central Region
100.2
Central Region
536.7
North Region
83.3
Others
237.5
* We have selectively shown retail properties that are over 45,000 sqft in size in this table. Source: URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 66
Page 66
Industry Focus Singapore Developers & REITs
9. Industrial Sector Summary: Year of consolidation post supply spike
Key Assertions Supply absorption remain the key drag on rental growth prospects. Demand outlook weak given firms remain on a consolidation trend; vacancy rates to hike up to 11% by end-2018. Business Park space offers the best visibility.
9.1 Trends, demand and supply outlook Downside as pre-commitments for new supply remain low. We believe that the industrial sector outlook remains soft and is projected to remain on a decline with rental rates expected to edge down by 5-10% per annum over the coming two years, weighed down by a spike in supply completions over 20162107. Demand for space is expected to lag behind supply Figure 94: Industrial Market Summary Key Indicators Price Index Industrial Property Multi-User Rental Index Industrial Property Single-User Factory Multi-User Factory Warehouse Business Park Vacancy rate Industrial Property Single-User Factory Multi-User Factory Warehouse Business Park Pipeline under construction Industrial Property Single-User Factory Multi-User Factory Warehouse Business Park
growth in the coming years as firms continue to look to consolidate or downsize their space requirements in order to remain cost efficient. Vacancy rates are expected to remain on an uptrend to 11% by end-2018. Manufacturing Sector expanded in September 2016 but outlook remains weak. The Singapore PMI increased to 50.1 in September 2016 which is an expansion in factory activity for the first time in 15 months, led by higher new orders, new exports, and output. It was a first month of expansion in over a year for the country with the electronics sector rising to 50.3 (50.2 in August 2016). However, the outlook is likely to remain uncertain with anaemic growth in Singapore’s major industrial sectors. Industrial leasing volumes inched up in 3Q16, closing 4% higher y-o-y and flat q-o-q to 2,172 leasing deals (inclusive of factory, warehouse and business park space).
% Chg
2Q16
3Q16
-1.70% -0.98%
100.0 101.8
98.3 100.8
-1.98% -1.28% -2.12% -4.40% -0.19%
96.2 93.4 104.0 95.4 104.4
94.3 92.2 101.8 91.2 104.2
-0.1% 0.8% -0.2% 0.0% -0.1%
10.6% 8.6% 13.1% 10.9% 19.0%
10.5% 9.4% 12.9% 10.9% 18.9%
-8.90% -14.10% -4.29% -6.66% 2.33%
57.2 23.5 18.0 15.2 0.5
52.1 20.2 17.3 14.2 0.5
Source: JTC
ASIAN INSIGHTS
VICKERS SECURITIES
Page 67
Page 67
Industry Focus Singapore Developers & REITs 60.0m sqft – of new industrial space are either under construction or in planning and projected to complete over the Year-to-date absorption remains negative. As of end-September next four years from 2016-2020. Of this, more than 60% of the 2016, year-to-date take-up for industrial space still lagged space will be completed and operational by the end of 2017. behind supply growth with net increase in unoccupied space of Among industrial types, warehouse space is expected to see the close to 6.7m square feet (sqft). This is almost double that when highest growth in supply at 21% or close to 20m sqft. Factory compared to a year ago, coming mainly from close to 5.0m sqft space, inclusive of both single-user and multi-user space, have of single-user factory space that was competed but yet to be close to 44m sqft of new space under construction, implying a occupied. We expect this to be occupied when a majority of the growth rate of 13%. The business park space will add another space is taken up progressively by end-user occupiers in the 3m sqft of new space, implying a 14% increase in space to coming quarters. close to 26m sqft. However, most of the space are precommitted and thus not an issue for existing landlords. As one of the key drivers for space in the industrial sector has Forecasts been the consolidation of operations to achieve operational Industrial sector overall vacancy rates to increase to 10-11% by efficiency, we expect the increased take-up in the single-user 2017; with a negative bias if economic outlook deteriorates. factory space to be at the expense of higher vacancy rates Taking into account assumed pre-commitment rates and emerging from existing multi-user factory space where some of projected new demand, and faced with an increasing supply the end-users are expected to vacate from. outlook, the average vacancy rate is now 10.5% (as of 3Q16) and we expect further weakness till the end of 2017 before Supply bottoming out from 2018 onwards. Increased competition from a spike in supply completions. The industrial market is in the midst of a spike in supply completions As the influx and pace of completions are skewed over the starting from 2014 and peaking in 2017. As such, landlords are 2016-2017 calendar year, we believe that, on average, spot typically still facing an increasingly competitive operating rentals are likely to see downside to the tune of 7-10% per environment, and compounded from the weak demand outlook annum over 2016-2017, with the exception of business park on the back of a slowing economy, we expect downside risks to space, which we believe will be resilient with around 0-3% occupancy rates and market rents. growth. Based on the latest Urban Redevelopment Authority (URA) statistics, a total of 5.9m square metres (sqm) – equivalent to Demand.
Figure 95: Industrial Leasing Transactions 3,000
Remarks 25.0
Number of transactions
Value S$'m
2,500
20.0
Leasing volumes in 3Q are flat qo-q, while they appear to be picking up in recent quarters, we believe that it is still early to call a bottom.
2,000 15.0 1,500 10.0 1,000 5.0
500
Transactions
Value
‐
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
‐
Source: JTC, URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 68
Page 68
Industry Focus Singapore Developers & REITs
Figure 96: Close to 50m sqft of new space to complete over 2016-2019 35.0
Remarks 12%
m' sqft
30.0
10%
25.0
8%
20.0
Supply completions to spike from 2014 and peak in 2016-2017 with an average of 25m sqft of space, thereafter it will drop significantly to 5.3m sqft from 2017 onwards.
6% 15.0 4%
10.0
Supply completions to be more than double that of the past five years.
2%
5.0
0%
2,007
2,008
2,009
2,010
2,011
2,012
Demand
2,013
2,014
Supply
2,015
2016F
2017F
2018F
2019F
2020F
Vacancy Rate (RHS)
Source: JTC, URA, DBS Bank Figure 97: We project net absorption to remain negative over 2016F-2020F with vacancy rates inching up to 11%
6
12%
m'sqft
4
10%
2 8%
‐ 2007
2008
2009
2010
2011
2012
2013
2014
2015
2016F 2017F 2018F 2019F 2020F
(2)
6%
(4)
4%
(6) 2%
(8)
0%
(10) Net Suplus/(Net deficit)
Vacancy Rate (RHS)
Source: JTC, URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 69
Page 69
Industry Focus Singapore Developers & REITs
Figure 98: Rental reversion trend to remain negative over 2016-2018
Remarks
50%
Rental reversion trends are expected to turn from flattish to negative from 2016 onwards.
40%
The factory and warehouse space is expected to see a larger drop in rental reversions.
30% 20%
Business park space is expected to buck the trend, given expectations of a 3% per annum rise in market rents in 2016; flat in 2017.
10% 0% 2009
2010
2011
2012
2013
2014
2015
2016F
2017F
‐10% Business Park
Warehouse
Factory
‐20%
Source: JTC, URA, DBS Bank
Figure 99: Rental trends (forecast)
Remarks
Industrial Segments
2015
2016F
2017F
2018F
Factory
S$ psf/mth 2.09
S$ psf/mth 1.88
S$ psf/mth 1.75
S$ psf/mth 1.70
Warehouse
1.98
1.79
1.66
1.58
Business Park
4.15
4.15
4.24
4.32
% Chg
% Chg
% Chg
% Chg
Factory
y-o-y -2%
y-o-y -10%
y-o-y -7%
y-o-y -3%
Warehouse
-3%
-10%
-7%
-5%
Business Park
-1%
0%
2%
2%
Rentals for factory and warehouse segments are forecast to decline by 5-10% over the next two years. We forecast warehouse space to see the largest declines given supply competition. Business park segment is expected to increase by 2% in 2017-2018, supported by a lack of supply completions.
Source: JTC, URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 70
Page 70
Industry Focus Singapore Developers & REITs Industrial Sub-sector – Multi-User Factory Figure 100: Multi-user factory supply: Supply spike in 2016 to be an overhang 7.0
Remarks 16%
M illion Sqft
14%
6.0
12%
5.0
10%
4.0
8% 3.0
6%
2.0
4%
1.0
2%
-
0%
Source: JTC, URA, DBS Bank Demand
Supply
Vacancy Rate (%)
Supply completions to spike in 2016-2018; resulting in vacancy rates increasing to more than 14%. However, we see risk emerging from “shadow space” arising from the single-user factory segment if end-users decide to sub-lease part of their space (bottom chart). Rentals are expected to remain under pressure as competition heats up. We project a 7-10% drop over 2016-2017 followed by a more modest 3% fall in 2018.
Figure 101 Multi-user factory: Occupancy and rental rates to dip 7.0
92%
M illion Sqft
6.0
91%
5.0
90%
4.0
89%
3.0
88%
2.0
87%
1.0
86%
-
85%
(1.0)
84% Annual Demand (sqm) LHS
Annual Supply (Sqm) LHS
Occupancy Rate (%) RHS
Source: JTC, URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 71
Page 71
Industry Focus Singapore Developers & REITs Industrial Sub-sector – Warehouse Figure 102: Warehouse: Oversupply situation to persist till 2018 12.0 Million Sqft 10.0 8.0 6.0 4.0 2.0 Demand Supply Vacancy (%) RHS Source: JTC, URA, DBS Bank
Remarks 12%
Supply under construction remains one of the highest among industrial subsectors, at close to 21%.
10% 8%
While new supply appears to be pre-committed, we believe that shadow space will emerge from tenant consolidation from multiple locations to single warehouses for efficiency purposes.
6% 4% 2%
0%
Figure 103: Warehouse: Occupancy to dip below 90%
12.0
M illion sqft
Remarks
(%)
Warehouse rents expected to decline 710% over 2016-2017.
95% 94%
10.0
93%
8.0
Occupancy rates projected to dip below 90% going forward.
92% 91%
6.0
90% 4.0
89%
2.0
88% 87%
-
86% 85%
(2.0) Annual Demand (m'sqft) LHS Occupancy Rate (%) RHS
Annual Supply (m'sqft) LHS
Source: JTC, URA, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 72
Page 72
Industry Focus Singapore Developers & REITs Industrial Sub-sector – Business Parks Figure 104: Majority of Business Park space has been pre-committed
Remarks
'000 sqft 3.00 2.50
While the sector is expected to see a c.14% increase in supply, a majority has been pre-committed with minimal speculative built except for certain properties – Mapletree Business City which has also seen good take-up rates.
100%
Global Financial Crisis (2008‐2009)
95%
Eurozone Crisis (2012)
2.00
90%
1.50 85%
1.00 80%
0.50
75%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F (0.50)
70% Demand for Private Business Park Occupancy (%) RHS
Supply for Private Business Park
Source: JTC, URA, DBS Bank
Figure 105: Business parks: Rental differential currently above historical averages 20
Remarks
Business Park vs. Grade A Office rents
(S$ ps f/mth)
Business park rents (offcentral and rest of Island) tend to be at 50% and 60% discounts to Grade A offices respectively.
18 16 14 12
Current differential above historical average but softening outlook for CBD office rents caps further upside.
10 8 6 4 2 0 4Q04
4Q05
4Q06
4Q07
4Q08
Grade A Office
Source: JTC, URA, DBS Bank
ASIAN INSIGHTS
4Q09
4Q10
4Q11
Business Park - Rest of Island
4Q12
4Q13
4Q14
4Q15
Series3
VICKERS SECURITIES
Page 73
Page 73
Industry Focus Singapore Developers & REITs 10. Hospitality Outlook Summary Key Assertions Supply remains the key drag on RevPAR growth prospects. Corporate demand to remain soft; demand for accommodation to lag supply growth. Hotel sector to bottom only from 2H17-2018 onwards.
10.1 Trends, demand and supply outlook Decline in 3Q16 RevPAR. Following a soft second-quarter where RevPAR was weak and declined 3% y-o-y to S$191, RevPAR in the third-quarter (3Q16) continued to fall, based on the Singapore Tourism Board (STB) statistics. The 4% fall in RevPAR was a result of a decrease in both occupancy (87.2% vs 88.3% in 3Q15) and average daily rate (ADR; S$244 versus S$249 in 3Q15) as excess supply continued to weigh on the market despite an increase in tourists arrivals. However, tourist arrivals for 3Q16 was positive, up 4%, driven largely by Chinese tourists (+20%).
2017 will be another challenging year. While we expect tourist arrivals into Singapore to increase in 2016 by 9% to 16.6 million, largely led by a 35% jump Chinese visitors (+41% in Jan-Sep), we forecast total visitor days to rise by only 4% due to the shorter average length of stay. In addition, while the increase in new supply this year is now lower than earlier expected due to delays in completion of some hotels (2,520 net rooms to be added this year versus 3,930 previously), we remain cautious on the outlook for revenue per available room (RevPAR) given soft demand from the corporate sector which typically offers higher yields, and excess supply. Thus, we project that RevPAR in 2016 will drop by 4% year-on-year (y-o-y) to S$201. For 2017, we expect tourist arrivals to grow at a more modest rate of 4%, but average length of stay to lengthen, resulting in 5% uplift in total visitor days. However, with corporate demand expected to remain soft and persistent supply pressures arising from a 6% increase in room stock, 2017 RevPAR is projected to fall 4%.
Figure 106: Hospitality sector remained under pressure in 3Q16 3Q15
2Q16
3Q16
q-o-q
y-o-y
88.3%
83.2%
87.2%
4.0%
-1.2%
Industry average daily rate (S$)
249
229
244
6.6%
-1.9%
Industry RevPAR (S$)
220
191
212
11.2%
-3.6%
4,096,271
4,022,046
4,248,079
5.6%
3.7%
Luxury RevPAR (S$)*
409
348
421
21.2%
3.1%
Upscale RevPAR (S$)*
242
215
233
8.4%
-3.8%
Mid-Tier RevPAR (S$)*
157
144
151
5.2%
-3.8%
Economy RevPAR (S$)*
90
81
84
3.7%
-6.9%
Industry Occupancy
Tourist* arrivals
Source: Singapore Tourism Board, STR Global, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 74
Page 74
Industry Focus Singapore Developers & REITs Demand Overall increase in seat capacity to Singapore points to growth in tourist arrivals offset by decline in average length of stay. Based on data from Centre for Asia Pacific Aviation (CAPA), seat capacity between Singapore and the rest of the world is projected to increase 3% on-year in the fourth quarter of this year following an increase of 3% during January-September. Overall seat capacity is expected to increase by a further 5% yo-y in the first quarter of 2017. We believe this is supportive of a sustained recovery in Singapore arrivals and underpins our forecast for a 9% and 3% increase in tourist arrivals in 2016 and 2017 respectively. However, given the lower “quality” of tourists coming in such as tour groups, which typically only stay 1-2 days in Singapore, we forecast total visitor days to rise by only 3% in 2016 due to a shorter average length of stay of 3.42 days, down from 3.61 days in 2015. For 2017, we expect a slight increase in the average length of stay to 3.46 days as the proportion of Chinese visitors fall, resulting in total visitor days rising by 5% y-o-y. Recovery in Chinese tourists. Following an extremely weak 2014 where Chinese tourist arrivals (Singapore’s second largest source market) dropped 24% on‐year to 1.7 million due to Chinese tour groups avoiding Southeast Asia as a consequence of the MH370 incident and the political uncertainty in Thailand, Chinese visitor arrivals recovered in 2015, rising 22% on‐year to 2.1 million. We expect the recovery to continue in 2016. With visitor arrivals from China growing 41% y‐o‐y during January to September, the recovery is on track to hit our 35% growth projection for this year. Beyond 2016, we expect Singapore to remain an attractive destination for Chinese visitors, and we expect arrivals from China will increase by 10% and 7.5% in 2017 and 2018 respectively. Recovery in Indonesian visitors. We project Indonesian tourist arrivals (Singapore’s largest source market) to grow by 6% this year due to a healthy performance during January to September (arrivals up by 6%), and low base effect as overall tourist arrivals in 2015 was down 10% y‐o‐y. This is despite a 2% decline in seat capacity between Indonesia and Singapore in 2016 based on data from CAPA. For 2017 and 2018, we expect growth to normalise to 3% per annum.
share, e.g. Singapore accounts for 38-39% of total Indonesian outbound travel. Potential headwinds from near-term currency volatility. The recent depreciation of regional currencies, especially the IDR and MYR, could pose near-term headwinds to tourist arrivals into Singapore. Nevertheless, the number of Indonesian and Malaysian visitors (third largest source market) to Singapore is expected to remain on an upward trajectory as the SGD was weak against the IDR and MYR over the past six months. Supply Pressure from new room supply. While new room supply in 2016 is projected to be lower than the 4,237 rooms added in 2015, supply pressures should still persist with a net addition of 2,520 rooms. This is despite a reduction from the 3,930 rooms projected earlier this year, on account of delays in the completion of hotels. As a consequence of hotels such as Intercontinental Robertson Quay and Sofitel at Tanjong Pagar Centre which were originally scheduled to open in 2016 being shifted to 2017, supply for 2017 now stands at 3,857 rooms, up from 2,727 rooms previously. Thus, the demand and supply situation in Singapore is likely to become more balanced only in 2018, when supply pressures ease and new room inventory is projected to increase by only 2%. 2016 supply mainly outside traditional areas with 2017 supply growth to come from Central Business District (CBD) and Orchard. The majority of new supply in 2016 is concentrated outside the traditional areas of Bras Basah, CBD, Orchard and Singapore River, such as Changi, Joo Chiat and East Coast. These hotels account for 1,413 rooms or 45% of supply in 2016. Meanwhile, the second largest cluster of hotels opening in 2016 are located in the Singapore River precinct (20% of 2016 supply). These include M Social, and The Warehouse Hotel. Combined with the completion of refurbishment works at Swissotel Merchant Court, an estimated 507 rooms (9% of existing supply in the precinct) will hit the market. Beyond the new supply in the Singapore River area, the rebranding of Riverview Hotel as Four Points by Sheraton would also raise the level of competition in this sub-market. In 2017, the majority of supply will switch back to Orchard (1,612 rooms, equivalent to 14% of existing Orchard inventory, from Novotel on Stevens and Ascott Orchard) and the CBD area (c.748 rooms from hotels such as JW Marriot, Sofitel Singapore Tanjong Pagar, The Murray Hotel and Grand Park City Hall).
Competition from other markets. Singapore faces increased competition from other tourism markets through a variety of factors which include easier access to other countries through the relaxation of visa restrictions, e.g. multiple entry visas for Chinese visitors into Japan; devaluation of the other regional currencies, potentially making its cheaper to visit other countries More evenly balanced across tiers in 2016 with growth in luxury in 2017. In 2015, the growth in supply was driven by the Midcompared to Singapore, e.g. a weaker Korean won and Tier segment, which represented 64% of total net new supply Japanese yen; and Singapore already having a high market in 2015 and 20% of existing Mid-Tier stock. For 2016, the new
ASIAN INSIGHTS
VICKERS SECURITIES
Page 75
Page 75
Industry Focus Singapore Developers & REITs supply of 2,520 rooms is more evenly spread across all the different categories, 25% in Economy, 40% in Mid-Tier and 25% in Upscale, with no hotels opened in the Luxury segment. Nevertheless, similar to 2015, we expect Mid-Tier and Economy categories to face the greatest pressure on ADR and occupancies. For 2017, the proportion of new room supply to Economy, Mid-Tier and Upscale hotels is expected to drop to 21%, 34% and 25% respectively, with Luxury hotels making a return with 21% of 2017 supply. With a larger proportion of new rooms being added in the Upscale and Luxury segment in 2017, there may be more pricing discipline compared to 2016 given constraints by these upper-tier brands to cut room rates without affecting their brand status. Forecasts
hotels this year, supply growth is still projected to increase by 4%. Combined with continued weak corporate demand, which is typically higher yielding, we project a 4% decline in RevPAR to S$201. This will be led by a decline in ADR (down 4% to S$236) with occupancy relatively stable at c.85%. 2017 still weak with recovery only in 2018. With the carryover of new hotels which were originally scheduled to open in 2016 into 2017, our earlier expectation of a more balanced market in 2017 is likely to be delayed into 2018 where the supply of new hotels drops off. The decline in new room supply in 2018 is due to the lack of new land released by the Singapore government for hotel developments over the past two years. On the back of a 6% jump in supply in 2017 and still weak corporate demand, we expect ADR to remain under pressure, down 4% with occupancy stable at 85%. This translates to a 4% decline in RevPAR. Going into 2018, we expect a 3% recovery in RevPAR, as demand (+4% growth in visitor arrivals) exceeds the 2% growth in new room supply.
Supply pressures to weigh on RevPAR in 2016. The Singapore hospitality market is facing the same issues in 2016 as in 2015, i.e. excess supply. While we expect a 9% bounce in tourist arrivals, we believe this will only translate to a 4% increase in visitor days due to a higher proportion of Chinese tour groups which typically have a shorter average length of stay. In addition, while there has been a delay in the opening of some Figure 107: Number of visitors rising year-to-date but growth in visitor days still modest and RevPAR remains soft on supply pressure
Remarks Tourist arrivals jumped 4% in 3Q16, led by China (+20%), Indonesia (+ 3%) and India (+6%) But visitor days were only up by 1% due to decline in average length of stay RevPAR remains weak, down 4% in 3Q16 on excess supply and weak corporate demand
Source: Singapore Tourism Board, STR Global, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 76
Page 76
Industry Focus Singapore Developers & REITs Figure 108: Uptick in overall airline capacity points to sustained recovery in tourist arrivals
Remarks Historically, there is a positive correlation between seat capacity growth and inbound tourist arrivals Inbound tourist arrivals have recovered following a reduction in seat capacity in 2014 second half and 2015 first half Airline seat capacity into Singapore is projected to grow by 3% and 5% y-o-y in fourth quarter 2016 and first quarter 2017 which underpins growth of tourist arrivals into Singapore. We project 9% and 4% growth in visitor arrivals for 2016 and 2017
Source: Centre for Asia Pacific Aviation, Singapore Tourism Board, Bloomberg Finance L.P., DBS Bank
Figure 109: Chinese visitor arrivals on a recovery path
100%
y-o-y growth
Recovery from weak 2014
80% 60%
Remarks
Mar14 - MH370 incident
40%
Chinese visitors avoided Singapore/Southeast Asia in 2014 due to the MH370 incident and political instability in Thailand.
20% 0% -20% -40%
Oct13 - New Chinese tourism laws
May14 - Thai military coup
Recovery in Chinese visitors over 2015-2016. Expect growth in visitors from China to continue but at a slower rate than in first half 2016.
Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16
-60%
Downturn in Chinese arrivals started from October 2013 due to new tourism laws which banned “shopping tours”.
Source: Singapore Tourism Board, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 77
Page 77
Industry Focus Singapore Developers & REITs Figure 110: Stable 2H16 seat capacity between Indonesia and Singapore with pick-up in 1Q17
Remarks Growth in Indonesian arrivals from 4Q12 to 2Q14 on the back of increases in seat capacity between Indonesia and Singapore, despite a weaker rupiah against Singapore dollar. The trend reversed from 3Q14 to 4Q15 on the back of declines in seat capacity especially in the low cost carrier segment
Healthy start to 2016, with 6% y-o-y growth in tourist arrivals from Indonesia in Jan to Sep despite a decline in overall airline seat capacity Stable seat capacity between Indonesia and Singapore in 4Q16; 7% y-o-y pick up in 1Q17 points to continued growth in Indonesian tourist arrivals. We project 5.5% and 3% increases for 2016 and 2017 respectively
Source: Centre for Asia Pacific Aviation, Singapore Tourism Board, Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 78
Page 78
Industry Focus Singapore Developers & REITs Figure 111: Uptick in arrivals not translating to significant growth in visitor days
Remarks Despite healthy increase in total visitors arrivals into Singapore of c.9% for the first nine months of the year, visitor days i.e. total length of time spent in Singapore only rose 3.1 % The more modest growth in visitor days is due to a decline in the average length of stay from 3.61 days in 2015 to 3.49 days for 9M16. The fall in the average length stay was driven by an increase in Chinese visitors who are on tour groups, typically staying only for 1-2 days
Source: Singapore Tourism Board, Bloomberg Finance L.P., DBS Bank
Figure 112: Increased competition from other tourism markets (9M16 inbound tourist arrivals)
Remarks Increased competition for Chinese tourists from countries such as Japan, Korea and Australia Singapore getting a larger share of Chinese tourists potentially due to Singapore Tourism Board’s success in promoting Singapore as a single destination, following weaker growth in the prior year General upturn in Indonesian outbound travel but Singapore lagging growth of other market such as South Korea and Japan
Source: CEIC, Singapore Tourism Board, Bloomberg Finance L.P, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 79
Page 79
Industry Focus Singapore Developers & REITs Figure 113: Recent FX volatility in regional currencies a potential headwind 15%
Remarks
Winners versus SGD - IDR, AUD, Avg
10%
IDR AUD
5%
Avg MYR
0%
Recent correction in regional currencies for Singapore’s top five source markets a potential headwind. However, weakening of SGD over the last six months provides some buffer.
INR
-5%
CNY -10%
Losers versus SGD - INR, CNY -15%
AUD
CNY
INR
MYR
IDR
Top 5 weighted average
* Inbound travel statistics for Singapore and Thailand related to 8M16 Source: CEIC, Singapore Tourism Board, Bloomberg Finance L.P., DBS Bank
Figure 114: Opening of some hotels delayed from 2016 to 2017
Remarks
Rooms 75,000 70,000 65,000 60,000
6.0% 4.1%
3,857
2.0%
1,355
2,520
61,287
Despite delays in the completion of new hotels resulting in 2,520 net new rooms being added in 2016 (down from 3,930 previously), supply pressures are expected to persist due to a 4% growth in supply. Delay in the demand and supply situation in Singapore being more balanced as hotels previously expected to open in 2016 are now shifted to 2017 resulting in a 6% growth in room inventory in 2017.
55,000 50,000 45,000 2015
2016F 2017F Hotel rooms Expected net additions
Source: CDL Hospitality Trust, Singapore Tourism Board, DBS Bank
2018F
Potential recovery in 2018 only when supply pressures ease.
ASIAN INSIGHTS
VICKERS SECURITIES
Page 80
Page 80
Industry Focus Singapore Developers & REITs Figure 115: More supply in Singapore River and CBD areas in 2016 switching to Orchard in 2017 Number of rooms 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 -500 -1,000
Remarks New supply switching from Orchard and Bras Basah in 2015 to Singapore River and CBD areas in 2016. For 2017, the majority of supply will come from Orchard and CBD areas. Growth in new supply also coming from outside core city centre areas.
2014
2015
Bras Basah/Bugis
2016
CBD
2017
Orchard
Singapore River
2018 Others
Total
Source: CDL Hospitality Trust, Singapore Tourism Board, DBS Bank
Figure 116: Majority of supply growth in 2016 coming from the Mid-Tier category number of rooms 4,500
Remarks Majority of new supply in 2016 coming from the Mid-Tier category.
4,000 3,500
For 2017, there is greater share of new rooms being opened in the luxury and upscale category which may result in more pricing discipline in the industry.
3,000 2,500 2,000 1,500 1,000 500 0 Economy
Mid-Tier 2015
Upscale 2016
Luxury
2017
Total
2018
Source: CEIC, Singapore Tourism Board, DBS Bank
Figure 117: RevPAR to remain weak in 2016 and 2017 with recovery from 2018 y-o-y growth 10.0% 8.0% 7% 6.0%
9% 7%
7% 6%
4% 3.4%
3%4%
4.0%
5% 4%
6% 4% 4% 3% 2%
1%
2.0% 0.0% -2.0%
-1%
-1%
-4.0%
-3%
-4%
-6.0% 2013
-2%
2014
-5% 2015
2016F
-4% 2017F
Visitor Arrivals Visitor Days Room supply Source: CDL Hospitality Trust, Singapore Tourism Board, DBS Bank
2018F RevPAR
Remarks 9% growth in visitor arrivals is expected for 2016 but this will be partially offset by the shorter average length of stay which translates to 3% growth in visitor days. However, a 5% increase in room supply remains a key issue for hoteliers, with RevPAR expected to decline by 4% this year. 2017 to remain a challenging year due to a 6% growth in supply with a recovery only occurring in 2018 when supply pressures ease.
ASIAN INSIGHTS
VICKERS SECURITIES
Page 81
Page 81
Industry Focus Singapore Developers & REITs Figure 118: Supply of new rooms Year of opening 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2018 2018 2018 2018
Hotel The South Beach Hotel Grand Central Ibis Styles Oasia Downtown Hotel Grand Park City Hall Hotel Clover @ 7 HK St Hotel Indigo Singapore Katong Mercure Singapore Middle Road M Social Holiday Inn Express Singapore Katong Crowne Plaza Changi Airport (extension) Premier Inn Singapore JW Marriott Hotel Singapore South Beach (formerly The South Beach) Swissôtel Merchant Court Villa Samadhi The Warehouse Hotel Andaz Singapore (DUO Project) Novotel Singapore on Stevens InterContinental Singapore Robertson Quay (Gallery Hotel after refurbishment) Sofitel Singapore City Centre Hotel (Tanjong Pagar Centre) The Ascott Orchard Singapore The Patina Capitol Singapore Duxton Terrace (formerly Murray House) Duxton House (formerly Blakes) Laguna Dusit Thani Ibis Singapore on Stevens Grand Park City Hall Park Hotel Farrer Park Courtyard Marriott at Novena YOTEL Orchard Road Aqueen Hotel Geylang Aqueen Hotel Little India Frasers @ China Street Yotel Changi Jewel Aqueen Hotel Lavender (Additional rooms) Outpost Hotel Sentosa & Village Hotel Sentosa
Source: CDL Hospitality Trust, Singapore Tourism Board, DBS Bank
Net room addition -654 46 298 314 -165 27 131 395 293 451 243 300 634 150 20 37 342 254 225 222 220 157 138 50 197 528 181 300 250 610 100 83 306 130 69 850
ASIAN INSIGHTS
VICKERS SECURITIES
Page 82
Page 82
Industry Focus Singapore Developers & REITs
11. Charts
ASIAN INSIGHTS
VICKERS SECURITIES
Page 83
Page 83
Industry Focus Singapore Developers & REITs
Singapore REITs S-REIT Sector Yield Spread 8% 7% 6% 5% 4% 3% 2% 1% 0%
Sector Yield spread
Sector Yield
MAS 10 Year
Mean Yield
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
S-REIT Sector Historical P/BV 1.20 Sector P/BV P/BV Mean 1.15
+1 SD -1 SD
1.10
N ov ' 13 (1.04x)
1.05
OC t' 16 ( 1.01)
H i storical Mean : P/NAV at 1. 0x 1.00
0.98
0.95
F e b'14 ( 0.94 x)
N ov ' 15 (0.94 x)
-1 S ta ndard Deviation : 0.92x P / NAV
0.90
N ov ' 11 (0.89x)
Ja n' 16 (0.90x)
0.85 Ja n' 12 (0.84x) 0.80
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 84
Page 84
Industry Focus Singapore Developers & REITs
Office REIT Sector Yield Spread
Office REIT Sector Historical P/BV 1.2
9.0% 8.0%
1.1
7.0%
1.0
6.0% 5.0%
0.9
4.0%
0.8
3.0% 2.0%
0.7
1.0% 0.0% Jan-2010
Jan-2011
Jan-2012
Jan-2013
Jan-2014
Office REITs Yield Spread
Office REITs Yield
-1 SD
+1 SD
Jan-2015
Jan-2016
Jan-2017
0.6 0.5 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-20
Mean Yield
CCT P/BV
Mean
Source: Bloomberg Finance L.P., DBS Bank
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
CapitaLand Commercial Trust Historical Yield Spread
CapitaLand Commercial Trust Historical P/BV 1.2
9.0% 8.0%
1.1
7.0%
1.0
6.0%
0.9
5.0%
0.8
4.0%
0.7
3.0%
0.6
2.0%
0.5 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017
1.0% 0.0% Jan-2010
Jan-2011
Jan-2012
CCT Yield Spread -1 SD
Jan-2013
Jan-2014
CCT Yield +1 SD
Jan-2015
Jan-2016
Office REITs P/BV
Mean Yield
Mean
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Frasers Commercial Trust Historical Yield Spread
Frasers Commercial Trust Historical P/BV 1.2
9.0% 8.0%
1.1
7.0%
1.0
6.0% 0.9
5.0%
0.8
4.0% 3.0%
0.7
2.0% 0.6
1.0% 0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2 FCOT Yield Spread
FCOT Yield
Mean
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
-1 SD
+1 SD
0.5 Jan-2010
Jan-2011
Jan-2012
FCOT P/BV
Jan-2013
Jan-2014
Mean
Jan-2015 +1 SD
Jan-2016 -1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 85
Page 85
Jan
Industry Focus Singapore Developers & REITs
IREIT Global Yield Spread
IREIT Global Historical P/BV
10.0%
1.4
9.0% 8.0%
1.3
7.0% 6.0%
1.2
5.0% 4.0%
1.1
3.0% 2.0% 1.0%
1.0
0.0% Sep-2014
Mar-2015
IREIT Yield Spread
Sep-2015 IREIT Yield
Mar-2016 Mean
Sep-2016 -1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
0.9 Sep-2014
Mar-2015
IREIT P/BV
Sep-2015 Mean
Mar-2016 +1 SD
Source: Bloomberg Finance L.P., DBS Bank
Keppel REIT Historical Yield Spread
Sep-2016 -1 SD
Keppel REIT Historical P/BV 1.2
9.0%
1.1
8.0% 7.0%
1.0
6.0%
0.9
5.0%
0.8
4.0%
0.7
3.0% 2.0%
0.6
1.0% 0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 KREIT Yield Spread
KREIT Yield
Mean Yield
-1 SD
0.5 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 +1 SD
Source: Bloomberg Finance L.P., DBS Bank
Manulife US REIT Historical Yield Spread
KREIT P/BV
Mean
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
Manulife US REIT Historical P/BV
8.0%
1.05
7.0% 6.0%
1.03
5.0%
1.00
4.0%
0.98
3.0%
0.95
2.0%
0.93
1.0% 0.0% Jun-2016
Sep-2016
MUST Yield Spread
MUST Yield
Dec-2016 Mean
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
-1 SD
+1 SD
0.90 Jun-2016
MUST P/BV
Sep-2016
Mean
+1 SD
Dec-2016
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 86
Page 86
Industry Focus Singapore Developers & REITs
OUE Commercial Trust Historical Yield Spread
OUE Commercial Trust Historical P/BV 1.2
9.0%
1.1
8.0% 7.0%
1.0
6.0% 5.0%
0.9
4.0%
0.8
3.0%
0.7
2.0% 1.0%
0.6
0.0% Feb-2014
Aug-2014
OUECT Yield Spread
Feb-2015
Aug-2015
OUECT Yield
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Feb-2016 Mean
Aug-2016 -1 SD
+1
0.5 Feb-2014
Aug-2014
OUECT P/BV
Feb-2015
Aug-2015
Mean
Feb-2016
+1 SD
Aug-2016 -1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 87
Page 87
Industry Focus Singapore Developers & REITs
Retail REIT Sector Yield Spread
Retail REIT Sector Historical P/BV 1.50
8.0%
1.40
7.0%
1.30
6.0%
1.20
5.0%
1.10
4.0%
1.00
3.0%
0.90
2.0%
0.80
1.0% 0.0% Jan-2010
0.70 Jan-2011
Jan-2012
Jan-2013
Jan-2014
Retail REITs Yield Spread
Retail REITs Yield
-1 SD
+1 SD
Jan-2015
Jan-2016
Jan-2017
0.60 Jan-10
Mean Yield
Jan-11
Jan-12
Retail REITs P/BV
Source: Bloomberg Finance L.P., DBS Bank
Jan-13 Mean
Jan-14
Jan-15
Jan-16
+1 SD
Jan-17
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
CapitaLand Mall Trust Historical Yield Spread
CapitaLand Mall Trust Historical P/BV
8.0%
1.5
7.0%
1.4
6.0%
1.3
5.0%
1.2
4.0%
1.1
3.0%
1.0
2.0%
0.9
1.0% 0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-20 CMT Yield Spread
CMT Yield
-1 SD
+1 SD
Mean Yield
0.8 0.7 0.6 Jan-2010 Jan-2011 Jan-2012 CMT P/BV
Jan-2013
Mean
Jan-2014
Jan-2015
+1 SD
Jan-2016 -1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
CapitaLand Retail China Trust Historical Yield Spread
CapitaLand Retail China Trust Historical P/BV 1.4
8.0%
1.3
7.0%
1.2
6.0% 5.0%
1.1
4.0%
1.0 3.0%
0.9
2.0% 1.0% 0.0% Jan-2010
0.8 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017 CRCT Yield Spread
Jan-2011 -1 SD
Jan-2012
CRCT Yield
Jan-2013
+1 SD
Jan-2014
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Mean Yield
Jan-2015
Jan-2016
Jan-2017
CRCT P/BV
Mean
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 88
Page 88
Industry Focus Singapore Developers & REITs
Croesus Retail Trust Historical Yield Spread
Croesus Retail Trust Historical P/BV 1.2
11.0% 10.0% 9.0%
1.1
8.0% 7.0% 6.0%
1.0
5.0% 4.0% 3.0%
0.9
2.0% 1.0% 0.0% Jun-2013
Jun-2014
Jun-2015
Croesus Yield Spread
Croesus Yield
-1 SD
+1 SD
Jun-2016
0.8 Jun-2013 Dec-2013 Jun-2014 Dec-2014 Jun-2015 Dec-2015 Jun-2016 Dec-2016
Mean Yield
Croesus P/BV
Source: Bloomberg Finance L.P., DBS Bank
Mean
Source: Bloomberg Finance L.P., DBS Bank
Frasers Centrepoint Trust Historical Yield Spread
+1 SD
-1 SD
Frasers Centrepoint Trust Historical P/BV 1.5
8.0%
1.4
7.0%
1.3
6.0%
1.2
5.0%
1.1
4.0%
1.0
3.0%
0.9
2.0%
0.8
1.0%
0.7
0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-20 FCT Yield Spread -1 SD
FCT Yield +1 SD
Mean Yield
0.6 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-201 FCT P/BV
Mean
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Mapletree Greater China Commercial Trust Historical Yield Spread
Mapletree Greater China Commercial Trust Historical P/BV 1.3
9.0% 8.0%
1.2
7.0%
1.1
6.0% 5.0%
1.0
4.0% 3.0%
0.9
2.0%
0.8
1.0% 0.0% 2013
2014
2015
MAGIC Yield Spread
MAGIC Yield
-1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
2016 Mean
0.7 Mar-2013
Mar-2014 MAGIC P/BV
Mar-2015 Mean
Mar-2016 +1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 89
Page 89
Industry Focus Singapore Developers & REITs
[SPH REIT Historical Yield Spread
SPH REIT Historical P/BV
8.0%
1.5
7.0%
1.4
6.0%
1.3 1.2
5.0%
1.1
4.0%
1.0
3.0%
0.9 0.8
2.0%
0.7
1.0%
0.6
0.0% Jul-2013
Jul-2014
SPH REIT Yield Spread -1 SD
Jul-2015 SPH REIT Yield +1 SD
Jul-2016
0.5 Jul-2013
Mean Yield
Jul-2014 SPH REIT P/BV
Jul-2015 Mean
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Starhill Global REIT Historical Yield Spread
Starhill Global REIT Historical P/BV
8.0%
Jul-2016 -1 SD
1.5 1.4
7.0%
1.3
6.0%
1.2
5.0%
1.1 1.0
4.0%
0.9
3.0%
0.8 0.7
2.0%
0.6
1.0% 0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan SGREIT Yield Spread -1 SD
SGREIT Yield +1 SD
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
0.5 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 SGREIT P/BV
Mean
+1 SD
-1 SD
Mean Yield
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 90
Page 90
Industry Focus Singapore Developers & REITs Mixed Commercial REIT Sector Yield Spread
Mixed Commercial REIT Sector Historical P/BV
9.0%
1.7
8.0% 1.5
7.0% 6.0%
1.3
5.0% 4.0%
1.1
3.0%
0.9
2.0% 1.0% 0.0% Jan-2010
0.7
Jan-2011
Jan-2012
Jan-2013
Jan-2014
Jan-2015
Mixed Use REITs Yield Spread
Mixed Use REITs Yield
Mean Yield
-1 SD
Jan-2016
Jan-2017
0.5 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017 Mixed Use REITs P/BV
Mean
+1 SD
-1 SD
SD Source: Bloomberg+1Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Mapletree Commercial Trust Historical Yield Spread
Mapletree Commercial Trust Historical P/BV 1.7
9.0% 8.0%
1.5
7.0% 6.0%
1.3
5.0%
1.1
4.0% 3.0%
0.9
2.0%
0.7
1.0% 0.0% Apr-2011
Apr-2012
Apr-2013
Apr-2014
MCT Yield Spread
MCT Yield
-1 SD
+1 SD
Apr-2015
Apr-2016 Mean Yield
0.5 Apr-2011
Apr-2012 MCT P/BV
Apr-2013
Apr-2014 Mean
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Suntec REIT Historical Yield Spread
Apr-2015 +1 SD
Apr-2016 -1 SD
Suntec REIT Historical P/BV 1.5
9.0%
1.4
8.0%
1.3
7.0%
1.2
6.0%
1.1
5.0%
1.0
4.0%
0.9
3.0%
0.8
2.0%
0.7
1.0%
0.6
0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-20
0.5 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016
Suntec Yield Spread
Suntec Yield
-1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Mean
Suntec P/BV
Mean
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 91
Page 91
Industry Focus Singapore Developers & REITs
Hospitality REIT Sector Yield Spread
Hospitality REIT Sector Historical P/BV 1.6
10.0%
1.5
9.0% 8.0%
1.4
7.0%
1.3
6.0%
1.2
5.0%
1.1
4.0%
1.0
3.0%
0.9
2.0%
0.8
1.0%
0.7
0.0% Jan-2010
Jan-2011
Jan-2012
Jan-2013
Jan-2014
Jan-2015
Hospitality REITs Yield Spread
Hospitality REITs Yield
Mean Yield
-1 SD
Jan-2016
Jan-2017
0.6 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017 Hospitality REITs P/BV
+1 SD
Mean
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Ascendas Hospitality Trust Historical Yield Spread
Ascendas Hospitality Trust Historical P/BV
10.0% 9.0%
1.6
8.0% 1.4
7.0% 6.0%
1.2
5.0% 1.0
4.0% 3.0%
0.8
2.0% 1.0% 0.0% Jul-2012
0.6 Jul-2012
Jul-2013
ASCHT Yield Spread
Jul-2014 ASHT Yield
Jul-2015 Mean
Jul-2013 ASCHT P/BV
Jul-2016 -1 SD
Jul-2014
Jul-2015
Mean
+1 SD
Jul-2016 -1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Ascott Residence Trust Historical Yield Spread
Ascott Residence Trust Historical P/BV
10.0%
1.6
9.0% 8.0%
1.4
7.0% 6.0%
1.2
5.0% 4.0%
1.0
3.0% 2.0%
0.8
1.0% 0.0% Jan-2010
Jan-2011
Jan-2012
Jan-2013
Jan-2014
Ascott Yield Spread
Ascott Yield
-1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Jan-2015
Jan-2016 Mean Yield
Jan-2
0.6 Jan-2010
Jan-2011
Jan-2012
Ascott P/BV
Jan-2013 Mean
Jan-2014
Jan-2015 +1 SD
Source: Bloomberg Finance L.P., DBS Bank
Jan-2016
Jan-2
-1 SD
VICKERS SECURITIES
Page 92
Page 92
Industry Focus Singapore Developers & REITs
CDL Hospitality Trust Historical Yield Spread
CDL Hospitality Trust Historical P/BV
10.0% 1.6
8.0%
1.4
6.0%
1.2
4.0%
1.0
2.0%
0.8
0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016
0.6 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017 CDREIT P/BV
-2.0% CDREIT Yield Spread -1 SD
CDREIT Yield +1 SD
Mean
+1 SD
-1 SD
Mean Yield
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Far East Hospitality Trust Historical Yield Spread
Far East Hospitality Trust Historical P/BV
10.0%
1.60
9.0% 8.0%
1.40
7.0% 6.0%
1.20
5.0% 4.0%
1.00
3.0% 2.0%
0.80
1.0% 0.0% Aug-2012
Aug-2013
FEHT Yield Spread
Aug-2014 FEHT Yield
Aug-2015 Mean
Aug-2016 -1 SD
+1 S
0.60 Aug-2012
Aug-2013
FEHT P/BV
Aug-2014 Mean
Aug-2015 +1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Frasers Hospitality Trust Historical Yield Spread
Frasers Hospitality Trust Historical P/BV
10.0%
Aug-2016 -1 SD
1.6
9.0% 8.0%
1.4
7.0% 6.0%
1.2
5.0% 4.0%
1.0
3.0% 2.0%
0.8
1.0% 0.0% Aug-2014
Feb-2015
FHT Yield Spread
Aug-2015 FHT Yield
Feb-2016 Mean
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Aug-2016 -1 SD
+1 SD
0.6 Aug-2014
Feb-2015
FHT P/BV
Aug-2015 Mean
Feb-2016 +1 SD
Aug-2016
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 93
Page 93
Industry Focus Singapore Developers & REITs OUE Hospitality Trust Historical Yield Spread
OUE Hospitality Trust Historical P/BV
10.0%
1.6
9.0%
1.5
8.0%
1.4
7.0%
1.3
6.0%
1.2
5.0%
1.1
4.0%
1.0
3.0%
0.9
2.0%
0.8
1.0%
0.7
0.0% Jul-2013
Jul-2014
OUEHT Yield Spread -1 SD
Jul-2015 OUEHT Yield +1 SD
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Jul-2016 Mean Yield
0.6 Jul-2013 Jan-2014 Jul-2014 Jan-2015 Jul-2015 Jan-2016 Jul-2016 Jan-20 OUEHT P/BV
Mean
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 94
Page 94
Industry Focus Singapore Developers & REITs
Industrial REIT Sector Yield Spread
Industrial REIT Sector Historical P/BV 1.8
11.0%
1.7
10.0%
1.6
9.0%
1.5
8.0%
1.4
7.0% 6.0%
1.3
5.0%
1.2
4.0%
1.1
3.0%
1.0
2.0%
0.9
1.0% 0.0% Jan-2010
0.8 Jan-2011
Jan-2012
Jan-2013
Jan-2014
Jan-2015
Industrial REITs Yield Spread
Industrial REITs Yield
Mean
+1 SD
Jan-2016
Jan-20
0.7 Jan-2010
Jan-2011
Jan-2012
Jan-2013
Industrial REITs P/BV
Jan-2014
Jan-2015
Mean
Jan-2016
+1 SD
Jan-2017
-1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Ascendas REIT Historical Yield Spread 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Jan-2010
Ascendas REIT Historical P/BV 1.7 1.5 1.3 1.1 0.9
Jan-2011
Jan-2012
AREIT Yield Spread
Jan-2013
Jan-2014
AREIT Yield
Mean Yield
Jan-2015
Jan-2016 -1 SD
Jan-
0.7 Jan-2010
Jan-2011
+1 S
Source: Bloomberg Finance L.P., DBS Bank
Jan-2012
Jan-2013
AREIT P/BV
Jan-2014
Mean
Jan-2015
+1 SD
Jan-2016
Jan
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
Cambridge Industrial Trust Historical Yield Spread
Cambridge Industrial Historical P/BV 1.8
11.0%
1.6
10.0%
1.4
9.0%
1.2
8.0% 7.0%
1.0
6.0%
0.8
5.0% 4.0%
0.6
3.0%
0.4
2.0%
0.2
1.0% 0.0% Jan-2010
Jan-2011
Jan-2012
CREIT Yield Spread -1 SD
Jan-2013
Jan-2014
CREIT Yield +1 SD
S Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Jan-2015
Jan-2016 Mean Yield
Jan-2
0.0 2006
2007
2008
2009
CREIT P/BV
2010
2011
2012
Mean
2013 +1 SD
2014
2015 -1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 95
Page 95
2016
Industry Focus Singapore Developers & REITs Cache Logistics Trust Historical Yield Spread
Cache Logistics Trust Historical P/BV
11.0%
1.7
10.0% 9.0%
1.5
8.0% 7.0%
1.3
6.0% 5.0%
1.1
4.0% 3.0%
0.9
2.0% 1.0% 0.0% Apr-2010
Apr-2011
Apr-2012
Cache Yield Spread -1 SD
Apr-2013
Apr-2014
Apr-2015
Cache Yield +1 SD
0.7 Apr-2010
Apr-2016
Apr-2011
Apr-2012
Cache P/BV
Apr-2013 Mean
Apr-2014
Apr-2015
+1 SD
Apr-2016
-1 SD
Mean Yield
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Frasers Logistics & Industrial Trust Yield Spread
Frasers Logistics & Industrial Trust Historical P/BV
8.0%
1.14
7.0% 6.0%
1.12
5.0%
1.10
4.0%
1.08
3.0%
1.06
2.0%
1.04
1.0% 0.0% Jul-2016
1.02 Aug-2016
FLT Yield Spread
Sep-2016
Oct-2016
FLT Yield
Mean Yield
Nov-2016 -1 SD
Jul-2016
Dec-201
FLT P/BV
+1 SD
Mean
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Keppel DC REIT Historical Yield Spread
Keppel DC REIT Historical P/BV
10.0%
1.8
9.0%
1.7
8.0%
1.6
7.0%
1.5
6.0%
1.4
5.0%
1.3
4.0%
1.2
3.0%
1.1
2.0%
1.0
1.0%
0.9
-1 SD
0.8
0.0% Jan-2015
Jul-2015
KDCREIT Yield Spread
Jan-2016 KDCREIT Yield
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Jul-2016 Mean
-1 SD
+1 S
0.7 Jan-2015
Jul-2015
KDCREIT P/BV
Jan-2016
Mean
+1 SD
Jul-2016
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 96
Page 96
Industry Focus Singapore Developers & REITs
Mapletree Industrial Trust Historical Yield Spread
Mapletree Industrial Trust Historical P/BV
10.0%
1.5
9.0%
1.4
8.0%
1.3
7.0%
1.2
6.0%
1.1
5.0%
1.0 0.9
4.0%
0.8
3.0%
0.7
2.0%
0.6
1.0% 0.0% Apr-2011
Apr-2012
Apr-2013
MINT Yield Spread -1 SD
Apr-2014
Apr-2015
MINT Yield +1 SD
0.5 Oct-2010
Apr-2016
Oct-2011
Oct-2012
MINT P/BV
Mean Yield
Source: Bloomberg Finance L.P., DBS Bank
Oct-2013
Oct-2014
Mean
Oct-2015
+1 SD
Oct-201
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
Mapletree Logistic Trust Historical Yield Spread
Mapletree Logistic Trust Historical P/BV
10.0%
1.5
9.0%
1.4
8.0%
1.3
7.0%
1.2
6.0%
1.1
5.0%
1.0
4.0%
0.9
3.0%
0.8
2.0%
0.7
1.0%
0.6
0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 MLT Yield Spread
MLT Yield
Mean Yield
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
0.5 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 +1
MLT P/BV
Soilbuild Business Space REIT Historical Yield Spread 9.0%
1.40
8.0%
1.30
7.0%
1.20
6.0%
1.10
5.0%
1.00
4.0%
0.90
3.0%
0.80
2.0%
0.70
1.0%
0.60
SBREIT Yield Spread -1 SD
Aug-2015 SBREIT Yield +1 SD
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
-1 SD
Soilbuild Business Space REIT Historical P/BV 1.50
Aug-2014
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
10.0%
0.0% Aug-2013
Mean
Aug-2016
0.50 Aug-2013
Aug-2014
Aug-2015
Aug-2016
Mean Yield SBREIT P/BV
Mean
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 97
Page 97
Industry Focus Singapore Developers & REITs
Ascendas India Trust Historical Yield Spread
Ascendas India Trust Historical P/BV
9.0%
1.7
8.0%
1.6
7.0%
1.5
6.0%
1.4
5.0% 4.0%
1.3
3.0%
1.2
2.0%
1.1
1.0%
1.0
0.0% Jan-2010
Jan-2011
AIT Yield Spread
Jan-2012
Jan-2013
AIT Yield
Jan-2014 Mean Yield
Jan-2015
Jan-2016
-1 SD
Jan-20 +1 SD
0.9 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan AIT P/BV
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Mean
+1 SD
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 98
Page 98
Industry Focus Singapore Developers & REITs
Healthcare REIT Sector Yield Spread
Healthcare REIT Sector Historical P/BV 1.5
8.0%
1.4
7.0% 6.0%
1.3
5.0%
1.2
4.0%
1.1
3.0%
1.0
2.0% 1.0%
0.9
0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-20
0.8 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2
Healthcare REITs Yield Spread
Healthcare REITs Yield
Mean
-1 SD
Healthcare REITs P/BV
Mean
+1 SD
-1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Parkway Life REIT Historical Yield Spread
Parkway Life REIT Historical P/BV 1.7
10.0% 9.0%
1.5
8.0% 7.0%
1.3
6.0% 1.1
5.0% 4.0%
0.9
3.0% 0.7
2.0% 1.0% 0.0% Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 PREIT Yield Spread -1 SD
PREIT Yield +1 SD
0.5 Jan-2010
Jan-2011
Jan-2012
PREIT P/BV
Jan-2013
Jan-2014
Mean
Jan-2015
+1 SD
Jan-2016 -1 SD
Mean
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Religare Health Trust Historical Yield Spread
Religare Health Trust Historical P/BV
10.0%
1.7
9.0% 8.0%
1.6
7.0%
1.5
6.0%
1.4
5.0% 4.0%
1.3
3.0%
1.2
2.0%
1.1
1.0% 0.0% Nov-12
1.0 Nov-13
RHT Yield Spread -1 SD
Nov-14 RHT Yield +1 SD
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
Nov-15
Nov-1 Mean Yield
0.9 Nov-2012
Nov-2013 RHT P/BV
Nov-2014 Mean
Nov-2015 +1 SD
Nov-2016 -1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 99
Page 99
Industry Focus Singapore Developers & REITs
Singapore Developers CapitaLand Limited P/NAV
City Developments Limited P/NAV 3.5
2.5
(X)
(X)
3.0
2.0
2.5 2.0
1.5
1.5 1.0
1.0 0.5
0.5 0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 CapitaLand P/NAV
Mean
-1 SD
City Dev P/NAV
+1 SD
Mean
-1 SD
Source: Bloomberg Finance L.P., DBS Bank
Source: Bloomberg Finance L.P., DBS Bank
Global Logistics Properties Limited P/NAV
UOL Limited P/NAV
1.6
1.4 (X)
1.4
1.2
1.2
1.0
1.0
+1 SD
(X)
0.8
0.8
0.6
0.6
0.4
0.4
0.2
0.2 0.0 2010
2011
2012 GLP P/NAV
2013 Mean
2014 -1 SD
2015
0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
UOL P/NAV
Mean
-1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
Wheelcok Properties P/NAV 2.5
2016
Wingtai P/NAV 2.0
(X)
1.8
(X)
1.6
2.0
1.4 1.2
1.5
1.0 0.8
1.0
0.6 0.4
0.5
0.2 0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Wheelock P/NAV
Mean
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
-1 SD
+1 SD
0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Wingtai P/NAV
Mean
-1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 100
Page 100
Industry Focus Singapore Developers & REITs
UIC Limited P/NAV
Perennial Real Estate P/NAV 1.4
1.6
(X)
(X)
1.2
1.4 1.2
1.0
1.0
0.8
0.8
0.6
0.6
0.4
0.4
0.2
0.2 0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 UIC P/NAV
Mean
-1 SD
0.0 2014 Perennial RE P/NAV
Source: Bloomberg Finance L.P., DBS Bank
Mean
2016 -1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
Ho Bee Group Limited P/NAV
Bukit Sembawang Limited P/NAV 3.5
2.5
2015
+1 SD
(X)
(X)
3.0
2.0
2.5
1.5
2.0 1.5
1.0
1.0 0.5
0.5
0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Ho Bee P/NAV
Mean
-1 SD
+1 SD
Bukit Sembawang P/NAV
Source: Bloomberg Finance L.P., DBS Bank
Mean
-1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
United Engineers P/NAV 1.4
0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Tuan Sing P/NAV 1.2
(X)
1.2
(X)
1.0
1.0
0.8
0.8 0.6
0.6 0.4
0.4
0.2
0.2 0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 United Engineers P/NAV
Mean
Source: Bloomberg Finance L.P., DBS Bank
ASIAN INSIGHTS
-1 SD
+1 SD
0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Tuan Sing P/NAV
Mean
-1 SD
+1 SD
Source: Bloomberg Finance L.P., DBS Bank
VICKERS SECURITIES
Page 101
Page 101
Industry Focus Singapore Developers & REITs
Stock Profiles
ASIAN INSIGHTS
VICKERS SECURITIES
Page 102
Page 102
Singapore Company Guide
CapitaLand Refer to important disclosures at the end of this report
Version 6 | Bloomberg: CAPL SP | Reuters: CATL.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Strong earnings quality
Last Traded Price (4 Jan 2017): S$3.06 (STI : 2,921.31) Price Target 12-mth: S$3.60 (18% upside) Potential Catalyst: Stronger than anticipated residential sales Where we differ: Estimates are more conservative than consensus Analyst Derek TAN +65 6682 3716 [email protected] Rachel TAN +65 6682 3713 [email protected]
Growing recurring revenues from retail mall portfolio and Ascott. Its property portfolio has c. 75% of assets in retail malls, and commercial integrated developments, including Ascott Group, which offers strong income visibility in the medium term. The operating performance of its malls will improve as the properties reach maturity, boosted by the completion of four Raffles City mega developments in China in the medium term.
Price Relative S$
Relative Index
4.4 207
187
3.9
167 147
3.4
127 107
2.9
87 2.4 Jan-13
Jan-14
Jan-15
CapitaLand (LHS)
Forecasts and Valuation FY Dec (S$ m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)
Jan-16
67 Jan-17
Relative STI (RHS)
2015A 4,762 2,325 1,839 1,066 1,066 (8.2) 25.0 25.0 (8) 25.0 9.00 420 12.3 12.3 5.3 13.8 2.9 0.7 0.5 6.1
Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:
2016F 4,109 1,651 1,152 661 661 (38.0) 15.5 15.5 (38) 15.5 9.00 427 19.9 19.9 nm 21.0 2.9 0.7 0.6 3.7
2017F 4,959 1,851 1,313 753 753 14.0 17.7 17.7 14 17.7 9.00 436 17.5 17.5 11.9 18.9 2.9 0.7 0.6 4.1
2018F 4,730 1,961 1,357 779 779 3.4 18.3 18.3 3 18.3 9.00 445 16.9 16.9 17.5 18.2 2.9 0.7 0.6 4.2
17.0 B: 18
19.0 S: 0
20.8 H: 3
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P
ASIAN INSIGHTS ed: JS / sa:JC, PY
Improving earnings quality. We believe that CapitaLand Limited (CAPL) offers good value, trading at an attractive 0.7x P/B and 0.6x P/RNAV. The group’s strategy to focus on growing its commercial portfolio is bearing fruit, offering better earnings visibility. Coupled with opportunistic asset recycling of mature assets into its listed REITs/funds, there is ample upside potential to our earnings estimates. We maintain our BUY call with a target price of S$3.60.
Robust set of 3Q16 results. CAPL reported a robust 28.4% growth in net profit to S$247.5m, on the back of stronger revenues which was up 27.7% to S$1,373m. The better performance was seen across its portfolio, but mainly driven by development projects in Singapore and China, and higher performance from its Singapore commercial portfolio. Tenant sales across its malls in Singapore and China were stable. Valuation: Our target price of S$3.60 is based on a 25% discount to our adjusted RNAV of S$4.80/share. Our RNAV is based on our estimates of the market valuations of its various property developments and investment property assets across its various divisions. Key Risks to Our View: Slowdown in Asian economies. The risk to our view is if there is a slowdown in Asian economies, especially China, which could dampen demand for housing and private consumption expenditure and retail sales. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Temasek Holdings Pte Ltd Blackrock Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate
4,237 12,966 / 9,167 40.1 6.0 53.9 17.4
VICKERS SECURITIES Page 103
Company Guide CapitaLand
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Growing recurring revenues from retail mall portfolio and Ascott. While trading properties (residential development and strata offices) account for 24% of assets, we see continued strength from CAPL’s retail mall division (CapitaMalls Asia) and commercial integrated developments, including Ascott Group, its successful serviced residence brand, which form a significant 76% of total assets and is expected to contribute to growing recurring income for the group.
Revenue (S$’m) 6,000.0
S $'m
5,000.0
4,000.0 3,000.0
2,000.0
1,000.0
13A
14A
15A
16F
17F
18F
Breakdown of Revenues (FY17)
CapitaMalls Asia continues to perform steadily despite ongoing operational headwinds. There are 87 operating properties across Asia (56 of it in China). As at Sep-16, the group’s shopping malls continue to record steady sales and occupancy rates. Portfolio tenant sales remained healthy at 2.5% for Singapore and 5.2% in China on the back of improving traffic. For China, sales performance varies, with malls in Tier 1 cities performing better (tenant sales +2.8%) while those in Tier 2 and Tier 3 cities marginally higher by 2.4% and 1.7% respectively. Looking ahead, CAPL is expected to open another 16 properties (nine in China) in the next few years. In addition, Raffles City integrated developments in China will continue to offer stable returns (7-8% for stabilised properties in Shanghai and Beijing, c.3% for stabilising properties in Chengdu and Ningbo). Looking ahead, the group will be opening four more Raffles City developments in 2016-2018, which will boost the group’s returns and profitability when completed.
Ascott 16%
Others 3%
CapitaLand Singapore 21%
CapitaMalls Asia 31%
Capitaland China 29%
Operating PATMI (Ex Revaluations) 900.0
S $'m
800.0 700.0
600.0 500.0 400.0 300.0 200.0
The Ascott Limited remains on the fast track to achieve its 80,000-unit target by year 2020 and will add another 770 units by 4Q16. Ascott’s investment in China’s largest and fastestgrowing online apartment sharing platform, Tujia has yet to bear fruit meaningfully but we continue to believe in its longer term synergies and ability to leverage on Tujia’s platform to reach out to a wider addressable market in the medium term. Launch of new PE funds. Leveraging on its fund management expertise, CAPL aims to launch 5-6 private equity (PE) funds with funds under management of S$8-10bn by 2020. We think that by tapping on third-party capital, CAPL would be able to leverage on larger economies of scale, better capitalise on market opportunities and at the same time de-risk its property level exposure. The group launched the US$1.5bn Raffles City China Investment Partners III (RCCIP III) aimed at prime integrated developments in gateway cities in China which will likely be seeded by their properties.
100.0 13A
14A
15A
16F
17F
18F
RNAV of CapitaLand
S$'bn
Value of CapitaLand Singapore
7,082.5
Value of CapitaLand China CapitaMalls Asia
9,818.5 17,446.0
Ascott
4,237.1
Others GDV of CAPL Group Less: Net Debt
855.0 39,439.2 (11,552.3)
Less: devt capex
(7,548.6)
RNAV of CAPL
20,458.3
Total Shares
4,258.6
RNAV per share
4.80
Discount to RNAV
25%
Target price
3.60
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 104
Company Guide CapitaLand
Balance Sheet: Balance sheet remains strong. We forecast debt/equity ratio to remain stable, at below c.0.6x over the coming years. Debt maturity profile remains long at 3.5 years (as of 3Q16) with an average cost of 3.4%. Approximately 70% of the interest cost is hedged into fixed rate debt.
Leverage & Asset Turnover (x) 0.2 0.70
0.2
0.60
0.2 0.1
0.50
0.1 0.40
0.1 0.1
0.30
0.1
0.20
0.0
Share Price Drivers: De-risking its Singapore residential exposure/replenishing land bank. CAPL has been actively de-risking its Singapore residential exposure through active marketing of its unsold units across its projects and most completed projects are substantially sold. Singapore residential is only c.6% of its total asset value, and is not likely to have a major impact on earnings if further risks arise. Looking ahead, while the group has not been an active investor in Singapore’s residential market, winning any new land tenders will imply improved confidence in the outlook for Singapore’s residential market in the medium term.
0.10
0.0 0.0
0.00 2014A
2015A
2016F
Gross Debt to Equity (LHS)
2017F
2018F
Asset Turnover (RHS)
Capital Expenditure S$m 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0
Relaxation of government policies. Expectations of policy relaxation (especially cyclical measures like the Buyers’ and Sellers’ stamp duties) may improve buyers’ market sentiment and spark a revival in transactional volumes in the Singapore residential market. This is also expected to lift sentiment on property stocks, which we believe will enable CAPL to close the gap between stock price and its NAV. Asset recycling into listed S-REITs. CAPL will continue to demonstrate its ability to crystallise value through strategic divestments of mature assets to its listed REITs, which are market leaders in their respective subsectors of retail, office and hospitality. The ability to recycle capital efficiently will enable the group to free up capital, improve its balance sheet position and deploy capital to projects with higher returns.
0.0 2014A
2015A
2016F
2017F
2018F
Capital Expenditure (-)
ROE (%) 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2014A
2015A
2016F
2017F
2018F
Forward PE Band (x) (x) 22.4
Key Risks: Slowdown in Asian economies. The risk to our view is a further slowdown in Asian economies which could dampen demand for housing and private consumption expenditure and retail sales. This in turn could result in slower-than-expected projections. Company Background CapitaLand is one of Asia’s largest real estate companies headquartered and listed in Singapore. Its two core markets are Singapore and China; while Indonesia, Malaysia and Vietnam have been identified as new growth markets.
+2sd: 21.2x
20.4 18.4
+1sd: 18.3x
16.4
Avg: 15.3x
14.4 12.4
‐1sd: 12.4x
10.4
‐2sd: 9.4x 8.4 Jan-13
Jan-14
Jan-15
Jan-16
PB Band (x) 1.3
(x)
1.2 1.1 1.0
+2sd: 1.01x
0.9
+1sd: 0.91x
0.8
Avg: 0.82x
0.7
‐1sd: 0.72x
0.6
‐2sd: 0.62x
0.5 Jan-13
Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 105
Company Guide CapitaLand
Segmental Breakdown FY Dec
2014A
2015A
2016F
2017F
2018F
Revenues (S$m) CapitaLand Singapore CapitaLand China CMA Ascott Others Total
1,242 638 1,178 683 185 3,925
1,229 2,039 663 744 86.1 4,761
890 1,505 840 725 148 4,109
1,030 2,005 997 775 151 4,959
1,053 1,601 1,128 794 153 4,730
2014A
2015A
2016F
2017F
2018F
3,925 (2,543) 1,382 (513) 869 541 970 (382) 0.0 1,997 (238) (599) 0.0 1,161 1,161 2,444
4,762 (3,287) 1,475 (431) 1,044 490 726 (422) 0.0 1,839 (344) (430) 0.0 1,066 1,066 2,325
4,109 (2,245) 1,864 (465) 1,398 0.0 188 (435) 0.0 1,152 (207) (283) 0.0 661 661 1,651
4,959 (2,851) 2,107 (489) 1,619 0.0 167 (473) 0.0 1,313 (236) (323) 0.0 753 753 1,851
4,730 (2,498) 2,232 (513) 1,719 0.0 177 (539) 0.0 1,357 (244) (334) 0.0 779 779 1,961
11.8 7.4 27.8 32.7
21.3 (4.9) 20.2 (8.2)
(13.7) (29.0) 33.9 (38.0)
20.7 12.1 15.8 14.0
(4.6) 6.0 6.2 3.4
35.2 22.1 29.6 7.1 2.6 1.9 33.0 2.3
31.0 21.9 22.4 6.1 2.3 2.0 36.0 2.5
45.4 34.0 16.1 3.7 1.4 2.7 58.0 3.2
42.5 32.6 15.2 4.1 1.6 3.0 50.9 3.4
47.2 36.3 16.5 4.2 1.7 3.1 49.2 3.2
Income Statement (S$m) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)
Mainly from residential sales in China and Singapore
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 4
Page 106
Company Guide CapitaLand
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA
1Q2016
2Q2016
3Q2016
1,076 (738) 338 (30.2) 308 0.0 140 (105) 0.0 343 (64.4) (85.6) 193 193 448
1,740 (1,359) 381 (28.4) 352 0.0 224 (97.1) 0.0 479 (84.7) (147) 248 248 576
894 (615) 279 2.70 282 0.0 165 (108) 0.0 339 (51.6) (69.6) 218 218 447
1,132 (828) 304 77.9 382 0.0 198 (102) 0.0 477 (82.1) (101) 294 294 580
1,374 (950) 423 (89.3) 334 0.0 149 (101) 0.0 383 (61.2) (74.1) 248 248 483
4.3 (17.4) 0.5 36.1
61.7 28.6 14.4 28.5
(48.6) (22.4) (19.9) (11.9)
26.6 29.6 35.3 34.7
21.4 (16.6) (12.5) (15.8)
31.4 28.6 17.9
21.9 20.3 14.2
31.2 31.5 24.4
26.8 33.7 26.0
30.8 24.3 18.0
Balance Sheet (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
1,047 12,781 18,705 2,941 0.0 963 7,676 44,113
808 12,858 20,760 4,257 0.0 1,424 6,945 47,053
908 13,130 21,260 2,151 0.0 1,027 6,808 45,285
1,007 13,389 21,760 2,477 0.0 1,240 6,259 46,131
1,107 13,654 22,260 2,431 0.0 1,154 6,299 46,904
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.
3,469 3,070 463 12,517 1,386 16,758 6,451 44,113
2,246 4,064 620 13,812 1,373 17,905 7,032 47,053
2,246 1,386 684 14,312 1,373 18,183 7,101 45,285
2,246 1,088 777 14,812 1,373 18,553 7,282 46,131
2,246 690 879 15,312 1,373 18,949 7,455 46,904
5,107 (13,045) 99.1 438.9 N/A 0.1 1.7 0.6 0.6 0.8 0.8 1.1
3,685 (11,801) 91.5 404.1 N/A 0.1 1.8 0.8 0.5 0.7 0.4 1.1
5,766 (14,407) 108.9 456.1 N/A 0.1 2.3 0.7 0.6 0.8 1.0 1.1
5,633 (14,581) 83.4 162.1 N/A 0.1 2.4 0.9 0.6 0.8 1.0 1.1
5,883 (15,127) 92.3 133.4 N/A 0.1 2.6 0.9 0.6 0.8 0.9 1.1
Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)
Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)
Gearing to remain stable
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 5
Page 107
Company Guide CapitaLand
Cash Flow Statement (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)
1,997 64.6 (256) (970) 51.9 111 999 (127) (1,357) 841 406 (102) (339) (705) 177 1.38 (3,746) (4,272) 55.0 (3,557) 22.2 20.5
1,839 65.0 (145) (726) 1,264 169 2,466 (64.0) (718) 509 394 33.0 154 (727) (212) 0.0 (274) (1,213) 16.9 1,424 28.2 56.4
1,152 65.0 (144) (188) (2,144) 0.0 (1,259) (164) (500) (150) 65.8 0.0 (749) (598) 500 0.0 0.0 (98.1) 0.0 (2,106) 20.8 (33.4)
1,313 65.0 (143) (167) 39.3 0.0 1,107 (164) (500) (150) 58.5 0.0 (756) (525) 500 0.0 0.0 (24.9) 0.0 326 25.1 22.1
1,357 65.0 (142) (177) (352) 0.0 751 (164) (500) (150) 62.1 0.0 (752) (545) 500 0.0 0.0 (44.7) 0.0 (45.8) 25.9 13.8
Assumed capex
Source: Company, DBS Bank Target Price & Ratings History S$ 3.37
S. No .
3.27
12 6
3.17 3.07
1
2.87
10 9 11
5 4
1:
16 18
7
2
2.97
14
8
13
15
22 20 17 19 21
3
2.77 2.67 Jan-16
May-16
Sep-16
Jan-17
No t e : Share price and Target price are adjusted for corporate actions.
Dat e o f Repo rt
Clo sin g Pric e
1 2 - mt h T arg et R at in g Pric e
08 J an 16
3.16
3.73
BUY
2:
18 J an 16
3.02
3.73
BUY
3:
16 F eb 16
2.90
3.73
BUY
4:
18 F eb 16
2.91
3.70
BUY
5:
02 Mar 16
3.07
3.70
BUY
6:
16 Mar 16
3.14
3.70
BUY
7:
18 Apr 16
3.16
3.70
BUY
8:
20 Apr 16
3.17
3.70
BUY
9:
27 May 16
2.98
3.70
BUY
10:
31 May 16
2.99
3.70
BUY
11: 12: 13: 14: 15: 16: 17: 18: 19: 20: 21: 22:
09 Jun 16 05 Aug 16 16 Se p 16 30 Se p 16 18 Oct 16 24 Oct 16 07 Nov 16 10 Nov 16 14 Nov 16 16 Nov 16 21 Nov 16 25 Nov 16
3.05 3.22 3.12 3.20 3.13 3.17 3.04 3.08 3.00 2.99 2.98 3.02
3.70 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60
BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY
Source: DBS Bank Analyst: Derek TAN, Rachel TAN
ASIAN INSIGHTS
VICKERS SECURITIES
Page 6
Page 108
Singapore Company Guide
City Developments Refer to important disclosures at the end of this report
Version 5 | Bloomberg: CIT SP | Reuters: CTDM.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Solitaire PPS Club member
Last Traded Price (4 Jan 2017): S$8.39 (STI : 2,921.31) Price Target 12-mth: S$9.90 (18% upside)
Attractive valuations. We continue to see good value at 0.8x FY17F P/NAV, at 1SD below historical average. Key catalysts are: i) potential injection of assets into Profit Participation Securities (PPS), ii) improvement in hotel operations, and iii) accretive acquisitions/land banking.
Potential Catalyst: Further injections into PPS structure Where we differ: Below consensus Analyst Rachel TAN +65 6682 3713 [email protected] Derek TAN +65 6682 3716 [email protected]
9M16 net profit grew 13% on one-off gains. 9M16 net profit grew 13% y-o-y to S$409m (68% of consensus’ full-year estimates) driven by revenue growth of 12% y-o-y (largely contributions from property development), one-off gains from disposal of 53% stake in City E-Solutions (CES) and insurance claims. Property development continues to record strong growth coupled with a 24% y-o-y increase in 9M16 property sales value (number of units sold was stable y-o-y). Weak performance from the hotel properties continue to weigh down earnings.
Price Relative S$
Relative Index
14.0
216
13.0
196
12.0
176
11.0
156
10.0
136
9.0
116
8.0
96
7.0
76
6.0 Jan-13
Jan-14
Jan-15
City Developments (LHS)
Forecasts and Valuation FY Dec (S$ m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)
56 Jan-17
Jan-16
Relative STI (RHS)
2015A 3,304 948 985 760 436 8.6 83.6 47.9 9 79.7 16.0 989 10.0 17.5 98.0 13.4 1.9 0.8 0.3 8.7
Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:
2016F 3,654 1,092 787 548 548 25.7 60.2 60.2 26 57.4 11.5 1,034 13.9 13.9 8.0 11.4 1.4 0.8 0.3 6.0
2017F 3,875 1,135 830 577 577 5.3 63.5 63.5 5 60.5 12.1 1,085 13.2 13.2 11.3 11.0 1.4 0.8 0.3 6.0
2018F 4,437 1,246 937 653 653 13.2 71.8 71.8 13 68.4 13.7 1,145 11.7 11.7 5.4 9.5 1.6 0.7 0.2 6.4
62.5 B: 19
63.3 S: 1
69.2 H: 3
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P
ASIAN INSIGHTS ed: TH / sa: JC, PY
Some light from overseas investments. CDL’s decision to diversify into the overseas property market amid a challenging outlook in the Singapore property market is finally coming to fruition. With most of its Singapore property projects having been completed or are soon-to-be-completed, we expect international properties (UK and China) to drive property sales/revenue recognition in 2017/2018. We believe this could partly offset the impact of a weak property market in Singapore. Valuation: We maintain our BUY call with TP to S$9.90 pegged to a 20% discount to our RNAV of S$11.90. Supported by a strong balance sheet and diversified earnings base, CDL should be able to navigate well around the current uncertain market conditions. Key Risks to Our View: Decline in residential prices in Singapore. As a proxy to Singapore’s residential market, a deteriorating operating environment will cap share price performance. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Davos Investments Hong Leong Investment Aberdeen Asset Management Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate
909 7,629 / 5,341 16.4 15.4 14.0 54.2 8.9
VICKERS SECURITIES Page 109
Company Guide City Developments
CRITICAL DATA POINTS TO WATCH
Revenue growth (FY14A-18F) 5,000.0 4,500.0
Earnings Drivers: Aiming for a higher proportion of recurring earnings base. Weighed down by weak sentiment and depleting land bank for its development projects, CDL’s focus in 2015-2016 has been to focus on its commercial portfolio; building up a recurring income base in order to sustain profitability. In 2015, CDL had close to 64% of its revenues from recurring and stable segments. Hotel operations are the largest revenue contributor (49%) among all divisions despite showing some signs of weakness, which implies a substantial proportion of stable income. Potential headwinds in this segment are further deterioration of RevPAR especially in Asian hotels and further depreciation of GBP.
3,500.0 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0 500.0 0.0 2014A
In China, CDL has launched some projects in Suzhou (Hong Leong City Center continues to see steady sales). Phase 1 of the project (30-storey, 462-unit residential tower and 912-unit Soho Tower) has seen good sales momentum, selling 995 units to date, locking in sales proceeds of over RMB2.12bn (S$424m) which will be booked when completed. Tower 2 of the project was launched and fully sold in an hour. The group’s Hongqiao Royal Lake project also moved 32 units (out of 85), locking in sales of RMB634m (S$127m). CDL’s other projects in Chongqing and Suzhou will likely take more time before they can be launched. In Australia, the group’s JV residential project in Brisbane is 93% sold (Ivy and Eve, two 30-storey towers comprising 472 apartments), and will be booked in 2018. The group’s developments in Tokyo will likely be launched in the medium term. New PPS structure. Post the successful launch of three PPS structures, management is keen to continue unlocking value through fund management and/or new private equity structures. The successful launch will enable the group to book in substantial gains given that assets are recorded at cost.
2015A
Others
2016F
Hotel operations
2017F
Rental income
2018F Property devt
Breakdown in revenues (FY16F) Others 4%
The group’s investment property division (office and retail malls mainly in Singapore) is projected to offer steady returns. In total, the hotel and investment property divisions contribute c. 6467% of revenues. Looking overseas to sustain growth. We continue to see good progress for the group’s overseas investments. London – CDL recorded strong sales at its 82-unit Reading project, and is expected to book in revenues of c. GBP18.4m (S$36m), while its other projects will be launched progressively in the coming quarters. The Teddington Studios and Stag Brewery sites (planning approvals expected in 1Q18) are expected to be launched in phases in the medium term. CDL has also signed a contract to purchase 56-64 Leonard Street in Shoreditch for GBP37.4m (S$73.5m), to be redeveloped into an office tower block.
S $'m
4,000.0
Property devt 36%
Hotel operations 49%
Rental income 11%
Revenue growth from hotel segment 1,850.0
52%
S$ 'm
1,800.0
50%
1,750.0 1,700.0
48%
1,650.0 1,600.0
46%
1,550.0
44%
1,500.0 1,450.0
42%
1,400.0 1,350.0
40% 2013A
2014A Revenue
2015A
2016F
2017F
% of topline
RNAV breakdown RNAV Investment Portfolio (office) Investment Portfolio (mixed Development ) Investment Portfolio (hotels) Investment Portfolio (retail) Investment Portfolio (industrial and others) GDV of residential portfolio Listed Stakes in M&C CDL HT Others Gross Asset Value Less: pref conversion Less: Net debt RNAV of CDL No of shares RNAV/share Discount TP
S$'m 3,122.2 1,505.1 1,071.5 893.5 137.4 4,757.6 1,856.7 338.1 86.7 13,768.8 (211.8) (1,835.9) 11,721.2 954.3 12.3 -20% 9.90
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 110
Company Guide City Developments
Balance Sheet: Undervalued Net Asset Value (NAV). As the group has chosen to account for investment properties on a historical cost basis, its NAV is conservative as we estimate that current fair values of CDL’s properties are much higher than carrying values.
Leverage & Asset Turnover (x) 0.3 0.80 0.70 0.3
0.60 0.50
0.2
0.40 0.30
Low gearing of 26%. CDL’s gearing is estimated to remain low at <30% (and closer to mid-teens assuming that its investment property values are marked-to-market) which is within management’s comfortable range. This provides greater financial flexibility and debt headroom for the group to acquire opportunistically. Share Price Drivers: Replenishing land bank is key to income sustainability. The ongoing tight government measures have taken a toll on the group’s residential business segment, with the group staying selective on land banking activities. However, CDL has been active in the Executive Condos (ECs) segment; The Brownstone EC and The Criteron saw brisk sales when launched. CDL launch 40 units in Gramercy Park, a high-end condominium in May 2016 and has achieved 90% sales. The group has been marketing the project regionally and is understood to have received positive responses from investors. The successful launch of its ongoing project will be positive to investor sentiment on property stocks, which we believe will enable CDL to close the gap between its stock price and NAV.
0.2
0.20 0.10
0.1
0.00 2014A
2015A
2016F
Gross Debt to Equity (LHS)
2017F
2018F
Asset Turnover (RHS)
Capital Expenditure S$m 1,000.0 900.0 800.0 700.0 600.0 500.0 400.0 300.0 200.0 100.0 0.0 2014A
2015A
2016F
2017F
2018F
Capital Expenditure (-)
ROE (%) 9.0% 8.0% 7.0% 6.0% 5.0% 4.0%
Key Risks: Decline in residential prices in Singapore. Seen as a proxy to Singapore’s residential market, a worsening of the operating environment is expected to cap any upside potential for the stock. Unsold inventories are mainly in the high-end and executive segments whose unsold stock typically take time to clear.
3.0% 2.0% 1.0% 0.0% 2014A
2015A
2016F
2017F
2018F
Forward PE Band (x) (x) 25.5
+2sd: 24.7x
23.5
Interest rate risk. A rise in interest rates will have a negative impact on property transactions, given lower affordability and thus could adversely affect the group’s outlook.
21.5
+1sd: 21.2x
19.5
Avg: 17.6x
17.5 15.5
‐1sd: 14.1x
13.5
Company Background City Developments Limited (CDL) is one of the pioneers in Singapore's property sector. It is a property and hotel conglomerate involved in real estate development and investment, hotel ownership and management, and facility management.
11.5
‐2sd: 10.6x
9.5 Jan-13
Jan-14
Jan-15
Jan-16
PB Band (x) (x) 1.7 1.5
+2sd: 1.45x
1.3
+1sd: 1.25x
1.1
Avg: 1.05x
0.9
‐1sd: 0.85x
0.7 0.5 Jan-13
‐2sd: 0.65x Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 111
Company Guide City Developments
Segmental Breakdown FY Dec Revenues (S$m) Property devt Rental income Hotel operations Others Total Income Statement (S$m) FY Dec Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)
2014A
2015A
2016F
2017F
2018F
1,581 385 1,678 120 0.0 3,764
1,037 405 1,698 163 0.0 3,304
1,324 394 1,773 163 0.0 3,654
1,478 420 1,814 163 0.0 3,875
1,960 428 1,885 163 0.0 4,437
2014A
2015A
2016F
2017F
2018F
3,764 (2,132) 1,632 (948) 684 0.0 54.8 (90.5) 356 1,004 (95.1) (139) (12.9) 757 401 939
3,304 (1,648) 1,656 (1,030) 626 0.0 107 (72.2) 325 985 (119) (92.7) (12.9) 760 436 948
3,654 (1,888) 1,766 (926) 840 0.0 37.3 (90.8) 0.0 787 (135) (91.3) (12.9) 548 548 1,092
3,875 (2,003) 1,872 (982) 891 0.0 30.1 (90.7) 0.0 830 (144) (96.0) (12.9) 577 577 1,135
4,437 (2,316) 2,121 (1,124) 997 0.0 33.9 (94.4) 0.0 937 (163) (108) (12.9) 653 653 1,246
17.1 (7.4) (12.8) (40.4)
(12.2) 1.0 (8.5) 8.6
10.6 15.3 34.2 25.7
6.1 3.9 6.0 5.3
14.5 9.8 12.0 13.2
43.4 18.2 20.1 9.4 4.1 3.6 19.2 7.6
50.1 18.9 23.0 8.7 3.8 3.0 19.1 8.7
48.3 23.0 15.0 6.0 2.7 3.7 19.1 9.3
48.3 23.0 14.9 6.0 2.7 3.8 19.1 9.8
47.8 22.5 14.7 6.4 3.0 4.2 19.1 10.6
Recognition of locked-in sales
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 4
Page 112
Company Guide City Developments
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA
1Q2016
2Q2016
3Q2016
809 (396) 413 (258) 156 0.0 20.6 (22.0) 0.0 155 (24.4) (23.7) 106 106 234
855 (392) 463 (3.9) 459 0.0 29.2 (17.1) 0.0 471 (44.1) (16.8) 410 410 546
723 (365) 358 (82.9) 209 0.0 10.6 (14.8) 0.0 205 (14.5) (18.6) 172 172 272
1,092 (652) 440 (98.5) 214 0.0 12.5 (21.4) 0.0 205 (37.6) (33.7) 134 134 280
923 (493) 430 (50.6) 245 0.0 16.5 (22.7) 0.0 239 (35.6) (33.1) 170 170 313
(1.9) (8.9) (18.0) (20.3)
5.7 133.5 194.5 285.8
(15.4) (50.2) (54.4) (58.1)
51.0 3.1 2.2 (22.2)
(15.5) 12.0 14.6 27.3
51.1 19.3 13.1
54.2 53.7 48.0
49.5 28.9 23.8
40.3 19.6 12.2
46.6 26.6 18.5
Balance Sheet (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
4,918 1,128 3,324 3,933 11.2 1,589 4,797 19,701
5,175 1,307 2,949 3,597 11.2 1,762 5,519 20,319
5,260 1,527 2,949 3,913 12.9 1,948 5,312 20,921
5,346 1,740 2,949 3,988 13.7 2,066 5,509 21,610
5,431 1,957 2,949 4,799 15.8 2,366 5,067 22,584
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.
2,233 1,463 261 4,466 501 8,410 2,365 19,701
1,911 1,602 319 4,572 702 8,996 2,217 20,319
1,911 1,836 195 4,572 702 9,398 2,309 20,921
1,911 1,948 204 4,572 702 9,870 2,405 21,610
1,911 2,251 222 4,572 702 10,413 2,513 22,584
Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)
4,672 (2,766) 156.6 263.6 1.9 0.2 2.6 1.4 0.3 0.3 14.0 1.7
5,371 (2,885) 185.0 390.3 2.9 0.2 2.8 1.4 0.3 0.3 (13.0) 1.7
5,242 (2,569) 185.3 375.0 2.6 0.2 2.8 1.5 0.3 0.3 4.6 1.7
5,438 (2,495) 189.1 386.1 2.7 0.2 2.9 1.5 0.3 0.3 4.6 1.7
4,975 (1,684) 182.3 364.7 2.6 0.2 2.8 1.6 0.2 0.2 4.6 1.7
Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)
Weaker property development division, rental and hotel divisions
Conservative gearing
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 5
Page 113
Company Guide City Developments
Cash Flow Statement (S$m) FY Dec Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)
2014A
2015A
2016F
2017F
2018F
1,004 200 (188) (54.8) (482) (187) 292 (936) 0.0 828 17.9 47.6 (41.8) (275) 172 0.0 842 739 189 1,178 85.1 (70.7)
985 215 (194) (107) (712) (110) 77.8 843 0.0 (227) 16.9 (113) 520 (271) (310) 0.0 (333) (914) (16.6) (333) 86.8 101
787 215 (259) (37.3) 252 0.0 957 (300) 0.0 (200) 16.9 0.0 (483) (158) 0.0 0.0 0.0 (158) 0.0 316 77.5 72.3
830 215 (135) (30.1) (204) 0.0 675 (300) 0.0 (200) 16.9 0.0 (483) (118) 0.0 0.0 0.0 (118) 0.0 74.6 96.7 41.3
937 215 (144) (33.9) 444 0.0 1,418 (300) 0.0 (200) 16.9 0.0 (483) (123) 0.0 0.0 0.0 (123) 0.0 811 107 123
Source: Company, DBS Bank Target Price & Ratings History S$ 9.34
12 10
6
8.84
8 9
11
16 15
8.34
17 7.84
7 4
7.34 1 2
5
6.84
3 6.34 Jan-16
May-16
Dat e of Report
Closing Pric e
1:
08 J an 16
7.58
10.26
BUY
2:
18 J an 16
7.18
10.26
BUY
3:
16 F eb 16
6.93
10.26
BUY
4:
26 F eb 16
7.20
10.26
BUY
5:
16 Mar 16
7.58
10.26
BUY
14 13
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
12- mt h T arget Rat ing Pric e
S. No.
6:
18 Apr 16
8.76
10.26
BUY
7:
12 May 16
7.97
9.60
BUY
8:
27 May 16
8.35
9.60
BUY
9:
09 J un 16
8.80
9.60
BUY
10:
12 Aug 16
8.80
9.90
BUY
11: 12: 13: 14: 15: 16: 17:
16 27 30 18 24 10 16
8.86 8.99 9.07 8.77 8.82 8.60 8.38
9.90 9.90 9.90 9.90 9.90 9.90 9.90
BUY BUY BUY BUY BUY BUY BUY
Sep 16 Sep 16 Sep 16 Oct 16 Oct 16 Nov 16 Nov 16
Source: DBS Bank Analyst: Rachel TAN, Derek TAN
ASIAN INSIGHTS
VICKERS SECURITIES
Page 6
Page 114
Singapore Company Guide
Frasers Centrepoint Ltd Refer to important disclosures at the end of this report
Version 5 | Bloomberg: FCL SP | Reuters: FRCT.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Yielding like a REIT Growing developer with high dividend yields. We maintain our BUY rating on Frasers Centrepoint Ltd (FCL) for its attractive valuations at 0.7x P/NAV and FY17F PE of 11x, and offering one of the highest dividend yields among developers at c.5.7%. We continue to expect re-rating catalysts coming from potential asset monetisation from ongoing strategies to crystallise value across its portfolio.
Last Traded Price ( 4 Jan 2017): S$1.60 (STI : 2,921.31) Price Target 12-mth: S$2.00 (25% upside) Potential Catalyst: Better operating results Where we differ: Our estimates are conservative Analyst Rachel TAN +65 6682 3713 [email protected] Derek TAN +65 6682 3716 [email protected]
Price Relative S$
Relative Index
2.2 2.1
208
2.0
188
1.9 168
1.8
148
1.7 1.6
128
1.5 108
1.4 1.3 Jan-14
88 Jan-15
Jan-16
Frasers Centrepoint Ltd (LHS)
Forecasts and Valuation FY Sep (S$ m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)
2016A 3,440 993 960 533 368 (23.8) 18.4 12.7 (24) 18.4 8.61 230 8.7 12.6 4.2 17.6 5.4 0.7 0.6 8.1
Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:
Relative STI (RHS)
2017F 2,412 1,051 830 387 387 5.0 13.3 13.3 5 13.3 8.60 234 12.0 12.0 nm 18.7 5.4 0.7 0.8 5.7
2018F 3,103 1,153 886 415 415 7.2 14.3 14.3 7 14.3 8.60 240 11.2 11.2 14.4 17.4 5.4 0.7 0.8 6.0
2019F 2,633 1,107 836 378 378 (8.8) 13.0 13.0 (9) 13.0 8.60 245 12.2 12.2 nm 19.2 5.4 0.7 0.8 5.4
0 17.0 B: 8
0 19.3 S: 0
0 19.0 H: 0
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P
ASIAN INSIGHTS ed: JS / sa: YM, PY
FY16 core net profit fell 11% (in line) weighed down by weak earnings from development properties. FY16 net profit fell 23% y-o-y to S$597m, mainly due to lower core net profit and lower fair value gains. FY16 fair value gains was 34% lower at S$160m, mainly due to fair value losses in Singapore and Hospitality units offset by fair value gains in Australia (including S$77m fair value gain from the injection of properties into Frasers Logistics and Industrial Trust (FLT)). FY16 profit before interest and tax (PBIT) from development properties fell 29% while recurring income from investment properties dropped by 9% (partly due absence of one-off gains). Property sales were lower in FY16, falling 25% to 4.9k units. Management remains cautious and is selective in the residential sector, and continues to look for opportunities to strengthen its recurring income from commercial properties. Asset recycling into its listed S-REITs. FCL will continue to demonstrate its ability to crystallise value by strategically divesting matured assets to its listed REITs. The group is thus able to free up capital, improve its balance sheet position and recycle capital to projects with higher returns. Valuation: We maintain our BUY rating on FCL, TP maintained at S$2.00 (30% discount to RNAV). Key Risks to Our View: Dependent on the outlook of the Australian real estate market and currency. The group derives an estimated 30% of PBIT from Australia, and returns could be impacted by the weakening AUD/SGD exchange rate. At A Glance Issued Capital (m shrs) 2,900 Mkt. Cap (S$m/US$m) 4,625 / 3,213 Major Shareholders (%) TCC Assets Ltd 59.2 Thai Beverage 28.4 Free Float (%) 12.4 3m Avg. Daily Val (US$m) 0.24 ICB Industry : Real Estate / Real Estate Investment & Services
VICKERS SECURITIES Page 115
Company Guide Frasers Centrepoint Ltd
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Growing recurring revenues from its commercial and hospitality divisions. Frasers Centrepoint Limited (FCL) is one of the largest property developers in Singapore with an asset base of over S$24bn as of FY16. The group aims to grow recurring revenues to 60-70% of PBIT in the medium term.
Revenue (FY15A-FY19F) 4,000.0
S $' m
3,500.0 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0
The group’s commercial portfolio will see incremental income from the completions of WaterwayPoint (completed in January 2016), Northpoint City (retail) and Frasers Towers (commercial) from 2018 onwards, which will boost its earnings further while The Centrepoint mall’s AEI has completed in Sep16. Frasers Hospitality is also expected to see its footprint expand to 30,000 managed units by 2019. In addition, the acquisition of the Malmaison Hotel du vin Group (MHDV), which has a portfolio of 29 boutique lifestyle hotels and 2,082 keys within 25 regional cities in the UK, will further deepen its presence and clientele reach. We see cross-selling opportunities and synergies between MHDV and the Frasers brand, propelling the division’s performance to greater heights. New launches across its portfolio; property development division has over S$3.6bn in locked-in sales. FCL sold 330 units in FY16, and launched the 628-unit Parc Life EC project (80:20% JV with Keong Hong) in Sembawang, selling close to 119 units (or c.19% of total units), which is below initial expectations. We believe this could be due to supply fatigue of ECs in the vicinity but management remains optimistic that sales will return over time once competition within the space thins out. In China and Australia, FCL achieved sales of 1.7k units and 2.9k units during FY16. Unrecognised revenues from its property division, including Frasers Property Australia totalled about S$3.1bn. Sustainable high dividend. FCL has one of the highest ROEs among property developers (c.8-11% over FY14A-15A) and dividend yield of close to 6% vs industry average ROE of close to 6% and dividend yield of c.2-3%. This is mainly due to the group’s efficient operating model of quick-asset turns for its residential development projects and its focus on a portfolio of recurring commercial properties (hotels, retail and office) which boosts returns. Golden Land acquisition to bear fruit in the medium term. The group acquired close to a 35.6% stake in Golden Land Property Development PCL (GOLD) and management believes that this acquisition offers good synergies to FCL as both companies share similar investment philosophies with an aim to continue growing its recurring income base. GOLD also offers FCL the ability to tap into the growing real estate market in Thailand, supported by favourable market fundamentals.
500.0 0.0 2015
2016
2017F
2018F
PBIT breakdown by divisions (FY16)
F r asers P r operty Australia 2 6%
Ho spitality 1 3%
De velopment pr operties 31 %
Commercial pr operties 30 %
PATMI (FY15A-19F) 600.0
S $' m
500.0 400.0 300.0 200.0 100.0 2015
2016
2017F
RNAV RNAV Surpluses from: Commercial Portfolio (Office, retail, hotels) Stakes in REITs Frasers Australand Fee income : Hotel Mgmt Fee income : REITs NPV development projects Total Surpluses Add: Book NAV Gross Development Value less: preference shares less: MI Add: MI Attributable to REITs RNAV RNAV/share ($) Discount TP ($)
2018F
2019F
S$'m (699) 190 519 854 373 346 1,583 8,053 9,636 (1,392) (3,791) 3,827 8,280 2.86 30% 2.00
Source: Company, DBS Bank
ASIAN INSIGHTS
2019F
VICKERS SECURITIES
Page 2
Page 116
Company Guide Frasers Centrepoint Ltd
Balance Sheet: Balance sheet remains strong. Debt/equity ratio is expected to remain fairly stable at between 0.8-0.9x over FY15F-17F which is within management's comfortable range. Debt maturity profile remains long at 3.0 years with an average cost of debt of 3.1%. Fixed rate percentage of its loans remains high at 81%.
Leverage & Asset Turnover (x) 0.2
1.00
0.2 0.2
0.80
0.1 0.1
0.60
0.1 0.1
0.40
0.1 0.0
0.20
Share Price Drivers: Replenishing land bank key to income sustainability. The group currently has 9.3m sq ft of development space, mainly in Australia. It is actively looking for efficient means to replenish its land bank especially in Singapore but remains selective, given the sustained high land prices seen in recent government land tenders. The ability to secure additional land bank at lower prices will mean upside to RNAVs and could re-rate the stock.
0.0 0.0
0.00 2015A
2016A
2017F
Gross Debt to Equity (LHS)
2018F
2019F
Asset Turnover (RHS)
Capital Expenditure S$m 60.0 50.0 40.0 30.0
Relaxation of property cooling measures in Singapore. Expectations of policy relaxation (especially cyclical measures like the Buyers’ and Sellers’ stamp duties) might improve buyers’ market sentiment and spark a revival in transaction volumes in the Singapore residential market. This is also expected to lift sentiment on property stocks, which we believe will enable FCL to close the gap between its stock price and NAV.
20.0 10.0 0.0 2015A
2016A
2017F
2018F
2019F
Capital Expenditure (-)
ROE (%) 10.0%
Gains from asset recycling into its listed S-REITs to boost share price. Recycling activities are perceived positively by investors as FCL is able to free up capital by selling its matured assets to its listed REITs, which will improve the group’s balance sheet position and recycle capital to projects with higher returns.
8.0% 6.0% 4.0% 2.0% 0.0%
Key Risks: Small free float. The stock has a low free float with 87.9% of the company held by major shareholders TCC Group and Thai Beverage, thus leading to low liquidity.
2015A
2016A
2017F
2018F
2019F
Forward PE Band (x) (x) 14.2
+2sd: 13.6x
Dependent on the outlook of Australia's real estate market, currency outlook. The group derives an estimated 30% of PBIT from Australia which is dependent on the real estate market and whose returns could be impacted by the weakening AUD/SGD exchange rate. Company Background Frasers Centrepoint Ltd (FCL) is a one of Singapore’s main real estate companies with assets exceeding S$23bn. The group has four key core businesses focused on residential, commercial, hospitality and industrial sectors spanning 77 cities across Asia, Australasia, Europe and the Middle East.
13.2
+1sd: 12.6x
12.2
Avg: 11.6x
11.2
‐1sd: 10.5x
10.2
‐2sd: 9.5x
9.2 8.2 Jan-14
Jan-15
Jan-16
PB Band (x) 1.1
(x)
1.0
+2sd: 0.94x
0.9
+1sd: 0.8x
0.8 0.7
Avg: 0.66x
0.6
‐1sd: 0.52x
0.5 0.4
‐2sd: 0.37x
0.3 0.2 Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 117
Company Guide Frasers Centrepoint Ltd
Income Statement (S$m) FY Sep Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)
2015A
2016A
2017F
2018F
2019F
3,562 (2,479) 1,082 (257) 825 0.0 279 (149) 241 1,197 (184) (241) (46.9) 724 483 1,146
3,440 (2,407) 1,033 (266) 767 0.0 171 (142) 164 960 (194) (169) (64.5) 533 368 993
2,412 (1,337) 1,075 (193) 882 0.0 114 (166) 0.0 830 (141) (238) (64.3) 387 387 1,051
3,103 (1,827) 1,276 (248) 1,028 0.0 70.6 (212) 0.0 886 (151) (257) (64.3) 415 415 1,153
2,633 (1,440) 1,193 (184) 1,009 0.0 44.1 (216) 0.0 836 (142) (252) (64.3) 378 378 1,107
61.7 47.2 33.0 16.6
(3.4) (13.3) (7.1) (23.8)
(29.9) 5.9 15.1 5.0
28.6 9.7 16.5 7.2
(15.1) (4.0) (1.9) (8.8)
30.4 23.2 20.3 11.2 3.3 3.4 34.4 5.5
30.0 22.3 15.5 8.1 2.3 2.8 46.9 5.4
44.6 36.6 16.0 5.7 1.6 3.2 64.5 5.3
41.1 33.1 13.4 6.0 1.6 3.7 60.1 4.8
45.3 38.3 14.4 5.4 1.4 3.5 65.9 4.7
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 4
Page 118
Company Guide Frasers Centrepoint Ltd
Quarterly / Interim Income Statement (S$m) FY Sep 4Q2015 1Q2016 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA
2Q2016
3Q2016
4Q2016
1,037 (1,176) (138) 249 110 0.0 162 (37.8) 180 415 (62.8) (92.4) 213 32.8 292
672 (420) 252 (73.8) 178 0.0 32.8 (32.7) (1.3) 177 (35.6) (42.7) 98.7 100.0 241
898 (610) 288 (57.3) 231 0.0 4.77 (37.3) 9.41 207 (37.2) (47.0) 123 114 262
682 (453) 229 (85.6) 143 0.0 23.8 (38.2) 64.0 193 (29.0) (9.5) 154 90.0 192
1,188 (924) 264 210 474 0.0 110 (33.9) 92.3 643 (92.4) (69.7) 481 388 611
2.7 (12.3) (57.9) (81.9)
(35.3) (17.4) 61.6 204.4
33.7 8.8 29.4 13.9
(24.0) (26.7) (38.0) (20.9)
74.2 218.4 231.7 331.4
(13.3) 10.6 20.5
37.5 26.5 14.7
32.1 25.7 13.7
33.5 21.0 22.6
22.2 39.9 40.5
Balance Sheet (S$m) FY Sep
2015A
2016A
2017F
2018F
2019F
Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
1,991 585 14,150 1,393 7.47 844 4,096 23,067
1,972 793 14,467 2,169 5.68 678 4,120 24,204
1,919 907 14,615 576 2.12 345 6,961 25,326
1,867 978 14,764 633 2.93 443 8,088 26,774
1,814 1,022 14,912 455 2.29 376 8,721 27,302
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.
1,020 1,315 218 9,255 608 7,803 2,848 23,067
1,470 1,695 284 8,325 586 8,053 3,791 24,204
1,470 2,137 188 8,725 586 8,190 4,028 25,326
1,470 2,954 198 8,925 586 8,356 4,285 26,774
1,470 2,310 189 9,725 586 8,485 4,537 27,302
Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%)
3,415 (8,882) 84.8 196.8 1.1 0.2 2.5 0.9 0.8 1.1 0.4
2,825 (7,627) 80.7 263.0 0.9 0.1 2.0 0.8 0.6 0.9 (0.5)
4,983 (9,620) 77.4 608.3 0.6 0.1 2.1 0.2 0.8 1.2 0.0
5,383 (9,763) 46.3 608.3 0.6 0.1 2.0 0.2 0.8 1.2 0.0
6,601 (10,740) 56.8 608.3 0.6 0.1 2.4 0.2 0.8 1.3 0.0
Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)
Gearing to remain stable at 0.8x
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 5
Page 119
Company Guide Frasers Centrepoint Ltd
Cash Flow Statement (S$m) FY Sep Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)
2015A
2016A
2017F
2018F
2019F
955 781 (184) (279) 302 (891) 684 (45.3) (1,501) (57.9) 350 (146) (1,401) (249) 936 649 (111) 1,225 (8.4) 500 13.2 22.1
766 54.5 (194) (171) 344 298 1,097 50.6 (264) (317) 197 (389) (722) (456) (940) 1,000 340 (56.2) 39.1 358 26.0 39.6
830 54.5 (237) (114) (2,063) 0.0 (1,529) 0.0 (150) 0.0 0.0 0.0 (150) (249) 400 0.0 (64.3) 86.3 0.0 (1,593) 18.4 (52.7)
886 54.5 (141) (70.6) (409) 0.0 320 0.0 (150) 0.0 0.0 0.0 (150) (249) 200 0.0 (64.3) (114) 0.0 56.5 25.1 11.0
836 54.5 (151) (44.1) (1,210) 0.0 (514) 0.0 (150) 0.0 0.0 0.0 (150) (249) 800 0.0 (64.3) 486 0.0 (177) 24.0 (17.7)
Source: Company, DBS Bank Target Price & Ratings History
S$ 1.74 1.69 1.64
8
6 7 12
4
1.59
3 5
1.54
12 10
9
1.49
11 1.44 1.39 Jan-16
May-16
Sep-16
12- mt h T arget Rat ing Pric e
S.No.
Dat e of Report
Closing Pric e
1:
08 J an 16
1.65
2.05
BUY
2:
18 J an 16
1.60
2.05
BUY
3:
04 Feb 16
1.60
2.05
BUY
4:
16 Feb 16
1.58
2.05
BUY
5:
16 Mar 16
1.58
2.05
BUY
6:
05 Apr 16
1.65
2.05
BUY
7:
18 Apr 16
1.69
2.05
BUY
8:
11 May 16
1.67
2.05
BUY
9:
08 Aug 16
1.53
1.90
BUY
10:
30 Sep 16
1.49
1.90
BUY
11: 12:
18 Oct 16 10 Nov 16
1.50 1.53
1.90 2.00
BUY BUY
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Rachel TAN Derek TAN
ASIAN INSIGHTS
VICKERS SECURITIES
Page 6
Page 120
Singapore Company Guide
Global Logistic Properties Refer to important disclosures at the end of this report
Version 7 | Bloomberg: GLP SP | Reuters: GLPL.SI
DBS Group Research . Equity
4 Jan 2017
BUY
In pursuit of growth
Last Traded Price ( 4 Jan 2017): S$2.24 (STI : 2,921.31) Price Target 12-mth: S$2.47 (10% upside) Potential Catalyst: Better-than-expected results Where we differ: More positive than consensus in the medium-term Analyst Rachel TAN +65 6682 3713 [email protected] Derek TAN +65 6682 3716 [email protected]
Price Relative
Forecasts and Valuation FY Mar (US$ m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)
2016A 777 735 1,343 690 (30.0) nm 20.8 (0.9) nm 20.8 6.25 250 10.7 nm 17.6 21.7 2.8 0.9 0.3 8.4
Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:
2017F 851 615 473 269 269 nm 8.10 8.10 nm 8.10 6.98 253 27.4 27.4 nm 27.8 3.1 0.9 0.4 3.2
2018F 946 688 540 311 311 15.6 9.36 9.36 16 9.36 8.07 256 23.7 23.7 14.5 25.5 3.6 0.9 0.4 3.7
2019F 1,029 746 592 341 341 9.6 10.3 10.3 10 10.3 8.84 260 21.6 21.6 14.1 24.4 4.0 0.9 0.4 4.0
7.4 B: 10
8.2 S: 2
9.3 H: 4
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P
ASIAN INSIGHTS ed: TH / sa: YM, PY
Value at current prices. We maintain BUY on Global Logistics Properties (GLP) with TP of S$2.47, pegged at 30% discount to RNAV to reflect ongoing uncertainties in the operating environment. Trading at 0.9x P/BV, below the lower end of historical range, we believe the cautious outlook is priced in. 1H17 results driven by higher rental income, management fees and development completions; core results in line. Core 1H17 net profit (excluding revaluation gains and one-off items) grew 36% y-o-y to S$137m, in line with street’s FY17 estimates, led by higher rental income mainly from Japan (+21%) and US (+67%) and higher management fees from Japan (+47%) and US (+165%). In 1H17, GLP recorded development profit of US$128m at 30% margin (vs 27% in FY16), achieving 64% (ahead) of its full-year target of US$200m. GLP achieved 42% and 46% of its development starts and completion targets respectively. Management has turned positive on Brazil, and cautiously positive on China, while Japan and US continue to show strong demand. AUM of fund management platform rose to US$38bn. As at 1H17, total AUM had risen to US$38bn, and the group has another US$12bn of uncalled capital, expected to be deployed in the next two years. Given that this business is a highly scalable and an ROE-enhancing business arm of the group, management is focusing on driving returns and operational scale by establishing new funds. Valuation: We maintain our BUY call and target price of S$2.47, pegged at a 30% discount to RNAV. Despite a weaker outlook, we believe the current share price, which is at 0.9x P/BV, below the lower end of historical range, is attractive. Key Risks to Our View: Faster-than-expected ramp-up in competing supply on the back of a slowdown in China's retail sector would impact demand for logistics warehouses. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) GIC Pte Ltd Hillhouse Capital Blackrock Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate
4,687 10,499 / 7,292 36.9 8.2 6.0 43.5 28.3
VICKERS SECURITIES Page 121
Company Guide Global Logistic Properties Top line and EIBT (US’m) 1,000.0
CRITICAL DATA POINTS TO WATCH
900.0 800.0
Strong operational momentum across markets. As expected, FY16 recorded a strong year largely led by positive effective rent growth on renewal and same-property net operating income. The group’s lease ratio remains relatively stable at 92% with WALE of 2.6-5.5 years. While management has turned cautious on China and Japan, hence reducing development targets, the US market appears to have strong growth potential.
700.0
US $'mn
600.0 500.0 400.0 300.0 200.0 100.0 0.0 FY15A
Development starts and completion pipeline. In FY17, GLP has set lower targets for development starts and completions of US$2.1bn (vs US$2.8bn in FY16) and US$1.5bn (vs US$2.1bn in FY16) respectively as management turns cautious. Nevertheless, value creation margin at 27% remains above historical average of 25%. Deepening presence in US. We are positive on GLP’s announcement of a US$1.1bn (at valuation) logistics portfolio in the US from Hillwood, a property developer. The acquisition will be in various tranches – initial closing of US$700m is fully leased and income producing by end of December 2016 and the remaining US$400m, when the target properties under development complete and achieve pre-agreed lease ratios. GLP intends to pare down its effective stake in this portfolio to 10% upon syndication to third-party capital partners. Assets are located in key markets of Dallas, Chicago and Atlanta, which according to Colliers, have one of the brightest outlooks for absorption and rental growth in the US.
FY17F
FY18F
Operating profit (ex reval)
Revenue Breakdown by segment (US$’m) 1,200.0 1,000.0 800.0 600.0 400.0 200.0 FY15A
FY16A China
FY17F Japan
FY18F
FY19F
US & Brazil
EBIT Margins (%) 59.0 57.0 55.0 E BIT Margins (%)
Fund management platform delivers superior returns at lower risk. GLP’s fund management platform delivers superior returns at lower risk. Management fees increased 80% to US$130m in FY16 and this segment is expected to potentially earn US$400m in the medium term. As of end-March 2016, total AUM had risen to US$35bn, with another US$11bn of uncalled capital to be deployed. We expect the fund management business to continue growing through new funds due to its scalable nature, boosting returns and ROEs for the group. Going forward, the group is looking to launch a new China fund with equity capital of c.US$3bn to increase its reach in China.
FY16A Revenue
US $'mn
Earnings Drivers: Riding on the growing demand from e-commerce players for logistics space. Riding on the tailwinds of China’s rising consumerism and thriving e-commerce sector, Global Logistics Properties (GLP) remains in the front seat to take advantage of China’s rapidly changing retail landscape. With an extensive portfolio of warehouses (11.8m sqm of space) in 35 cities in China, the group is one of the leading providers of modern logistics solutions to end-users. GLP’s network of warehouses enables customers to expand; this has been positively received by current users of its space. Its strong network of warehouses enables management to enjoy recurring demand from existing clients. Close to 90% of GLP’s portfolio is occupied by businesses geared towards domestic consumption.
53.0 51.0 49.0 47.0 45.0 FY15A
FY16A
FY17F
FY18F
FY19F
RNAV Valuation of GLP
S$'m
Japan Logistics Business (Stabalized)
2,173.8
China Logistics Business (Stabalized)
4,953.7
China Landbank (NPB of future devt)
3,815.0
Other Assets
58.1
GLP J-REIT
413.5
Brazil
523.1
USA
337.0
Fee income business (15x P/E)
1,054.4
Gross Asset Value
13,296
Less: Estimated net debt
-660.57
RNAV
12,668
RNAV/ share (US$)
2.62
RNAV/ share (S$)
3.53
Discount
30%
Target Price
2.47
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 122
Company Guide Global Logistic Properties
Leverage & Asset Turnover (x)
Balance Sheet: Low leverage ratio. Total debt-to-asset ratio is expected to remain fairly stable at c.0.40x, which is well within management's comfortable level. As such, this provides GLP with additional debt headroom for future debt-funded acquisitions. Currently, the group has 70% of its debt on fixed rate with a weighted average cost of debt of 3.0% and a long debt maturity of 5.2 years. Share Price Drivers: Robust outlook for e-commerce in China. GLP has a large (11.8m sqm in completed properties) portfolio in China that is positioned strategically to benefit from growth in e-commerce through its modern logistics space, and it has another US$5.3bn slated for completion in FY17-19. We expect the group’s assets to hit higher occupancies and pricier leases, if e-commerce increases in scale (8-year CAGR was 80%) on the back of strong consumer demand (11-year CAGR was 63%, expected to double over the next three years). Incremental earnings contribution from China would be a share price catalyst.
Capital Expenditure US$m 1,600.0 1,400.0 1,200.0 1,000.0 800.0 600.0 400.0 200.0 0.0 2015A
2016A
2017F
2018F
2019F
Capital Expenditure (-)
ROE (%)
Realisation of value through its fund business. GLP continues to expand through its fund platform. Looking ahead, the potential conversion of its development funds in China and Japan into income funds could unlock performance fees, offering upside to the earnings that are currently not in our estimates. Additionally, GLP continues to look for opportunities in the US and potentially Europe to expand its fund management business. Key Risks: Slowdown in Chinese economy If a slowdown in the Chinese economy leads to a reduced appetite for logistics warehouse space, there could be slowerthan-projected revenue growth.
PB Band (x)
Foreign currency risks Exposure to various currencies (CNY, JPY, BRL) could lead to volatility in the group's USD earnings. Company Background Global Logistics Properties (GLP) is a leading provider of modern logistics facilities in China, Japan, Brazil and the US. The group develops, owns and manages c.41m sqm GFA of logistics properties, catering to growing domestic consumption.
ASIAN INSIGHTS
Source: Company, DBS Bank
VICKERS SECURITIES Page 3
Page 123
Company Guide Global Logistic Properties
Income Statement (US$m) FY Mar Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)
2015A
2016A
2017F
2018F
2019F
708 (139) 570 (165) 405 0.0 71.4 (47.9) 434 862 (194) (182) (32.0) 454 201 488
777 (157) 620 (229) 392 91.1 241 (101) 720 1,343 (310) (314) (28.7) 690 (30.0) 735
851 (137) 714 (241) 473 23.6 107 (130) 0.0 473 (50.3) (125) (28.7) 269 269 615
946 (173) 773 (245) 527 25.4 124 (136) 0.0 540 (56.8) (144) (28.7) 311 311 688
1,029 (204) 825 (250) 575 26.6 133 (143) 0.0 592 (62.6) (160) (28.7) 341 341 746
13.3 (4.4) 6.0 (18.6)
9.8 50.7 (3.2) nm
9.4 (16.3) 20.8 nm
11.2 11.9 11.5 15.6
8.8 8.4 9.0 9.6
80.4 57.2 64.2 5.6 2.9 2.1 41.7 8.4
79.8 50.4 88.8 8.4 3.4 1.7 30.1 3.9
83.9 55.6 31.6 3.2 1.2 2.2 86.2 3.6
81.7 55.8 32.9 3.7 1.3 2.4 86.2 3.9
80.2 55.8 33.1 4.0 1.4 2.5 86.2 4.0
Top line driven mainly by development completions in China, supported by stable occupancy rates in Japan. In addition, top line is driven from increased fund management fees in US and Brazil
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 4
Page 124
Company Guide Global Logistic Properties
Quarterly / Interim Income Statement (US$m) FY Mar 2Q2016 3Q2016 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA
4Q2016
1Q2017
2Q2017
189 (38.9) 150 (62.1) 88.3 17.1 34.3 (20.8) 110 229 (52.9) (62.3) 114 3.79 91.3
199 (39.2) 160 (57.3) 102 55.8 48.5 (44.7) 202 364 (94.6) (84.9) 184 (17.4) 105
199 (41.3) 158 (78.3) 79.6 (0.4) 38.9 (39.6) 214 292 (82.7) (78.1) 131 (82.2) 82.6
207 (38.2) 168 (54.3) 114 7.86 57.3 (70.0) 208 317 (67.0) (47.2) 203 (5.0) 114
214 (37.5) 176 (56.2) 120 3.03 70.7 (29.5) 117 281 (60.6) (47.8) 173 55.9 120
(0.4) (11.2) (11.6) (89.8)
5.1 15.2 15.9 nm
0.1 (21.6) (22.3) (371.6)
3.7 38.2 43.4 93.9
3.4 5.2 5.2 nm
79.5 46.7 60.2
80.3 51.5 92.6
79.3 40.0 65.9
81.5 55.2 98.2
82.4 56.2 81.0
Balance Sheet (US$m) FY Mar
2015A
2016A
2017F
2018F
2019F
Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
52.2 1,544 12,479 1,446 0.0 475 1,467 17,462
52.9 1,954 14,656 1,025 0.0 548 4,895 23,129
52.9 2,485 14,856 350 0.0 709 4,895 23,348
52.9 3,034 15,053 301 0.0 788 4,895 24,124
52.9 3,592 15,368 112 0.0 858 4,895 24,878
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.
371 811 21.9 2,476 1,019 8,780 3,983 17,462
1,021 1,026 2,965 3,750 1,208 8,888 4,272 23,129
1,021 724 2,962 4,050 1,208 8,987 4,398 23,348
1,021 933 2,968 4,350 1,208 9,103 4,541 24,124
1,021 1,111 2,974 4,650 1,208 9,214 4,701 24,878
Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)
1,109 (1,402) 227.0 2,092.7 N/A 0.0 2.8 1.6 0.1 0.2 53.5 0.0
1,451 (3,746) 240.1 2,307.7 N/A 0.0 1.3 0.3 0.3 0.4 0.2 0.8
1,917 (4,720) 269.6 2,547.5 N/A 0.0 1.3 0.2 0.4 0.5 4.0 0.8
1,782 (5,070) 288.8 1,872.9 N/A 0.0 1.2 0.2 0.4 0.6 3.7 0.8
1,667 (5,558) 291.9 1,939.8 N/A 0.0 1.1 0.2 0.4 0.6 5.6 0.7
Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)
Gearing (D/E) to remain conservative at 0.4x
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 5
Page 125
Company Guide Global Logistic Properties
Cash Flow Statement (US$m) FY Mar
2015A
2016A
2017F
2018F
2019F
Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)
862 11.6 (28.5) (71.4) 45.5 (375) 444 (1,523) (1,467) (422) 12.9 (10.5) (3,409) (174) 687 159 2,246 2,918 0.0 (47.0) 11.8 (31.8)
1,343 11.8 (31.5) (241) 27.3 (691) 418 (8.0) 212 (472) 2.77 (4,672) (4,937) (200) 1,964 0.0 2,525 4,289 0.0 (230) 11.8 12.4
473 11.8 (53.5) (107) (463) 0.0 (138) (204) 0.0 (425) 0.0 0.0 (629) (208) 300 0.0 0.0 92.4 0.0 (674) 9.78 (10.3)
540 11.8 (50.3) (124) 129 0.0 507 (200) 0.0 (425) 0.0 0.0 (625) (232) 300 0.0 0.0 68.3 0.0 (49.6) 11.4 9.25
592 11.8 (56.8) (133) 109 0.0 522 (318) 0.0 (425) 0.0 0.0 (743) (268) 300 0.0 0.0 32.2 0.0 (188) 12.5 6.16
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Rachel TAN, Derek TAN
ASIAN INSIGHTS
VICKERS SECURITIES
Page 6
Page 126
Singapore Company Guide
UOL Group Refer to important disclosures at the end of this report
Version 6 | Bloomberg: UOL SP | Reuters: UTOS.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Diversification is key to sustainability
Last Traded Price (4 Jan 2017): S$6.12 (STI : 2,921.31) Price Target 12-mth: S$7.20 (18% upside)
Potential headwinds ahead; but valuations still attractive. Despite the weak operating outlook and potential headwinds, we maintain our BUY rating on UOL Group (UOL) based on its attractive valuations of c.0.6x P/NAV, which is below the low end of its historical range, making it one of the cheapest large cap landlords in Singapore.
Potential Catalyst: Strong pre-sales for residential projects Where we differ: Earnings generally more conservative vs peers Analyst Derek TAN +65 6682 3716 [email protected] Rachel TAN +65 6682 3713 [email protected]
3Q16 results in line; outlook improves. UOL’s 3Q16 net profit fell 14% y-o-y to S$87.1m, mainly due to lower contribution from JVs. However, the Group’s recent purchases in London should add to its recurring income stream and improve earnings visibility. Key positives from the results are: i) 11% revenue growth from all divisions, and ii) rental reversions were generally positive for its office and retail properties with stable occupancy rates remained stable. However, RevPAR for most of its hotels in all markets were marginally lower except for hotels in Australia.
Price Relative S$
Relative Index
8.7
209
8.2 189
7.7 7.2
169
6.7
149
6.2
129
5.7
109
5.2 4.7 Jan-13
Jan-14
Jan-15
UOL Group (LHS)
Forecasts and Valuation FY Dec (S$ m) Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)
Jan-16
89 Jan-17
Relative STI (RHS)
2015A 1,279 514 460 391 343 (5.9) 49.2 43.0 (7) 49.2 15.0 991 12.5 14.2 9.4 14.8 2.5 0.6 0.3 5.0
Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:
2016F 1,228 567 424 355 355 3.6 44.6 44.6 4 44.6 15.0 1,021 13.7 13.7 28.7 13.9 2.5 0.6 0.3 4.4
2017F 1,324 601 453 372 372 4.8 46.7 46.7 5 46.7 15.0 1,053 13.1 13.1 13.8 13.0 2.5 0.6 0.3 4.5
2018F 1,410 618 470 386 386 3.6 48.4 48.4 4 48.4 15.0 1,086 12.6 12.6 13.4 12.4 2.5 0.6 0.2 4.5
0 47.6 B: 9
0 47.8 S: 0
0 46.6 H: 3
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P
ASIAN INSIGHTS ed: JS / sa: JC, PY
New launches in 2H16/2017. Management saw good take-up for its recent Park Eleven project in Shangai, selling 131 out of 168 units and there will be subsequent launches in phases in 2017. In addition, UOL is positioning to launch The Clement Canopy (1Q17; 505 units), and Bishopsgate, London (160 units). The purchase of a recent enbloc site at Potong Pasir Ave 1 will be finalised soon, the project is planned for launch in 2018. Valuation: Maintain BUY on attractive valuations. Our TP of S$7.20 is pegged to a 30% discount to our RNAV of S$10.23. Key Risks to Our View: Economic slowdown. The downside risk to our projections is if residential sales are slower than our projections or if commercial properties and hotels operations are impacted by slower-than-projected growth in rental/room rates. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) CY Wee & Co Pte Ltd Wee Investment Pte Ltd United Overseas Bank Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate
805 4,924 / 3,448 13.9 13.4 7.5 59.8 3.7
VICKERS SECURITIES Page 127
Company Guide UOL Group
CRITICAL DATA POINTS TO WATCH
Revenue (S$’m) 1,600.0
S$'m
1,400.0
Earnings Drivers: Retail and office sub-segments to offer stable returns. UOL Group Limited (UOL) derives a significant 47%-58% of its revenues from retail, office and hotel segments which should continue delivering stable cashflows in the coming years.
1,200.0 1,000.0 800.0 600.0 400.0 200.0
While we see headwinds in both the retail and office segments ahead, we believe that the positioning and location of UOL’s portfolio of commercial properties mainly along the fringe areas of the CBD will result in lower volatility in rents. Thus, operational performance is likely to remain stable going forward. Its retail malls - United Square and Novena Square - are located in the Novena area, close to the emerging medical hub. The malls have formed a niche, which should result in high tenant stickiness. This is especially so for United Square, which houses tenants well known for providing various children’s education programs. On the other hand, Novena Square’s tenant mix mainly caters to necessity shopping and the needs of the vicinity’s growth as a medical hub. Hotel performance – weakness in Asia; overall outlook stable. Growth will be driven by the addition of close to 1,582 rooms (6 hotels), implying 16% growth in total rooms under management. Performances from hotels and serviced residences are expected to remain mixed. We expect the operational performance of the group’s hotels & residences in Singapore and Malaysia to be weak, but partially offset by a better performance from its hotels in Australia. We project portfolio RevPAR to remain fairly flattish.
0.0 15 16F Investments Hotel Operations Property Development
17F 18F Management Services Property Investments
PATMI (S$’m) 400.0
S $' m
390.0 380.0 370.0 360.0
350.0 340.0 330.0 15
16F
17F
18F
Operating Margins (%) 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%
Presales for residential projects doing well amid muted residential outlook. Despite tepid residential transactions yearto-date, UOL’s projects have continued to do fairly well. As at Sep 2016, the Group has substantially sold most of its projects that are completed or currently under development and its latest project - Principal Garden - has seen good take-up rate of 50% (vs 33.5% last quarter). Park Eleven in Shanghai had a private launch in 3Q2016 and sold 131units out of the 168 units approved for sale. Looking ahead, UOL will launch further phases of Park Eleven in Shanghai, The Clement Canopy in Singapore and its London project in 2017. The 555-unit Riverbank @ Fernvale (78.2% sold as at Sep 2016), and 797-unit Botanique at Bartley (95.9% sell-through rate) have sold well. Despite the low sales take-up rate, Principal Garden recorded steady sales and is now 43.4% sold. We view this as a testament of the Group’s ability to design residential projects that are well liked and attractively priced.
FY13
FY14
Breakdown of RNAV
FY16F
FY17F
RNAV (S$’m)
Properties Investment Properties less book value Surplus/deficit
OMV ($m) 2,950.8 -4,137.0 -1,186.2
NPV of devt profits Mark to TP value of quoted holdings Listed equities/Strategic Holdings Hotel operations Total less book value Surplus
390.6
Book NAV
7,894.2
RNAV Total Shares RNAV/share ($) Discount Price Target ($)
8,096.8 787.0 10.29 30% 7.20
Source: Company, DBS Bank
ASIAN INSIGHTS
FY15F
3,145.9 2,219.8 5,365.7 -4,367.4 998.3
VICKERS SECURITIES
Page 2 Page 128
Company Guide UOL Group
Balance Sheet: Balance sheet remains strong. Debt to equity ratio is expected to remain stable at 0.3x to 0.4x from FY16F-FY18F. This leaves UOL with sufficient headroom to acquire projects / new land when such opportunities come by.
Leverage & Asset Turnover (x) 0.45
0.2
0.40
0.2
0.35
0.2
0.2
0.30
0.2
0.25
0.2
0.20
0.1
0.15
Share Price Drivers: Replenishing land bank key to income sustainability. The Group turns around its projects quickly and has little land bank on its balance sheet. UOL has always been active in land tenders to replenish its land bank especially in Singapore but remains selective given the high competitive environment seen in recent government land tenders. The ability to secure additional land bank at lower prices will mean upside to RNAVs and this could re-rate the stock.
0.1
0.10
0.1
0.05
0.1
0.00
0.1 2014A
2015A
2016F
Gross Debt to Equity (LHS)
2017F
2018F
Asset Turnover (RHS)
Capital Expenditure S$m 300.0
250.0 200.0 150.0
Relaxation of property cooling measures in Singapore. Expectations of policy relaxation (especially cyclical measures like the buyers’ and sellers’ stamp duties) may improve market sentiment and spark a revival in transacted volumes in the Singapore residential market. This would also lift sentiment on property stocks, which should enable UOL to close the gap between its stock price and its NAV. Deep value from its hotel business. We believe that deep value lies in the group’s portfolio of well located hotels and serviced residences in Singapore, Malaysia and Australia. These hotels are held on a historical cost basis, which we believe are conservative compared to potential realisable value. We estimate potential upside of more than S$1bn if these properties are valued on marked-to-market basis.
100.0 50.0 0.0
2014A
2015A
2017F
2018F
ROE (%) 9.0% 8.0%
7.0% 6.0% 5.0%
4.0% 3.0% 2.0% 1.0%
0.0% 2014A
Key Risks: Economic slowdown. The downside risk to our projections is if residential sales are slower than projected or if its hotel operations are impacted by slower-than-projected RevPAR performance. The upside risks to our view and target price would be higher-than-expected selling prices or upgrades to the target prices of its listed investment holdings.
2016F
Capital Expenditure (-)
2015A
2016F
2017F
2018F
Forward PE Band (x) (x) 19.7
+2sd: 18.7x 17.7
+1sd: 16.7x 15.7
Avg: 14.8x 13.7
-1sd: 12.8x
Company Background With a track record of nearly 50 years, UOL Group's impressive list of property development projects includes best-selling residential units, office towers, shopping centres, hotels and serviced suites.
11.7
-2sd: 10.8x 9.7 Jan-13
Jan-14
Jan-15
Jan-16
PB Band (x) 1.0
(x)
0.9
+2sd: 0.86x 0.8
+1sd: 0.77x
0.7
Avg: 0.69x
0.6
-1sd: 0.6x
0.5
-2sd: 0.51x
0.4 Jan-13
Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3 Page 129
Company Guide UOL Group
Segmental Breakdown FY Dec
2014A
2015A
2016F
2017F
2018F
Revenues (S$m) Property Development Property Investment Hotel Operations Investments Others Total
676 198 438 20.3 28.8 1,361
578 219 419 42.3 20.2 1,279
595 200 369 42.3 20.8 1,228
675 214 371 42.3 21.4 1,324
754 218 374 42.3 22.0 1,410
Income Statement (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
1,361 (780) 581 (209) 372 13.4 158 (28.5) 322 837 (76.7) (74.3) 0.0 686 364 604
1,279 (775) 504 (231) 273 18.4 156 (35.6) 48.8 460 (47.2) (21.8) 0.0 391 343 514
1,228 (782) 446 (184) 261 18.4 220 (74.9) 0.0 424 (50.9) (18.5) 0.0 355 355 567
1,324 (839) 485 (199) 287 18.4 229 (81.6) 0.0 453 (54.3) (26.2) 0.0 372 372 601
1,410 (904) 506 (211) 295 18.4 238 (81.1) 0.0 470 (56.4) (28.2) 0.0 386 386 618
28.5 15.1 10.1 39.5
(6.0) (14.8) (26.6) (5.9)
(4.0) 10.1 (4.3) 3.6
7.8 6.1 9.6 4.8
6.5 2.8 2.8 3.6
42.7 27.3 50.4 9.5 6.2 3.2 17.2 13.0
39.4 21.4 30.6 5.0 3.4 2.2 30.5 7.7
36.3 21.3 28.9 4.4 3.0 2.0 33.6 3.5
36.6 21.6 28.1 4.5 3.1 2.1 32.1 3.5
35.9 20.9 27.3 4.5 3.1 2.1 31.0 3.6
Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)
Pre-sales of residential units to add to earnings.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 4 Page 130
Company Guide UOL Group
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA
1Q2016
2Q2016
3Q2016
354 (217) 137 (52.2) 84.5 (2.4) 44.8 (11.3) 2.89 118 (13.7) (4.0) 101 97.9 144
344 (221) 123 (56.2) 67.1 (2.4) 36.8 (9.8) (15.1) 76.6 (10.5) (2.3) 63.8 79.0 123
330 (216) 114 (55.0) 59.0 5.33 34.1 (4.8) 0.17 93.7 (12.4) (4.3) 77.1 76.9 115
364 (238) 125 (55.2) 70.2 3.86 38.1 (6.3) (26.5) 79.3 (10.7) 0.19 68.8 95.3 128
393 (263) 130 (56.5) 73.7 6.75 29.1 (5.7) 0.0 104 (12.3) (4.4) 87.1 87.1 123
3.4 7.2 (0.4) 6.2
(2.7) (14.8) (20.5) (19.4)
(4.1) (6.3) (12.1) (2.6)
10.1 11.7 18.9 23.9
8.2 (4.3) 5.1 (8.5)
38.6 23.9 28.5
35.8 19.5 18.5
34.5 17.9 23.3
34.5 19.3 18.9
33.1 18.7 22.1
Balance Sheet (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
1,241 3,162 4,528 935 0.80 248 1,735 11,848
1,179 3,366 4,981 276 0.73 197 1,501 11,501
1,384 3,586 4,981 254 0.70 189 1,561 11,955
1,517 3,815 4,981 288 0.76 204 1,449 12,255
1,500 4,053 4,981 482 0.81 217 1,334 12,567
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.
1,292 282 75.2 1,737 332 7,643 488 11,848
523 238 42.1 1,980 317 7,894 507 11,501
523 229 51.2 2,180 317 8,130 525 11,955
523 247 54.6 2,180 317 8,382 552 12,255
523 263 56.7 2,180 317 8,648 580 12,567
Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)
1,626 (2,094) 83.9 184.8 0.4 0.1 1.8 0.7 0.3 0.3 5.2 1.9
1,419 (2,227) 63.5 134.1 0.4 0.1 2.5 0.6 0.3 0.3 1.9 2.0
1,470 (2,449) 57.4 119.3 0.4 0.1 2.5 0.6 0.3 0.3 10.1 2.0
1,353 (2,415) 54.2 112.5 0.3 0.1 2.4 0.6 0.3 0.3 7.4 2.0
1,233 (2,222) 54.5 111.2 0.3 0.1 2.4 0.8 0.2 0.3 1.8 2.0
Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (Pre-ex) (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)
Gearing to remain healthy
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 5 Page 131
Company Guide UOL Group
Cash Flow Statement (S$m) FY Dec Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (S cts) Free CFPS (S cts)
2014A
2015A
2016F
2017F
2018F
760 60.1 (96.5) (158) (726) (250) (411) (157) (0.8) (1.6) 18.7 8.89 (132) (57.1) 690 3.58 (103) 534 2.42 (6.9) 40.1 (72.2)
413 67.2 (66.7) (156) 259 (0.1) 517 (47.0) 0.68 79.8 42.0 (12.3) 63.2 (64.3) (466) 7.93 (62.1) (584) (5.7) (10.1) 32.4 59.0
424 67.2 (41.8) (220) (60.8) 0.0 170 (273) 0.0 0.0 0.0 0.0 (273) (119) 200 0.0 0.0 80.6 0.0 (22.6) 28.9 (13.0)
453 67.2 (50.9) (229) 114 0.0 354 (200) 0.0 0.0 0.0 0.0 (200) (119) 0.0 0.0 0.0 (119) 0.0 34.5 30.1 19.3
470 67.2 (54.3) (238) 118 0.0 363 (50.0) 0.0 0.0 0.0 0.0 (50.0) (119) 0.0 0.0 0.0 (119) 0.0 193 30.7 39.3
Acquisition of 2 properties in London and Raintree Gardens in 2017
Source: Company, DBS Bank Target Price & Ratings History 6.59
S$ Closing Pric e
1:
18 J an 16
5.54
8.47
BUY
2:
29 F eb 16
5.66
7.39
BUY
3:
13 May 16
5.70
7.39
BUY
4:
27 May 16
5.68
7.39
BUY
5:
09 J un 16
5.61
7.39
BUY
6:
05 Aug 16
5.83
7.20
BUY
7:
16 Sep 16
5.51
7.20
BUY
8:
30 Sep 16
5.61
7.20
BUY
9:
07 Oct 16
5.85
7.20
BUY
10:
18 Oct 16
5.76
7.20
BUY
11:
11 Nov 16
5.66
7.20
BUY
S.No.
6.19 5.99
6
5.79
5.39
4
2
5.59
10 89
3
11
5
1
7
5.19 4.99 Jan-16
May-16
Sep-16
12- mt h T arget Rat ing Pric e
Dat e of Report
6.39
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Derek TAN Rachel TAN
ASIAN INSIGHTS
VICKERS SECURITIES
Page 6 Page 132
Singapore Company Guide
Ascendas Hospitality Trust Refer to important disclosures at the end of this report
Version 6 | Bloomberg: ASCHT SP | Reuters: ASHP.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Untapped balance sheet
Last Traded Price ( 4 Jan 2017): S$0.70 (STI : 2,921.31) Price Target 12-mth: S$0.84 (20% upside and 7.9% yield)
Attractive yield and discount to book value. We maintain our BUY recommendation and TP of S$0.84. We believe at current levels, Ascendas Hospitality Trust’s (ASCHT) offers a compelling yield in excess of 7% which is based on a 95% payout ratio. In addition, the stock trades at 16% discount to its NAV per unit of S$0.88 and speculated offer price in excess of S$0.80 when several parties were considering a takeover bid for ASCHT earlier this year.
Potential Catalyst: Earnings recovery/further acquisitions/potential takeover offer Where we differ: DBS is the sole broker covering this REIT Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Mitigating factors against known headwinds. While ASCHT’s faces several headwinds in the form of an oversupply in the Singapore and Brisbane hospitality markets and recent strengthening of the JPY, we believe ASCHT can still deliver relatively stable DPUs going forward. This is premised on higher earnings from a renegotiated management contract at its Osaka property, uplift from the recently completed refurbishment at Courtyard by Marriott North Ryde, and still positive increase in tourist arrivals into Australia and Japan boosting demand for ASCHT’s Sydney, Melbourne and Tokyo properties.
What’s New
2Q17 DPU of 1.38 Scts flat y-o-y but up 4% y-o-y on normalised basis
Some near term headwinds but there are levers to drive earnings
Low gearing (c.32%) provides capacity to pursue acquisitions
Acquisition capability enhanced due to low gearing and new Chairman with extensive hospitality experience. With gearing of only c.32%, ASCHT is in a strong financial position to pursue debt-funded acquisitions. In addition, we believe the ability to execute on non-organic opportunities is enhanced by the recent appointment of Mr Miguel Ko as Chairman of ASCHT. Mr Ko, who is currently the CEO of ASCHT’s sponsor, was formerly the Chairman and President of Starwoods Hotels & Resorts (Asia Pacific Division) and Deputy Chairman and CEO of CDL Hotels International.
Price Relative
Forecasts and Valuation FY Mar (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 227 93.3 28.6 56.3 1.72 137 5.06 (8) 74.2 40.7 7.2 0.9 37.2 2.3
Distn. Inc Chng (%):
2016A 215 90.9 147 63.7 0.10 (94) 5.41 7 86.0 726.0 7.7 0.8 32.7 0.1
2017F 226 92.3 34.4 65.4 3.06 3,072 5.52 2 85.8 22.9 7.9 0.8 32.8 3.6
2018F 225 91.6 33.2 64.3 2.94 (4) 5.39 (2) 85.7 23.8 7.7 0.8 32.8 3.4
0
0
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Valuation: We maintain our DCF-based TP at S$0.80. With 20% capital upside and attractive 7.9% yield, we reiterate our BUY call. Key Risks to Our View: Significant drop in AUD/JPY and demand/supply imbalance. If the AUD/JPY drops significantly from current levels and there is excess supply in ASCHT’s respective markets, there will be downside risks to our DPU estimates and ASCHT may continue to trade at a discount to book value. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) TJ Holdings Tang Yigang Jinquan Tong Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trusts
1,123 786 / 589 27.1 6.2 4.9 61.8 0.30
VICKERS SECURITIES Page 133
Company Guide Ascendas Hospitality Trust Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Australia – the largest contributor. ASCHT’s Australian portfolio contributed c.55% of FY16 NPI. With a positive outlook for the Australian hospitality market, driven by a combination of continued growth in tourist arrivals (+12% y-o-y for 8M16 following 8% growth in CY15) and modest new hotel supply in Sydney and Melbourne in the near term, we expect ASCHT’s Australian operations to drive the REIT’s performance going forward. Contribution from Australia should also rise in 2019 as ASCHT inked an agreement to acquire the serviced apartment component at Aurora Melbourne Central for A$120m, on an NPI yield of 7.6%. Construction of Aurora Melbourne Central is due to be completed in 2H19. Due to uncertainty over how ASCHT will fund the acquisition of Aurora Melbourne and RevPAR in 2019, we have yet to include this investment in our estimates. Japan is another growth driver. Despite potential softening in ASCHT’s Japanese operations due to the recent strengthening of the JPY, we remain positive on the outlook for ASCHT’s Japanese properties (c.21% of FY16 NPI). This is because while the pace of inbound tourists may slow, it should remain on an uptrend as the Japanese government continues to support the tourism sector through the relaxation of visa requirements. Overall tourist arrivals climbed 24% y-o-y in 9M16 following a 47% y-o-y increase in CY15. New operator for Osaka Namba hotel. Another boost for ASCHT in FY17 is the 13% uplift in annual fixed rents for its Osaka Namba Washington Hotel, as ASCHT has recently appointed a new operator, Sunroute Co Ltd. As part of the new 10-year agreement, the hotel will undergo a refurbishment and will be rebranded under the “Sunroute” name.
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Modest contribution from Singapore and China. In FY17, we see modest contributions from ASCHT’s Singapore (16% of FY16 NPI) and China (8%) properties due to challenging operating conditions induced by new hotel supply. For Singapore, we project a decline in RevPAR. However, the downside from Singapore is limited given an annual fixed rent of c.S$12m with a 3% annual escalation. Financial flexibility to pursue acquisitions. Following recent revaluation gains, ASCHT’s gearing has fallen to c.32%. This provides the REIT with some debt headroom to pursue acquisitions.
ASIAN INSIGHTS
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2
Page 134
Company Guide Ascendas Hospitality Trust
Balance Sheet: Stable gearing. Excluding revaluation gains, we expect ASCHT’s gearing to remain stable at around the 32% level in the near term. However, this may increase should ASCHT fund the acquisition of Aurora Melbourne in 2019.
Aggregate Leverage (%)
Share Price Drivers: Consistent delivery with upside risk from potential takeover. ASCHT’s share price has been negatively impacted since its IPO due to a patchy DPU track record. We believe a more stable DPU will re-rate ASCHT in the medium term given that ASCHT trades at a c.80bps yield premium to other listed hospitality SREITs. Should ASCHT’s manager fail to deliver, there is potential for activist unitholders soliciting a takeover offer from a third party to crystallise the full value for ASCHT’s portfolio.
ROE (%)
Inorganic drivers. While ASCHT's ability to raise equity in the short term is constrained by the fact the trust is trading on a relative high distribution yield (above 7%), we think its gearing of c.32% provides ASCHT with some headroom to pursue debt funded acquisitions. Key Risks: Interest rate risk. As the US Fed is expected to raise interest rates, ASCHT faces the challenge of higher interest costs. Nevertheless, with c.97% of the group’s debt on fixed rates, ASCHT is partially insulated in the near term.
Distribution Yield (%)
FX risks. Significant volatility in AUD and JPY would negatively impact our DPU estimates. However, this risk is tempered by ASCHT entering into 15-month rolling hedges. Supply risk. Any significant increase in the number of hotel rooms without a commensurate growth in demand could limit income growth for the REIT, as hotels may have to lower their room rates in order to remain competitive and maintain high occupancies.
PB Band (x)
Company Background A-HTRUST is a stapled group comprising Ascendas Hospitality Business Trust (A-HBT) and Ascendas Hospitality REIT (AHREIT), established to invest in a diversified portfolio of hotel assets in Asia, Australia and New Zealand.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 135
Company Guide Ascendas Hospitality Trust
Income Statement (S$m) FY Mar Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
Source: Company, DBS Bank
2014A
2015A
2016A
2017F
2018F
214 (131) 83.5 (40.7) (13.7) (15.0) 0.0 14.3 (7.7) 0.0 0.0 6.66 16.7 38.0 54.6
227 (134) 93.3 (35.9) (15.0) (17.2) 0.0 28.4 (9.9) 0.0 0.0 18.5 28.6 37.8 56.3
215 (124) 90.9 (34.6) (3.9) (17.9) 0.0 38.5 (37.4) 0.0 0.0 1.08 147 62.6 63.7
226 (134) 92.3 (36.0) 0.0 (18.4) 0.0 37.9 (3.6) 0.0 0.0 34.4 34.4 31.1 65.4
225 (133) 91.6 (36.0) 0.0 (18.8) 0.0 36.8 (3.6) 0.0 0.0 33.2 33.2 31.1 64.3
55.5 73.4 (25.3) 100.0 39.0 3.1 25.5 19.0 0.9 0.5 1.8 2.9
6.0 11.8 177.5 100.0 41.1 8.1 24.8 15.8 2.3 1.3 3.0 3.3
(5.3) (2.7) (94.2) 95.0 42.2 0.5 29.6 16.1 0.1 0.1 0.1 3.1
5.1 1.5 3,090.0 95.0 40.8 15.2 28.9 15.9 3.6 2.1 3.6 3.1
(0.4) (0.7) (3.4) 95.0 40.7 14.8 28.6 16.0 3.4 2.0 3.5 3.0
ASIAN INSIGHTS Page 4
Growth driven by ASCHT’s Australian and Japanese properties
VICKERS SECURITIES Page 136
Company Guide Ascendas Hospitality Trust
Quarterly / Interim Income Statement (S$m) FY Mar 2Q2016 3Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
4Q2016
1Q2017
2Q2017
54.5 (31.9) 22.6 (8.8) (2.7) (4.3) 0.0 6.80 (1.4) 0.0 5.36 5.36 10.9 16.3
54.9 (31.5) 23.4 (8.5) 0.0 (4.3) 0.0 10.7 (1.8) 0.0 8.90 8.90 8.12 17.0
52.9 (29.5) 23.4 (9.0) 1.23 (4.5) 0.0 11.2 (33.4) 0.0 (22.2) 123 37.6 15.4
52.4 (29.8) 22.6 (9.4) (3.2) (4.5) 0.0 5.56 (1.3) 0.0 4.22 4.22 11.0 15.2
55.6 (31.2) 24.3 (9.4) 0.92 (4.4) 0.0 11.4 (2.1) 0.0 9.36 9.36 0.0 16.3
3 5 (41) 41.5 95.2
1 4 66 42.6 95.3
(4) 0 nm 44.3 100.0
(1) (3) nm 43.2 95.2
6 8 122 43.8 95.0
Balance Sheet (S$m) FY Mar
2014A
2015A
2016A
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
516 763 72.4 0.65 8.13 5.79 1,366
618 734 91.5 0.49 9.67 6.40 1,460
788 733 94.6 0.37 10.9 5.01 1,632
792 733 84.6 0.37 9.62 5.01 1,624
797 733 82.2 0.37 9.58 5.01 1,627
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
0.0 31.1 9.21 485 45.3 795 0.0 1,366
72.0 31.5 5.92 472 52.4 826 0.0 1,460
58.0 44.7 9.18 475 81.4 963 0.0 1,632
58.0 31.5 11.4 475 81.4 967 0.0 1,624
58.0 31.4 11.5 475 81.4 970 0.0 1,627
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(25.8) (413)
(20.9) (452)
(37.7) (439)
(28.0) (449)
(28.0) (451)
2.2 2.1 35.5 0.9
1.0 1.0 37.2 0.9
1.0 1.0 32.7 0.8
1.0 1.0 32.8 0.8
1.0 1.0 32.8 0.8
Gearing expected to remain relatively stable going forward
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 137
Page 5
Company Guide Ascendas Hospitality Trust
Cash Flow Statement (S$m) FY Mar
2014A
2015A
2016A
2017F
2018F
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash
14.3 27.4 (2.5) (0.2) 11.7 17.0 67.7 (300) 0.0 0.0 1.15 (24.3) (323) (51.5) 120 198 0.0 266 2.84 13.1
28.4 27.9 (6.8) (3.1) 7.26 1.94 55.6 (110) 0.0 0.0 1.33 (10.0) (119) (56.9) 85.7 49.2 0.0 77.9 1.14 15.8
38.5 26.0 (3.1) (4.0) 9.19 2.92 69.5 (11.4) 29.5 0.0 1.02 (13.8) 5.26 (58.2) (8.8) 0.0 0.0 (67.0) (1.2) 6.48
37.9 26.0 (1.3) 0.0 (12.0) 5.06 55.7 (3.6) 0.0 0.0 0.0 0.0 (3.6) (62.1) 0.0 0.0 0.0 (62.1) 0.0 (10.0)
36.8 26.0 (3.6) 0.0 0.0 5.06 64.3 (5.6) 0.0 0.0 0.0 0.0 (5.6) (61.0) 0.0 0.0 0.0 (61.0) 0.0 (2.4)
Operating CFPS (S cts) Free CFPS (S cts)
6.09 (25.3)
4.50 (5.1)
5.40 5.19
6.02 4.64
5.69 5.19
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Mervin SONG CFA Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 138
Singapore Company Guide
Ascendas India Trust Version 7
Refer to important disclosures at the end of this report
| Bloomberg: AIT SP | Reuters: AINT.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Still under the radar
Last Traded Price ( 4 Jan 2017): S$1.01 (STI : 2,921.31) Price Target 12-mth: S$1.13 (12% upside and 5.8% yield) Potential Catalyst: Acquisitions and/or further redevelopments Where we differ: Above consensus due to incorporation of Blue Ridge Phase II acquisition Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Clear growth drivers with prospects of healthy rental reversions ahead. Over the past year, a-iTrust has announced several developments including the construction of The V, a new 408k sqft IT building, as well as acquisitions of CyberVale, aVance 3 & 4 and BlueRidge Phase 2. Coupled with the potential for healthy rental reversions ahead, of 12-20% in Chennai and up to 5% for Hyderabad and Bangalore, provides confidence over a-iTrust’s ability to deliver a robust 8% DPU CAGR over the next two years.
Price Relative
Forecasts and Valuation FY Mar (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 129 77.6 65.9 49.8 2.97 59 4.86 7 66.2 34.0 4.8 1.5 25.1 4.6
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016A 144 93.7 105 56.5 1.01 (66) 5.50 13 67.2 99.9 5.4 1.5 26.9 1.5
2017F 168 104 53.6 60.9 5.76 470 5.89 7 66.6 17.5 5.8 1.5 36.0 8.4
2018F 196 125 57.9 66.2 6.19 8 6.37 8 66.1 16.3 6.3 1.5 37.1 9.1
B: 3
6.00 S: 0
6.40 H: 1
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Still has legs to run. We maintain our BUY call on Ascendas India Trust (a-iTrust), with a revised TP of S$1.13. While a-iTrust has rallied over 30% since we upgraded the stock to BUY in late January, and investor interest has picked up, we believe a-iTrust’s growth story still has yet to gain recognition among investors at large. With Singapore-focused REITs increasingly facing headwinds translating into slowing DPU growth (average DPU CAGR of 1%), we anticipate investors will gravitate to a-iTrust given its healthy 2year DPU CAGR of 8% and a still decent 5.5% yield.
Untapped land bank and acquisition pipeline. Through its untapped land bank and sponsor pipeline, a-iTrust has access to c.5.9m sqft of floor area. This provides the trust with a visible and sustainable source of growth over the long term. The ability to execute on these growth opportunities is supported by its healthy balance sheet (current gearing is low at 29%, rising to c.36% with planned developments and acquisitions in the next couple of years). Valuation: We maintain our DDM-based TP of S$1.13. Key Risks to Our View: The key risk to our bullish stance is a significant depreciation of the INR, downturn in the Indian economy which will depress rents or delays in the completion of announced acquisitions and development projects. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Ascendas Pte Ltd Massachusetts Financial Services JPMorgan Chase & Co Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
930 939 / 652 23.9 12.7 9.5 53.9 0.37
VICKERS SECURITIES Page 139
Company Guide Ascendas India Trust Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Leveraged on offshoring trends. a-iTrust provides exposure to India, which remains a leading IT and offshoring hub. The growing demand for offshoring services is underpinned by the country's low-cost environment. According to PayScale, the average salary for IT/software, developers or programmers in India stands at US$5,451 p.a. which is way below that of other competing and/or developed countries such as the US (US$73,031), Australia (US$51,331), Hong Kong (US$23,600) and Malaysia (US$10,165). Combined with an abundant skilled labour force and qualified English-speaking talent pool, based on NASSCOM (National Association of Software and Services Companies) estimates, IT-BPM (business process management) revenues are forecast to grow by 10-12% in FY16/17 to US$157-160bn. Balanced lease expiry to capture upside in rents. a-iTrust’s WALE stands at 5.7 years, with 8% and 30% of leases up for renewal in FY17 and FY18 respectively. Given the favourable demand backdrop and limited supply in certain markets such as Chennai, we believe a-iTrust’s lease expiry profile provides it with ample opportunities to capture the upside in rents.
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Boost from recent acquisitions and developments. Over the past year, a-iTrust announced the construction of The V, a new 408k-sqft IT building, as well as the acquisitions of CyberVale, aVance 3 & 4 and BlueRidge Phase II. These organic and inorganic developments should boost a-iTrust’s DPU, contributing to a healthy 8% DPU CAGR over the next two years. Potential one-third increase in floor area. a-iTrust currently has a portfolio of properties with 9.7m sqft of space with announced plans to take it to c.12m sqft. Beyond this, through its sponsors and assuming a-iTrust exercises its right of first refusal (ROFR), it could access c.2.3m sqft worth of properties. In addition, we understand the trust is also open to the acquisition of thirdparty properties. Currently, it is exploring acquisition opportunities in Mumbai, Delhi and Gurgaon, thereby expanding its presence beyond its current core markets of Bangalore, Chennai, Hyderabad and Pune.
Interest Cover (x)
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 140
Company Guide Ascendas India Trust
Balance Sheet: Flexible balance sheet. a-iTrust’s current gearing remains low at <30%. However, we expect gearing to rise to c.36% by endFY17 after including the trust’s existing development projects and announced acquisitions. This is within management comfortable level of 35%-45%.
Aggregate Leverage (%)
100% of debt fixed. As at end September 2016, 100% of the trust’s debt was fixed with an all-in cost of debt of 7.0%. This minimises the trust’s exposure to short-term volatility in interest rates. Share Price Drivers: Stronger INR. Since a-iTrust’s IPO in 2008, NPI in INR terms has grown at a CAGR of 8%. However, due to the weak INR, aiTrust’s share price has been capped and net property income in SGD terms has only grown at c.5% CAGR. Should the INR appreciate, this will be a major tailwind for a-iTrust’s share price. Crystallisation of development and sponsor pipeline. The trust has a development and sponsor pipeline of c.3m sqft and 2.3m sqft respectively. The delivery of the development pipeline and acquisition of its sponsor’s properties with resultant increase in earnings/DPU should drive the stock price higher over the medium term.
ROE (%)
Distribution Yield (%)
Key Risks: Currency risk. a-iTrust’s distributions are generated in INR but paid in SGD. While the trust hedges each half-yearly distribution, DPU from the trust will be negatively impacted on a lagged basis if the INR depreciates. In addition, as 75% and 25% of the trust’s borrowings are in INR and SGD respectively, while all its assets are in India, a depreciation of the INR would also be negative to its NAV per share. Economic risk. Deterioration in the Indian economic outlook and/or companies outsourcing their operations to India may negatively impact demand for space and rents at a-iTrust’s properties.
PB Band (x)
Interest rate risk. Increases in interest rates will result in higher interest payments which would reduce income available for distribution. This risk is partially mitigated by the fact that 100% of the trust’s debt is fixed. Company Background Ascendas India Trust ("a-iTrust") was listed in August 2007 as the first Indian property trust in Asia. Its principal objective is to own income-producing real estate used primarily as business space in India. a-iTrust may also develop and acquire land or uncompleted developments to be used primarily as business space, with the objective of holding the properties upon completion. a-iTrust is managed by Ascendas Property Fund Trustee Pte Ltd, a subsidiary of the Ascendas Group.
ASIAN INSIGHTS
Source: Company, DBS Bank
VICKERS SECURITIES Page 3
Page 141
Company Guide Ascendas India Trust
Income Statement (S$m) FY Mar Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016A
2017F
2018F
121 (48.6) 72.1 (7.9) 0.0 (3.9) (8.1) 52.2 (30.4) (4.8) 0.0 17.1 50.1 (13.3) 46.1
129 (51.2) 77.6 (8.4) 0.0 (2.8) 4.31 70.7 (38.3) (5.1) 0.0 27.3 65.9 (16.1) 49.8
144 (50.2) 93.7 (16.1) 0.0 (9.2) 0.0 68.4 (51.1) (8.0) 0.0 9.34 105 (11.9) 56.5
168 (64.4) 104 (11.6) 0.0 (14.8) 0.0 77.6 (20.8) (3.2) 0.0 53.6 53.6 7.34 60.9
196 (71.5) 125 (14.1) 0.0 (27.1) 0.0 83.5 (22.2) (3.3) 0.0 57.9 57.9 8.28 66.2
(4.4) (0.1) (25.4) 90.0 59.7 14.2 38.2 6.5 2.9 1.6 2.6 16.3
6.7 7.6 59.8 90.0 60.3 21.2 38.7 6.5 4.6 2.4 2.8 24.4
11.8 20.8 (65.8) 90.0 65.1 6.5 39.2 11.2 1.5 0.7 1.6 8.4
17.0 11.0 473.2 90.0 61.8 31.8 36.2 6.9 8.4 3.7 4.9 6.2
16.5 19.8 8.2 90.0 63.5 29.5 33.8 7.2 9.1 3.7 5.4 4.1
Improvement in earnings on the back of positive rental reversions and contributions from new properties/acquisitions
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 142
Company Guide Ascendas India Trust
Quarterly / Interim Income Statement (S$m) FY Mar 2Q2016 3Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
4Q2016
1Q2017
2Q2017
36.5 (12.8) 23.7 0.11 0.0 (2.6) 0.17 21.4 (6.1) (1.1) 14.2 16.8 (4.6) 14.0
37.5 (12.7) 24.8 2.35 0.0 (3.0) (5.7) 18.5 (8.0) (0.8) 9.70 9.70 (5.2) 14.0
35.9 (12.7) 23.2 (2.2) 0.0 (2.8) 0.13 18.4 (30.2) (5.2) (17.0) 72.6 (4.0) 14.4
36.1 (12.4) 23.6 (2.5) 0.0 (3.6) (2.6) 14.9 (4.6) (1.0) 9.39 9.39 (0.9) 14.0
37.1 (12.0) 25.2 (2.9) 0.0 (3.3) 3.00 21.9 (3.6) (1.2) 17.1 17.1 (3.0) 14.2
7 8 75 65.0 90.0
3 5 (32) 66.2 90.0
(4) (6) nm 64.7 90.0
1 2 nm 65.6 90.0
3 6 82 67.7 90.0
Balance Sheet (S$m) FY Mar
2014A
2015A
2016A
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
0.41 953 74.4 0.71 20.3 13.9 1,063
0.26 1,150 69.7 0.74 22.8 13.6 1,257
3.29 1,222 85.9 0.69 15.1 22.8 1,350
3.21 1,442 44.2 0.97 29.8 22.8 1,543
3.13 1,488 35.9 1.12 34.7 22.8 1,586
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
49.9 39.3 0.97 184 180 566 42.0 1,063
89.9 42.6 0.71 225 222 627 49.3 1,257
45.0 57.4 0.51 318 238 639 52.9 1,350
45.0 55.7 0.51 511 238 637 56.1 1,543
45.0 64.9 0.51 543 238 636 59.4 1,586
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(5.4) (160)
(6.1) (246)
(19.4) (277)
(2.6) (512)
(6.7) (552)
1.2 1.0 22.1 1.5
0.8 0.7 25.1 1.1
1.2 1.0 26.9 1.1
1.0 0.7 36.0 0.9
0.9 0.6 37.1 0.9
Increase in gearing due to new properties
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 143
Page 5
Company Guide Ascendas India Trust
Cash Flow Statement (S$m) FY Mar Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
2014A
2015A
2016A
2017F
2018F
52.2 0.10 (11.3) 0.0 14.2 22.2 77.4 (35.5) (8.6) 0.0 0.0 0.04 (44.0) (40.2) 17.7 0.0 0.0 (22.5) (6.4) 4.52
70.7 0.08 (12.4) 0.0 3.73 17.4 79.6 (17.7) (91.8) 0.0 0.0 0.08 (109) (43.4) 80.5 0.0 (16.3) 20.8 4.27 (4.7)
68.4 0.08 (51.1) 0.0 13.3 66.5 97.1 (51.8) 0.0 0.0 0.0 0.0 (51.8) (48.0) 24.7 0.0 (0.4) (23.7) 0.0 21.6
77.6 0.08 (20.8) 0.0 (16.8) 0.0 40.0 (198) (22.2) 0.0 0.0 0.0 (220) (54.8) 193 0.0 0.0 138 0.0 (41.8)
83.5 0.08 (22.2) 0.0 4.10 0.0 65.5 (68.0) 22.2 0.0 0.0 0.0 (45.8) (59.6) 31.6 0.0 0.0 (28.0) 0.0 (8.3)
6.91 4.59
8.25 6.73
9.07 4.90
6.11 (17.0)
6.56 (0.3)
Includes $133m investment in BlueRidge Phase 2
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Mervin SONG CFA Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 144
Singapore Company Guide
Ascendas REIT Version 6
Refer to important disclosures at the end of this report
| Bloomberg: AREIT SP | Reuters: AEMN.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Takes three at a go!
Last Traded Price (4 Jan 2017): S$2.31 (STI : 2,921.31) Price Target 12-mth: S$2.65 (15% upside and 6.9% yield) Potential Catalyst: Acquisitions Where we differ: Estimates are in line with consensus Analyst Derek TAN +65 6682 3716 [email protected] Mervin SONG CFA +65 6682 3715 [email protected] Singapore Research Team [email protected]
Acquisition that ticks the right boxes. A-REIT continues to deepen its exposure to the Business Parks/Science Parks Space with an acquisition of three properties at a price of S$420m. The acquisition ticks most of the boxes – long lease tenure (16.5 years with annual escalations of 2.0%-2.5%), long unexpired land lease tenure (65.7 years) and offers investors a deeper exposure to a sector (R&D) that continues to grow. The yield of 6.0% (all-in cost) appears low at first glance but we believe it reflects the properties’ relatively young age (2.0 years) and long land lease tenure. Accretion is projected to be marginal at 0.5%. We have yet to factor in the acquisition, pending EGM.
Price Relative S$
Relative Index
3.1
222
2.9
202 182
2.7
162 2.5 142 2.3
122
2.1 1.9 Jan-13
102
Jan-14
Jan-15
Ascendas REIT (LHS)
Forecasts and Valuation FY Mar (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
Jan-16
82 Jan-17
Relative STI (RHS)
2015A 673 463 398 351 14.6 0 14.6 3 208 15.8 6.3 1.1 33.4 7.1
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016A 761 534 349 378 13.9 (5) 15.4 5 207 16.6 6.7 1.1 37.1 6.7
2017F 837 598 415 427 15.3 10 15.7 2 207 15.1 6.8 1.1 34.2 7.4
2018F 858 617 434 446 15.3 1 15.6 (1) 201 15.0 6.7 1.1 34.4 7.5
B: 15
15.7 S: 0
15.9 H: 7
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: CK / sa: YM, PY
Maintain BUY, TP maintained at S$2.65. Ascendas REIT (A-REIT) offers attractive yields of close to 6.6% to investors looking for steady returns in the current volatile market. A low leverage of 35% supports any potential M&A activities which the REIT has the ability and access to deliver on.
Conservative capital management. A-REIT stands tall in the face of rising interest rates going into 2017 with a spread-out debt expiry profile of 3.8 years, implying that the REIT does not face any major refinancing in any one year. The manager adopts a prudent interest rate risk management strategy with a weighted average cost of debt of 3.0% with 78.0% hedged into fixed rates. Valuation: Our DCF-based TP is maintained at S$2.65 as a result of additional contribution from acquisitions. Maintain BUY on the back of total potential returns of c.15% Key Risks to Our View: Interest rate risk. An increase in lending rates will negatively impact dividend distributions. However, A-REIT's strategy has been to actively manage its exposure and it currently has c.70% of its interest cost hedged into fixed rates. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Ascendas Pte Ltd Mondrian Investment Blackrock Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
2,843 6,566 / 4,597 20.0 8.0 5.1 36.9 21.2
VICKERS SECURITIES Page 145
Company Guide Ascendas REIT Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Rebound in occupancy rates to provide upside to earnings. AREIT’s Singapore portfolio occupancy rates dipped marginally to 87.9%, compared to c.88.3% in 1QFY17 and 89.9% a year ago. The dip was mainly due to non-renewals of leases at 40 Penjuru Lane and Pioneer hub. Given A-REIT’s scale in Singapore, the manager continues to attract a diverse tenant base to its properties, despite the current economic slowdown. The manager is still seeing expansionary and new demand mainly from businesses in the transport and storage, distribution, and electronics sectors. Looking ahead, with close to 13% of the portfolio still vacant, the ability to back-fill the unoccupied space provides potential upside to our earnings estimates. A long portfolio-weighted average lease expiry (WALE) profile of 3.7 years (4.4 years post latest acquisition) means good earnings visibility for the REIT.
S$ m
700 600
77.3%
500
75.3%
400
73.3%
300
71.3%
200
69.3%
100
67.3%
0
65.3% 2014A
2015A
2016A
Net Property Income
2017F
2018F
Net Property Income Margin %
Net Property Income and Margins (%) 76%
159
74% 149 72% 139
70% 68%
129
66% 119
64%
109
Inorganic growth to drive contributions in Australia and Singapore. A-REIT has regularly embarked on acquisitions and development projects, which have helped the REIT to deliver sustained growth in distributions over time. Given the limited opportunities in Singapore and the fragmented market in China, the manager has looked overseas for higher returns. The manager remains focused on deepening its presence in the core markets of Singapore, Australia and China, when the opportunity arises.
Net Property Income
2Q2017
1Q2017
4Q2016
3Q2016
2Q2016
1Q2016
4Q2015
3Q2015
2Q2015
62%
1Q2015
Still positive rental reversions, but spread will likely narrow. Rental reversionary trends are moderating and reached a low of 0.9% in 2QFY17. Looking ahead, leases representing close to 12% in Singapore and given the narrowing spread between passing and market rents, we expect rental reversionary trends to remain flattish or even turn negative. In Australia, given the well-spread lease expiry profile, we do not anticipate too much volatility in the rentals and the manager is pro-actively engaging tenants ahead of expiry to renew their leases. In Australia, the manager is seeing a pick-up in demand for space in the recent quarter and reported a 4.2 percentage point increase in occupancy to 94.2%, back-filling most of the empty space in the previous quarter. Australia continues to offer the strongest earnings visibility with a WALE of 5.1 years.
Net Property Income Margin %
Distribution Paid / Net Operating CF 1.2
(x)
1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 2014A
2015A
2016A
2017F
2018F
2017F
2018F
Interest Cover (x) (x) 12.00 10.00 8.00 6.00 4.00 2.00 0.00
Apart from the recently acquired acquisitions in Australia (A$179m in total), A-REIT will be embarking on a new asset enhancement project at 50 Kallang Avenue for S$45.2m which will be anchored by a new tenant on a long lease. A-REIT has in total S$113.1m in asset enhancements currently underway. The manager is also looking at further asset refurbishment options at its portfolio in Singapore in order to position the assets to capture changing tenant needs.
ASIAN INSIGHTS
2014A
2015A
2016A
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2
Page 146
Company Guide Ascendas REIT
Balance Sheet: Optimal gearing level of c.34%. A-REIT’s gearing is estimated to dip to 34% (from c.37%) upon the assumed full conversion of S$300m of Exchange Collateralised Securities (ECS) by end of FY17F. This will be at the lower end of management’s comfortable 35-40% range. We believe that there is still capacity for management to utilise its debt headroom for further acquisitions but any significant deals could mean potential issuance of new equity. Well-staggered debt maturity profile. The manager adopts a prudent interest rate risk management strategy with a weighted average cost of debt of 3.0% with 78.0% hedged into fixed rates. The debt tenure is long at 3.8 years, with a well spreadout refinancing profile ensuring no concentration risk. Share Price Drivers: Direction of 10-year long bonds impacts share price. Seen by investors as a key S-REIT proxy, A-REIT’s share price has typically been closely linked to investors’ perception on the direction of the US benchmark 10-year bond yields. A fall in 10-year bond yields on the back of a delay in Fed hikes is likely to mean a higher share price.
Aggregate Leverage (%)
35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 2014A
2015A
2016A
2017F
2018F
2017F
2018F
ROE (%) 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2014A
2015A
2016A
Distribution Yield (%)
Capital recycling strategy. With limited acquisition opportunities in Singapore, A-REIT regularly looks to divest older, loweryielding properties and re-cycle the capital into assetenhancement exercises (AEI), development projects or acquisitions. The aim is to optimise the portfolio returns and distributions which have a positive impact on its share price. Key Risks: Interest rate risk. Any increase in interest rates will result in higher interest payments, which will reduce income available for distribution and result in lower distribution per unit (DPU) to unitholders. Economic risk. A deterioration in the economic outlook could have a negative impact on industrial rents and occupancies as companies cut back production and require less space, given that industrial rents have a strong correlation with GDP growth.
(%) 7.8 7.3
+2sd: 7% 6.8
+1sd: 6.6%
6.3
Avg: 6.2%
5.8
‐1sd: 5.8%
5.3
‐2sd: 5.3%
4.8 4.3 2013
2014
2015
2016
PB Band (x) 1.7
(x)
1.6 1.5 1.4
+2sd: 1.32x +1sd: 1.24x Avg: 1.16x ‐1sd: 1.09x ‐2sd: 1.01x
1.3 1.2 1.1 1.0
Company Background A-REIT is Singapore’s first and largest listed business space and industrial real estate investment trust. It has a diversified portfolio comprising assets in Singapore, China and Australia. A-REIT is managed by Ascendas Funds Management (S) Limited, a wholly owned subsidiary of the Singapore-based Ascendas Group.
ASIAN INSIGHTS
0.9 Jan-13
Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
VICKERS SECURITIES Page 3
Page 147
Company Guide Ascendas REIT
p Income Statement (S$m) FY Mar Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016A
2017F
2018F
614 (178) 436 (40.8) 2.67 (35.9) 12.1 374 (23.2) 0.0 0.0 351 482 (8.7) 342
673 (211) 463 (43.8) 41.7 (105) 2.02 357 (6.7) 0.0 0.0 351 398 0.57 351
761 (227) 534 (67.4) (5.7) (77.5) 0.0 383 (25.1) 0.0 (6.6) 351 349 26.9 378
837 (238) 598 (55.2) 0.0 (109) 0.0 434 (4.2) 0.0 (15.0) 415 415 11.6 427
858 (241) 617 (55.4) 0.0 (108) 0.0 454 (4.7) 0.0 (15.0) 434 434 11.7 446
6.6 6.6 32.8 100.0 71.1 57.2 55.7 6.6 7.4 4.9 5.3 11.0
9.8 6.1 0.0 100.0 68.7 52.1 52.1 6.5 7.1 4.5 5.5 4.0
13.0 15.3 0.2 100.0 70.1 46.2 49.7 8.9 6.7 3.9 5.0 6.0
9.9 12.1 18.1 100.0 71.5 49.6 51.0 6.6 7.4 4.2 5.6 5.0
2.5 3.1 4.6 100.0 72.0 50.6 52.0 6.5 7.5 4.4 5.7 5.2
Driven by acquisitions and development projects.
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 148
Company Guide Ascendas REIT
Quarterly / Interim Income Statement (S$m) FY Mar 2Q2016 3Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
4Q2016
1Q2017
2Q2017
183 (58.8) 124 (12.2) 32.3 (5.3) 0.0 123 (0.7) 0.38 123 123 (23.9) 99.3
194 (51.6) 142 (21.3) 3.16 (22.8) 0.0 101 (7.3) 0.03 93.9 93.9 3.02 96.9
204 (60.6) 143 (23.1) (12.6) (37.0) 0.0 70.8 (16.7) 0.0 54.1 47.3 41.8 89.1
208 (58.1) 149 (14.9) (9.3) (36.8) 0.0 88.7 (2.1) 0.0 86.6 86.6 15.7 102
205 (53.0) 152 (15.7) (13.2) (28.2) 5.70 101 13.7 0.01 115 115 (7.8) 107
1 0 41 67.8 100.0
6 15 (24) 73.4 100.0
5 1 (42) 70.3 102.0
2 4 60 72.0 104.5
(1) 2 33 74.2 105.1
Balance Sheet (S$m) FY Mar
2014A
2015A
2016A
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
6,923 290 67.3 0.0 65.1 12.9 7,358
7,868 135 41.6 0.0 90.1 25.8 8,160
9,599 96.2 56.2 0.0 89.3 35.6 9,876
9,665 96.2 8.64 0.0 98.2 35.6 9,903
9,695 96.2 15.3 0.0 101 35.6 9,942
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
893 128 85.8 1,231 171 4,849 0.03 7,358
286 189 32.8 2,442 198 5,014 0.04 8,160
1,180 172 43.5 2,485 199 5,797 0.02 9,876
1,190 189 39.8 2,195 205 6,085 0.02 9,903
1,220 194 40.4 2,205 210 6,074 0.02 9,942
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(136) (2,057)
(105) (2,686)
(90.6) (3,608)
(95.1) (3,376)
(98.0) (3,409)
0.1 0.1 28.9 1.4
0.3 0.3 33.4 1.3
0.1 0.1 37.1 0.9
0.1 0.1 34.2 1.1
0.1 0.1 34.4 1.1
Steady gearing profile
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 149
Page 5
Company Guide Ascendas REIT
Cash Flow Statement (S$m) FY Mar
2014A
2015A
2016A
2017F
2018F
374 0.70 (0.8) 0.0 (1.4) 28.5 401 0.0 (94.7) 0.0 0.0 (40.2) (135) (326) 170 (0.1) (70.8) (227) 8.53 47.8
357 0.37 (2.4) 0.0 (10.2) 17.4 362 0.0 (643) 0.0 0.0 5.50 (638) (261) 577 0.0 (68.1) 249 0.80 (25.7)
383 0.18 (4.5) 0.0 11.5 (6.6) 384 0.0 (1,496) 0.04 0.0 5.50 (1,491) (442) 1,218 342 0.0 1,118 (1.7) 9.56
434 0.0 (7.9) 0.0 8.22 (15.0) 420 0.0 (66.0) 0.0 0.0 5.50 (60.5) (427) (280) 300 0.0 (407) 0.0 (47.6)
454 0.0 (4.2) 0.0 2.28 (15.0) 437 0.0 (30.0) 0.0 0.0 5.50 (24.5) (446) 40.0 0.0 0.0 (406) 0.0 6.67
16.8 16.7
15.5 15.1
14.7 15.2
15.1 15.4
15.4 15.4
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
Source: Company, DBS Bank Target Price & Ratings History
S$ 2.62
6
2.52
7
8
5
2.42
2
4
9
10
2.32
14
13
3 2.22
12
11
1
12- mt h T arget Rat ing Pric e
Dat e of Report
Closing Pric e
1:
08 J an 16
2.25
2.52
BUY
2:
04 Feb 16
2.34
2.52
BUY
3:
18 May 16
2.32
2.50
BUY
4:
10 J un 16
2.32
2.50
BUY
5:
12 J ul 16
2.48
2.55
BUY
6:
21 J ul 16
2.49
2.61
BUY
7:
22 J ul 16
2.53
2.61
BUY
8:
22 Aug 16
2.42
2.61
BUY BUY
S.No.
9:
29 Aug 16
2.44
2.61
2.12
10:
20 Sep 16
2.42
2.61
BUY
2.02 Jan-16
11: 12: 13: 14:
26 Sep 16 21 Oct 16 08 Nov 16 06 Dec 16
2.46 2.40 2.34 2.37
2.61 2.65 2.65 2.65
BUY BUY BUY BUY
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Derek TAN Mervin SONG CFA Singapore Research Team
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 150
Singapore Company Guide
Ascott Residence Trust Version 5
Refer to important disclosures at the end of this report
| Bloomberg: ART SP | Reuters: ASRT.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Unrealised potential
Last Traded Price ( 4 Jan 2017): S$1.16 (STI : 2,921.31) Price Target 12-mth: S$1.32 (14% upside and 7.0% yield) Potential Catalyst: Further acquisitions and asset recycling to accelerate growth, improvement in performance of ART’s Chinese properties Where we differ: Below consensus on lower assumed sales Analyst Mervin SONG CFA +65 6682 3715 [email protected]
Value from recent acquisitions/AEIs yet to be fully realised. ART has announced c.S$1.2bn worth of acquisitions over the last two years, increasing the value of its assets under management (AUM) by one-third to S$5bn. Combined with completed and ongoing asset enhancement initiatives (AEIs), ART should progressively realise benefits over the next few years.
Price Relative S$
Relative Index
1.7
216
1.6
196
1.5
176
1.4
156
1.3
136
1.2
116
1.1
96
1.0 Jan-13
Jan-14
Jan-15
Ascott Residence Trust (LHS)
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2014A 357 180 121 126 4.83 (5) 8.20 (2) 137 23.9 7.1 0.8 37.6 3.5
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
Diversified portfolio underpins resilience. We maintain our BUY recommendation on Ascott Residence Trust (ART) and TP of S$1.32. Amid the volatility in the Singapore hospitality market, we believe ART’s diversified portfolio with serviced residences and rental housing across 14 countries in the Asia Pacific, Europe and the US, offers investors a more resilient DPU outlook. ART’s resiliency and cashflow visibility also comes from having 40-50% of its income sourced from master leases and management contracts with minimum guaranteed income.
76 Jan-17
Jan-16
Relative STI (RHS)
2015A 421 205 152 123 4.61 (4) 7.99 (3) 141 25.0 6.9 0.8 38.4 3.3
2016F 464 219 111 134 6.14 33 8.20 3 137 18.8 7.1 0.8 39.4 4.5
2017F 490 229 102 134 6.13 0 8.11 (1) 134 18.8 7.0 0.9 39.6 4.5
B: 8
0 8.20 S: 0
0 8.40 H: 4
Divestments to strengthen balance sheet. ART’s headline gearing of c.41% is slightly elevated and we are mindful of ART’s adjusted gearing (treating 50% of perpetual securities as debt) which stands at 42-44%. However, we understand this is temporary as ART is reviewing its portfolio mix, and looking to divest some of its lower yielding properties. Valuation: We maintain our DCF-based TP and DPU forecasts which have incorporated the realised forex gains in 3Q16 and lower assumed interest rates given prospects of achieving interest savings as ART refinances its borrowings over the next couple of years, partially offset by moderation of average daily rate (ADR) growth in Japan due to potential impact of the recent strengthening of the JPY. Key Risks to Our View: Oversupply and forex volatility. The key risk to our call is potential oversupply in ART’s key markets as well as impact from forex volatility. These risks are mitigated by ART’s diversified portfolio with no country contributing more than 20% of the group’s net property income.
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) CapitaLand Limited Aia Group Ltd Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
ASIAN INSIGHTS ed: JS / sa: JC, PY
1,653 1,910 / 1,317 43.8 5.0 51.2 0.89
VICKERS SECURITIES Page 151
Company Guide Ascott Residence Trust Net Property Income and Margins (%) S$ m
Australia, Japan and US - key growth markets. With a timely expansion into Australia and Japan, ART is well positioned to take advantage of the growing Australian and Japanese hospitality markets which should translate to healthy RevPAR growth. In addition, ART’s entry into New York provides exposure to the recovering US economy. The abovementioned markets, representing c.34% of ART’s 9M16 net property income (NPI), should help offset potential weakness from its Chinese properties (c.9% of group NPI) which are affected by the economic slowdown in China. Steady income base from Europe and Japan rental properties. Around a third of ART’s NPI comes from properties under master leases in France, Germany, Singapore and Japan (rental properties). With the prudent use of forex hedges, and having properties under management contracts with minimum guaranteed income (14% of group NPI) in Belgium, Spain and UK, ART provides investors with a solid income base.
54.4%
200
52.4%
150
50.4%
100
48.4%
50
46.4%
0
44.4% 2013A
2014A
2015A
Net Property Income
2016F
2017F
Net Property Income Margin %
Net Property Income and Margins (%) 54% 59 52%
57 55
50%
53 51
48%
49 46%
47 45
44%
43 42%
Net Property Income
3Q2016
2Q2016
1Q2016
4Q2015
3Q2015
2Q2015
1Q2015
41
4Q2014
Asset enhancements to drive earnings. Beyond the announced acquisitions, another growth driver for ART are the asset enhancement initiatives it has undertaken or in the process of completing. Refurbishments, which are initiated every 7-10 years, are designed to enhance the market positioning of ART’s various properties and should translate to higher occupancies and room rates. It has announced c.S$95m worth of renovations over the last 18 months in various cities including Barcelona, Dalian, Ho Chi Minh City, London, Manila, Singapore, Shanghai and Tianjin.
250
3Q2014
Earnings Drivers: Value of past acquisitions yet to be realised. ART has had an active two years, marking its maiden entries into Malaysia and the US. In addition, ART has deepened its presence in Australia, China and Japan. All in, ART has acquired c.S$1.2bn worth of properties on an average yield of 5-8%. The benefits from these acquisitions should accrue over the next few years.
300
2Q2014
CRITICAL DATA POINTS TO WATCH
Net Property Income Margin %
Distribution Paid / Net Operating CF (x)
0.9 0.8 0.7 0.6 0.5 0.4 0.3 2013A
2014A
2015A
2016F
2017F
2016F
2017F
Interest Cover (x) (x) 5.00 4.50 4.00 3.50 3.00 2.50 2.00
Ambitions to grow portfolio size to S$6bn. ART has ambitions to grow its portfolio from S$5bn currently to S$6bn by 2017. The properties will be sourced from its Sponsor and third parties.
1.50 1.00 0.50 0.00 2013A
2014A
2015A
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 152
Company Guide Ascott Residence Trust
Balance Sheet: Temporary increase in gearing. Post ART’s recent acquisition of properties in Australia, Japan and the US, ART’s headline gearing is expected to settle at around the 40-41% level. However, on an adjusted basis treating 50% of the perpetual securities as debt (in line with Moody’s treatment), gearing is expected to hover around 42-44%. While cognizant of the higher gearing near term, we understand ART will look to pare down its debt by disposing some of its lower-yielding properties. Share Price Drivers: Overcoming past disappointments. ART’s share price has been range bound over the last year due to inconsistent DPU growth over the last two years on account of the dilution impact from the rights issue in late 2013 and weakness from its Chinese properties. However, we believe ART will re-rate as the full benefits from c.S$1.2bn worth of acquisitions and refurbishment activities over the past two years are realised.
Aggregate Leverage (%) 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 2013A
2014A
2015A
2016F
2017F
2016F
2017F
ROE (%) 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0%
Key Risks: Interest rate risks. Any increase in interest rates will result in higher interest payments and reduce the income available for distribution, which will result in lower distribution per unit (DPU) for unitholders. As at 30 September 2016, 80% of ART’s debts are on fixed rates.
2013A
2014A
2015A
Distribution Yield (%) (%) 8.1 7.6
+2sd: 7.5% +1sd: 7.1%
7.1
Currency risk. As ART earns rental income in various currencies, a depreciation of any foreign currency against the SGD could negatively impact DPU. Nevertheless, through the use of currency hedges for EUR and JPY sourced income, as well as the benefits from having a diversified portfolio, FX volatility has had a minimal impact on ART’s earnings historically. In FY13-FY15, changes in ART’s basket of currencies had only a net 0.8-1.5% negative impact on earnings. Company Background Ascott REIT's Investment portfolio primarily comprises real estate used mainly as serviced residences or rental housing properties (including investments in real estate-related assets and/or other related value-enhancing assets or instruments).
Avg: 6.8%
6.6
‐1sd: 6.4% 6.1
‐2sd: 6%
5.6 5.1 2013
2014
2015
2016
2017
PB Band (x) 1.3
(x)
1.2 1.1
+2sd: 1.02x +1sd: 0.96x Avg: 0.89x
1.0 0.9
‐1sd: 0.82x ‐2sd: 0.75x
0.8 0.7 0.6 Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 153
Company Guide Ascott Residence Trust
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
Source: Company, DBS Bank
2013A
2014A
2015A
2016F
2017F
317 (155) 161 (13.0) 0.0 (42.6) 6.63 112 (36.2) (6.7) 0.0 69.3 209 (93.8) 115
357 (177) 180 (19.9) 1.29 (41.2) 0.0 120 (36.9) (7.9) (1.4) 74.1 121 4.51 126
421 (217) 205 (30.4) 9.25 (48.3) 0.0 135 (36.8) (13.8) (13.4) 71.2 152 (28.4) 123
464 (245) 219 (23.2) 0.0 (45.2) 0.0 151 (25.7) (6.3) (19.2) 99.9 111 22.5 134
490 (261) 229 (23.7) 0.0 (52.3) 0.0 153 (26.1) (6.4) (19.2) 102 102 32.8 134
4.2 1.3 11.2 100.0 50.9 21.9 36.3 4.1 3.8 2.1 3.2 3.5
12.8 11.8 6.9 100.0 50.4 20.7 35.2 5.6 3.5 1.9 3.0 3.9
17.9 13.5 (4.0) 100.0 48.6 16.9 29.3 7.2 3.3 1.6 3.0 3.6
10.2 7.2 40.4 100.0 47.2 21.5 28.8 5.0 4.5 2.1 3.5 4.3
5.6 4.4 1.7 100.0 46.7 20.7 27.4 4.8 4.5 2.1 3.6 3.9
ASIAN INSIGHTS Page 4
Growth driven by acquisitions in China, Malaysia, Australia, US and Japan over the past 18 months
VICKERS SECURITIES Page 154
Company Guide Ascott Residence Trust
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
113 (58.0) 55.2 (6.5) 10.3 (12.1) 0.0 46.9 (10.3) (1.2) 35.5 45.8 (8.9) 32.0
119 (62.4) 56.8 (12.5) 6.23 (13.2) 0.0 37.4 (16.6) (1.8) 19.0 68.1 (31.2) 32.1
106 (57.0) 48.6 (2.6) (0.1) (12.2) 0.0 33.7 (6.3) (1.4) 26.0 25.9 6.25 27.3
119 (61.5) 57.9 (7.3) (1.1) (11.7) 0.0 37.7 (17.3) (1.1) 19.3 55.6 (25.3) 35.0
124 (66.4) 57.5 (7.1) (1.3) (12.0) 0.0 37.1 (5.6) (1.4) 30.0 32.1 11.5 38.7
15 12 174 48.8 100.0
5 3 (46) 47.7 100.0
(11) (14) 37 46.0 100.0
13 19 (26) 48.5 100.0
4 (1) 56 46.4 100.0
Balance Sheet (S$m) FY Dec
2013A
2014A
2015A
2016F
2017F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
3,177 81.1 205 0.37 11.7 107 3,582
3,724 80.9 193 0.29 36.4 87.8 4,122
4,290 80.2 220 0.30 49.7 84.2 4,725
4,567 75.7 174 0.30 50.2 84.2 4,951
4,577 71.7 147 0.30 53.0 84.2 4,933
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
50.3 4.37 114 1,147 79.1 2,093 94.1 3,582
249 119 7.85 1,302 91.4 2,255 97.8 4,122
258 136 5.24 1,557 99.2 2,587 81.8 4,725
258 143 5.24 1,695 99.2 2,663 88.0 4,951
258 151 5.24 1,695 99.2 2,630 94.4 4,933
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
0.68 (993)
(2.0) (1,358)
(7.5) (1,595)
(13.4) (1,779)
(18.5) (1,806)
1.9 1.3 33.4 1.0
0.8 0.6 37.6 0.9
0.9 0.7 38.4 0.8
0.8 0.6 39.4 0.7
0.7 0.5 39.6 0.7
Increase in gearing on the back of announced acquisitions
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 155
Page 5
Company Guide Ascott Residence Trust
Cash Flow Statement (S$m) FY Dec Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
2013A
2014A
2015A
2016F
2017F
112 13.5 (13.3) 0.00 2.30 37.2 152 (42.2) (180) 0.0 0.0 2.23 (220) (107) (89.8) 398 (52.3) 149 (0.8) 79.3
120 16.3 (22.4) 0.0 (25.8) 64.1 153 (40.0) (428) 0.0 0.0 7.76 (461) (116) 315 0.0 99.7 298 (2.0) (12.0)
135 16.6 (24.1) 0.0 (14.8) 64.5 177 (46.8) (352) 0.0 0.0 1.76 (397) (125) 581 0.0 (213) 243 3.66 27.9
151 16.4 (25.7) (0.2) 5.91 0.0 147 (267) (10.0) 0.0 0.0 0.0 (277) (134) 138 98.5 (19.2) 83.7 0.0 (46.1)
153 16.4 (26.1) (0.2) 5.15 0.0 149 (12.3) (10.0) 0.0 0.0 0.0 (22.3) (134) 0.0 0.0 (19.2) (154) 0.0 (27.4)
10.9 8.03
11.6 7.33
12.5 8.48
8.69 (7.4)
8.65 8.22
Acquisition of properties in Australia, Japan and US partially offset by asset disposals in Japan and Philippines
Source: Company, DBS Bank Target Price & Ratings History 1.25
S$ Closing Pric e
1:
26 J an 16
1.12
1.33
2:
15 Mar 16
1.08
1.33
BUY
3:
13 Apr 16
1.12
1.33
BUY
4:
18 Apr 16
1.11
1.28
BUY
5:
21 J ul 16
1.16
1.31
BUY
6:
21 Oct 16
1.15
1.32
BUY
1.20
6
1.15
5 4
1.10
1
2
3
12- mt h T arget Rat ing Pric e
Dat e of Report
S.No.
BUY
1.05
1.00 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Mervin SONG CFA
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 156
Singapore Company Guide
Cache Logistics Trust Refer to important disclosures at the end of this report
Version 7 | Bloomberg: CACHE SP | Reuters: CALT.SI
DBS Group Research . Equity
4 Jan 2017
HOLD
Operational weakness to persist
Last Traded Price ( 4 Jan 2017): S$0.82 (STI : 2,921.31) Price Target 12-mth: S$0.93 (14% upside and 9.2% yield) Potential Catalyst: Better than expected results Where we differ: Estimates are below consensus on lower rental reversion assumption Analyst Derek TAN +65 6682 3716 [email protected] Singapore Research Team [email protected] Mervin SONG CFA +65 6682 3715 [email protected]
Interim solution to 51 Alps Avenue a key overhang. 3Q16 DPU fell 13.7% y-o-y on the back of an enlarged share base. Looking ahead, we expect pressure on earnings arising from the holding arrangement with Schenker in relation to 51 Alps Avenue until the Court’s final judgement of the dispute. In the interim, Cache has agreed to receive in “protest” Schenker’s rent of S$0.77 per square foot (psf)/ month until further resolution. Under the worst-case scenario, FY17F DPU will drop by 4.0% to 7.2 Scts. We understand that the decline in future cashflows will also result in a c.S$44m write-off on the property valuation and thus, gearing may inch higher to c.42%.
Price Relative S$
Relative Index
1.6 1.5
204
1.4
184
1.3
164
1.2
144
1.1 124
1.0
104
0.9
84
0.8 0.7 Jan-13
Jan-14
Jan-15
Cache Logistics Trust (LHS)
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 89.7 76.2 (12.3) 67.9 6.66 (8) 8.50 (1) 100 12.2 10.4 0.8 39.9 6.7
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
64 Jan-17
Jan-16
Relative STI (RHS)
2016F 116 91.1 (2.5) 70.8 6.84 3 7.87 (7) 91.1 11.9 9.7 0.9 39.1 7.7
2017F 120 89.1 58.7 67.7 6.50 (5) 7.51 (5) 90.1 12.5 9.2 0.9 39.2 7.2
2018F 124 92.5 61.3 68.2 6.75 4 7.50 0 89.4 12.1 9.2 0.9 39.3 7.5
8.10 B: 2
7.80 S: 1
7.90 H: 7
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Maintain HOLD, TP unchanged at S$0.93. Maintain our HOLD call on Cache Logistics Trust (Cache) on uncertainty regarding the outcome of the holding arrangement with Schenker. This currently has a negative impact on outlook and portfolio valuation. While yields are attractive at 8.5%, we believe that uncertainties owing to the oversupply in the overall Singapore warehouse market and more pressure on Cache’s organic growth potential will cap rerating opportunities.
Cache may need to address its gearing in the near term. A scenario of higher gearing of 42% (vs 45% regulatory cap), which is above the management’s comfortable level of 35-40% is likely to result in an overhang in the share price of Cache in the immediate term. We believe that the Manager may consider divestments or acquisitions (funding through equity) to pare down its gearing. Depending on the strategy, potential DPU dilution is possible, this has not been factored in our model yet. Valuation: Our target price remains at S$0.93. Maintain HOLD. Key Risks to Our View: Schenker’s rent dispute. The rent dispute at 51 Alps Avenue (Schenker Megahub) is pending the Court’s resolution with an uncertain timeline. If the Court rules to settle the rent significantly below the market price (which is also our assumption), there could be further pressure on TP and DPU. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Bank of New York Mellon Corp CWT Ltd Capital Group Companies Inc Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trusts
898 732 / 504 4.4 4.4 4.3 86.9 1.1
VICKERS SECURITIES Page 157
Company Guide Cache Logistics Trust Net Property Income and Margins (%) S$ m
The non-renewal of the master lease at Hi-Speed Logistics Centre (40 Alps Ave) is not expected to impact earnings significantly. We anticipate that net property income (NPI) for the property will dip by on the back of lower rents and efficiency for the property. However, given that the property only contributes c.5% of top line, actual impact to distributions is expected to be marginal.
90.8% 85.8% 80.8% 75.8% 70.8% 2014A
2015A
2016F
Net Property Income
2017F
2018F
Net Property Income Margin %
Net Property Income and Margins (%)
80%
19
75%
18
70%
Net Property Income
3Q2016
85%
20
2Q2016
21
1Q2016
90%
4Q2015
95%
22
3Q2015
23
2Q2015
100%
1Q2015
24
4Q2014
Stable underlying occupancy for expiring master-leases. The underlying occupancies for both properties (Schenker Megahub and Hi-Speed Logistics Centre) are fairly high and given the strategic location at the airport logistics hub where there is minimal new supply. Hence, demand for the space should remain resilient, despite the current weak operating climate, made worse by high supply from completions.
95.8%
3Q2014
Earnings Drivers: Well-spread out lease profile offers strong income visibility. Cache Logistics Trust (Cache) offers investors strong income visibility supported by a weighted average lease to expiry (WALE) of 3.8 years by revenues. Cache has renewed a majority of leases up till 2017 and is actively managing these expiries in order to limit disruption to distributions. The REIT has a stable occupancy rate of 96.5% as of 3Q16.
100.8%
2Q2014
CRITICAL DATA POINTS TO WATCH
100 90 80 70 60 50 40 30 20 10 0
Net Property Income Margin %
Distribution Paid / Net Operating CF 1.1
(x)
1.0 0.9 0.8 0.7
The court case regarding the renewal of the lease at Schenker Megahub from the anchor tenant (Schenker) is expected to take some time to resolve. Given this uncertainty, we have assumed that rental from this property will fall to the “pre-agreed” rent levels, which reflects a worst-case scenario, in our view. Deepening its presence in Australia to diversify and grow earnings stream. Cache has been able to diversify its earnings base through an acquisition of six properties in Australia, which now contribute close to 14% of top line. The acquisition of these properties in Australia has enabled the REIT to weather the downturn in Singapore better as the long leases from Australia helps provide the REIT with strong income visibility.
0.6 0.5 0.4 2014A
2015A
2016F
2017F
2018F
2017F
2018F
Interest Cover (x) (x) 6.00 5.00 4.00 3.00 2.00 1.00
DHL project a key driver of growth from FY16 onwards. Revenue contribution the DHL property will be a key earnings driver for Cache in 2016 and beyond. The weighted average occupancy for the property is >85% (100% for block 1 by DHL and the tenant is expected to take up the remaining space at block 2 in two years' time). The long 10-year lease, coupled with extension options to the end of the land lease offers strong income visibility for the REIT.
ASIAN INSIGHTS
0.00 2014A
2015A
2016F
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2
Page 158
Company Guide Cache Logistics Trust
Balance Sheet: Gearing close to optimal level of 40%; limited capacity to acquire further. Cache’s gearing is expected to hover around 40% in FY16-18F. We note that this is at the higher end of management’s comfortable range of 35-40%, and will likely mean that further acquisition capacity will be limited. However, given more acquisition opportunities on the horizon, we believe that new deals will be partly funded by raising new equity.
Aggregate Leverage (%) 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 2014A
2015A
No refinancing required in 2016. Cache has a weighted average debt to maturity of 2.4 years with no refinancing requirements till 2017. It has 64% of its borrowings hedged into fixed rates. Share Price Drivers: Acquisition of assets in its ROFR. Cache has been granted the Rights of First Refusal (ROFR) to 15 properties by its Sponsor (CWT) and C&P in the Asia Pacific. These 15 properties can approximately contribute 5.7m sq ft in gross floor area which when acquired, is expected to significantly increase its portfolio size, earnings and thus provide uplift to share price.
2016F
2017F
2018F
2017F
2018F
ROE (%) 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
Beating market outlook. While the warehouse market is expected to see a deluge of new supply completions over 20162018, a majority of Cache’s leases are MNCs and 3PLs, and hence we believe occupancy rates should remain steady. Higher rents achieved given its quality portfolio could outperform market expectations that rents would moderate. Key Risks: Interest rate risk Any increase in interest rates will result in higher interest payments for the REIT, hence reducing the income available for distribution, which will result in lower distribution per unit (DPU) for unitholders. Economic risk A weaker economic outlook could have a negative impact on industrial rents and occupancies as companies cut back on production and require less space. Industrial rents have a strong historical correlation with GDP growth. Company Background Cache is a REIT whose investment mandate is to invest primarily in logistics properties located in the Pan Pacific region.
2014A
2015A
2016F
Distribution Yield (%) (%) 11.1
+2sd: 10.2%
10.1 9.1
+1sd: 9.1%
8.1
Avg: 7.9%
7.1
‐1sd: 6.8%
6.1
‐2sd: 5.7% 5.1 2013
2014
2015
2016
2017
PB Band (x) 1.7
(x)
1.5
+2sd: 1.43x 1.3
+1sd: 1.27x
1.1
Avg: 1.11x ‐1sd: 0.96x
0.9
‐2sd: 0.8x 0.7 Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 159
Company Guide Cache Logistics Trust
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
Source: Company, DBS Bank
2014A
2015A
2016F
2017F
2018F
82.9 (4.9) 78.0 (8.6) 0.0 (12.2) 0.0 57.2 (0.5) 0.0 0.0 56.7 65.7 1.07 66.8
89.7 (13.6) 76.2 (9.5) 0.0 (13.7) 0.0 53.0 (0.6) 0.0 0.0 52.4 (12.3) 75.2 67.9
116 (25.0) 91.1 (10.1) 0.0 (18.9) 0.0 62.1 (0.6) 0.0 0.0 61.5 (2.5) 6.00 70.8
120 (30.4) 89.1 (10.2) 0.0 (19.5) 0.0 59.4 (0.8) 0.0 0.0 58.7 58.7 6.05 67.7
124 (31.6) 92.5 (10.3) 0.0 (20.1) 0.0 62.1 (0.8) 0.0 0.0 61.3 61.3 6.09 68.2
2.3 1.5 (0.4) 100.0 94.1 68.5 80.6 10.3 7.4 5.1 6.3 5.7
8.3 (2.4) (7.7) 100.0 84.9 58.4 75.7 10.6 6.7 4.3 5.4 4.9
29.4 19.7 17.3 100.0 78.5 53.0 61.0 8.7 7.7 4.6 6.0 4.3
2.9 (2.2) (4.6) 100.0 74.6 49.1 56.7 8.5 7.2 4.3 5.8 4.0
3.9 3.8 4.6 100.0 74.6 49.4 55.0 8.3 7.5 4.5 6.0 4.1
ASIAN INSIGHTS Page 4
Driven mainly from conversion of single user to multi-user properties
VICKERS SECURITIES Page 160
Company Guide Cache Logistics Trust
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
23.1 (4.4) 18.8 (2.0) 0.00 (4.1) 0.0 12.6 (0.2) 0.0 12.4 12.4 4.36 16.8
24.0 (4.9) 19.2 (3.0) 0.00 (4.7) 0.0 11.5 (0.2) 0.0 11.3 (53.4) 68.9 15.5
27.9 (5.8) 22.1 (2.6) 0.0 (4.8) 0.0 14.6 (0.4) 0.0 14.2 14.2 4.08 18.2
28.1 (5.5) 22.6 (2.6) 0.15 (4.7) 0.0 15.5 0.12 0.0 15.6 15.6 2.22 17.8
28.0 (6.0) 22.1 (3.0) 0.0 (4.9) 0.0 14.2 (0.3) 0.0 13.9 (22.2) 38.7 16.6
7 2 (8) 81.2 100.0
4 2 (9) 79.8 100.0
16 15 25 79.1 100.0
1 2 10 80.3 100.0
0 (2) (11) 78.7 100.0
Balance Sheet (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
1,122 0.24 11.3 0.0 3.46 0.09 1,137
1,311 1.84 8.05 0.0 4.98 0.42 1,326
1,345 1.84 7.37 0.0 2.90 0.42 1,357
1,345 1.84 6.09 0.0 2.99 0.42 1,356
1,346 1.84 6.99 0.0 3.10 0.42 1,358
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
6.62 20.5 0.0 343 0.41 767 0.0 1,137
8.31 14.3 0.0 515 2.06 787 0.0 1,326
8.31 9.68 0.64 517 2.06 819 0.0 1,357
8.31 9.96 0.78 519 2.06 816 0.0 1,356
8.31 10.3 0.81 521 2.06 815 0.0 1,358
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(17.0) (338)
(8.9) (515)
(7.0) (518)
(7.3) (521)
(7.6) (522)
0.5 0.5 31.1 1.5
0.6 0.6 39.9 1.1
0.6 0.6 39.1 1.3
0.5 0.5 39.2 1.2
0.5 0.5 39.3 1.2
Outlook remains flattish given limited expiries.
Gearing level remains close to 40%.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 161
Page 5
Company Guide Cache Logistics Trust
Cash Flow Statement (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
57.2 0.22 (0.3) 0.0 13.2 3.51 73.8 (63.5) 0.0 0.0 0.0 0.17 (63.3) (66.7) 42.2 0.0 (15.5) (40.1) 0.04 (29.5)
53.0 0.65 (0.6) 0.0 (8.1) 30.1 75.1 (263) 0.0 0.0 0.0 0.06 (263) (74.2) 173 98.5 (12.8) 185 0.0 (3.2)
62.1 0.0 0.0 0.0 (2.5) 6.00 65.6 (97.5) 0.0 0.0 0.0 0.0 (97.5) (70.8) 2.00 100 0.0 31.2 0.0 (0.7)
59.4 0.0 (0.6) 0.0 0.20 6.05 65.0 (0.6) 0.0 0.0 0.0 0.0 (0.6) (67.7) 2.00 0.0 0.0 (65.7) 0.0 (1.3)
62.1 0.0 (0.8) 0.0 0.27 6.09 67.7 (0.6) 0.0 0.0 0.0 0.0 (0.6) (68.2) 2.00 0.0 0.0 (66.2) 0.0 0.90
7.76 1.33
10.6 (23.9)
7.58 (3.5)
7.19 7.14
7.42 7.38
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
Source: Company, DBS Bank Target Price & Ratings History
S$
6 2
0.90
1
0.85
4
5
3
7
12- mt h T arget Rat ing Pric e
Dat e of Report
Closing Pric e
1:
26 J an 16
0.88
0.96
BUY
2:
25 Apr 16
0.89
0.93
BUY
3:
31 May 16
0.87
0.93
BUY
4:
21 J ul 16
0.88
0.93
BUY
5:
22 Aug 16
0.91
0.93
BUY
6:
28 Sep 16
0.91
0.93
HOLD
7:
24 Oct 16
0.87
0.93
HOLD
S.No.
0.95
0.80
0.75 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Derek TAN Singapore Research Team Mervin SONG CFA
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 162
Singapore Company Guide
Cambridge Industrial Trust Version 5
Refer to important disclosures at the end of this report
| Bloomberg: CREIT SP | Reuters: CMIT.SI
DBS Group Research . Equity
4 Jan 2017
HOLD
Still Feeling the Pain of Transition
Last Traded Price (4 Jan 2017): S$0.54 (STI : 2,921.31) Price Target 12-mth: S$0.54 (0% upside and 7.6% yield) Potential Catalyst: Turnaround in rental prospects. Where we differ: Estimates are below consensus Derek TAN +65 6682 3716 [email protected] Singapore Research Team [email protected]
Price Relative S$
Relative Index
0.9
216
0.9
0.8
196
0.8
176
0.7
Asset recycling to redeploy capital; looking to Australia. CREIT has been active in acquisitions, and is focusing on optimizing its portfolio performance through strategic asset enhancement initiatives (AEIs) and divestments to redeploy capital to higheryielding sources. While its Australia JV partner has ceased the partnership, the Manager remains committed to its long-term acquisition strategy in Australia and is actively exploring other opportunities.
156
0.7 0.6
136
0.6
116
0.5 96
0.5 0.4 Jan-13
Transitional pain to continue, HOLD. TP S$0.54. Cambridge Industrial Trust (CREIT) remains in the midst of a portfolio reposition in the midst of the current downtown in the industrial space. While portfolio occupancy remains fairly high, it is at the expense of declining rents, a painful but justified strategy for the REIT. A couple of roadbumps : (i) its Australian partner is terminating its joint venture, putting a pause to plans to develop and grow an Australian business; and (ii) more potential downside to DPUs on the back of more conversions from single-tenanted properties to multi-tenanted ones. Our TP and estimates are cut by 8% on the back of lower margin assumptions. Maintain HOLD, TP S$0.54.
Jan-14
Jan-15
Cambridge Industrial Trust (LHS)
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 112 86.2 52.5 61.8 4.33 3 4.79 (4) 67.7 12.6 8.8 0.8 36.7 6.3
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
Jan-16
76 Jan-17
Relative STI (RHS)
2016F 110 80.3 52.2 53.2 4.03 (7) 4.11 (14) 66.9 13.5 7.5 0.8 37.6 6.0
2017F 112 81.5 53.2 54.2 4.08 1 4.16 1 66.8 13.3 7.6 0.8 37.9 6.1
2018F 113 82.6 53.1 54.1 4.07 0 4.15 0 66.7 13.4 7.6 0.8 38.1 6.1
0 4.20 B: 3
0 4.20 S: 0
0 4.30 H: 2
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
Outcome of strategic review key to re-rating. The Manager is conducting a strategic review of CREIT’s business and operations to fulfill its strategy of maximising value for its unitholders and has appointed Goldman Sachs (Singapore) Pte to assist in its analysis. The strategic review may open up a myriad of scenarios (M&A, trade sale or even an internalisation). Any incremental steps taken by the Manager to drive value should be well received by investors. Valuation: Our DCF-backed TP is S$0.54. The stock is offering a forward yield over 7.5%, which we believe will cap further downside to share price. Maintain HOLD. Key Risks to Our View: Interest rate risk. Any increase in interest rates will result in higher interest payments which will reduce income available for distribution and DPUs. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Jinquan Tong Chan Wai Kheong Credit Suisse Group AG Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
1,304 704 / 498 17.84 5.39 5.00 71.77 0.60
CRITICAL DATA POINTS TO WATCH Earnings Drivers:
ASIAN INSIGHTS ed: JS / sa: YM, PY
VICKERS SECURITIES Page 163
Company Guide Cambridge Industrial Trust
Property conversions to cause headwinds to occupancy rates. While we note that CREIT offers strong income visibility with a relatively long weighted average lease expiry of 3.8 years, property conversions (from single-tenanted properties to multitenanted ones when the leases expire) which account for 11.3% and 23.6% of revenues over FY16-17F will translate to near-term pressure to top line. This is due to the loss of property efficiency and higher vacancy rates when these conversions take place. However, the pace of conversions is expected to taper off from FY17 onwards, meaning that further downside in vacancy rates will likely be limited.
Net Property Income and Margins (%) S$ m
100 90 80 70 60 50 40 30 20 10 0
85.4% 83.4% 81.4% 79.4% 77.4% 75.4%
73.4% 71.4% 69.4% 2014A
2015A
2016F
Net Property Income
2017F
2018F
Net Property Income Margin %
Net Property Income and Margins (%)
In view of the competitive environment, the Manager is focusing on maintaining occupancy rates and thus rental reversionary rates are likely to turn slightly negative over these two years.
82%
23
80%
22
22
78%
21
76%
21
74%
20 72%
20
Net Property Income
3Q2016
2Q2016
1Q2016
4Q2015
3Q2015
2Q2015
1Q2015
68%
4Q2014
70%
19
3Q2014
19
2Q2014
Optimal gearing level implies that upside from acquisitions is likely to be limited. Gearing level of c.37% is within management's comfortable range of 35-40% and is optimal, in our view. This is likely to mean that while the Manager remains keen to grow the portfolio via acquisitions and is looking to venture overseas for potential opportunities, there is a cap to the number of deals it can look at.
Net Property Income Margin %
Distribution Paid / Net Operating CF (x)
1.2
Asset rejuvenation strategy. CREIT has recently completed the sale of 23 Tuas Ave 10. The divestment price is 5% above valuation. Proceeds are expected to be utilised towards debt repayment and/or asset enhancement opportunities. The Manager will be embarking on asset enhancement initiative at 120 Pioneer Road (completing in 3Q17) which will increase the property’s attractiveness to end-users. Strategic review. The Manager is conducting a strategic review of CREIT’s business and operations to fulfill its strategy of maximising value for unitholders of CREIT and has appointed Goldman Sachs (Singapore) Pte to assist in its analysis.
1.0 0.8 0.6 0.4 0.2
2014A
2015A
2016F
2017F
2018F
2017F
2018F
Interest Cover (x) (x) 4.00 3.90 3.80 3.70
3.60 3.50 3.40
3.30 3.20 2014A
2015A
2016F
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 164
Company Guide Cambridge Industrial Trust
Balance Sheet: Gearing remains stable Looking ahead, there is limited capacity to pursue acquisition opportunities with gearing at c.37%.
Aggregate Leverage (%) 40.0% 35.0% 30.0%
Pro-active capital management. CREIT has refinanced most of its loans expiring and has no refinancing due till 2H18. In addition, the Manager has fixed c.88% of its interest rates over the next 3.2 years, meaning that volatility from a hike in interest rates to have a marginal impact to distributions. Share Price Drivers: Pick-up in occupancy rate. We believe that expected vacancies and earnings weakness arising from property conversions from single-tenanted to multi-tenanted could be an overhang on the stock. The ability to retain tenants will alleviate such risks and may result in higher prices.
25.0% 20.0% 15.0% 10.0% 2014A
2015A
2016F
2017F
2018F
2017F
2018F
ROE (%) 6.0% 5.0% 4.0% 3.0%
Not likely to see acquisitions given gearing of 37%. The Manager remains keen to grow the portfolio through acquisitions. Given limited accretive deals in Singapore, CREIT has broadened its investment focus to Australia, Japan and Malaysia, which the Manager has identified as having similar sovereign risks and transparency characteristics with Singapore.
2.0% 1.0% 0.0% 2014A
2015A
2016F
Distribution Yield (%)
Key Risks: Interest rate risk. Any increase in interest rates will result in higher interest payments which will reduce income available for distribution and result in lower distribution per unit (DPU) to unitholders. That said, CREIT has substantially hedged its interest rate exposure.
(%) 10.0 9.0
+2sd: 8.8% +1sd: 8.1%
8.0
Avg: 7.4% 7.0
‐1sd: 6.6% 6.0
Economic risk. A deterioration in the economic outlook could have a negative impact on industrial rents and occupancies as companies cut back production and require less space. Industrial rents have a strong correlation with GDP growth.
2014
2015
2016
PB Band (x) 1.5
Company Background Cambridge Industrial Trust (CREIT) is a real estate investment trust which invests primarily in income-producing industrial assets located in Singapore.
‐2sd: 5.9%
5.0 2013
(x)
1.4 1.3 1.2
+2sd: 1.22x
1.1
+1sd: 1.09x
1.0
Avg: 0.97x
0.9
‐1sd: 0.85x
0.8
‐2sd: 0.72x
0.7 0.6 Jan-13
Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 165
Company Guide Cambridge Industrial Trust
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
Source: Company, DBS Bank
2014A
2015A
2016F
2017F
2018F
99.3 (21.5) 77.8 (9.7) 0.0 (17.5) 1.14 52.3 (0.1) 0.0 0.0 52.2 45.3 12.3 63.0
112 (26.1) 86.2 (9.4) 0.0 (22.1) 0.40 55.2 0.0 0.0 0.0 55.2 52.5 7.20 61.8
110 (29.7) 80.3 (7.7) 0.0 (20.4) 0.0 52.2 0.0 0.0 0.0 52.2 52.2 1.00 53.2
112 (30.1) 81.5 (7.7) 0.0 (20.6) 0.0 53.2 0.0 0.0 0.0 53.2 53.2 1.00 54.2
113 (30.6) 82.6 (7.7) 0.0 (21.8) 0.0 53.1 0.0 0.0 0.0 53.1 53.1 1.00 54.1
3.0 (3.2) 4.2 100.0 78.3 52.5 63.5 9.7 6.0 3.9 5.3 3.9
13.0 10.7 5.8 100.0 76.8 49.1 55.1 8.4 6.3 3.9 5.6 3.5
(2.0) (6.8) (5.3) 100.0 73.0 47.5 48.4 7.0 6.0 3.7 5.1 3.6
1.5 1.5 1.9 100.0 73.0 47.7 48.6 6.9 6.1 3.7 5.2 3.6
1.4 1.4 (0.3) 100.0 73.0 46.9 47.8 6.8 6.1 3.7 5.3 3.4
ASIAN INSIGHTS Page 4
Earnings outlook to remain flattish in the absence of acquisitions
VICKERS SECURITIES Page 166
Company Guide Cambridge Industrial Trust
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
28.5 (6.8) 21.7 (2.3) 0.0 (4.8) 0.0 14.7 0.0 0.0 14.7 14.7 0.87 15.6
28.5 (6.9) 21.6 (2.2) 0.0 (5.3) (0.2) 14.0 0.0 0.0 14.0 12.5 2.30 14.8
28.4 (6.9) 21.5 (2.3) 0.0 (5.0) (0.4) 13.8 0.0 0.0 13.8 13.8 0.73 14.5
28.3 (7.1) 21.2 (2.3) 0.0 (5.5) (0.9) 12.5 0.0 0.0 12.5 12.5 1.53 14.1
27.6 (7.7) 19.9 (2.3) 0.0 (5.5) 0.0 12.2 0.0 0.0 12.2 12.9 0.0 12.9
2 1 37 76.3 100.0
0 (1) (5) 75.8 100.0
0 (1) (1) 75.8 100.0
0 (2) (9) 74.8 100.0
(2) (6) (3) 72.0 100.0
2014A
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
1,335 16.4 6.10 0.0 10.9 11.9 1,381
1,377 0.0 2.66 0.0 9.65 41.2 1,431
1,379 0.0 2.20 0.0 1.69 41.2 1,424
1,381 0.0 4.28 0.0 1.72 41.2 1,429
1,383 0.0 6.37 0.0 1.74 41.2 1,433
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
50.0 26.4 0.0 426 12.3 866 0.0 1,381
0.0 24.0 0.0 525 8.74 873 0.0 1,431
0.0 7.58 0.0 536 8.74 872 0.0 1,424
0.0 7.70 0.0 541 8.74 871 0.0 1,429
0.0 7.80 0.0 546 8.74 870 0.0 1,433
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(3.6) (469)
26.9 (523)
35.3 (534)
35.2 (537)
35.1 (540)
0.4 0.2 35.6 1.0
2.2 0.5 36.7 1.0
5.9 0.5 37.6 1.1
6.1 0.8 37.9 1.1
6.3 1.0 38.1 1.1
Balance Sheet (S$m) FY Dec
Lower distributable income mainly due to higher finance costs and zero management fees paid in units.
Gearing to remain at the optimal level of c.38%
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 167
Page 5
Company Guide Cambridge Industrial Trust
Cash Flow Statement (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash
52.3 0.0 0.0 (0.5) (4.2) 19.3 66.9 (195) 0.0 0.0 0.0 0.82 (194) (42.6) 102 (0.2) 0.0 59.4 0.0 (67.9)
55.2 0.0 (0.1) (0.1) (0.3) 24.5 79.1 (40.6) (10.6) 0.0 0.0 1.08 (50.1) (48.4) 16.1 (0.3) 0.0 (32.6) 0.0 (3.6)
52.2 0.0 0.0 0.0 (8.5) 0.0 43.8 (2.0) 0.0 0.0 0.0 0.0 (2.0) (53.2) 11.0 0.0 0.0 (42.2) 0.0 (0.5)
53.2 0.0 0.0 0.0 0.09 0.0 53.3 (2.0) 0.0 0.0 0.0 0.0 (2.0) (54.2) 5.00 0.0 0.0 (49.2) 0.0 2.09
53.1 0.0 0.0 0.0 0.08 0.0 53.2 (2.0) 0.0 0.0 0.0 0.0 (2.0) (54.1) 5.00 0.0 0.0 (49.1) 0.0 2.08
Operating CFPS (S cts) Free CFPS (S cts)
5.73 (10.3)
6.23 3.02
4.03 3.22
4.08 3.94
4.07 3.92
Source: Company, DBS Bank Target Price & Ratings History
0.60
S$ Dat e of Report
Closing Price
1:
28 Apr 16
0.55
0.56
HOLD
2:
25 J ul 16
0.56
0.60
HOLD
3:
22 Aug 16
0.55
0.60
HOLD
4:
26 Oct 16
0.55
0.54
HOLD
5:
28 Nov 16
0.53
0.54
HOLD
0.58
2 0.56 0.54
4 1
3
0.52
12- mt h T arget Rat ing Pric e
S.No.
5
0.50 0.48 0.46 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Derek TAN, Singapore Research Team
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 168
Singapore Company Guide
CapitaLand Commercial Trust Version 6
Refer to important disclosures at the end of this report
| Bloomberg: CCT SP | Reuters: CACT.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Moving from green to gold
Last Traded Price ( 4 Jan 2017): S$1.51 (STI : 2,921.31) Price Target 12-mth: S$1.70 (13% upside and 6.2% yield)
Timely acquisition of CapitaGreen. Despite the expected decline in the office market, we believe the timely acquisition of the remaining 60% in CapitaGreen not only helps to offset Potential Catalyst: Delivery of DPU growth in the midst of a downturn in potential negative rental reversions and lower occupancies for the Singapore office market Where we differ: Above consensus after incorporating the acquisition of the rest of CapitaLand Commercial Trust (CCT)’s portfolio but will allow CCT to deliver a 2-year DPU CAGR of 4% (2015-2017 60% interest in CapitaGreen excluding impact from redevelopment of Golden Shoe), which is Analyst among the highest in the office sector (average of 2%) and Mervin SONG CFA +65 6682 3715 [email protected] above the S-REIT DPU CAGR of 1%. Derek TAN +65 6682 3716 [email protected]
Price Relative S$
Relative Index
2.1
214
2.0 1.9
194
1.8
174
1.7
154
1.6 1.5
134
1.4
114
1.3 94
1.2 1.1 Jan-13
Jan-14
Jan-15
CapitaLand Commercial Trust (LHS)
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2014A 263 205 449 249 12.6 38 8.46 3 175 11.9 5.6 0.9 30.4 7.3
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
Jan-16
74 Jan-17
Relative STI (RHS)
2015A 273 213 307 254 10.4 (18) 8.62 2 177 14.4 5.7 0.8 30.0 5.9
2016F 277 217 241 266 8.15 (22) 8.98 4 177 18.5 6.0 0.9 37.5 4.6
2017F 348 273 259 280 8.62 6 9.31 4 175 17.5 6.2 0.9 37.5 4.9
B: 13
8.90 S: 4
9.10 H: 7
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
Trading at a discount to physical office transactions. Investors have been concerned over the value of CCT’s portfolio given falling office rents. We believe this is unwarranted given the resiliency of office property values in Singapore. CCT’s Singapore Grade A office portfolio trades at an implied value of c.S$1,900 per square foot (psf) compared to recent sales of between c.S$2,700 (adjusted for 99-year leasehold for CapitaGreen) and $3,500 psf. While CCT’s Grade A portfolio is unlikely to trade up to c.S$2,700 given the older profile of some of its properties, we believe the current strength of the physical market and 999-year leasehold status of some of its buildings, warrants CCT to trade close to its book value per unit of S$1.72 or an implied valuation of S$2,000 psf. Medium term upside from redevelopment of Golden Shoe Car Park. CCT announced the redevelopment of its Golden Shoe Car Park property. Subject to obtaining the necessary government approvals, the property will be developed into one with c.1m square feet (sqft) of commercial space in terms of gross floor area (GFA) and comprise an office tower of up to 280 metres high. Upon completion in 2021, the property will provide a medium term uplift to CCT’s current NAV per unit of S$1.72. Valuation: Our DCF-based TP of S$1.70 implies a price of c.S$2,000 psf for CCT’s Singapore portfolio. Key Risks to Our View: A key risk to our view is new office supply causing spot rents to fall below S$7 psf, which is likely to lead to lower-thanexpected asking rents and rental income. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Capitaland Limited Blackrock CBRE Group Inc Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
ASIAN INSIGHTS ed: JS / sa: YM, PY
2,963 4,460 / 3,075 31.1 6.6 4.9 57.4 10.1
VICKERS SECURITIES Page 169
Company Guide CapitaLand Commercial Trust Net Property Income and Margins (%) S$ m
300
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Staggered weighted lease expiry profile to help mitigate negative rental reversions. We have factored in lower occupancies and negative reversions at Capital Tower, Six Battery Road, and One George Street for FY16 and FY17. CCT’s defensive weighted average lease expiry (WALE) of 6.8 years (by net lettable area (NLA)) should also help ensure that the negative impact from an anticipated decline in rents over the next two years will be gradual rather than immediate. Thus, CCT offers investors a measure of earnings stability and certainty amid record office completions over the next two years.
86.0%
250
84.0%
200
82.0%
150
80.0%
100
78.0%
50
76.0%
0
74.0% 2013A
2014A
2015A
Net Property Income
2016F
2017F
Net Property Income Margin %
Net Property Income and Margins (%) 80% 79%
58
79% 78%
56
78% 54
77% 77%
52
76% 76%
50
75% 75%
Net Property Income
3Q2016
2Q2016
1Q2016
4Q2015
3Q2015
2Q2015
1Q2015
4Q2014
3Q2014
48
2Q2014
Defensive portfolio with >70% of office leases expiring in FY19 and beyond, coinciding with the period when Singapore faces no new office supply. CCT has maintained a defensive leasing strategy amid stiff competition for larger tenants by locking in longer-term leases for most of its top 10 tenants. With proactive forward renewals, more than 70% of office leases now expire in FY19 and beyond. This fortuitously coincides with the period when the Singapore office market should be on an upturn as no new office buildings will be completed from FY18 onwards.
Net Property Income Margin %
Distribution Paid / Net Operating CF 1.4
(x)
1.3 1.2 1.1
CapitaGreen contribution to weather CCT through tough times. CCT’s near-term earnings will be driven by the acquisition of the 60% remaining interest in CapitaGreen. We believe the increased contribution from CapitaGreen will not only help offset potential negative rental reversions at CCT’s other properties but also contribute to 4% DPU CAGR over the next couple of years (excluding any loss of income from redevelopment of Golden Shoe). Beyond the boost from the higher equity interest in CapitaGreen (40% previously to 100%), CCT should benefit from the higher underlying earnings at CapitaGreen as tenants progressively move into the building and rent-free periods start to expire.
1.0 0.9 0.8 0.7 0.6 0.5 2013A
2014A
2015A
2016F
2017F
2016F
2017F
Interest Cover (x) (x) 7.00 6.00 5.00 4.00
Medium term upside from redevelopment of Golden Shoe Car Park. CCT announced the redevelopment of its Golden Shoe Car Park property. Subject to obtaining the necessary government approvals, the property will be developed into one with c.1m sqft of commercial GFA and comprise an office tower of up to 280 metres high. Upon completion in 2021, the property will provide a medium term uplift to CCT’s current NAV per unit of S$1.72 and earnings. This is on top of any value creation from disposal of its stake in One George Street (50% interest) and Wilkie Edge as speculated by the press.
ASIAN INSIGHTS
3.00 2.00 1.00 0.00 2013A
2014A
2015A
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2
Page 170
Company Guide CapitaLand Commercial Trust
Balance Sheet: Increase in gearing post acquisition of CapitaGreen. Post acquisition of the remaining 60% interest in CapitaGreen, its gearing has risen to c.38% from c.30% previously. While this is higher than CCT’s average gearing over the last few years, we believe this remains prudent, as it is below the 45% gearing cap imposed by MAS and provides some buffer in the event of any decline in the value of CCT’s portfolio.
Aggregate Leverage (%)
35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 2013A
Share Price Drivers: Higher-than-average DPU growth. Following the acquisition of the remaining 60% interest CapitaGreen, CCT will have the highest 2-year DPU growth among the office REITs (average of 2%) which is also higher than the average S-REIT growth of 1.7%. With a superior growth profile in a slowing growth environment, we believe investors will gravitate towards CCT, causing the stock to re-rate.
2014A
2015A
2016F
2017F
2016F
2017F
ROE (%) 7.0% 6.0% 5.0% 4.0% 3.0% 2.0%
Key Risks: Risk of higher vacancies and negative rental reversions for FY16. In FY16-17, c.10% of CCT’s office leases will be due for expiry, the majority of which stems from One George Street, Six Battery Road and Raffles City, where expiring rents are close to or higher than market rents. As the Manager has prioritised tenant retention, there is a possibility of negative rental reversions, which would impede earnings growth.
1.0% 0.0% 2013A
2014A
2015A
Distribution Yield (%) (%) 7.4 6.9
+2sd: 6.6% 6.4
+1sd: 6.1%
5.9
Competition from other landlords. Between 2016 and 2018, c.5.3m sqft of office (NLA) will be completed within the downtown core, translating to a 15% increase in existing stock, or 3-year CAGR of 4.6%. Due to weaker net absorption rates of <1m sqft in recent years, CCT could face higher competition for large tenants from landlords of newer buildings, which have large floor plates of 30-40k sqft. Pressure on rents from shadow space. We see some downsizing activity from banks and financial institutions, and shadow space (particularly in the Marina Bay area) could put some pressure on rents for CCT’s portfolio, which is located primarily in the Raffles Place/Tanjong Pagar areas. Company Background CapitaLand Commercial Trust (CCT) is a real investment trust investing exclusively in commercial properties in Singapore.
Avg: 5.5%
5.4 4.9
‐1sd: 5%
4.4
‐2sd: 4.4%
3.9 2013
2014
2015
2016
2017
PB Band (x) 1.3
(x)
1.2 1.1
+2sd: 1.05x 1.0
+1sd: 0.97x
0.9
Avg: 0.89x
0.8
‐1sd: 0.8x
0.7
‐2sd: 0.72x
0.6 Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 171
Company Guide CapitaLand Commercial Trust
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
Source: Company, DBS Bank
2013A
2014A
2015A
2016F
2017F
251 (54.3) 197 (15.2) (4.6) (46.3) 2.52 261 0.0 0.0 0.0 261 367 (139) 234
263 (57.4) 205 (16.2) (3.5) (32.7) (2.5) 368 0.0 0.0 0.0 368 449 (200) 249
273 (60.5) 213 (17.6) 0.87 (32.1) 47.5 309 (0.1) 0.0 0.0 307 307 (52.8) 254
277 (59.8) 217 (29.5) 0.0 (41.2) 0.0 242 (0.7) 0.0 0.0 241 241 24.6 266
348 (74.6) 273 (25.1) 0.0 (77.4) 0.0 260 (0.9) 0.0 0.0 259 259 20.9 280
(33.1) (33.3) 26.9 100.0 78.4 103.8 93.1 6.0 5.4 3.9 2.8 3.9
4.4 4.1 40.9 100.0 78.2 140.0 94.9 6.2 7.3 5.8 3.0 5.8
4.0 3.7 (16.4) 100.0 77.9 112.5 93.1 6.4 5.9 4.7 3.0 6.1
1.3 2.0 (21.4) 100.0 78.4 87.2 96.1 10.6 4.6 3.3 2.6 4.6
25.7 26.0 7.4 100.0 78.6 74.5 80.5 7.2 4.9 3.3 3.1 3.2
ASIAN INSIGHTS Page 4
Earnings growth will be driven by increased contribution from CapitaGreen, which should offset income loss from lower occupancies and negative rental reversions at existing office assets such as Capital Tower, 6 Battery Road and One George Street
VICKERS SECURITIES Page 172
Company Guide CapitaLand Commercial Trust
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
68.3 (15.7) 52.7 (4.3) 0.11 (8.3) 0.0 56.7 0.0 0.0 56.7 0.0 0.0 63.2
67.6 (15.3) 52.3 (4.4) (0.3) (8.5) 0.0 68.0 (0.1) 0.0 68.0 0.0 0.0 64.1
66.9 (14.8) 52.0 (4.2) 1.66 (8.1) 0.0 61.9 (0.2) 0.0 61.7 0.0 0.0 64.8
67.6 (16.1) 51.5 (4.5) 0.0 (8.3) 0.0 74.3 0.0 0.0 74.3 0.0 0.0 65.1
74.4 (17.4) 57.0 (3.9) 1.22 (11.4) (13.5) 51.6 (0.2) 0.0 51.4 0.0 0.0 68.3
(1) (2) (26) 77.1 100.0
(1) (1) 20 77.3 100.0
(1) 0 (9) 77.8 100.0
1 (1) 20 76.1 100.0
10 11 (31) 76.6 100.0
Balance Sheet (S$m) FY Dec
2013A
2014A
2015A
2016F
2017F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
4,769 1,359 84.1 0.0 33.7 0.01 6,245
4,882 1,499 101 0.0 38.3 0.0 6,521
4,962 1,504 81.2 0.0 45.3 0.0 6,593
6,578 1,199 140 0.0 17.2 0.0 7,934
6,582 1,199 156 0.0 21.6 0.0 7,959
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
0.0 50.9 12.0 1,218 51.6 4,913 0.0 6,245
270 47.4 11.4 970 68.6 5,153 0.0 6,521
0.0 37.3 8.68 1,255 57.6 5,234 0.0 6,593
0.0 64.2 9.34 2,546 57.6 5,257 0.0 7,934
0.0 80.7 9.47 2,379 57.6 5,432 0.0 7,959
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(29.1) (1,134)
(20.5) (1,139)
(0.7) (1,174)
(56.4) (2,406)
(68.6) (2,223)
1.9 1.9 30.3 2.1
0.4 0.4 30.4 2.2
2.8 2.8 30.0 2.2
2.1 2.1 37.5 1.2
2.0 2.0 37.5 1.3
Increased gearing due the acquisition of remaining 60% interest in CapitaGreen
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 173
Page 5
Company Guide CapitaLand Commercial Trust
Cash Flow Statement (S$m) FY Dec Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
2013A
2014A
2015A
2016F
2017F
261 1.39 (0.1) (127) 7.68 52.5 195 (21.4) (1.0) (526) 82.6 526 60.5 (231) 40.2 0.0 (98.8) (290) 0.0 (34.3)
368 3.51 0.0 (217) (4.6) 39.3 189 (29.8) 0.0 (397) 86.1 392 51.7 (243) 50.3 0.0 (30.7) (223) 0.0 17.0
307 3.51 0.0 (97.3) (19.8) 3.05 197 (21.3) 0.0 0.0 85.0 0.0 63.7 (252) 5.00 0.0 (33.4) (280) 0.0 (19.9)
242 3.51 (0.1) (95.8) 55.0 24.6 229 (401) 0.0 0.0 95.8 0.0 (305) (266) 401 0.0 0.0 135 0.0 59.2
260 3.51 (0.7) (89.2) 12.1 20.9 207 (8.0) 0.0 0.0 89.2 0.0 81.2 (280) 8.00 0.0 0.0 (272) 0.0 15.7
6.55 6.07
6.63 5.45
7.35 5.95
5.89 (5.8)
6.47 6.60
Higher capex due to the acquisition of remaining 60% interest in CapitaGreen
Source: Company, DBS Bank Target Price & Ratings History 1.72
S$
1.62
5 4
1.52
6
7 2
1.42
12- mt h T arget Rat ing Pric e
Dat e of Report
Closing Pric e
1:
20 J an 16
1.33
1.45
BUY
2:
15 Apr 16
1.43
1.53
BUY
3:
24 May 16
1.39
1.61
BUY
4:
21 J ul 16
1.56
1.70
BUY
S.No.
5:
05 Sep 16
1.59
1.70
BUY
6:
19 Oct 16
1.58
1.70
BUY
7:
09 Nov 16
1.56
1.70
BUY
3
1.32
1 1.22 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Mervin SONG CFA Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 174
Singapore Company Guide
CapitaLand Mall Trust Refer to important disclosures at the end of this report
| Bloomberg: CT SP | Reuters: CMLT.SI
Version
DBS Group Research . Equity
4 Jan 2017
BUY
Christmas Present is Still in the Box
Last Traded Price ( 4 Jan 2017): S$1.93 (STI : 2,921.31) Price Target 12-mth: S$2.25 (16% upside and 5.8% yield) Potential Catalyst: Delay in rate hike expectations; more uncertainties from Brexit execution plans; better-than-expected rental reversion Where we differ: We are line with consensus Analyst Singapore Research Team [email protected] Derek TAN +65 6682 3716 [email protected] Mervin SONG CFA +65 6682 3715 [email protected]
Price Relative S$
Relative Index
2.6
219
2.5
199
2.4 2.3
179
2.2
159
2.1 2.0
139
1.9
119
1.8
99
1.7 1.6 Jan-13
Jan-14
Jan-15
CapitaLand Mall Trust (LHS)
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 669 466 580 405 13.5 2 11.1 2 192 14.3 5.7 1.0 33.0 7.3
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
79 Jan-17
Jan-16
Relative STI (RHS)
2016F 697 488 413 417 11.7 (14) 11.2 1 189 16.5 5.8 1.0 33.3 6.2
2017F 695 480 418 418 11.8 1 11.2 0 190 16.4 5.8 1.0 34.3 6.2
2018F 700 481 417 421 11.8 0 11.3 1 190 16.4 5.8 1.0 35.3 6.2
11.0 B: 10
11.0 S: 0
11.2 H: 12
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Negative DPU in 3Q16 is a false alarm as retention is boxed for distribution in 4Q16. CapitaLand Mall Trust (CMT)’s reported 3Q16 DPU was 2.78Scts and 9M16 DPU was 8.25Scts, down 6.7% and 1.4% y-o-y, respectively. Investors should not be alarmed by the negative growth, as a higher base was set by the DPU in 3Q15 due to S$8.0m (or 0.23Scts) retention paid out in 3Q15, out of S$12.5m retained from 1Q15. Stripping out the payment of S$8m in 3Q15, DPU growth was up a marginal 1.1% in 3Q16. CMT retained S$12.0m of its taxable income in 1Q16, equivalent to c.0.34Scts in DPU terms, and will pay this out in the festive season next quarter. We expect flattish DPU growth for the full year. Funan’s redevelopment plans are within our expectations. Plans for Funan 2.0, including a cycle-through mall, two Grade A office towers, and co-living apartment units, were largely in line with our scenario study published on 1 July 2016 (Rhapsody of Funan 2.0). We are supportive of CMT’s decision to undertake the redevelopment. Apart from a potential 4 Scts (or 2.0%) boost to NAV, we applaud the proactive asset management strategy to turn the ageing mall into a ’lifestyle destination’. Gearing has room to finance asset enhancement programs and other developments. As CMT will fund Funan’s redevelopment cost of S$560m entirely with debt, which is comfortably below the S$800m headroom available, gearing is expected to increase to 38%, which is still healthy. Valuation: We have a DCF-backed TP of S$2.25. The stock offers FY16/17F DPU yields over 5.0%. Key Risks to Our View: A rate hike surprise before December. While consensus is still ruling out a hike in November just days before the US election, any surprise move by the Fed may cause ripples in the market. In the unlikely scenario of a rate hike ahead of consensus’ year-end expectation, we believe this will be an opportunity for investors to accumulate the stock on any dips. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Capitaland Blackrock NTUC Enterprise Co-operativ Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
3,543 6,838 / 4,715 29.3 5.0 5.0 60.7 13.4
VICKERS SECURITIES Page 175
Company Guide CapitaLand Mall Trust Net Property Income and Margins (%)
Expect rental reversions to underperform historical levels. CMT’s rental reversion trends have been moderating (3.7% for FY15 and 1.7% for 9M16) and as retailers’ profitability continues to be squeezed by high labour costs and falling retail sales. We believe that rental reversions are likely to fall within the 1-2% range in the next 1-2 years, compounded by pressure from escalating labour costs and labour shortage.
76.6% 74.6% 72.6% 70.6% 68.6% 66.6% 64.6% 2014A
2015A
2016F
Net Property Income
2017F
2018F
Net Property Income Margin %
Net Property Income and Margins (%) 72% 131
70%
126 68% 121 66%
116
64%
111
Net Property Income
3Q2016
2Q2016
1Q2016
4Q2015
60%
3Q2015
101
2Q2015
62%
1Q2015
106
4Q2014
Ability to deliver value through AEIs. Strategic asset enhancement initiatives (AEIs) across its properties will result in increased shopper traffic in the medium term. For instance, the completion of AEI at IMM building in November 2015 has repositioned the mall as the largest outlet mall in Singapore with wider offerings, which should help to further differentiate the mall in the midst of new supply. The upcoming redevelopment of Funan 2.0 could also offer upside potential to the Trust.
500 450 400 350 300 250 200 150 100 50 0
3Q2014
Earnings Drivers: Mall owner of choice despite retail headwinds. CMT’s portfolio of malls stands out in Singapore’s retail landscape due to its (a) accessibility, (b) excellent asset management track record, and (c) strong rewards/marketing programme. Despite recent retail headwinds, we believe that CMT’s malls will continue to see good demand as retailers look to consolidate their footprints within CMT’s malls.
S$ m
2Q2014
CRITICAL DATA POINTS TO WATCH
Net Property Income Margin %
Distribution Paid / Net Operating CF 1.2
(x)
1.1 1.0 0.9 0.8 0.7
NPI margins could decline as the Manager expands marketing efforts. The Manager is looking to ramp up marketing efforts to attract a younger audience by deploying various digital and social media initiatives and the rollout of the enhanced CapitaStar reward programme to attract and retain shoppers. In addition, the Manager intends to step up the installation and adoption of mobile and internet-enabled infrastructure within its malls to allow complementary e-commerce activities (J Avenue website for shoppers to buy online and collect in store). While the immediate benefits are not obvious and are likely to drive up operating expenses in the medium term, we laud the efforts of the management in embracing changes in shoppers' expectations.
0.6 0.5 0.4 2014A
2015A
2016F
2017F
2018F
2017F
2018F
Interest Cover (x) (x) 4.80 4.60 4.40 4.20 4.00 3.80 3.60 2014A
2015A
2016F
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 176
Company Guide CapitaLand Mall Trust
Balance Sheet: Gearing to remain stable. CMT’s gearing ratio is forecast to remain fairly stable at 35-38% over FY16-18F. This is after the placement of new units as consideration for the purchase of Bedok Mall in 3Q15 and assuming 100% debt financing for the redevelopment of Funan. Gearing level is within management's comfortable level of between 35% and 40%. Cost of debt to remain stable. The average debt cost is 3.2%, which should remain stable in the immediate term. With interest rates on the rise, we have priced in a 25 bps increase in average interest cost once hedges are rolled over in the coming two years.
Aggregate Leverage (%) 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 2014A
2015A
2016F
2017F
2018F
2017F
2018F
ROE (%) 7.0% 6.0%
Share Price Drivers: Acquisitions to drive earnings. CMT has the right of first refusal to acquire its Sponsor’s retail assets in Singapore. CapitaLand has several retail assets in its portfolio which could be injected into the REIT, including Star Vista and the remaining 70% stake in Westgate.
5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
Better-than-expected operational results. We believe that CMT’s portfolio will continue to remain resilient despite headwinds. The Trust's ability to maintain a steady growth in top line while holding occupancies will be a strong testament of the Manager's capability to stand out among its peers. IMM could be a positive surprise. With the completion of phase two, IMM is now the largest outlet mall in Singapore, with 85 outlet stores. Feedback has been positive as the mall renewed 22.0% of its NLA over 9M16 at 4.6% reversion rate which is highest among all properties.
2014A
The uncertainties from the implementation of Brexit following the referendum on 24 June 2016 will continue to cause ripples in the market.
2016F
Distribution Yield (%) (%) 6.6 6.1
+2sd: 6% +1sd: 5.6%
5.6
Avg: 5.2%
5.1
‐1sd: 4.9% 4.6
‐2sd: 4.5%
4.1 3.6 2013
Key Risks: Downside risk to rental reversions. A worse-than-expected slowdown in consumer sentiment and consumption outlook may result in lower reversionary potential (vs our 2% estimate) for leases expiring in 2016. Funan’s redevelopment could be a near-term catalyst. Further upside risk is from interest savings. The Trust has been proactive in extending its debt profile, locking in long-tenure MTNs at lower rates than previously achieved. Further interest savings from refinancing associate debt would offer upside to our estimates.
2015A
2014
2015
2016
2017
PB Band (x) 1.6
(x)
1.5 1.4 1.3
+2sd: 1.29x
1.2
+1sd: 1.21x Avg: 1.13x
1.1
‐1sd: 1.04x
1.0
‐2sd: 0.96x 0.9 0.8 Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Source: Company, DBS Bank
Company Background CapitaMall Trust is a real estate investment trust which owns and invests in retail properties in the suburban areas and downtown core of Singapore.
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 177
Company Guide CapitaLand Mall Trust
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
Source: Company, DBS Bank
2014A
2015A
2016F
2017F
2018F
659 (210) 448 (46.3) 0.0 (99.3) 4.89 457 0.0 0.0 0.0 457 619 (44.6) 412
669 (203) 466 (45.8) 0.0 (91.6) 72.8 473 (0.6) 0.0 0.0 473 580 (68.3) 405
697 (209) 488 (49.4) 0.0 (103) 0.0 413 0.0 0.0 0.0 413 413 3.95 417
695 (215) 480 (49.2) 0.0 (91.7) 0.0 418 0.0 0.0 0.0 418 418 0.0 418
700 (220) 481 (49.7) 0.0 (94.1) 0.0 417 0.0 0.0 0.0 417 417 4.00 421
3.3 2.2 12.3 91.0 68.1 69.3 62.6 7.0 7.4 4.8 4.3 4.1
1.5 4.0 3.5 96.9 69.7 70.7 60.5 6.8 7.3 4.7 4.2 4.6
4.2 4.7 (12.6) 95.0 70.1 59.3 59.9 7.1 6.2 4.0 4.3 4.3
(0.3) (1.7) 1.1 95.0 69.0 60.2 60.2 7.1 6.2 3.9 4.2 4.7
0.8 0.2 (0.2) 95.0 68.6 59.6 60.2 7.1 6.2 3.8 4.1 4.6
ASIAN INSIGHTS Page 4
Earnings from Bedok Mall will more than offset the loss of earnings from Funan for 3 years from 2H16. (Bedok's FY16 NPI was S$10.9m vs Funan's S$5.6m)
VICKERS SECURITIES Page 178
Company Guide CapitaLand Mall Trust
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
162 (48.4) 113 (11.1) 0.0 (20.9) 0.0 101 0.0 0.0 101 101 (0.7) 102
180 (54.7) 126 (12.1) 0.0 (25.3) 72.7 181 (0.6) 0.0 180 234 (2.7) 102
180 (51.9) 128 (12.1) 0.0 (23.4) (0.6) 111 0.0 0.0 111 111 1.31 115
171 (54.8) 116 (12.6) 0.0 (23.0) 0.06 98.2 0.0 0.0 98.2 154 1.80 97.1
170 (50.2) 120 (12.1) 0.0 (24.2) (0.2) 104 0.0 0.0 104 104 (0.8) 105
1 3 14 70.1 101.4
12 11 78 69.7 100.0
0 2 (38) 71.1 84.0
(5) (9) (12) 67.9 99.9
(1) 3 6 70.4 93.8
Balance Sheet (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
7,510 1,194 1,130 0.0 25.1 0.0 9,858
8,366 1,357 604 0.0 28.8 0.0 10,356
8,287 1,357 870 0.0 32.9 0.0 10,546
8,463 1,357 892 0.0 32.8 0.0 10,744
8,639 1,357 913 0.0 33.1 0.0 10,941
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
762 217 35.8 2,407 153 6,282 0.0 9,858
0.0 200 3.56 3,312 147 6,693 0.0 10,356
0.0 282 0.0 3,405 147 6,712 0.0 10,546
0.0 281 0.0 3,581 147 6,735 0.0 10,744
0.0 283 0.0 3,757 147 6,754 0.0 10,941
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(228) (2,040)
(175) (2,708)
(249) (2,536)
(248) (2,689)
(250) (2,844)
1.1 1.1 33.0 5.8
3.1 3.1 33.0 5.6
3.2 3.2 33.3 5.5
3.3 3.3 34.3 5.4
3.3 3.3 35.3 5.3
S$12m of 1Q16 taxable income has been retained for distribution in 4Q16, equivalent to c.0.34Scts in DPU terms
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 179
Page 5
Company Guide CapitaLand Mall Trust
Cash Flow Statement (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
457 0.0 (0.5) (149) 5.21 96.3 409 (64.7) 0.0 12.3 96.6 6.47 50.6 (370) 315 0.0 (105) (160) 0.0 300
473 0.0 0.0 (71.8) 0.91 19.9 422 (95.0) 0.0 (17.6) 70.8 (422) (464) (389) (890) 151 644 (484) 0.0 (525)
413 0.0 (3.6) (77.9) 78.0 0.0 410 79.0 0.0 0.0 77.9 0.0 157 (397) 93.0 1.88 0.0 (302) 0.0 265
418 0.0 0.0 (79.2) (0.7) 0.0 338 (176) 0.0 0.0 79.2 0.0 (96.8) (397) 176 1.89 0.0 (219) 0.0 22.1
417 0.0 0.0 (80.5) 1.89 0.0 339 (176) 0.0 0.0 80.5 0.0 (95.4) (400) 176 1.91 0.0 (222) 0.0 20.9
11.7 9.94
12.0 9.35
9.37 13.8
9.56 4.58
9.50 4.59
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
Funan’s earnings have been removed for c.3.5 years from 2H16 (expected opening in 4QFY19). After which, our new forecasts for Funan 2.0 have been incorporated in the model
Source: Company, DBS Bank Target Price & Ratings History
S$ 2.27
3
2.17
4 6 5
7
2.07
2
1.97
12- mt h T arget Rat ing Pric e
S.No.
Dat e of Report
Closing Pric e
1:
22 J an 16
1.97
2.10
2:
25 J an 16
1.97
2.10
BUY
3:
18 Apr 16
2.16
2.10
HOLD
4:
01 J ul 16
2.17
2.20
HOLD
5:
25 J ul 16
2.15
2.23
HOLD
6:
22 Sep 16
2.12
2.25
BUY
7:
24 Oct 16
2.15
2.25
BUY
BUY
1 1.87
1.77 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Singapore Research Team Derek TAN Mervin SONG CFA
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 180
Singapore Company Guide
CDL Hospitality Trusts Version 6
Refer to important disclosures at the end of this report
| Bloomberg: CDREIT SP | Reuters: CDLT.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Unloved now but offers outstanding value
Last Traded Price ( 4 Jan 2017): S$1.36 (STI : 2,921.31) Price Target 12-mth: S$1.59 (17% upside and 6.6% yield)
Attractive valuations. We maintain our BUY call on CDL Hospitality Trusts (CDREIT) and TP of S$1.59. Although we now expect the Singapore market to only recover in 2018, we believe the current low share price has largely priced in the current downturn and CDREIT offers compelling long-term value given its Singapore portfolio trades on a heavily discounted implied price per key. In addition, CDREIT offers patient investors an attractive 6.8% yield (based on 90% payout ratio) ahead of the eventual upturn.
Potential Catalyst: Recovery in the Singapore hospitality market, and acquisitions Where we differ: Below due to assumption of excess supply of new rooms in Singapore Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Cheapest REIT to ride the eventual upturn. CDREIT’s implied price per key for its Singapore portfolio stands at less than c.S$500k which is below its replacement cost of c.S$700k, recent market transactions of above S$650k and that of other listed Singapore hospitality REITs of between S$650k and S$1m. Given the quality of the portfolio and CREIT’s long-term track record, we believe this discount is unwarranted. Thus, CDREIT is the cheapest REIT providing exposure to the eventual upturn in the Singapore hospitality market which we project will occur in 2018 as supply pressures ease.
Price Relative
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 172 137 58.4 109 8.99 (16) 10.1 (8) 159 15.1 7.4 0.9 36.2 5.6
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016F 175 136 89.6 103 9.02 0 9.37 (7) 159 15.1 6.9 0.9 35.9 5.7
2017F 174 135 85.5 99.3 8.56 (5) 8.95 (5) 159 15.9 6.6 0.9 35.7 5.4
2018F 182 143 90.2 104 8.97 5 9.33 4 159 15.2 6.9 0.9 35.5 5.6
0 9.50 B: 6
0 9.50 S: 2
0 9.80 H: 9
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Several mitigating factors during downturn in the Singapore hospitality market. While CDREIT’s core Singapore market faces a downturn, we believe this will be tempered by higher earnings contribution from New Zealand, following the appointment of Millennium & Copthorne Hotels as the new operator of CDREIT’s Auckland property and the negotiation of a more favourable lease structure. In addition, we see upside to our DPU estimates should it decide to utilise its S$382m debt headroom for acquisitions. Valuation: We maintain our TP and DPU forecast which have incorporated the delayed expectations of the recovery of Singapore’s hospitality market. Key Risks to Our View: Weaker-than-expected demand supply outlook in Singapore. The key risk to our view is a weaker-than-expected demand-supply outlook for the Singapore hospitality market. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Hospitality Holdings Pte Ltd Aberdeen M & C Reit Management Ltd Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
992 1,349 / 937 31.7 5.0 5.0 54.3 1.3
VICKERS SECURITIES Page 181
Company Guide CDL Hospitality Trusts Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Challenging near-term operating conditions in Singapore. CDREIT’s profitability is largely dependent on earnings from its Singapore hotels. Near term, we see headwinds to the group’s core operations due to the growth in new hotel room supply in Singapore (6-7% of existing supply). The more competitive landscape is likely to lead to pressure on ADRs (average room rates) and occupancies, which we estimate will result in a c.6% decline in RevPAR in 2016. Nevertheless, over the medium term, as the Singapore government has not released any land for hotel development over the past two years, supply pressures should ease from 2018 onwards. Softness from Maldives. The significant depreciation of the Russian rubble has resulted in a decline in the number of highyielding Russian guests into the Maldives. Combined with a recent slowdown in Chinese visitors, we expect softness in CDREIT’s Maldives operations on the back of more aggressive price competition by other resorts. Nevertheless, this could be partially offset by a weakening of the SGD versus USD, as forecast by our DBS economists. CDREIT’s income from the Maldives is generated in USD. Boost from Japanese and UK acquisitions as well as reopening of Claymore Link mall. The timely acquisitions of two Japanese business hotels, Hotels MyStays Asakusabashi and Hotel MyStays Kamata in December 2014 worth c.S$64m, should help CDREIT buffer against the slowdown in its core Singapore operations. The expected growth in tourist arrivals into Japan should translate into higher room rates and occupancies for CDREIT’s properties in medium term albeit near term there may be some volatility in performance due to the recent strength in the JPY. Furthermore, CDREIT should benefit from the acquisition of Cambridge City Hotel and the recent appointment of Hilton as its operator. Moreover, the recent reopening of the Claymore Link, a retail mall in the heart of Orchard Road (after a 1.5-year renovation), is another positive for CDREIT’s earnings. Asset optimisation. In the medium term, we believe CDREIT can further maximise the returns of its portfolio by undertaking AEIs such as those being conducted at Grand Copthorne Waterfront Hotel and M Hotel in Singapore. In addition, at end-FY16, CDREIT should receive an earnings boost, following the appointment of Millennium & Copthorne Hotels as the new operator at its Auckland property with a new lease structure.
ASIAN INSIGHTS
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2
Page 182
Company Guide CDL Hospitality Trusts
Balance Sheet: Gearing within optimal range. CDREIT’s gearing at endSeptember 2016 stood at c.36%, which is within its optimal gearing range of 35-40%. However, should CDREIT gear up to 40%, it will have c.S$140m worth of debt headroom to pursue acquisitions.
Aggregate Leverage (%)
Moderate exposure to rising interest rates. Approximately 60% of CDREIT’s borrowings are on fixed interest rates. Thus, CDREIT has moderate exposure to rising interest rates. Share Price Drivers: Near-term earnings risk priced in. While CDREIT’s earnings are expected to be under pressure near term due to projected supply and demand imbalance in Singapore, we believe this has largely been priced in. The implied price per key for CDREIT’s Singapore portfolio stands at c.S$510k, which is below its replacement cost of c.S$700k and recent market transactions of above S$650k. Unjustified discount to other hospitality REITs. Compared to other hospitality S-REITs, CDREIT offers the cheapest exposure to the eventual upturn in the Singapore market. The implied price per key for other S-REITs stands at between S$650k and S$1m versus c.S$500k for CDREIT. Given the mid-tier to luxury category of CDREIT’s room inventory and its successful track record, we believe this valuation discount is unjustified.
ROE (%)
Distribution Yield (%)
Key Risks: Interest rate risk. Any increase in interest rates will result in higher interest payments, which could result in lower distribution per unit (DPU) for unitholders. Currency risk. As CDREIT earns rental income in various currencies (AUD, GBP, JPY, NZD and USD), a depreciation of any foreign currency against the SGD could negatively impact distribution income, which is distributed in SGD.
PB Band (x)
Brexit. CDREIT’s hotel in Cambridge, UK contributed c.6% of 9M16 group NPI. With the UK voting to exit EU (Brexit), this may negatively impact business activities in the UK and CDREIT’s property. In addition, Brexit may result in a depreciation of the GBP versus SGD, which will negatively impact distributions in SGD. Company Background CDL Hospitality Trusts (CDREIT) is a stapled group comprising H-REIT and HBT. H-REIT is a real estate investment trust that invests in a portfolio of income-producing hospitality-related properties while HBT is a business trust.
ASIAN INSIGHTS
Source: Company, DBS Bank
VICKERS SECURITIES Page 3
Page 183
Company Guide CDL Hospitality Trusts
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016F
2017F
2018F
167 (26.3) 141 (17.8) 0.0 (16.4) 0.0 106 (1.4) 0.0 0.0 105 122 11.4 120
172 (35.4) 137 (25.2) 0.0 (22.3) 0.0 89.6 (0.9) 0.0 0.0 88.7 58.4 50.5 109
175 (39.3) 136 (21.5) 0.0 (22.6) 0.0 91.9 (2.3) 0.0 0.0 89.6 89.6 13.8 103
174 (38.6) 135 (21.5) 0.0 (25.0) 0.0 89.0 (3.5) 0.0 0.0 85.5 85.5 13.8 99.3
182 (39.0) 143 (21.7) 0.0 (27.3) 0.0 93.8 (3.6) 0.0 0.0 90.2 90.2 14.1 104
12.1 2.3 1.0 90.0 84.2 62.8 71.6 10.7 6.5 4.4 5.1 7.5
3.4 (2.5) (15.4) 90.0 79.5 51.4 63.2 14.6 5.6 3.5 4.5 5.0
1.6 (0.7) 1.0 90.0 77.6 51.1 59.0 12.3 5.7 3.5 4.4 5.1
(0.7) (0.4) (4.5) 90.0 77.8 49.1 57.1 12.3 5.4 3.3 4.3 4.6
4.5 5.5 5.5 90.0 78.5 49.6 57.4 11.9 5.6 3.5 4.6 4.4
Improvement in earnings in FY18 due to a recovery in the Singapore hospitality market
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 184
Company Guide CDL Hospitality Trusts
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
41.1 (8.0) 33.1 (6.8) 0.0 (4.7) 0.0 21.6 (0.3) 0.0 21.4 0.0 4.51 25.9
50.1 (12.3) 37.8 (8.6) 0.0 (7.2) 0.0 22.0 1.25 0.0 23.3 0.0 38.8 31.8
44.7 (11.0) 33.7 (5.5) 0.0 (6.3) 0.0 21.9 (1.0) 0.0 20.9 0.0 3.44 24.4
42.5 (11.1) 31.3 (6.2) 0.0 (6.3) 0.0 18.9 (1.0) 0.0 17.9 0.0 5.84 23.7
45.4 (10.6) 34.8 (6.5) 0.0 (5.8) 0.0 22.6 0.0 0.0 22.6 0.0 4.31 26.9
5 5 14 80.5 90.0
22 14 9 75.4 90.0
(11) (11) (10) 75.5 90.0
(5) (7) (15) 73.8 90.0
7 11 26 76.7 90.0
Balance Sheet (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
2,206 146 76.5 0.0 20.0 1.37 2,450
2,177 278 72.0 0.0 19.1 1.28 2,547
2,182 278 86.8 0.0 21.1 1.28 2,570
2,187 278 94.9 0.0 20.9 1.28 2,583
2,193 278 104 0.0 21.8 1.28 2,599
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
317 39.7 0.89 458 18.6 1,616 0.0 2,450
219 32.2 0.27 703 19.3 1,573 0.0 2,547
219 41.7 2.61 703 19.3 1,584 0.0 2,570
219 41.4 6.09 703 19.3 1,594 0.0 2,583
219 43.2 9.72 703 19.3 1,604 0.0 2,599
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(19.1) (698)
(12.1) (850)
(21.9) (836)
(25.3) (827)
(29.8) (818)
0.3 0.3 31.6 1.3
0.4 0.4 36.2 1.2
0.4 0.4 35.9 1.2
0.4 0.4 35.7 1.2
0.5 0.5 35.5 1.2
Gearing within optimal 35-40% range
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 185
Page 5
Company Guide CDL Hospitality Trusts
Cash Flow Statement (S$m) FY Dec Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
2014A
2015A
2016F
2017F
2018F
106 0.0 (0.2) 0.0 3.83 29.6 139 (93.0) 0.0 0.0 0.0 0.35 (92.6) (106) 83.2 0.0 (16.6) (39.1) 0.0 7.72
89.6 0.0 (1.0) 0.0 0.39 43.4 132 (150) 0.0 0.0 0.0 (2.0) (152) (103) 138 0.0 (19.7) 15.3 0.46 (4.0)
91.9 0.0 0.0 0.0 7.46 13.8 113 (5.3) 0.0 0.0 0.0 0.0 (5.3) (93.0) 0.0 0.0 0.0 (93.0) 0.0 14.9
89.0 0.0 0.0 0.0 (0.2) 13.8 103 (5.2) 0.0 0.0 0.0 0.0 (5.2) (89.4) 0.0 0.0 0.0 (89.4) 0.0 8.04
93.8 0.0 0.0 0.0 0.92 14.1 109 (5.5) 0.0 0.0 0.0 0.0 (5.5) (93.9) 0.0 0.0 0.0 (93.9) 0.0 9.53
13.9 4.75
13.4 (1.8)
10.6 10.9
10.3 9.75
10.7 10.3
Increase in capex due to acquisition of Cambridge City Hotel
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Mervin SONG CFA Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 186
Singapore Company Guide
Croesus Retail Trust Refer to important disclosures at the end of this report
Version 5 | Bloomberg: CRT SP | Reuters: CROE.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Onwards and upwards
Last Traded Price ( 4 Jan 2017): S$0.85 (STI : 2,921.31) Price Target 12-mth: S$0.99 (16% upside and 8.9% yield) Potential Catalyst: DPU accretive acquisitions Where we differ: Below on lower top line Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Price Relative S$
Relative Index
1.2 1.2
208
1.1
188
1.1 1.0
168
1.0
148
0.9 0.9
128
0.8
108
0.8 0.7 May-13
88 May-14
May-15
Croesus Retail Trust (LHS)
Forecasts and Valuation FY Jun (JPYm) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 7,635 4,681 7,579 3,358 3.22 (31) 7.64 (3) 103 26.4 9.0 0.8 47.3 3.3
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
May-16
Relative STI (RHS)
2016A 9,581 5,449 6,003 3,981 0.59 (82) 6.95 (9) 94.7 143.9 8.2 0.9 45.3 0.6
2017F 12,153 6,402 3,666 4,957 5.99 914 7.52 8 86.4 14.2 8.9 1.0 45.1 6.6
2018F 12,325 6,494 3,735 5,034 5.77 (4) 8.18 9 84.5 14.7 9.7 1.0 45.2 6.8
B: 4
0 9.3 S: 0
0 9.6 H: 0
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: AS, PY
Internally managed to improve alignment and removes one barrier to a takeover. We maintain our BUY call and TP of S$0.99. We believe the perception of a greater alignment between the interest of Croesus Retail Trust (CRT)’s unitholders and management following CRT’s move to be the first internally managed trust will help close the discount to our TP. This is despite dissatisfaction from some unitholders with the price paid to buy out CRT’s trustee-manager (c.S$50m) and concerns over the large upfront cash payment to the current management team for their stake in the trustee-manager. In addition, with CRT no longer having an external trustee-manager, we believe this may remove a hurdle to a potential takeover by a J-REIT as speculated by some market participants due to CRT’s persistent high yield and discount to its NAV. Boost from recent acquisitions. Going forward, CRT should benefit from the full-year contribution from the acquisition of Torius property in Fukuoka (7.8% yield based on net property income (NPI)) in Sep15 and recent purchase of three retail malls (Fuji Grand Natalie, Mallage Saga and Feeeal Asahikawa) on 7.1% NPI yield. In addition, with FY18 income hedged at SGD/JPY rate of 76.4, down from 83.6 in FY17, CRT has one of the highest growth rates among our SREIT universe with a two-year DPU CAGR of 8% in SGD terms. This is before any interest savings on the back of lower Japanese interest rates which we have yet to fully price in. Medium-term upside potential from asset enhancement initiatives (AEIs). Over the medium term, CRT should also receive a boost from potential AEI and/or tenant remixing at One’s Mall, Torius Mall and Feeeal Asahikawa. This is in addition to any further acquisitions. Valuation: We maintain our DCF-based TP of S$0.99. Key Risks to Our View: The key risks to our view include: (1) weaker JPY versus SGD, (2) higher-than-expected take-up of its Dividend Reinvestment Plan (DRP) which we have assumed c.25% take-up and (3) lower-than-expected uplift in rents At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) GKG Investment Value Partners Group Ltd DBS Group Holdings Ltd Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trusts
758 644 / 444 6.8 6.2 5.7 81.8 0.53
VICKERS SECURITIES Page 187
Company Guide Croesus Retail Trust Net Property Income and Margins (%)
Continued benefits from renewal of Mallage Shobu. CRT’s Mallage Shobu property which contributed c.26% of the trust’s 4Q16 NPI undertook a major renewal exercise in March 2015 which consisted of (1) AEI works including family-friendly improvement works to restrooms, nursing rooms and rest areas, as well as improved LED lightning facilities, (2) introduction of 69 new brands/tenants such as Toys R Us, Kurashiki Coffee and Majestic Legon (women’s apparel and fashion), (3) tenant renewal exercise for 155 out of 242 leases, and (4) positive rental reversions in the double digits. We believe CRT’s earnings should continue to benefit from this AEI as the mall gains further traction from its nearby residents. Favourable lease structures. Approximately 62% of the CRT’s leases are under fixed term leases. Under this lease structure, which are typically shorter in tenure (between 3-5 years), CRT has the flexibility to adjust rents and tenant composition upon expiry of leases. This compares to the standard lease, which is more favourable to tenants as upon expiry of the lease, the tenants can opt to stay and renew the lease at market rates. Medium-term upside at One’s Mall, Torius property and Feeeal Asahikawa. We understand there are opportunities to drive rents higher at One’s Mall, Torius property and Feeeal Asahikawa in the medium term. This will come primarily from the change in tenant mix as some tenants/anchor tenants are low yielding at the moment. At this stage, CRT has not provided any details on its AEI plans. Costs savings from internalisation. We expect CRT to benefit from its decision to bring in house its trustee-manager. This should result in costs savings as fees paid to a third party manager are now eliminated and replaced with lower internal overheads. Partially offset this benefit is the higher units on issue following the preferential offering use to help fund the purchase of the third party trustee-manager.
ASIAN INSIGHTS
70.0%
6,000 5,000
65.0%
4,000 60.0%
3,000 2,000
55.0% 1,000 0
50.0% 2014A
2015A
2016A
Net Property Income
2017F
2018F
Net Property Income Margin %
Net Property Income and Margins (%) 1,411 911
Net Property Income
1Q2017
4Q2016
3Q2016
2Q2016
1Q2016
4Q2015
3Q2015
-89 -589
2Q2015
411
1Q2015
Contribution from recent acquisitions and favourable hedges. Moving forward, CRT should also receive an earnings boost from the acquisition of Torius property in Fukuoka (7.8% NPI yield) in Sep15 and recent purchase of three retail malls (Fuji Grand Natalie, Mallage Saga and Feeeal Asahikawa) on a 7.1% NPI yield. In addition, with CRT having already hedged its FY18 income at SGD/JPY rate of 76.4, we project a two-year SGD DPU CAGR of 8%.
JPY m
4Q2014
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Strong cashflow visibility. CRT has a weighted average lease expiry (WALE) by net lettable area (NLA) of seven years, which is among the longest in the S-REIT market. Its occupancy of close to 100% provides investors with significant cashflow visibility. In addition, with c.88% and c.79% of FY17 and FY18 rents already locked in respectively, CRT offers a stable income stream. This, combined with lease expiry profile of 11.9%, 9.0% and 6.7% of leases (by NLA) in FY17, FY18 and FY19 respectively, gives CRT the opportunity to change the tenant mix and/or drive higher rentals. This in turn provides upside to our earnings and DPU estimates.
150% 100% 50% 0% -50% -100% -150% -200% -250% -300% -350%
Net Property Income Margin %
Distribution Paid / Net Operating CF 2.0
(x)
1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 2014A
2015A
2016A
2017F
2018F
2017F
2018F
Interest Cover (x) (x) 6.00 5.00 4.00 3.00 2.00 1.00 0.00 2014A
2015A
2016A
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2
Page 188
Company Guide Croesus Retail Trust
Balance Sheet: Gearing on downtrend. Following proceeds from the recent rights issue, CRT’s gearing fell to 44.6% from 45.3% at end June 2016. While this is high compared to other S-REITs, given that CRT’s underlying properties are located in Japan, the willingness of Japanese banks to extend credit to CRT and its business trust structure provides CRT the ability to sustain a gearing closer to 50% level.
Aggregate Leverage (%)
50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 2014A
2015A
100% hedged. To manage its interest exposure, CRT has fully hedged all its borrowings, with its all-in cost of debt standing at c.1.9%. Share Price Drivers: Re-rating on internally managed trust. With the recent buy-out of CRT’s trustee-manager, CRT will be the first trust in Singapore to be internally managed. We believe the improved perception that the management team of CRT is aligned with its unitholders, will help close the discount between CRT’s share price and its NAV per share of c.S$1.00 (JPY75.14).
2016A
2017F
2018F
2017F
2018F
ROE (%) 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
Inorganic growth through acquisitions. CRT continues to look for acquisition opportunities. Such DPU-accretive transactions should boost CRT’s DPU and help re-rate its share price. Near term it has the funding advantage to secure to pursue DPU accretive acquisitions as CRT is able to secure cheap debt (sub 1% interest rate). Key Risks: Downturn in Japanese economy. The quantitative easing (QE) programme initiated by the BOJ was designed to boost the Japanese economy and inflationary expectations. Should the QE fail to deliver on its objectives, there is risk that a weaker economy may negatively impact rents and capital values of CRT’s portfolio. FX risks. While CRT has hedged its projected distributable income until June 2018, should the JPY depreciate against the SGD, going forward, CRT’s DPU would be negatively impacted.
2014A
2015A
2016A
Distribution Yield (%) (%) 10.5 10.0 9.5
+2sd: 9.7%
9.0
+1sd: 9.2%
8.5
Avg: 8.6%
8.0
‐1sd: 8.1%
7.5
‐2sd: 7.6%
7.0 6.5 6.0 2014
2015
2016
PB Band (x) 1.2
(x)
1.1
+2sd: 1.06x 1.0
+1sd: 0.98x Avg: 0.91x
0.9
Company Background Croesus Retail Trust is a business trust that focuses on incomegenerating retail assets in Japan. Its portfolio comprises seven assets which are close to fully occupied and backed by a long lease expiry profile.
‐1sd: 0.84x
0.8
‐2sd: 0.76x 0.7 0.6 Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 189
Company Guide Croesus Retail Trust
Income Statement (JPYm) FY Jun Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
Source: Company, DBS Bank
2014A
2015A
2016A
2017F
2018F
6,261 (2,232) 4,029 (765) (44.4) (705) 0.0 2,515 (1,551) 0.0 0.0 964 4,793 2,215 3,180
7,635 (2,954) 4,681 (720) 370 (1,001) 0.0 3,330 (2,087) 0.0 0.0 1,242 7,579 2,116 3,358
9,581 (4,132) 5,449 (976) (1,239) (1,096) 0.0 2,137 (1,840) 0.0 0.0 297 6,003 3,684 3,981
12,153 (5,751) 6,402 (775) 0.0 (1,126) 0.0 4,501 (835) 0.0 0.0 3,666 3,666 1,290 4,957
12,325 (5,830) 6,494 (779) 0.0 (1,129) 0.0 4,586 (851) 0.0 0.0 3,735 3,735 1,298 5,034
N/A nm nm 100.0 64.3 15.4 50.8 12.2 6.0 2.5 3.6 4.6
21.9 16.2 28.8 100.0 61.3 16.3 44.0 9.4 3.3 1.4 1.9 4.0
25.5 16.4 (76.1) 100.0 56.9 3.1 41.5 10.2 0.6 0.3 0.6 4.1
26.8 17.5 1,134.5 100.0 52.7 30.2 40.8 6.4 6.6 2.8 4.2 5.0
1.4 1.4 1.9 100.0 52.7 30.3 40.8 6.3 6.8 2.8 4.3 5.1
ASIAN INSIGHTS Page 4
Growth arising from acquisition of One’s Mall, Torius property, Fuji Grand Natalie, Mallage Saga and Feeeal Asahikawa
VICKERS SECURITIES Page 190
Company Guide Croesus Retail Trust
Quarterly / Interim Income Statement (JPYm) FY Jun 1Q2016 2Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
3Q2016
4Q2016
1Q2017
2,007 (774) 1,233 (232) 0.0 (257) (584) 160 (174) 0.0 (13.7) (13.7) 932 919
2,434 (1,066) 1,368 (246) 0.0 (268) 136 989 (248) 0.0 741 794 179 973
2,466 (1,057) 1,409 (255) 0.0 (264) 29.2 919 (187) 0.0 732 732 289 1,021
2,675 (1,236) 1,440 (300) 0.0 (307) (821) 12.2 (1,231) 0.0 (1,219) 4,434 (3,366) 1,068
3,126 (1,529) 1,596 (787) 0.0 (316) 14.0 507 (245) 0.0 262 262 890 1,152
1 2 96 61.4 100.0
21 11 nm 56.2 100.0
1 3 (1) 57.1 100.0
9 2 nm 53.8 100.0
17 11 nm 51.1 100.0
Balance Sheet (JPYm) FY Jun
2014A
2015A
2016A
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
68,870 3,335 2,754 0.0 708 2,883 78,551
87,930 5,063 2,942 0.0 491 3,975 100,401
112,640 6,628 5,385 0.0 1,655 4,866 131,175
112,762 6,628 6,046 0.0 1,736 4,866 132,038
113,008 6,628 6,069 0.0 1,761 4,866 132,332
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
358 885 681 40,244 3,990 32,394 0.0 78,551
647 1,219 914 46,840 7,194 43,586 0.0 100,401
8,337 2,151 2,112 51,057 12,204 55,313 0.0 131,175
8,337 2,300 2,705 51,179 12,204 55,313 0.0 132,038
8,337 2,332 2,721 51,425 12,204 55,313 0.0 132,332
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
2,026 (37,848)
2,333 (44,546)
2,258 (54,010)
1,598 (53,471)
1,574 (53,694)
3.3 3.3 51.7 0.5
2.7 2.7 47.3 0.6
0.9 0.9 45.3 0.4
0.9 0.9 45.1 0.5
0.9 0.9 45.2 0.5
Decline due to asset revaluation gains
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 191
Page 5
Company Guide Croesus Retail Trust
Cash Flow Statement (JPYm) FY Jun Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
2014A
2015A
2016A
2017F
2018F
2,515 0.0 (148) 0.0 (2,661) 1,204 909 (66,053) 0.0 0.0 0.0 0.0 (66,053) (1,810) 40,305 29,404 0.0 67,898 0.07 2,754
3,330 0.0 (337) 0.0 (344) 561 3,210 (11,712) 0.0 0.0 0.0 0.0 (11,712) (3,101) 5,634 6,108 0.0 8,642 46.4 187
2,137 0.0 (400) 0.0 (1,588) 2,278 2,427 (19,004) 0.0 0.0 0.0 0.0 (19,004) (4,652) 13,420 10,273 0.0 19,040 (19.5) 2,443
4,501 0.0 (243) 0.0 68.4 1,290 5,617 (122) 0.0 0.0 0.0 0.0 (122) (4,957) 122 0.0 0.0 (4,835) 0.0 660
4,586 0.0 (835) 0.0 7.18 1,298 5,057 (246) 0.0 0.0 0.0 0.0 (246) (5,034) 246 0.0 0.0 (4,787) 0.0 23.4
17.3 (316)
9.21 (22.0)
7.98 (33.0)
9.06 8.98
7.80 7.43
Acquisition of Torius property, Fuji Grand Natalie, Mallage Saga and Feeeal Asahikawa
Two rights issues and placement for acquisitions and to fund internalisation of the trustee-manager
Source: Company, DBS Bank Target Price & Ratings History 0.92
S$
0.87
4 6 5 2
0.82
3
12- mt h T arget Rat ing Pric e
Dat e of Report
Closing Pric e
1:
11 Feb 16
0.79
0.86
2:
16 May 16
0.82
0.90
BUY
3:
13 J un 16
0.81
0.90
BUY
4:
29 Aug 16
0.86
0.99
BUY
5:
08 Nov 16
0.87
0.99
BUY
6:
11 Nov 16
0.85
0.99
BUY
S.No.
HOLD
1
0.77
0.72 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Mervin SONG CFA, Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 192
Singapore Company Guide
Far East Hospitality Trust Refer to important disclosures at the end of this report
Version 5 | Bloomberg: FEHT SP | Reuters: FAEH.SI
DBS Group Research . Equity
4 Jan 2017
HOLD
Headwinds still present
Last Traded Price (4 Jan 2017): S$0.595 (STI : 2,921.31) Price Target 12-mth: S$0.62 (4% upside and 6.6% yield) Potential Catalyst: Recovery in the Singapore hospitality market, and acquisitions Where we differ: Below consensus due to expected decline in RevPAR Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Price Relative S$
Relative Index
1.3
218
1.2
198
1.1
178
1.0
158
0.9
138
0.8
118
0.7
98
0.6
Competitive pressures to persist. While the majority of new hotel supply in Singapore this year is largely concentrated within the Singapore River precinct away from FEHT’s hotels, we believe the 5-6% increase in overall industry room inventory will still put pressure on FEHT’s operations. In addition, with new room supply not easing until 2018, corporate demand still soft and FEHT’s new hotel in Sentosa only completing in 2018, we expect FEHT’s DPU performance to remain muted over the coming year.
78
0.5 Jan-13
Jan-14
Jan-15
Far East Hospitality Trust (LHS)
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 115 104 33.2 82.2 4.20 (5) 4.60 (11) 93.9 14.2 7.7 0.6 32.4 4.4
DPU Chng (%): Consensus DPU (S cts): Other Broker Recs:
Jan-16
58 Jan-17
Relative STI (RHS)
2016F 111 100 65.5 76.6 3.65 (13) 4.26 (7) 93.7 16.3 7.2 0.6 32.8 3.9
2017F 109 97.9 62.8 73.8 3.48 (5) 3.95 (7) 93.1 17.1 6.6 0.6 33.3 3.7
2018F 114 103 68.2 79.5 3.75 8 4.23 7 92.6 15.9 7.1 0.6 33.3 4.0
4.2 B: 1
0 4.2 S: 2
4.4 H: 5
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: TH / sa: JC, PY
Limited re-rating catalysts. We maintain our HOLD call and TP of S$0.62. As a Singapore-focused REIT and with competitive pressures in the Singapore hospitality market that are expected to persist, we believe there are limited re-rating catalysts for Far East Hospitality Trust (FEHT) in the near term. This is despite the inherent long-term value given that FEHT is trading at 0.6x P/BV.
Strong balance sheet. Even though we are cautious on FEHT’s near-term earnings, there is significant upside to our forecast if FEHT deploys its strong balance sheet well. FEHT’s gearing as at end-September 2016 stood at approximately 32% and its sponsor provides a clear and visible ROFR pipeline of seven properties. Valuation: We maintain our DCF-based TP of S$0.62 which has incorporated the delayed expectations of the recovery of the Singapore office market from 2017 to 2018. Key Risks to Our View: Rebound in demand and acquisitions. Our cautious stance on FEHT is premised on a supply imbalance in the Singapore hospitality market. However, a significant rebound in demand, absorbing the new room supply, and FEHT utilising its strong balance sheet, would lead to upside risks to our DPU estimates and TP. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Golden Development Pte Ltd Golden Landmark Pte Ltd Far East Organization Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trusts
1,801 1,072 / 750 20.4 10.7 10.1 44.3 0.53
VICKERS SECURITIES Page 193
Company Guide Far East Hospitality Trust Net Property Income and Margins (%) 99.4% 97.4% 95.4%
93.4% 91.4% 89.4% 87.4%
85.4% 2014A
2015A
2016F
Net Property Income
2017F
2018F
Net Property Income Margin %
Net Property Income and Margins (%) 92%
29 28
91%
27
91%
26
90%
25 90%
24
Net Property Income
3Q2016
2Q2016
1Q2016
4Q2015
89%
3Q2015
22
2Q2015
89%
1Q2015
23
4Q2014
Some cushion from asset enhancement initiatives. Partially mitigating the effects of a supply imbalance in the Singapore hospitality market are the asset enhancement initiatives (AEI) that FEHT has undertaken. The refurbishments are expected to help maintain FEHT’s relevance in the market place as well as boost occupancy and ADR over the medium term. The following are the AEIs that FEHT has completed across its portfolio: (1) extension of outdoor refreshment area at Village Residence Robertson Quay, (2) soft refurbishment of club & suite rooms and meeting areas at Village Hotel Changi, (iii) reconfiguration of the serviced office space to create nine additional units as well as the upgrade of the main lobby, breakfast lounge and pantry at Central Square (Village Residence Clarke Quay), (iv) refurbishment of 2- and 3-bedroom units at Regency House, and (v) upgrading of the swimming pool, function rooms, lobby area and lobby bar.
200 180 160 140 120 100 80 60 40 20 0
3Q2014
Earnings Drivers: Downturn in the Singapore hospitality market. The Singapore hospitality market faces the challenge of navigating a 5-6% increase in hotel room supply this year but at the same time, only a modest recovery in total visitors days and weak corporate demand which is typically higher yielding. In such an environment, we believe hotels including those owned by FEHT, will face pressure on occupancy and ADRs. With supply expected to increase by 6% in 2017, we believe pressure on RevPAR will persist. Thus, we estimate that the price-heightened competition will lead to 5-7% and 4% declines in FEHT’s FY16F and FY17F hotel and serviced residence RevPAR/RevPAU.
S$ m
2Q2014
CRITICAL DATA POINTS TO WATCH
Net Property Income Margin %
Distribution Paid / Net Operating CF (x)
1.0 0.9
0.8 0.7 0.6 0.5 0.4
0.3
Medium-term outlook remains bright. Despite the short-term headwinds, the medium-term outlook for FEHT remains bright. With no new hotel land sites being released by the Singapore government over the last two years, supply could be constrained from 2018 onwards. In addition, FEHT should benefit from the opening of the 850-room Sentosa hotel development in 2018.
2014A
2015A
2016F
2017F
2018F
2017F
2018F
Interest Cover (x) (x) 6.00 5.00 4.00
3.00
Acquisitions yet to be priced in. With gearing at only 32%, FEHT is well positioned to expand its portfolio through acquisitions. Assuming FEHT gears up to the 40% level, we estimate the trust to have c.S$300-350m of debt headroom. Through its sponsor, Far East Organization, FEHT has a visible acquisition pipeline. In particular, it has the right of first refusal over seven properties.
ASIAN INSIGHTS
2.00 1.00
0.00 2014A
2015A
2016F
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2
Page 194
Company Guide Far East Hospitality Trust
Balance Sheet: Gearing unchanged. FEHT’s gearing at end-3Q16 was stable at c.32% which is comfortably below management’s 40% and MAS’s new 45% gearing limit.
Aggregate Leverage (%) 35.0% 30.0% 25.0%
Moderate exposure to rising interest rates. Currently, 71% of FEHT’s borrowings are under fixed rates, reducing its exposure to volatility in interest rates.
20.0% 15.0%
10.0% 2014A
Share Price Drivers: Negative near-term sentiment. FEHT’s share price has been weak over the past year due to a combination of soft tourist arrivals and large new room supply which has translated into a fall in RevPAR and DPU. While tourist arrivals are recovering, new hotel supply should continue to outpace demand. Thus, we believe there are limited re-rating catalysts for the stock in the near term.
2015A
2016F
2017F
2018F
2017F
2018F
ROE (%) 4.5%
4.0% 3.5%
3.0% 2.5%
2.0% 1.5%
Key Risks: Interest rate risk. Any increase in interest rates will result in higher interest payments that the REIT has to make annually to service its loans. This reduces the income available for distribution, which will result in lower distribution per unit (DPU) for unitholders.
1.0% 0.5%
0.0% 2014A
2016F
Distribution Yield (%) 9.9
Competitive landscape. The Singapore hospitality market has been impacted by a decline in tourist arrivals in 2014 and 2015 thus far. With an increase in new hotel supply in 2016 and 2017 and if demand does not recover, FEHT’s earnings may be impacted.
2015A
(%)
+2sd: 9%
8.9 7.9
+1sd: 7.5%
6.9
Avg: 6.1%
5.9 4.9
-1sd: 4.7%
3.9
Company Background Far East Hospitality Trust (FEHT) is a hospitality stapled group comprising Far East H-REIT and Far East H-Business Trust. Far East H-REIT is a Singapore-based real estate investment trust, which invests in hospitality assets including both hotels and serviced residences.
-2sd: 3.3%
2.9 1.9 2013
2014
2015
2016
PB Band (x) 1.4
(x)
1.3 1.2
+2sd: 1.12x
1.1 1.0
+1sd: 0.97x
0.9 0.8
Avg: 0.82x
0.7
-1sd: 0.67x
0.6
-2sd: 0.53x
0.5 0.4 Jan-13
Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 195
Company Guide Far East Hospitality Trust
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016F
2017F
2018F
122 (11.7) 110 (13.8) (0.8) (17.5) 0.0 78.0 0.0 0.0 0.0 78.0 71.3 20.2 91.5
115 (11.0) 104 (13.1) 4.93 (20.4) 0.0 75.0 0.0 0.0 0.0 75.0 33.2 48.9 82.2
111 (11.0) 100 (12.9) 0.0 (22.0) 0.0 65.5 0.0 0.0 0.0 65.5 65.5 11.1 76.6
109 (11.1) 97.9 (12.8) 0.0 (22.3) 0.0 62.8 0.0 0.0 0.0 62.8 62.8 11.0 73.8
114 (11.5) 103 (13.2) 0.0 (22.6) 0.0 68.6 (0.4) 0.0 0.0 68.2 68.2 11.3 79.5
(0.6) (1.7) (15.5) 100.0 90.4 64.1 75.2 11.3 4.5 3.1 3.9 5.5
(5.8) (5.8) (3.9) 100.0 90.4 65.4 71.7 11.4 4.4 3.0 3.6 4.4
(2.8) (3.1) (12.6) 100.0 90.1 58.8 68.7 11.6 3.9 2.6 3.5 4.0
(2.2) (2.5) (4.2) 97.0 89.8 57.6 67.7 11.8 3.7 2.5 3.4 3.8
5.0 5.2 8.6 97.0 90.0 59.6 69.5 11.5 4.0 2.7 3.6 4.0
The decline in earnings is largely a result of a projected decline in FEHT’s FY16 and FY17 serviced residence and hotel RevPAR
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 196
Company Guide Far East Hospitality Trust
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
29.7 (2.8) 26.9 (3.3) 2.78 (5.2) 0.0 21.1 0.0 0.0 21.1 21.1 0.45 21.6
28.9 (2.6) 26.3 (3.3) 0.60 (5.3) 0.0 18.3 0.0 0.0 18.3 (23.5) 2.38 20.7
27.4 (2.7) 24.7 (3.2) (7.5) (5.2) 0.0 8.82 0.0 0.0 8.82 8.82 10.6 19.4
26.1 (2.7) 23.5 (3.1) (1.2) (5.0) 0.0 14.2 0.0 0.0 14.2 14.2 4.10 18.3
28.0 (2.7) 25.4 (3.2) (1.9) (4.9) 0.0 15.4 0.0 0.0 15.4 15.4 4.87 20.3
3 3 30 90.7 100.0
(3) (2) (13) 91.1 100.0
(5) (6) (52) 90.2 100.0
(4) (5) 61 89.8 100.0
7 8 9 90.5 100.0
Balance Sheet (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
2,476 15.6 20.9 0.0 19.3 5.45 2,537
2,439 15.5 25.4 0.0 30.5 10.4 2,521
2,443 31.5 35.8 0.0 17.6 10.4 2,538
2,446 47.5 36.2 0.0 17.2 10.4 2,557
2,449 47.6 36.3 0.0 18.1 10.4 2,562
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
116 3.28 6.26 680 8.49 1,724 0.0 2,537
36.9 2.80 10.1 780 7.21 1,684 0.0 2,521
36.9 3.01 10.1 797 7.21 1,684 0.0 2,538
36.9 2.94 10.1 814 7.21 1,686 0.0 2,557
36.9 3.09 10.5 815 7.21 1,688 0.0 2,562
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
15.2 (774)
27.9 (792)
14.9 (798)
14.5 (815)
14.8 (816)
0.4 0.4 31.3 0.9
1.3 1.3 32.4 0.9
1.3 1.3 32.8 0.9
1.3 1.3 33.3 0.8
1.3 1.3 33.3 0.8
FEHT remains in a strong financial position with gearing in the low 30s
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 197
Page 5
Company Guide Far East Hospitality Trust
Cash Flow Statement (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
78.0 0.0 0.0 0.0 2.56 29.0 110 (8.1) 0.0 (15.6) 0.0 0.0 (23.7) (93.4) 15.6 0.0 (16.3) (94.1) 0.0 (8.3)
75.0 0.0 0.0 0.08 9.55 26.0 111 (5.0) 0.0 (21.3) 0.0 0.0 (26.3) (84.0) 21.3 0.0 (17.1) (79.8) 0.0 4.54
65.5 0.0 0.0 0.0 13.1 11.1 89.7 (3.3) 0.0 (16.0) 0.0 0.0 (19.3) (76.6) 16.6 0.0 0.0 (60.0) 0.0 10.4
62.8 0.0 0.0 0.0 0.32 11.0 74.1 (3.3) 0.0 (16.0) 0.0 0.0 (19.2) (71.6) 17.1 0.0 0.0 (54.5) 0.0 0.41
68.6 0.0 0.0 (1.5) (0.7) 11.3 77.7 (3.4) 0.0 0.0 1.30 0.0 (2.1) (77.1) 1.59 0.0 0.0 (75.5) 0.0 0.08
6.04 5.73
5.66 5.92
4.27 4.81
4.09 3.93
4.32 4.09
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
Equity contribution for FEHT’s 30% stake in the 850-room Sentosa hotel development
Source: Company, DBS Bank Target Price & Ratings History
0.70
S$
2
0.66 0.64
3 1
4
0.62
6 0.60
12- mt h T arget Rat ing Pric e
Dat e of Report
Closing Pric e
1:
21 J an 16
0.64
0.63
HOLD
2:
13 Apr 16
0.66
0.63
HOLD
3:
27 Apr 16
0.67
0.63
HOLD
4:
01 Aug 16
0.63
0.65
HOLD
5:
05 Sep 16
0.61
0.65
HOLD
6:
11 Nov 16
0.60
0.62
HOLD
S.No.
0.68
5 0.58 0.56 0.54 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Mervin SONG CFA, Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 198
Singapore Company Guide
Frasers Centrepoint Trust Version 6
Refer to important disclosures at the end of this report
| Bloomberg: FCT SP | Reuters: FCRT.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Fruits from Floating Rates
Last Traded Price ( 4 Jan 2017): S$1.93 (STI : 2,921.31) Price Target 12-mth: S$2.29 (19% upside and 6.1% yield) Potential Catalyst: Delay in rate hike expectations; better-than-expected rental reversion Where we differ: Lower cost of capital assumptions than consensus Analyst Singapore Research Team [email protected] Derek TAN +65 6682 3716 [email protected]
Price Relative S$
Relative Index 221
2.5
201
2.3
181
2.1
161
141 1.9
121 1.7
Ability to maintain stable DPUs. While many other S-REITs are expected to face declining DPUs over the next couple of years due to the slowing Singapore economy, Frasers Centrepoint Trust (FCT) offers investors a steady DPU profile. This is made possible by FCT’s conservative strategy of paying the majority of its management fees in cash, which enables FCT to temporarily increase payment of fees in units to sustain DPU. Near-monopoly of shopping malls in the north. Northpoint and Causeway Point together contribute c.70% of FCT’s Net Property Income (NPI). While it is still 15 months away until Northpoint completes its asset enhancement initiative (AEI), we believe strong rental reversion at Causeway Point will support earnings and cushion any pressures from any decline in occupancy rates.
101
1.5 Jan-13
Jan-14
Jan-15
Frasers Centrepoint Trust (LHS)
Forecasts and Valuation FY Sep (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 189 131 171 106 11.7 4 11.6 4 191 16.5 6.0 1.0 28.2 6.2
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
Jan-16
81 Jan-17
Relative STI (RHS)
2016A 184 130 123 108 10.3 (12) 11.8 1 193 18.7 6.1 1.0 28.3 5.4
2017F 186 132 95.7 109 10.4 0 11.8 0 191 18.6 6.1 1.0 30.5 5.4
2018F 204 146 107 112 11.6 12 12.1 3 191 16.7 6.3 1.0 30.6 6.1
B: 13
0 12.0 S: 1
0 12.2 H: 3
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Significant reduction in cost of debt. The Manager has proactively reduced the percentage of borrowings hedged into fixed rates to 59% from 74%, to benefit from their view that interest rates may stay low for an extended period. As such, we have brought down our cost of debt assumptions to account lower interest expense in the near term. Valuation: DCF-based TP of S$2.29. The stock offers a forward yield over 6.0%. Maintain BUY. Key Risks to Our View: Lease renewal in FY17. We estimate that 39.6% of total gross rent will be due for renewal in FY17. Reversion rate at Northpoint will test tenant’s confidence in the mall after AEI, whereas tactical lease management at Changi City Point and Bedok Point will help in the repositioning of the two malls. Interest rate risks. If expectations of rate hikes increase, the 41% exposure to floating interest rate will amplify the increase in the REIT’s cost of debt, putting pressure on valuation. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Frasers Centrepoint Ltd Schroders Plc Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
920 1,775 / 1,224 41.5 5.6 52.9 1.7
VICKERS SECURITIES Page 199
Company Guide Frasers Centrepoint Trust Net Property Income and Margins (%) S$ m
on Northpoint’s AEI, please refer to the Company Focus Report: Igniting the northern start, published on 7 Mar 2016).
75.8% 73.8%
71.8% 69.8% 67.8%
65.8% 2014A
2015A
2016A
Net Property Income
2017F
2018F
Net Property Income Margin %
Net Property Income and Margins (%) 73% 35
72%
34
71%
33
70% 69%
32
68%
31
67%
30
66%
Net Property Income
4Q2016
3Q2016
2Q2016
1Q2016
4Q2015
64%
3Q2015
65%
28
2Q2015
29
1Q2015
Northpoint AEI is the turnkey to accelerate growth. We remain excited about the planned AEI and integration of the Northpoint asset with the extension wing currently being built by the Sponsor. With an enlarged footprint, we see Northpoint as a key driver in accelerating growth in the medium term. We are positive on the AEI given that (i) the northern region has the lowest retail space density in Singapore; (ii) the fast population growth in the North region should support retail spending in the medium term; and (iii) relatively low occupancy costs in the 15-17% range. FCT is in a strong negotiating position with tenants who want a presence in the north where the group has close to 75% market share of retail malls (For detailed analysis
77.8%
4Q2014
Earnings Drivers: Strong rental reversion at Causeway Point. FCT’s largest asset (50% of top line) has achieved an average rental reversion of 9.6% in FY16, thanks to its low occupancy cost relative to its near-monopolistic position in Woodlands, one of Singapore’s most populous residential estates. FCT has a short Weight Average Lease Renewal (WALE) of 1.38/1.36 years by NLA/Gross Rent as 39.6% of the portfolio’s NLA will be due for renewal in FY17, out of which, 161,501sqft comes from Causeway Point. We believe the strong reversion trend at this mall is likely to continue and should cushion any pressures from declining portfolio occupancy rates and may even bring more earnings surprise on the upside in the next 12-18 months.
200 180 160 140 120 100 80 60 40 20 0
3Q2014
CRITICAL DATA POINTS TO WATCH
Net Property Income Margin %
Distribution Paid / Net Operating CF (x)
1.0
0.9 0.8 0.7
0.6 0.5
0.4
Acquisition growth potential from Sponsor’s pipeline. FCT is able to purchase retail assets from its Sponsor, Frasers Centrepoint Limited (FCL). We believe a potential target is Waterway Point, in which the Sponsor has a 33% stake, which was completed in Jan 2016 and well received by shoppers and tenants. Given a one- or two-year stabilisation period, a realistic timeline for this acquisition would be in 2017-18. An acquisition value of S$300-400m (given estimated development costs of S$1bn) would allow FCT to grow its portfolio considerably. We have not included this into our model.
2014A
2015A
2016A
2017F
2018F
2017F
2018F
Interest Cover (x) (x) 6.80 6.60 6.40 6.20 6.00 5.80 5.60
5.40 5.20 5.00 2014A
2015A
2016A
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 200
Company Guide Frasers Centrepoint Trust
Balance Sheet: Healthy balance sheet. Gearing to remain <30%, one of the lowest in the S-REIT universe, and well within the Manager’s comfortable level of 35%. Increased floating rates exposure. Percentage of borrowings on fixed rates has been reduced to 59% from 74% in 3QFY16. This enables the REIT to benefit from lower cost of debt due to lower expectations of rate hikes for now. Its average cost of borrowings of 2.1% is among the lowest in S-REITs.
Aggregate Leverage (%) 30.0% 25.0% 20.0%
15.0% 10.0% 2014A
2015A
2016A
2017F
2018F
2017F
2018F
ROE (%)
Share Price Drivers: Keep an eye on the risk-free rate. As a yield play, FCT’s share price is sensitive to fluctuations in the risk-free rate. Anticipated hikes in the US Fed Funds rate have a negative impact on the stock. Correspondingly, any delay in rate hikes would be a positive catalyst for share price performance. Key Risks: Near-term fall in NPI margin. As Northpoint’s average occupancy drops to 76% during its AEI period (Mar 2016-Sep 2017), some narrowing in the portfolio NPI margin is expected. While we have priced in a temporary decline in occupancy at Northpoint and generally weaker occupancy rates at other malls in the next 2 years, any unexpected sharp decline in occupancy and/or rents may drag down NPI margin and the share price.
6.0% 5.0% 4.0% 3.0% 2.0% 1.0%
0.0% 2014A
2015A
2016A
Distribution Yield (%) (%) 7.0
+2sd: 6.6%
6.5
+1sd: 6.2%
6.0
Avg: 5.8% 5.5
Interest rate risks. If expectations of rate hikes increase, the 41% exposure to floating interest rates will amplify the increase in the REIT’s cost of debt, putting pressure on valuation.
-1sd: 5.4% -2sd: 5%
5.0 4.5 4.0 2013
2014
2015
2016
2017
PB Band (x)
Company Background Frasers Centrepoint Trust (FCT) is a retail real estate investment trust with a portfolio of shopping malls located in suburban areas in Singapore. Its two largest assets are Causeway Point and Northpoint.
1.6
(x)
1.5 1.4
1.3
+2sd: 1.24x
1.2
+1sd: 1.15x
1.1
Avg: 1.06x
1.0
-1sd: 0.98x
0.9
-2sd: 0.89x
0.8 0.7 Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 201
Company Guide Frasers Centrepoint Trust
Income Statement (S$m) FY Sep Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016A
2017F
2018F
169 (50.7) 118 (14.6) 0.0 (18.4) 3.88 95.6 0.0 0.0 0.0 95.6 165 4.34 95.4
189 (58.2) 131 (15.7) 0.0 (19.2) 5.44 107 0.0 0.0 0.0 107 171 6.79 106
184 (54.0) 130 (15.9) 0.0 (17.2) (1.9) 95.0 0.0 0.0 0.0 95.0 123 (12.9) 108
186 (54.2) 132 (16.9) 0.0 (19.1) 0.0 95.7 0.0 0.0 0.0 95.7 95.7 12.9 109
204 (57.3) 146 (17.4) 0.0 (21.8) 0.0 107 0.0 0.0 0.0 107 107 4.97 112
6.8 5.8 3.8 100.0 70.0 56.6 56.6 8.6 6.0 4.1 4.6 5.6
12.1 11.0 12.4 100.0 69.2 56.8 56.2 8.3 6.2 4.2 4.6 6.0
(2.9) (0.9) (11.5) 100.0 70.6 51.7 58.8 8.6 5.4 3.7 4.5 6.6
1.1 1.4 0.7 100.0 70.8 51.5 58.5 9.1 5.4 3.6 4.5 6.0
9.6 11.3 12.2 100.0 71.9 52.7 55.1 8.5 6.1 4.0 4.9 5.9
Weak top line growth from the planned AEI at Northpoint over FY1617F
Expect lower interest expense due to a higher proportion of borrowings under floating rate interest vs fixed.
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 202
Company Guide Frasers Centrepoint Trust
Quarterly / Interim Income Statement (S$m) FY Sep 4Q2015 1Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
2Q2016
3Q2016
4Q2016
47.5 (15.8) 31.7 (3.9) 0.0 (4.4) 1.07 25.8 0.0 0.0 25.8 25.2 (64.1) 25.7
47.1 (13.5) 33.5 (4.0) 0.0 (4.4) 0.15 26.4 0.0 0.0 26.4 26.8 1.29 27.7
47.1 (13.4) 33.7 (4.0) 0.0 (4.4) (5.4) 21.1 0.0 0.0 21.1 29.2 7.88 29.0
45.0 (13.9) 31.2 (4.0) 0.0 (4.3) (0.4) 23.5 0.0 0.0 23.5 25.6 2.27 25.8
44.6 (13.2) 31.5 (3.9) 0.0 (4.1) (0.3) 24.0 0.0 0.0 24.0 89.8 (26.8) 25.6
1 (4) 1 66.8 101.9
(1) 6 2 71.3 95.0
0 0 (20) 71.5 96.3
(4) (7) 12 69.3 108.3
(1) 1 2 70.5 101.1
Balance Sheet (S$m) FY Sep
2014A
2015A
2016A
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
2,400 74.7 47.1 0.0 0.0 0.0 2,522
2,464 63.2 21.6 0.0 0.0 0.0 2,549
2,509 60.0 18.7 0.0 6.80 0.0 2,594
2,591 60.0 17.4 0.0 6.80 0.0 2,675
2,595 60.0 19.4 0.0 6.80 0.0 2,681
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
95.0 39.9 18.3 644 25.9 1,699 0.0 2,522
278 31.8 17.9 440 26.5 1,755 0.0 2,549
218 40.0 20.8 516 24.0 1,776 0.0 2,594
218 40.7 20.8 598 24.0 1,774 0.0 2,675
218 44.6 20.8 602 24.0 1,772 0.0 2,681
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(58.2) (692)
(49.7) (696)
(54.0) (715)
(54.7) (799)
(58.7) (800)
0.3 0.3 29.3 1.4
0.1 0.1 28.2 1.5
0.1 0.1 28.3 1.4
0.1 0.1 30.5 1.3
0.1 0.1 30.6 1.3
Payout ratios in 2HFY16 were greater than 100% thanks to cash conservation from the previous two quarters.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 203
Page 5
Company Guide Frasers Centrepoint Trust
Cash Flow Statement (S$m) FY Sep
2014A
2015A
2016A
2017F
2018F
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash
95.6 0.0 0.0 (6.6) (6.4) 17.6 100 (299) 0.0 0.0 4.58 (1.5) (296) (94.5) 150 162 (19.6) 197 0.0 2.03
107 0.0 0.0 (5.8) 2.25 16.1 120 (5.4) 0.0 0.0 4.60 0.18 (0.6) (106) (21.0) 0.0 (18.2) (145) 0.0 (25.5)
95.0 (0.5) 0.0 (0.1) 4.33 5.89 105 (22.6) 0.0 0.0 0.12 0.0 (22.5) (108) 22.6 0.0 0.0 (85.5) 0.0 (3.3)
95.7 0.0 0.0 (0.1) 0.73 10.9 107 (82.0) 0.0 0.0 0.12 0.0 (81.9) (109) 82.0 0.0 0.0 (26.7) 0.0 (1.3)
107 0.0 0.0 (0.1) 3.92 2.97 114 (3.7) 0.0 0.0 0.12 0.0 (3.5) (112) 3.66 0.0 0.0 (109) 0.0 1.92
Operating CFPS (S cts) Free CFPS (S cts)
12.6 (23.4)
12.8 12.5
10.9 8.93
11.5 2.74
11.9 11.9
Source: Company, DBS Bank Target Price & Ratings History 2.33
S$
6 7
2.13
8
4
2.03
9 5
2
1.93
3 1.83
12- mt h T arget Rat ing Pric e
Dat e of Report
Closing Pric e
1:
08 J an 16
1.83
2.04
BUY
2:
04 F eb 16
1.90
2.04
BUY
3:
07 Mar 16
1.93
2.11
BUY
4:
05 Apr 16
2.01
2.11
BUY
5:
25 Apr 16
2.00
2.10
BUY
6:
16 J ul 16
2.12
2.29
BUY
7:
18 J ul 16
2.17
2.29
BUY
8:
24 Oct 16
2.10
2.29
BUY
9:
07 Nov 16
2.03
2.29
BUY
S.No.
2.23
1 1.73 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst:
Singapore Research Team Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 204
Singapore Company Guide
Frasers Logistics & Industrial Trust Version 1
Refer to important disclosures at the end of this report
| Bloomberg: FLT SP | Reuters: FRAE.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Positioned to grow
Last Traded Price ( 4 Jan 2017): S$0.94 (STI : 2,921.31) Price Target 12-mth: S$1.10 (17% upside and 7.0% yield) Potential Catalyst: Acquisitions Where we differ: Estimates are more conservative than consensus Analyst Derek TAN +65 6682 3716 [email protected] Mervin SONG CFA +65 6682 3715 [email protected]
Price Relative S$
Maintain BUY, TP S$1.10. We believe that Frasers Logistics & Industrial Trust (FLT) offers good returns with a prospective yield of close to 7.0% which is attractive in the current low-yield environment. With an under-geared balance sheet, FLT is poised to grow through acquisitions from a visible pipeline of development and completed properties from their sponsor. Maintain BUY and TP at S$1.10. In addition, upside to earnings will come potentially from the rollover of forex hedges (currently A$1 to S$1) to current spot rates which are 6% higher.
Relative Index
1.1
Maiden distribution exceeds forecasts. FLT’s maiden distribution (DPU ) of 1.84 Scts exceeds IPO forecasts by close to 2.8%. This was mainly due to lower-than-projected interest costs at 2.8% vs 3.4% (forecasted during IPO). Revenue and net property income of A$43.1m and A$32.7m were marginally ahead of IPO forecasts at +0.8% and 0.02% respectively. Portfolio occupancy increased marginally to 99.2%. The forward outlook remains stable given limited expiries over the coming year.
207
1.1
187 1.0 167 1.0
147
0.9
127
0.9
107
0.8 Jun-16
87 Sep-16
Frasers Logistics & Industrial Trust (LHS)
Forecasts and Valuation FY Sep (A$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2016A 43.1 35.7 3.87 26.4 0.53 nm 1.85 nm 87.0 *15.8 *6.7 1.0 29.3 0.6
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
Dec-16
Relative STI (RHS)
2017F 162 137 83.3 95.0 6.07 nm 6.61 258 87.0 15.5 7.0 1.0 30.6 6.7
2018F 162 136 86.5 98.3 6.26 3 6.79 3 87.0 15.0 7.1 1.0 30.8 6.9
2019F 162 135 90.2 102 6.47 3 7.0 3 87.0 14.5 7.3 1.1 30.9 7.2
0 6.91 B: 4
0 6.70 S: 0
0 7.02 H: 1
Visible ROFR pipeline. The Sponsor has granted FLT a right of first refusal (ROFR) over any of the completed income-producing industrial properties it intends to divest. This currently comprises 11 properties which can be acquired in the medium term.
Valuation: BUY maintained, TP S$1.10. Our TP is based on DCF and we have not assumed any further acquisitions. Our TP offers 15% upside to current price. Key Risks to Our View: Currency risk. As the manager pays its distributions in SGD but earns in AUD, the REIT is exposed to currency fluctuations. The manager attempts to reduce foreign fluctuations by hedging distributions regularly.
*annualised Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: TH / sa: YM, PY
At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) FCL Investments (Industrial) Pte TCC Group Investments Limited Principal Financial Group Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Financials / Real Estate Investment Trusts
1,427 1,342 / 925 20.5 6.3 5.0 68.2 2.7
VICKERS SECURITIES Page 205
Company Guide Frasers Logistics & Industrial Trust Net Property Income and Margins (%) A$ m
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Unique pure-play Australia play. Frasers Logistics & Industrial Trust (FLT) offers investors the unique opportunity to invest in a portfolio of 53 assets (as at end of September 2016) that are concentrated within major industrial markets in Australia, including Melbourne, Sydney and Brisbane. Apart from a geographically diversified portfolio, the REIT’s tenants are mainly in the consumer and logistics sectors which are expected to remain resilient and continue growing as Australia’s economy transitions itself from being resource-led to consumption-led.
200 180 160 140 120 100 80 60 40 20 0
92.7% 90.7% 88.7% 86.7% 84.7% 82.7% 80.7% 78.7% 2016A
2017F
2018F
Net Property Income
2019F
Net Property Income Margin %
Net Property Income and Margins (%) 90%
37
80%
37
70% 36
In addition, FLT’s organic growth is underpinned by in-built rental escalations. All of the leases of the initial portfolio have fixed and/or Consumer Price Index-linked (CPI-linked) increments. The fixed rental increments, which are built into the existing leases, range from 2.5-3.75% which translates to an average annual rental increment of c.3.2% for the Initial Portfolio.
50%
35
40% 30%
35
20%
Net Property Income
4Q2016
3Q2016
2Q2016
1Q2016
4Q2015
3Q2015
2Q2015
0%
1Q2015
10%
34
4Q2014
34
3Q2014
Long WALE of 6.6 years with in-built organic growth a key trait in current uncertain environment. In our view, the long WALE by Adjusted Gross Rental Income of 6.6 years, which is longer than the majority of Singapore industrial REITs (between 2.9 and 4.7 years), provides strong cashflow visibility.
60%
36
Net Property Income Margin %
Distribution Paid / Net Operating CF 1.1
(x)
1.0 0.9 0.8 0.7 0.6
Predominantly freehold and long leasehold land tenure is a positive. FLT’s portfolio predominantly comprises properties on freehold (60.0% by appraised value) and long leasehold land (30.2% on leasehold land with a tenure of more than 80 years). FLT’s weighted land lease expiry of c.82 years is double that of other industrial S-REITs' average of 41 years. Based on our estimates, the component of capital return based on the remaining leasehold tenure on FLT’s annual distribution yield (at c.0.5%) is much smaller than the average of 2-3% for most industrial S-REITs.
0.5 0.4 0.3 2016A
2017F
2018F
2019F
Interest Cover (x) (x) 7.00 6.80 6.60 6.40
Strong Sponsor with long track record of development and management of Australian Industrial assets. FLT's subsidiary Frasers Property Australia Pty Limited (FPA) offers FLT access to a strong and fully integrated real estate platform. In particular, FPA’s industrial business has an end-to-end capability and leadership in the development of industrial assets, having developed over A$3.5bn worth of industrial assets since 2001.
6.20 6.00 5.80 5.60 2016A
2017F
2018F
2019F
Source: Company, DBS Bank
The Sponsor has granted FLT a right of first refusal (ROFR) over any of the completed income-producing industrial properties it intends to divest. This currently comprises eleven existing properties in Australia.
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2
Page 206
Company Guide Frasers Logistics & Industrial Trust
Balance Sheet: Balance sheet; gearing up for acquisitions. Gearing is projected to remain fairly stable at c.31% in the medium term. The low gearing level allows significant headroom for the manager to execute on opportunistic acquisitions when the time arises. The manager has a medium-term target gearing level of c.35-40%, implying there is headroom to gear up. Healthy financial metrics. The REIT has minimal debt expiries till FY19 with a weighted average cost of borrowing of 2.8%. Interest coverage ratio remains healthy at >7.0%. Close to 84% of the debt is hedged, implying minimal volatility to distributions in the event of an interest rate hike.
Aggregate Leverage (%)
30.0% 25.0% 20.0% 15.0% 10.0% 2016A
2017F
2018F
2019F
2018F
2019F
ROE (%) 7.0% 6.0% 5.0%
Share Price Drivers: Executing on acquisitions. FLT is looking to complete the planned acquisition of Martin Brower property in the coming quarter which will bring gearing up to the c.30-31% level. Despite this, we believe that the portfolio remains under-geared in relation to peers and optimal level. With opportunities abound in the market, we believe that the execution of more acquisitions which is projected to be accretive to earnings, will be a catalyst for its stock price.
4.0% 3.0% 2.0% 1.0% 0.0% 2016A
2017F
Distribution Yield (%) PB Band (x) (x)
Key Risks: Single-country concentration. While FLT provides exposure to the Australian industrial market, as a pure-play REIT, its portfolio is 100% concentrated in Australia. However, this risk is mitigated by the fact that its portfolio is diversified across five states in Australia and various industries.
20.3 19.3
+2sd: 19.1x
18.3 +1sd: 17.5x
17.3 16.3
Avg: 15.9x 15.3 14.3
Company Background Frasers Logistics & Industrial Trust (FLT) offers investors a unique opportunity to invest in a quality portfolio of industrial assets in Australia. FLT’s initial portfolio consists of 51 properties spread across five states in Australia with an appraised value of A$1,584.6m. The initial portfolio is well diversified across the key states of Victoria (40% of appraised value), New South Wales (28%) and Queensland (28%).
ASIAN INSIGHTS
-1sd: 14.2x
13.3 -2sd: 12.6x
12.3
27Oct2016
25Sep2016
24Aug2016
23-Jul2016
11.3
21Jun2016
The geographic and tenant diversity across various industries imply that the REIT is not dependent and over-reliant on the performance of any particular industry.
Source: Company, DBS Bank
VICKERS SECURITIES Page 3
Page 207
Company Guide Frasers Logistics & Industrial Trust
Income Statement (A$m) FY Sep Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees ROAE (%) ROA (%) ROCE (%) Int. Cover (x)
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
2016A
2017F
2018F
2019F
43.1 (7.4) 35.7 (12.8) (5.7) (3.8) 0.0 13.4 (6.1) 0.0 0.0 7.24 3.87 22.5 26.4
162 (24.9) 137 (14.0) 0.0 (18.1) (12.5) 92.5 (9.3) 0.0 0.0 83.3 83.3 11.7 95.0
162 (25.7) 136 (14.2) 0.0 (18.3) (7.7) 96.2 (9.6) 0.0 0.0 86.5 86.5 11.8 98.3
162 (26.5) 135 (14.2) 0.0 (18.3) (2.8) 100 (10.0) 0.0 0.0 90.2 90.2 11.8 102
N/A nm nm 100.0 82.9 16.8 61.3 29.7 0.6 0.4 0.7 6.0
276.3 284.2 1,049.9 100.0 84.6 51.4 58.6 8.7 6.7 4.7 6.3 6.8
0.0 (0.6) 3.9 100.0 84.1 53.4 60.7 8.7 6.9 4.8 6.1 6.7
0.0 (0.6) 4.2 100.0 83.6 55.7 62.9 8.7 7.2 5.0 6.1 6.6
Driven mainly by annual rental escalations coupled with acquisitions
Interest cost locked in
VICKERS SECURITIES Page 208
Company Guide Frasers Logistics & Industrial Trust
Quarterly / Interim Income Statement (A$m) FY Sep
4Q2016
Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%) Balance Sheet (A$m) FY Sep
43.1 (7.4) 35.7 (12.8) (5.7) (3.8) 0.0 13.4 (6.1) 0.0 7.24 3.87 22.5 26.4 N/A nm nm 82.9 100.0
2016A
2017F
2018F
2019F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
1,678 0.0 85.8 0.0 4.96 0.0 1,768
1,753 0.0 50.6 0.0 8.10 0.0 1,811
1,757 0.0 51.0 0.0 8.10 0.0 1,816
1,761 0.0 51.4 0.0 8.10 0.0 1,820
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
0.0 2.24 17.2 492 8.21 1,249 0.0 1,768
0.0 8.10 9.25 537 8.21 1,249 0.0 1,811
0.0 8.10 9.62 541 8.21 1,249 0.0 1,816
0.0 8.10 10.0 545 8.21 1,249 0.0 1,820
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%)
(14.5) (406)
(9.3) (486)
(9.6) (490)
(10.0) (493)
4.7 4.7 29.3
3.4 3.4 30.6
3.3 3.3 30.8
3.3 3.3 30.9
Maiden distributions
Gearing to remain stable
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 209
Page 5
Company Guide Frasers Logistics & Industrial Trust
Cash Flow Statement (A$m) FY Sep Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
2016A
2017F
2018F
2019F
13.4 0.0 0.0 0.0 12.1 6.69 32.1 (1,365) 0.0 0.0 0.0 (29.6) (1,394) (26.4) 491 982 (9.0) 1,438 0.0 75.8
92.5 0.0 (17.2) 0.0 2.72 11.7 89.8 (75.0) 0.0 0.0 0.0 0.0 (75.0) (95.0) 45.0 0.0 0.0 (50.0) 0.0 (35.2)
96.2 0.0 (9.3) 0.0 0.0 11.8 98.7 (4.0) 0.0 0.0 0.0 0.0 (4.0) (98.3) 4.00 0.0 0.0 (94.3) 0.0 0.36
100 0.0 (9.6) 0.0 0.0 11.8 102 (4.0) 0.0 0.0 0.0 0.0 (4.0) (102) 4.00 0.0 0.0 (97.9) 0.0 0.40
1.47 (97.6)
6.35 1.08
7.14 6.85
7.34 7.05
Assumed acquisition of Martin Brower property
Source: Company, DBS Bank Target Price & Ratings History 1.05
S$
1.00
S.No.
Dat e
Closing Pric e
T arget Price
Rat ing
1
29 J ul 16
0.99
1.10
BUY
0.95
0.90
0.85
0.80 Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Not e: Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Derek TAN Mervin SONG CFA
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 210
Singapore Company Guide
IREIT Global Version 5
Refer to important disclosures at the end of this report
| Bloomberg: IREIT SP | Reuters: IREI.SI
DBS Group Research . Equity
4 Jan 2017
HOLD
Waiting for new sponsor’s direction
Last Traded Price ( 4 Jan 2017): S$0.72 (STI : 2,921.31) Price Target 12-mth: S$0.75 (4% upside and 8.9% yield)
Uncertainty over IREIT’s new sponsor. We maintain our HOLD recommendation on IREIT Global (IREIT) and TP of S$0.75. While IREIT offers an attractive yield in excess of 8%, uncertainty over the direction of IREIT’s new sponsor Tikehau Capital, a European investment manager, will likely cap IREIT’s near-term share price performance. Furthermore, with IREIT’s gearing at c.42%, any growth plans are likely to entail an equity-raising exercise to fund the acquisition of new properties in Europe which may be DPU dilutive in the near term, given IREIT’s already high distribution yield.
Potential Catalyst: Acquisitions/increase in Germany’s CPI Where we differ: In line with consensus Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Price Relative
Strong cashflow visibility. With a weighted average lease expiry (WALE) by gross rental income of 6.2 years, IREIT provides strong cashflow visibility. The strength of its cashflows is also underpinned by its blue chip tenants, such as Allianz, Deutsche Telekom, Deutsche Rentenversicherung Bund and ST Microelectronics.
Forecasts and Valuation FY Dec (EURm) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 26.9 24.0 11.8 20.8 3.03 nm 5.24 155 61.8 23.8 7.3 1.2 42.3 5.2
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016F 33.1 30.3 23.4 25.4 5.77 90 6.32 21 63.4 12.5 8.8 1.1 42.0 9.2
2017F 33.4 30.6 22.6 25.6 5.49 (5) 6.41 1 62.7 13.1 8.9 1.1 42.2 8.8
2018F 33.7 30.9 23.9 25.9 5.78 5 6.34 (1) 62.2 12.5 8.8 1.2 42.4 9.3
0 6.34 B: 1
0 6.34 S: 0
0 H: 1
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: TH / sa: AS, PY
Full-year contribution from Berlin acquisition. IREIT's earnings this year should benefit from the full-year contribution from a Berlin property which was acquired in mid-2015 and on a proforma 7.1% NPI yield. We estimate that this will translate to a 21% uplift in FY16 DPU (SGD basis). Valuation: We maintain our DCF valuation of S$0.75 to account for the recent depreciation of the EUR versus SGD, after imputing a new EURSGD rate of 1.51. Key Risks to Our View: The key risk to our view is a significant depreciation of EUR versus SGD. For every 0.10 change in the EURSGD FX rate, our DCF valuation changes by 6%. In addition, a weaker-thanexpected inflation rate would also delay any increase in rents. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Jinquan Tong Chap Huat Lim Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Financials / Real Estate Investment Trusts
619 446 / 309 55.9 18.4 25.7 0.05
VICKERS SECURITIES Page 211
Company Guide IREIT Global Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Stable cash flow profile with inflation protection. IREIT’s portfolio of five properties has a WALE by gross rental income of 6.2 years (as at end-September 2016), which provides investors with significant cashflow visibility. The portfolio is also resilient as the majority of leases contain rent adjustment clauses which are subject to indexation to the German CPI. Rents are adjusted by a rise or a percentage of the change in CPI, upon the CPI crossing a prescribed hurdle rate or a prescribed percentage hurdle. Another attractive feature of IREIT’s portfolio is that the properties are leased to blue chip tenants such as Allianz, Deutsche Telekom, Deutsche Rentenversicherung Bund and ST Microelectronics which mitigate payment/credit risks for the REIT. Boost from acquisition of Berlin property. IREIT purchased a property in Berlin in mid-2015 for EUR144.2m (c.S$217.7m) on a 7.1% proforma NPI yield. The full benefits from the acquisition should accrue this year. Located in the district of Lichtenberg, 6km east of Berlin city centre, the freehold property consists of two fully connected building sections of eight and 13 storeys respectively. Close to fully occupied (c.99.2%), the property provides exposure to Berlin, one of the strongest economic regions in Germany. The acquisition further diversifies IREIT’s portfolio to five cities from its initial base of four (Munster, Bonn, Darmstadt and Munich) and lengthens IREIT’s WALE. Hedges in place to mitigate against FX volatility. IREIT distributes its income in SGD but its rental income is in EUR. To mitigate this risk, IREIT has entered into hedges for 100% of 2016 distributable income at an average hedge rate of S$1.53. Going forward, IREIT has also entered into hedges for 2017 distributions at an average hedge rate of S$1.55. New sponsor. Tikehau Capital, a pan-European asset management firm with over EUR9bn of assets under management of which EUR900m are in real estate, recently completed the purchase of an 80% stake in IREIT’s manager. While Tikehau Capital’s European pedigree and larger business potentially opens up greater opportunities for IREIT compared to its previous sponsor, there remains significant uncertainty on how Tikehau intends to grow the REIT and the strategic direction of the REIT given a widening of its investment mandate from purely office properties in Europe to now include retail and industrial assets.
ASIAN INSIGHTS
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2 Page 212
Company Guide IREIT Global
Aggregate Leverage (%)
Balance Sheet: Naturally hedged portfolio. As at end-September 2016, IREIT’s gearing stood at 42.5%. While its gearing is higher than other S-REITs, this risk is mitigated by the fact that all of IREIT’s borrowings are in EUR. In addition, interest rate risk is managed by having c.88% of its borrowings on fixed interest rates. Share Price Drivers: Uncertainty arising from IREIT’s new sponsor. Tikehau Capital, a European investment manager, recently completed the acquisition of an 80% stake in IREIT’s manager and announced plans to broaden IREIT’s investment mandate beyond European offices to include retail and industrial properties. Given the lack of details over which asset classes Tikehau Capital plans to focus on and how it intends to grow the REIT given IREIT’s already high gearing, we believe IREIT’s share price performance will be capped in the near term.
ROE (%)
Boost to capital values from negative interest rates. As negative interest rates in Europe incentivise investors to invest in riskier assets, we believe this will lead to further cap rate compression of European properties. As a German property REIT, IREIT is well positioned to capture the expected increase in property values. Distribution Yield (%)
Key Risks: Deflation risk. Should Germany experience another bout of deflation, this may cause a delay a potential rise in rents in the future. This would negatively impact projected distributions going forward.
10.0%
9.0%
+1sd: 8.3%
8.0% 7.0%
Avg: 6.5%
6.0%
5.0%
-1sd: 4.8%
4.0%
Interest rates risks. Any increase in interest rates will result in higher interest payments and reduce the income available for distribution, which will result in lower distribution per unit (DPU) for unitholders.
-2sd: 3%
3.0% 2.0% 1.0%
0.0% Dec-14
Jun-15
Dec-15
Jun-16
PB Band (x)
Single-tenant leases. IREIT is reliant on GMG, a wholly owned subsidiary of Deutsche Telekom for c. 60% of gross rental income (GRI). Non-performance by GMG will negatively impact distributions to unitholders. Changes in tax regime. Any changes in the tax regime could negatively impact IREIT’s distributions. Company Background IREIT is a Singapore REIT established with the investment strategy of principally investing, directly or indirectly, in a portfolio of income-producing real estate in Europe which is used primarily for office purposes.
ASIAN INSIGHTS
Source: Company, DBS Bank
VICKERS SECURITIES Page 3 Page 213
Company Guide IREIT Global
Income Statement (EURm) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2015A
2016F
2017F
2018F
26.9 (2.9) 24.0 (3.0) (1.0) (2.6) (5.2) 12.2 (0.4) 0.0 0.0 11.8 11.8 3.72 20.8
33.1 (2.8) 30.3 (3.3) 0.0 (4.0) 0.0 23.0 0.44 0.0 0.0 23.4 23.4 1.92 25.4
33.4 (2.9) 30.6 (4.5) 0.0 (4.0) 0.0 22.1 0.44 0.0 0.0 22.6 22.6 3.08 25.6
33.7 (2.9) 30.9 (3.4) 0.0 (4.0) 0.0 23.5 0.44 0.0 0.0 23.9 23.9 1.98 25.9
223.4 219.3 nm 100.0 89.2 43.9 77.2 11.1 5.2 3.1 5.8 8.0
22.9 25.9 98.2 100.0 91.4 70.8 76.6 9.9 9.2 5.0 6.2 6.8
1.0 1.0 (3.7) 100.0 91.4 67.5 76.7 13.3 8.8 4.7 6.0 6.6
0.9 1.0 6.0 100.0 91.5 70.9 76.8 9.9 9.3 5.0 6.2 6.8
Increase in earnings from the acquisition of the Berlin property
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 214
Company Guide IREIT Global
Quarterly / Interim Income Statement (EURm) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
7.35 (0.8) 6.54 (1.1) (1.0) (0.8) 0.0 3.68 0.74 0.0 4.43 (3.6) 9.14 5.60
8.62 (1.0) 7.66 (0.8) (0.2) (0.8) 0.0 5.81 (0.7) 0.0 5.11 6.65 (0.2) 6.46
8.80 (1.2) 7.61 (0.8) 0.41 (1.0) 0.0 6.25 (0.3) 0.0 5.91 5.83 0.58 6.41
8.48 (0.8) 7.65 (0.8) 0.71 (1.0) 0.0 6.54 (1.7) 0.0 4.85 13.0 (6.6) 6.41
8.54 (0.9) 7.68 (1.1) (0.4) (1.0) 0.0 5.12 (0.4) 0.0 4.70 4.60 1.74 6.34
36 34 35 89.0 100.0
17 17 16 88.8 100.0
2 (1) 15 86.5 100.0
(4) 0 (18) 90.2 100.0
1 0 (3) 89.9 100.0
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
441 2.30 21.2 0.0 1.56 0.0 466
450 2.30 19.8 0.0 2.76 0.44 475
452 2.30 19.8 0.0 2.79 0.44 477
454 2.30 19.8 0.0 2.81 0.44 479
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
0.0 3.90 12.5 197 1.66 251 0.0 466
0.0 4.14 12.5 199 1.66 257 0.0 475
0.0 4.18 12.5 201 1.66 257 0.0 477
0.0 4.22 12.5 203 1.66 257 0.0 479
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%)
(14.8) (176)
(13.4) (180)
(13.4) (182)
(13.4) (184)
1.4 1.4 42.3
1.4 1.4 42.0
1.4 1.4 42.2
1.4 1.4 42.4
Balance Sheet (EURm) FY Dec
Increase in gearing due to acquisition of the Berlin property
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 215
Page 5
Company Guide IREIT Global
Cash Flow Statement (EURm) FY Dec
2015A
2016F
2017F
2018F
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash
17.4 1.00 (0.4) 0.0 (0.2) 6.06 23.9 (156) 0.0 0.0 0.0 0.0 (156) (15.1) 101 58.0 (2.2) 142 0.0 9.94
23.0 1.00 0.44 0.0 (1.4) 1.92 25.0 (2.0) 0.0 0.0 0.0 0.0 (2.0) (25.4) 2.00 0.0 0.0 (23.4) 0.0 (0.4)
22.1 1.00 0.44 0.0 0.01 3.08 26.7 (2.0) 0.0 0.0 0.0 0.0 (2.0) (25.6) 2.00 0.0 0.0 (23.6) 0.0 1.01
23.5 1.00 0.44 0.0 0.01 1.98 26.9 (2.0) 0.0 0.0 0.0 0.0 (2.0) (25.9) 2.00 0.0 0.0 (23.9) 0.0 1.01
Operating CFPS (S cts) Free CFPS (S cts)
6.18 (33.9)
6.49 5.65
6.48 6.00
6.50 6.02
Acquisition of Berlin property
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Mervin SONG CFA Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 216
Singapore Company Guide
Keppel DC REIT Version 6
Refer to important disclosures at the end of this report
| Bloomberg: KDCREIT SP | Reuters: KEPE.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Destiny in its own hands
Last Traded Price ( 4 Jan 2017): S$1.20 (STI : 2,921.31) Price Target 12-mth: S$1.33 (11% upside and 6.0% yield) Potential Catalyst: Acquisitions Where we differ: Estimates are more conservative than consensus Analyst Derek TAN +65 6682 3716 [email protected] Singapore Research Team [email protected] Mervin SONG CFA +65 6682 3715 [email protected]
Acquisition of KDC SG 3 to power earnings forward; impact on DPUs estimated to be significant. The acquisition of KDC SG 3 further diversifies the REIT’s earnings base and fuels a stronger earnings growth trajectory of 5% going forward. Apart from being a significantly accretive deal, upside will come from the ability for management to garner tax transparency status, which allows an additional 3.5% upside to our estimates, which is not factored in.
Price Relative
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 102 86.9 105 57.5 7.17 32 6.51 20 92.1 16.7 5.4 1.3 33.7 8.0
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016F 102 83.5 57.9 60.2 6.55 (9) 6.81 5 92.1 18.3 5.7 1.3 40.3 7.1
2017F 136 115 80.0 80.3 7.98 22 7.15 5 97.0 15.0 6.0 1.2 29.7 8.4
2018F 141 120 84.2 84.5 7.50 (6) 7.52 5 97.0 16.0 6.3 1.2 35.1 7.7
0 6.60 B: 9
0 7.20 S: 0
0 7.40 H: 1
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: TH / sa: YM, PY
BUY with S$1.33 TP. Keppel DC REIT (KDC REIT) remains one of the few REITs in Singapore that is projected to deliver a solid 5% CAGR in distributions supported by positive market dynamics. Low gearing of c.30% and low cost of capital empower the REIT with financial capacity to acquire accretive assets. Maintain BUY and TP of S$1.33 which has already priced in the recently announced acquisition of Keppel DC Singapore 3 (KDC SG 3).
Further flexibility to acquire post balance sheet recapitalisation exercise. The S$279.5m in new equity raised improved the REIT’s liquidity and further strengthened its balance sheet, positioning KDC REIT for another year of strong growth driven from acquisitions. This is supported by low gearing of c.30% coupled with low cost of capital. We have not factored in further acquisitions in our estimates. Valuation: We currently have a BUY recommendation, with a DCF-backed TP of S$1.33. The stock offers attractive FY17F yields of 6.0% and upside will hinge on better-than-expected returns from acquisitions. Key Risks to Our View: Rising interest rates. A faster than anticipated rise in interest rates will negatively impact distributions. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Keppel Corp Ltd Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Financials / Real Estate Investment Trusts
1,125 1,350 / 938 27.5 72.5 2.0
VICKERS SECURITIES Page 217
Company Guide Keppel DC REIT Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Tapping on global data storage and usage growth. As an owner of data centres in key data gateways and financial centres across Asia Pacific and Europe, KDC REIT is poised to ride the wave of rising global data usage and demand for data centres. The Trust offers investors a stable and visible earnings growth profile, with 30% of NPI derived from long-dated master leases with embedded rental step-ups of 2-4% p.a. With 61% of leases by rental income due for renewal between 2015 and 2017, earnings will be further driven by positive rental reversions and higher occupancies at its co-location data centres in Singapore (T25, S25), Australia (part of Gore Hill), and Ireland (Citadel 100). As it stands, the Trust has a WALE of 2.6 years for co-location properties, 9.9 years for fully fitted properties, and 16 years for shell & core properties. Strong ambitions to grow portfolio. The acquisition of KDC SG 3 for S$202.5m is well anticipated but highly accretive to portfolio earnings estimates, given the high initial yield of 10.25%. The REIT raised S$279.5m which will fully fund the acquisition with equity. The remaining S$65m will be utilised to pay down short-term loans for the purchase of Intellicentre 2 (previously announced) and future acquisitions which are not factored in at this point.
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
We estimate the deal to be accretive and project the full-year impact from this acquisition to grow FY17F DPU by 5.0% (FY16F DPU estimate of 6.8 Scts vs FY17F DPU of 7.2 Scts). Assuming that IRAS approves tax transparency status for the REIT, impact to DPU is estimated to be close to 8.5%. Occupancy saw marginal improvement to 92.7% from 92.3%, mainly due to the take-up of half of the lease renewal (6,800 sqft in total or 6.2% of the property NLA) at Keppel DC Singapore 1 (aka S25) that was previously committed and announced. The remaining half is intended to be taken up in 2H17. WALE remains healthy at 8.6 years. Expansion to Italy and the UK: The REIT had recently announced acquisitions in two new markets, a shell and core building of a data centre in Milan, Italy, and another one in Cardiff, UK. Both backed by long master leases with embedded rental escalations, the former has been fully leased to one of the world’s largest telecommunications companies for 12 years, whereas the latter has been fully leased to one of the largest global cloud service providers for 15 years.
ASIAN INSIGHTS
Interest Cover (x)
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2
Page 218
Company Guide Keppel DC REIT
Balance Sheet: Conservative hedging policies. Major currencies that will impact earnings - AUD and EUR - have been hedged for two years at better-than-current spot rates, minimising any currency fluctuations going forward. While the Manager has hedged the majority of its foreign-sourced income until 1H17, we note that the REIT could face translation losses upon rolling forward these hedges if the AUD and EUR remain at current levels.
Aggregate Leverage (%)
Conservative balance sheet. KDC REIT’s gearing stands at below c.30%, with an all-in cost of debt of 2.4%. As at end-3Q16, 87% of the Trust’s borrowings were hedged into fixed rate debt, which will provide earnings visibility in a volatile interest rate environment.
ROE (%)
Share Price Drivers: Acquisitions to be a key share price driver. Given that earnings profile is fairly stable; growth in DPUs is likely to be driven by acquisitions, which the Manager alludes to be considering. Given its current share price, target acquisition returns of c.78% should mean that acquisitions are likely to be accretive. Key Risks: Higher maintenance capex relative to other asset classes. Due to the shorter lifespan of a datacentre’s infrastructure, it is possible that the REIT may have to rely on borrowings to fund maintenance capex at certain properties, which could impact gearing.
Distribution Yield (%)
Competition from larger third-party data centre players. The data centre market is dominated by several large international operators which have been aggressively expanding into markets where KDC REIT has a presence. KDC REIT may face higher barriers to entry and stiffer competition to attract and retain tenants.
PB Band (x)
Company Background Keppel DC REIT (KDC REIT) is a Singapore-based real estate investment trust (REIT), established with the principal investment strategy of investing, directly or indirectly, in a portfolio of income-producing real estate assets which are used primarily for data centre purposes, with an initial focus on Asia Pacific and Europe.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 219
Company Guide Keppel DC REIT
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2015A
2016F
2017F
2018F
102 (15.6) 86.9 (7.3) 0.77 (11.4) 0.0 69.0 (5.6) 0.0 0.0 63.3 105 (46.9) 57.5
102 (18.3) 83.5 (12.7) 0.0 (9.5) 0.0 61.3 (3.4) 0.0 0.0 57.9 57.9 2.30 60.2
136 (20.8) 115 (16.6) 0.0 (11.7) 0.0 87.0 (7.0) 0.0 0.0 80.0 80.0 0.30 80.3
141 (21.0) 120 (16.4) 0.0 (12.4) 0.0 91.5 (7.3) 0.0 0.0 84.2 84.2 0.30 84.5
28.2 28.8 32.3 100.0 84.8 61.8 56.1 7.1 8.0 5.4 6.4 7.0
(0.7) (3.9) (8.6) 100.0 82.0 56.9 59.1 12.5 7.1 4.6 5.3 7.5
33.8 38.2 38.2 100.0 84.7 58.8 59.0 12.2 8.4 5.6 6.4 8.4
3.8 4.3 5.2 100.0 85.1 59.5 59.7 11.6 7.7 5.3 6.0 8.4
Earnings growth mainly from KDC SG 3 acquisition
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 220
Company Guide Keppel DC REIT
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
25.7 (4.4) 21.4 (1.0) 0.0 (2.9) 0.0 17.5 (0.6) 0.0 16.9 16.9 (2.4) 14.5
24.6 (2.7) 21.8 (3.7) 0.0 (2.8) 0.0 15.3 (2.4) 0.0 12.9 54.8 (40.3) 14.5
24.8 (3.6) 21.2 (3.6) 0.64 (2.8) 0.0 15.5 (0.9) 0.0 14.6 14.6 0.13 14.8
24.9 (2.8) 22.1 0.31 0.0 (2.8) 0.0 19.6 (1.2) 0.0 18.4 18.4 (3.6) 14.7
22.7 (2.8) 19.9 4.87 0.0 (2.8) 0.0 22.0 (0.9) (0.1) 21.0 21.0 (4.3) 16.7
(1) (3) 10 83.0 100.0
(5) 2 (24) 88.9 100.0
1 (3) 13 85.5 100.0
0 4 26 88.9 100.0
(9) (10) 14 87.8 100.0
Balance Sheet (S$m) FY Dec
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
1,103 17.3 37.2 0.0 53.1 1.01 1,211
1,224 17.3 41.9 0.0 40.7 1.01 1,325
1,431 17.3 34.1 0.0 54.5 1.01 1,538
1,550 17.3 32.8 0.0 56.5 1.01 1,657
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
33.6 17.8 0.14 338 7.78 813 0.37 1,211
33.6 6.78 3.51 460 7.78 813 0.41 1,325
33.6 9.08 7.10 392 7.78 1,089 0.45 1,538
33.6 9.42 7.46 510 7.78 1,089 0.49 1,657
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
36.1 (335)
31.4 (451)
39.3 (391)
40.7 (511)
1.8 1.7 33.7 1.9
1.9 1.9 40.3 1.5
1.8 1.8 29.7 1.9
1.8 1.8 35.1 1.7
Gearing to remain within comfortable range
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 221
Page 5
Company Guide Keppel DC REIT
Cash Flow Statement (S$m) FY Dec
2015A
2016F
2017F
2018F
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash
69.0 0.0 (0.2) 0.0 (24.4) 11.9 56.3 (477) (8.8) 0.0 0.0 (47.6) (533) (31.4) 149 507 (118) 507 (0.7) 29.7
61.3 0.0 0.0 0.0 1.36 2.30 64.9 (121) 0.0 0.0 0.0 0.0 (121) (60.2) 121 0.0 0.0 61.2 0.0 4.76
87.0 0.0 (3.4) 0.0 (11.5) 0.30 72.5 (207) 0.0 0.0 0.0 0.0 (207) (80.3) (68.1) 275 0.0 127 0.0 (7.8)
91.5 0.0 (7.0) 0.0 (1.7) 0.30 83.1 (118) 0.0 0.0 0.0 0.0 (118) (84.5) 118 0.0 0.0 33.9 0.0 (1.3)
Operating CFPS (S cts) Free CFPS (S cts)
9.14 (47.6)
7.20 (6.4)
8.37 (13.4)
7.56 (3.1)
Investments in KDC SG 3 (2017) and mainCubes (2018)
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Derek TAN Singapore Research Team Mervin SONG CFA
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 222
Singapore Company Guide
Keppel REIT Version 6
Refer to important disclosures at the end of this report
| Bloomberg: KREIT SP | Reuters: KASA.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Money left on the table
Last Traded Price ( 4 Jan 2017): S$1.02 (STI : 2,921.31) Price Target 12-mth: S$1.23 (21% upside and 6.4% yield)
Recent rally to continue. Keppel REIT (KREIT)’s share price has rallied over 25% since its lows in January 2016. KREIT’s valuation is still attractive on the basis of its cheap valuation on a per square foot (sqft) basis and decent yield of c.6.5%. In addition, through proactive lease renewals, KREIT has derisked its portfolio to mitigate against potential downside from occupancies and rental rates. Thus, we maintain our BUY call with a TP of S$1.23.
Potential Catalyst: Better than expected rental reversions, resilient office property values Where we differ: In line with consensus Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Tenancy risk in 2017 and 2018 significantly reduced. The impact on DPU from the potential loss of key tenants in 2017 and 2018 has been reduced considerably. With forward renewal efforts year-to-date, there are only 5% of leases left for renewal in each of 2017 and 2018 with no further leases due for the remainder of 2016. While expiring rents over the next two years are in the low S$9 level, close to current Grade A rents of S$9.30, we believe premium status of KREIT’s properties will help mitigate the potential decline in overall office rents. Furthermore, with S$50-60m of disposal gains yet to be distributed, KREIT has the flexibility to stabilise its DPU going forward.
Price Relative S$
Relative Index
1.8
1.7
210
1.6
190
1.5
170
1.4 1.3
150
1.2
130
1.1
110
1.0 90
0.9 0.8 Jan-13
Jan-14
Jan-15
Keppel REIT (LHS)
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
Jan-16
70 Jan-17
Relative STI (RHS)
2014A 184 151 372 206 5.46 0 7.23 (8) 154 18.7 7.1 0.7 43.3 3.8
DPU Chng (%): Consensus DPU (S cts): Other Broker Recs:
2015A 170 137 337 217 3.71 (32) 6.76 (7) 143 27.5 6.6 0.7 40.0 2.6
2016F 159 130 161 212 4.95 33 6.51 (4) 139 20.6 6.4 0.7 38.9 3.5
2017F 158 129 158 216 4.77 (4) 6.51 0 136 21.4 6.4 0.7 38.9 3.4
B: 8
(2) 6.70 S: 4
(2) 6.50 H: 9
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
Compelling valuations on per sqft valuation basis. KREIT’s Singapore Grade A office portfolio is trading at an implied value of c.S$2,400 per sqft compared to recent office market transactions including the sale of Asia Square Tower 1, 60% interest in CapitaGreen and Straits Trading Building at between S$2,700 (adjusted for 99-year leasehold for CapitaGreen) to S$3,500 psf. With abundant liquidity as well as long term investors being positive on the Singapore office market and looking beyond short term supply headwinds, we believe capital values for office properties will remain resilient near term and KREIT’s discount to the physical market is unwarranted. Valuation: We maintain our DCF-based TP of S$1.23 which has incorporated higher number of shares on issue and near term drag from loss of California Fitness at Bugis Junction Towers. Our TP implies a valuation of c.S$2,500 per sqft for KREIT’s Grade A offices in Singapore. Key Risks to Our View: A key risk to our view is new offices supply causing spot rents to fall below S$7 per sqft, which will likely lead to lower asking rents, coming in below our expectations. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Keppel Land Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
ASIAN INSIGHTS ed: JS / sa: YM, PY
3,292 3,357 / 2,315 46.0 54.0 3.0
VICKERS SECURITIES Page 223
Company Guide Keppel REIT Net Property Income and Margins (%)
Long WALE offers income visibility. K-REIT has a long weighted average lease expiry (WALE) of c.6 years, with c.95% of leases due only from FY18F and beyond. Despite the increase in grade A office supply in Singapore in 2016-2017, the Manager remains optimistic on its future outlook as it believes that its assets will continue to be well coveted due to their location in Marina Bay.
200 180 160 140 120 100 80 60 40 20 0
89.5%
87.5% 85.5% 83.5%
81.5% 79.5% 77.5%
75.5% 2013A
2014A
2015A
Net Property Income
2016F
2017F
Net Property Income Margin %
Net Property Income and Margins (%) 84%
40
83%
38
82% 81%
36
80%
34 79% 32
78%
Net Property Income
3Q2016
2Q2016
1Q2016
4Q2015
3Q2015
2Q2015
1Q2015
77%
4Q2014
30
3Q2014
Earnings Drivers: Factors mitigating potential impact on occupancies and rents. On the back of forward renewals in 9M16, KREIT no longer has any leases up for renewal for the remainder of 2016. This is down from 13.6% at the start of the year. Thus, we believe KREIT’s risk profile near term has reduced significantly. In addition, the forward renewal strategy has also resulted in only 5% of leases up for renewal in 2017 and 2018 respectively, which in our view will help KREIT navigate the impending 2.8m sqft of new office supply. Furthermore, tenancy risks are partially mitigated by the fact that the majority of the leases due in 2017 and 2018 are in their first renewal cycle. With tenants in relatively new offices and having made considerable investments in fit-outs, there is potentially less incentive for them to relocate. In addition, we understand expiring rents for FY17 and FY18 leases are in the low S$9’s which means if Grade A office rents bottom out close to our expectations of around S$9 per sqft, risk of negative rental reversions will be minimised.
S$ m
2Q2014
CRITICAL DATA POINTS TO WATCH
Net Property Income Margin %
Distribution Paid / Net Operating CF 5.1
(x)
4.6
4.1 3.6
3.1 2.6 2.1 1.6
Stable income from Australia. KREIT's Australian properties have a WALE profile of c.10 years, with a majority of leases having annual rental escalation clauses, which provides income stability for the REIT. In 2016, KREIT should also benefit from the recently opened office tower on the Old Treasury Building site in Perth, which incidentally has been renamed as the David Malcolm Justice Centre. However, contribution in SGD terms could potentially be erorded due to the depreciation of the AUD against the SGD.
1.1
0.6 2013A
2014A
2015A
2016F
2017F
2016F
2017F
Interest Cover (x) (x) 6.00 5.00 4.00
3.00
Divestment gains to smooth future distributions. We understand KREIT has c.S$50-60m of divestment gains which it has yet to pay out to unitholders. These gains are from past disposals such as the sale of Prudential Tower and the recent sale of 77 George Street. We believe these gains provide KREIT with the flexibility to smooth future distributions, providing income stability in the event of an unexpected rise in interest rates and/or lower than projected rents.
ASIAN INSIGHTS
2.00 1.00
0.00 2013A
2014A
2015A
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2 Page 224
Company Guide Keppel REIT
Balance Sheet: Gearing now below 40%. With recent asset revaluation gains and the disposal of 77 King Street in Sydney, KREIT’s gearing is now at c.39%. Going forward, we expect gearing to remain below 40%.
Aggregate Leverage (%) 45.0% 40.0% 35.0%
30.0%
Decent debt maturity. KREIT has a weighted average debt to expiry of 3.7 years, with c.74% of debt on fixed rates.
25.0%
20.0% 2013A
Share Price Drivers: Sentiment too negative on office capital values? With the looming new office supply and spot Grade A office rents declining recently, investors have generally avoided the office sector. However, with KREIT’s share price having already corrected significantly from peak levels in 2013 causing KREIT to trade at 0.8x P/BV, and evidence that physical office asset values are unlikely to correct further near term based on recent market transactions, we believe KREIT’s decent 5.8% yield deserves another relook by investors.
2014A
2015A
2016F
2017F
2016F
2017F
ROE (%) 4.0% 3.5% 3.0% 2.5% 2.0% 1.5%
1.0% 0.5%
Key Risks: Risks to capital values. Should an increase in office supply and a persistently weak office market outlook lead to a larger than expected fall in rents, valuers could downgrade rental and growth outlook, and this could trigger a decline in capital values, which would put the REIT’s NAV at risk.
0.0% 2013A
2014A
2015A
Distribution Yield (%) (%) 8.3 7.8
+2sd: 7.4%
7.3
Interest rate risk. Any increase in interest rates will result in higher interest payments that the REIT has to make annually to service its loans. Nevertheless, the risk is partially mitigated by the fact that c.74% of the KREIT’s debt is on fixed rates.
6.8
+1sd: 6.8%
6.3
Avg: 6.3%
5.8
-1sd: 5.8%
5.3
-2sd: 5.3%
4.8
Currency risk. As KREIT earns rental income from its Australian assets in AUD, any depreciation in the AUD would result in relatively lower contributions from Australia to K-REIT's total distributable income. To manage this risk, almost all of KRETI’s income from Australia has been hedged for 2016.
4.3 2013
2014
2015
2016
2017
PB Band (x) 1.4
(x)
1.3 1.2
Company Background Keppel REIT is a real estate investment trust investing in predominantly commercial properties in Singapore and key gateway cities in Australia.
1.1 1.0
+2sd: 1.03x
0.9
+1sd: 0.91x
0.8
Avg: 0.8x
0.7
-1sd: 0.69x
0.6 0.5 Jan-13
-2sd: 0.58x Jan-14
Jan-15
Jan-16
Jan-17
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3 Page 225
Company Guide Keppel REIT
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2013A
2014A
2015A
2016F
2017F
174 (35.7) 138 (49.8) 28.0 (18.2) 0.0 163 (16.8) 0.0 0.0 146 535 132 214
184 (32.7) 151 (52.9) 12.6 (22.7) 12.3 171 (11.6) (0.1) 0.0 160 372 (166) 206
170 (32.9) 137 (56.8) 5.60 (30.4) 0.0 149 (28.0) (0.1) (1.2) 119 337 (120) 217
159 (28.9) 130 (50.0) 1.17 8.24 0.0 172 (3.7) 0.0 (7.5) 161 161 50.8 212
158 (28.8) 129 (50.0) (0.1) 7.29 0.0 170 (3.9) 0.0 (7.5) 158 158 57.5 216
10.9 10.9 25.5 100.0 79.5 83.8 123.0 28.6 4.0 2.3 1.3 4.9
5.8 9.5 9.4 100.0 82.3 86.7 112.0 28.8 3.8 2.3 1.3 4.3
(7.5) (9.2) (25.1) 100.0 80.7 70.1 127.5 33.3 2.6 1.6 0.9 2.7
(6.9) (5.7) 35.0 100.0 81.8 101.7 133.7 31.5 3.5 2.2 1.1 NM
(0.5) (0.6) (1.9) 100.0 81.7 100.3 136.8 31.7 3.4 2.2 1.1 NM
We expect distribution income to be fairly stable going forward, as KREIT’s portfolio average rents are below market. This limits downside from negative reversions as well as KREIT’s ability to payout past disposal gains
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 226
Company Guide Keppel REIT
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
42.2 (8.8) 33.4 (14.7) 1.37 (7.8) 0.0 34.6 (4.5) 0.0 30.1 51.0 3.42 54.4
42.8 (8.0) 34.8 (13.4) 1.32 (8.0) 0.0 36.7 (19.8) (0.1) 15.6 213 (159) 52.8
41.2 (8.3) 32.9 (14.9) 0.36 (7.4) 0.0 36.6 (7.0) 0.0 27.7 56.0 (1.6) 54.4
40.6 (8.1) 32.5 (13.2) 1.15 (9.5) 0.0 39.4 (3.0) 0.0 34.5 96.5 (44.0) 52.5
39.5 (8.0) 31.6 (15.7) 3.07 (9.7) 0.0 41.8 (1.8) 0.0 40.0 40.0 12.5 52.5
(2) (4) (19) 79.2 100.0
1 4 (48) 81.3 100.0
(4) (5) 77 79.9 100.0
(1) (1) 24 80.0 100.0
(3) (3) 16 79.9 100.0
Balance Sheet (S$m) FY Dec
2013A
2014A
2015A
2016F
2017F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
4,015 2,635 90.6 0.0 33.9 1.36 6,776
3,614 3,490 200 0.0 25.0 0.76 7,329
3,691 3,570 145 0.0 18.1 1.29 7,425
3,551 3,570 152 0.0 26.4 1.29 7,301
3,554 3,570 121 0.0 26.3 1.29 7,273
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
282 94.3 23.0 2,401 76.5 3,897 1.98 6,776
275 84.5 21.0 2,390 99.1 4,457 2.05 7,329
25.4 51.2 13.4 2,464 93.4 4,776 2.10 7,425
25.4 96.4 13.4 2,314 93.4 4,756 2.10 7,301
25.4 96.1 13.4 2,314 93.4 4,728 2.10 7,273
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(82.0) (2,592)
(79.7) (2,466)
(45.2) (2,345)
(82.1) (2,188)
(82.0) (2,219)
0.3 0.3 39.6 0.7
0.6 0.6 43.3 0.8
1.8 1.8 40.0 0.9
1.3 1.3 38.9 1.0
1.1 1.1 38.9 1.0
Expected decline in gearing due to recent revaluation gains and disposal of 77 George Street
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 227
Page 5
Company Guide Keppel REIT
Cash Flow Statement (S$m) FY Dec Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
2013A
2014A
2015A
2016F
2017F
163 0.0 (15.4) (64.2) (45.3) 22.6 60.3 504 0.0 (585) 65.4 (208) (224) (211) 258 173 (54.9) 165 (12.4) (11.3)
171 0.0 (14.3) (70.6) (74.0) 30.0 42.6 504 0.0 (585) 73.4 99.6 92.2 (215) (20.9) 225 (56.5) (67.4) 41.7 109
149 0.0 (7.6) (92.9) (5.5) 71.5 114 (12.1) 0.0 63.2 89.5 0.0 141 (204) (346) 150 0.0 (400) 0.0 (145)
172 0.0 (3.7) (83.3) 36.9 30.9 153 140 0.0 0.0 83.3 0.0 223 (212) (150) 0.0 (7.5) (369) 0.0 6.99
170 0.0 (3.9) (83.5) (0.2) 30.1 112 (3.2) 0.0 0.0 83.5 0.0 80.4 (216) 0.0 0.0 (7.5) (223) 0.0 (30.7)
3.95 21.1
3.99 18.7
3.72 3.18
3.57 9.00
3.39 3.29
Net gain of c.S$140m from the disposal of 77 George Street
Source: Company, DBS Bank Target Price & Ratings History
S$ 1.16
5
1.11
2
6
7
8
4
1.06
3 1.01
1
0.96 0.91
12- mt h T arget Rat ing Pric e
S.No.
Dat e of Report
Closing Pric e
1:
15 Apr 16
1.01
1.11
BUY
2:
20 J ul 16
1.08
1.26
BUY
3:
22 J ul 16
1.07
1.26
BUY
4:
29 Aug 16
1.07
1.26
BUY
5:
05 Sep 16
1.12
1.26
BUY
6:
26 Sep 16
1.10
1.26
BUY
7:
19 Oct 16
1.10
1.23
BUY
8:
08 Nov 16
1.09
1.23
BUY
0.86 0.81 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Mervin SONG CFA Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 228
Singapore Company Guide
Manulife US Real Estate Inv Refer to important disclosures at the end of this report
Version 3 | Bloomberg: MUST SP | Reuters: MANU.SI
DBS Group Research . Equity
4 Jan 2017
BUY
America’s office is great
Last Traded Price ( 4 Jan 2017): US$0.84 (STI : 2,921.31) Price Target 12-mth: US$0.93 (12% upside and 7.3% yield) Potential Catalyst: Exceeding IPO forecasts, and acquisitions Where we differ: na Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Price Relative
Forecasts and Valuation FY Dec (US$m) 2015P* Gross Revenue 71.0 Net Property Inc 44.2 Total Return 26.0 Distribution Inc 34.3 EPU (US cts.) 4.15 EPU Gth (%) nm DPU (US cts.) 5.48 DPU Gth (%) nm NAV per shr (US cts.) 78.4 20.1 PE (X) Distribution Yield (%) 6.6 P/NAV (x) 1.1 Aggregate Leverage (%) 36.6 ROAE (%) 10.6 Distn. Inc Chng (%): Other Broker Recs:
2016F* 78.7 48.7 27.2 35.4 4.32 4 5.61 2 82.0 19.3 6.7 1.0 36.2 5.4
2017F 79.3 48.6 30.8 38.4 4.84 12 6.05 8 80.8 17.2 7.2 1.0 37.1 6.0
2018F 80.7 49.5 33.9 38.8 5.29 9 6.06 0 80.2 15.8 7.3 1.0 37.6 6.6
B: 4
S: 0
H: 0
* FY15 numbers are on a proforma basis while FY16 are on an annualised basis Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
Play on exposure to an improving US office market. We maintain our BUY call and TP of US$0.93. We continue to like Manulife US REIT's (MUST) attractive prospective 7.3% yield, strong organic growth prospects and exposure to the favourable demand and supply fundamentals in the US office markets where MUST’s properties are located. This translates to an 8% DPU growth in FY17, one of the highest among REITs in Singapore. The expected strength of the USD/SGD exchange rate could also result in inflows into the stock. Increased confidence on the REIT’s ability to deliver. Our recent visit to properties in the US and meetings with various property brokers as well as MUST’s strong maiden results indicate that market fundamentals remain firm. We believe that MUST's properties in Midtown Atlanta and Downtown Los Angeles submarkets will continue to see steadily increasing rents, continued expansionary tenant demand, increased employment opportunities and also a lack of competitive new supply. Apart from upside when leases come due, 84.2% of leases (by NLA) have annual rental escalations of around 3%, and 15.0% have provisions for mid-term or period rent increases. Acquisitions to be the next driver of growth. The manager has been disciplined towards acquisitions and with the recent decline in gearing to 34.6%, MUST is well placed to execute on DPU-accretive acquisitions. Apart from that, we expect any acquisition to diversify the REIT’s geographic earnings base and tenant concentration. Markets that are of interest are core submarkets that enjoy demand from a diversified type of industries (i.e. manufacturing, financial, technology and law firms) which imply stability across market cycles. We have not priced in acquisitions in our forecasts. Valuation: TP is maintained at US$0.93 based on DCF. The stock offers attractive FY16-17F yields of 6.8-7.3%. Key Risks to Our View: Lower-than-expected rental income. The key risk to our view is lower-than-expected rental income, arising from the nonreplacement/renewal of leases and/or slower-than-expected recovery of office rents in the US. At A Glance Issued Capital (m shrs) Mkt. Cap (US$m) Major Shareholders (%) Manulife International Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Financials / Real Estate Investment Trusts
ASIAN INSIGHTS ed: TH / sa: YM, PY
628 524 7.5 92.5 0.98
VICKERS SECURITIES Page 229
Company Guide Manulife US Real Estate Inv Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Exposure to the recovery of US real estate market. According to Colliers International (Colliers), the office market outlook for Downtown Los Angeles, Orange County and Atlanta are attractive given (i) rising demand due to projected falling unemployment rates on the back of a pick-up in business activities, and (ii) a deep pool of local talents and skilled workers which attract companies to set up and maintain their presence there. The sub-markets where Manulife US REIT’s properties are located are also characterised by a lack of new competitive supply due to limited land availability and high construction costs. Given supportive market dynamics, Colliers expects Class A rents in the respective markets to improve by 1.5-23.0% per annum over 2015-2017. Through the initial portfolio and potential acquisitions in the future, we believe that MUST offers a cyclical recovery story, with rents and capital values at or close to an upswing, underpinned by improved business activity in the US and real estate values that are off previous highs.
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Inbuilt organic growth. MUST’s properties are well positioned to experience strong organic growth delivered through built-in rental escalations embedded into their lease contracts. As at 30 September 2016, (1) approximately 84.2% of leases (by NLA) for the initial portfolio had built-in annual rental escalations, mostly between 2.5% and 3.5%, and (2) 15% of leases (by NLA) had mid-term or period rent increases, thus providing a visible and growing rental income stream. Long WALE of 6.1 years offers strong income visibility. With leases typically signed on a 3- to 10-year lease and some in excess of 10 years, the initial portfolio enjoyed a long WALE of 6.1 years (by NLA) as at 30 September 2016. As such, the initial portfolio has minimal expiries in the following years - only 5.1% and 1.7% of its leases (by cash rental income) are expiring in 2017 and 2018 respectively, and we are expecting these leases to revert positively when leases are due for renewal. Growth through acquisitions by tapping into the expertise of its Sponsor. MUST’s Sponsor is The Manufacturer’s Life Insurance Company, which is part of Manulife Financial Group, a Canadabased financial services group. Through its subsidiary, Manulife Real Estate (MRE), the Sponsor has a strong acquisition capability and track record, demonstrated by the acquisition of 85 properties worth US$6.2bn since 2010. This has resulted in a CAGR of 17.5% per annum in the value of MRE’s AUM. Therefore, we believe MUST will be able to tap on its Sponsor’s real estate platform, to source deals, access local market expertise and gain assistance in securing financing to grow its portfolio through DPU-accretive acquisitions in the US.
ASIAN INSIGHTS
Interest Cover (x)
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2 Page 230
Company Guide Manulife US Real Estate Inv
Aggregate Leverage (%)
Balance Sheet: Stable gearing. Post recent portfolio revaluation gains, MUST’s gearing has fallen to 34.7% from 36.8% as at end-December 2015. This provides for a debt headroom of c.US$75m should MUST increase its gearing back up to 40%. Conservative interest rate profiles. To manage its interest rate risks, MUST has hedged 100% of its interest exposure at an average interest rate of 2.46% till 2019. Share Price Drivers: Establishing a track record. A key pushback from potential investors is the lack of familiarity with the US office market, which we believe after a few quarters of strong results, will allay most of investors' concerns. This may lead to a re-rating of the stock. Another key share price driver is the potential outperformance relative to MUST’s IPO forecast. This could be driven by stronger-than-expected recovery of the US office market leading to higher rental reversions. Key Risks: Risk of non-renewal and non-replacement of leases. MUST’s financials, results of operations, and capital growth may be adversely affected by bankruptcy, insolvency or downturn in the businesses of one or more of the tenants, as well as the decision by one or more of these tenants not to renew their lease/s at the end of a lease cycle.
ROE (%)
Distribution Yield (%) 7.2
(%)
7.1
+2sd: 7%
7.0 6.9
+1sd: 6.9%
6.8
Foreign currency risks. All of the REIT’s assets are located in the US and generate revenues in USD. Thus, investors who elect to receive distributions in SGD have exposure to volatility in the USD/SGD FX rate. This is mitigated should investors elect to receive distributions in USD. Regulatory risks. MUST's tax efficiency relies in part on its Parent US REIT and Sub-US REITs being able to maintain their status as US REITs as well as qualifying for US portfolio interest exemption when repatriating cashflows back to Singapore as interest. Should there be any changes in tax or REIT regulations in either the US or Singapore which affects the current REIT structure or ability to repatriate cash in a taxefficient manner, distributions paid to MUST’s unitholders may be adversely impacted. Company Background Manulife US REIT (MUST) is the first pure-play US office REIT listed in Asia. Its portfolio consists of three freehold, Class A or Trophy quality office properties in Atlanta, Los Angeles, and Orange County with aggregate net lettable area (NLA) of c.1.8m sqft.
ASIAN INSIGHTS
Avg: 6.7%
6.7 6.6
-1sd: 6.6%
6.5
-2sd: 6.4%
6.4 6.3 6.2 May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
PB Band (x) (x) 1.10
+2sd: 1.07x
+1sd: 1.05x
1.05
Avg: 1.03x -1sd: 1.01x
1.00
-2sd: 0.98x 0.95
0.90 May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Source: Company, DBS Bank
VICKERS SECURITIES Page 3 Page 231
Company Guide Manulife US Real Estate Inv
Income Statement (US$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2016F
2017F
2018F
78.7 (30.0) 48.7 (5.4) 0.0 (8.2) (6.6) 28.6 (1.3) 0.0 0.0 27.2 27.2 8.14 35.4
79.3 (30.7) 48.6 (5.4) 0.0 (8.3) (2.9) 32.1 (1.3) 0.0 0.0 30.8 30.8 7.65 38.4
80.7 (31.1) 49.5 (5.7) 0.0 (8.7) 0.0 35.2 (1.2) 0.0 0.0 33.9 33.9 4.91 38.8
11.0 10.4 4.9 100.0 61.9 34.6 44.9 6.9 5.4 3.3 5.3 5.3
0.8 (0.2) 13.1 100.0 61.3 38.8 48.4 6.8 6.0 3.7 5.2 5.2
1.7 1.9 10.2 100.0 61.4 42.1 48.2 7.0 6.6 4.0 5.2 5.1
Growth driven by recovery in the US office market
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 232
Company Guide Manulife US Real Estate Inv
Quarterly / Interim Income Statement (US$m) FY Dec
3Q2016
Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%) Balance Sheet (US$m) FY Dec
28.2 (10.6) 17.6 (1.7) 0.0 (3.1) 0.0 12.8 (12.0) 0.0 0.85 33.7 (21.1) 12.6 N/A nm nm 62.4 100.0
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
813 0.0 20.3 0.0 3.15 0.70 837
821 0.0 20.3 0.0 3.17 0.70 845
827 0.0 20.4 0.0 3.23 0.70 851
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
0.0 7.87 4.34 303 5.10 517 0.0 837
0.0 7.93 4.34 314 5.10 514 0.0 845
0.0 8.07 4.34 320 5.10 514 0.0 851
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%)
(8.4) (283)
(8.4) (294)
(8.5) (299)
2.0 2.0 36.2
2.0 2.0 37.1
2.0 2.0 37.6
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 233
Page 5
Company Guide Manulife US Real Estate Inv
Cash Flow Statement (US$m) FY Dec
2016F
2017F
2018F
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash
35.1 0.0 (1.3) 0.0 (4.3) 1.56 31.1 (0.6) 0.0 0.0 0.0 (8.8) (9.4) (35.4) 9.44 0.0 0.0 (25.9) 0.0 (4.3)
35.0 0.0 (1.3) 0.0 0.04 4.79 38.5 (2.1) 0.0 0.0 0.0 (8.4) (10.6) (38.4) 10.6 0.0 0.0 (27.9) 0.0 0.04
35.2 0.0 (1.2) 0.0 0.08 4.91 38.9 (0.8) 0.0 0.0 0.0 (5.0) (5.8) (38.8) 5.83 0.0 0.0 (33.0) 0.0 0.08
Operating CFPS (US cts.) Free CFPS (US cts.)
5.61 4.84
6.05 5.72
6.06 5.95
Minimal capex due to recently refurbished buildings
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Mervin SONG CFA, Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 234
Singapore Company Guide
Mapletree Commercial Trust Version 5
Refer to important disclosures at the end of this report
| Bloomberg: MCT SP | Reuters: MACT.SI
DBS Group Research . Equity
4 Jan 2017
BUY
An Eye on the Future
Last Traded Price ( 4 Jan 2017): S$1.42 (STI : 2,921.31) Price Target 12-mth: S$1.62 (14% upside and 6.2% yield)
MBC I is a rare gem. We believe the acquisition of Mapletree Business City – Phase 1 (MBC I) represents a rare gem, not only due Potential Catalyst: Stronger-than-expected rental reversion; further delay to the scarcity of supply in Grade A Business Parks, but also adds in interest rate hike expectations diversification to the portfolio by adding a new property type. After Where we differ: We have slightly more optimistic assumptions in our the acquisition, the portfolio breakdown by valuation will be 22.2% earnings forecast than consensus. for business parks, 58.2% office and 42.1% retail from 40.2% Analyst office and 59.8% retail. This acquisition is expected to be DPU Singapore Research Team [email protected] accretive and is reflected in our TP of S$1.62 and forecasted DPU Derek TAN +65 6682 3716 [email protected] which translates to DPU growth of 7-10% for the next two years Mervin SONG CFA +65 6682 3715 [email protected] from the pre-acquisition level in FY16. VivoCity a preferred retail destination: As anticipated, the REIT has utilised the opportunity of lease expiries to rebalance the tenant mix at VivoCity. This has enabled it to achieve a whopping rental reversion of 13.8% in 1H17 without compromising on the occupancy rate.
Price Relative
Forecasts and Valuation FY Mar (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
Adequate debt headroom: As the S$1.8bn acquisition of MBC I was financed by approximately 45/55 split in debt and equity, gearing edged up to 37.3% from 35.0%, which translates to a debt headroom of S$487.9m based on the regulatory cap of 45%. This gives the REIT adequate debt headroom to finance future asset enhancement initiatives. 2016A 288 221 299 172 7.46 1 8.13 2 130 19.0 5.7 1.1 35.1 5.9
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2017F 375 291 198 219 6.83 (8) 8.72 7 130 20.7 6.2 1.1 37.3 6.0
2018F 446 346 246 260 8.38 23 8.94 2 130 16.9 6.3 1.1 36.7 6.4
2019F 458 356 255 270 8.57 2 9.13 2 130 16.5 6.4 1.1 36.2 6.5
B: 10
19 8.80 S: 1
38 8.90 H: 3
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Valuation: We maintain our DCF-backed target price to S$1.62. The stock offers a dividend yield of 6.2-6.3% for FY17-18F at the current price. BUY call maintained. Key Risks to Our View: Weaker operational performance from VivoCity While VivoCity’s performance has been very encouraging, the mall is gradually phasing into a matured stage with potential decline in growth ahead. Nonetheless, the acquisition of MBC I, still a segment in high demand, would mitigate the slowdown in growth at VivoCity. At A Glance Issued Capital (m shrs) 2,870 Mkt. Cap (S$m/US$m) 4,061 / 2,800 Major Shareholders (%) Mapletree Investments Pte Ltd 38.38 AIA Group Ltd 6.00 Schroders Plc 5.98 Free Float (%) 49.64 3m Avg. Daily Val (US$m) 5.0 ICB Industry : Real Estate / Real Estate Investment Trusts
VICKERS SECURITIES Page 235
Company Guide Mapletree Commercial Trust Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: VivoCity a preferred destination mall in Singapore. MCT achieved a credible 12.3% in retail rental reversions in FY16 (from 142 leases) on the back of a retention rate of 87.9% despite the current tough operating climate. The success continues to 1H17 where 114 leases were renewed with a reversion rate of 13.8%. Occupancy cost for the mall was stable at 19%, in line with its peers. While the performance growth of the mall will gradually slowdown as it enters into a more matured stage, VivoCity will prove its resilience to the retail headwinds as one of the most popular retail destinations in Singapore. Minimal office expiries until FY17/FY18. Over FY16/17, office/business park’s lease expiries will only account for less than 10% of the Trust’s leases by gross rental revenue. This will help to minimise the risk of negative office rental reversions, particularly at Mapletree Anson, should CBD office rents start to decline across the market. Amid potential volatility in office rents and vacancies due to (a) lack of strong demand drivers, and (b) large office supply completing over the next two years, MCT offers investors both earnings visibility as well as downside protection.
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Potential acquisitions from the Sponsor. While we applaud to the yield accretive acquisition of Mapletree Business City – Phase 1, Mapletree Investments’ progressive redevelopment of the Harbourfront and Alexandra precincts ensures a steady pipeline of refurbished or newly developed assets ready to be injected into the REIT. Interest Cover (x)
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 236
Company Guide Mapletree Commercial Trust
Balance Sheet: MBC I acquisition edged up gearing slightly. As MBC was funded by approximately 45/55 in debt and equity, a healthy balance sheet is maintained with 37.7% aggregate leverage, up from 35.0%. This level is within the Management’s comfortable range of below 40% and gives adequate debt headroom based on the regulatory 45%.
Aggregate Leverage (%)
Average debt maturity extended to four years. MBC I’s acquisition has brought the weighted average all-in cost of debt down to 2.66% from 2.73%, and extended MCT’s debt tenure to 4.3 years from 3.7 years. More than 95% of its total debt will due only from FY18/19 onwards.
ROE (%)
Share Price Drivers: We have made a conservative assumption of low single-digit rental reversion at VivoCity over the next two years. Any improvement in the rent renewals may bring upside to share price. Moreover, the Management has guided for c.40% top line growth as a result of the MBC I acquisition. Better performance realised from the new asset could be a positive catalyst.
Distribution Yield (%)
Key Risks: Sustained drop in CBD office rents could impact office earnings in the medium term. Although the REIT’s office portfolio is largely located outside the CBD and therefore less exposed to the large office supply completing from 2016 onwards, any prolonged decline in CBD rents would have a negative spillover effect to the city fringe, as narrowing rental differentials could entice tenants to relocate to the CBD instead. PB Band (x)
Company Background Mapletree Commercial Trust (MCT) is a real estate investment trust that invests in income-producing office and retail properties in Singapore. The majority of its earnings are derived from VivoCity, the largest retail mall in Singapore, and the recent acquisition of Mapletree Business City – Phase 1.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 237
Company Guide Mapletree Commercial Trust
Income Statement (S$m) FY Mar Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2015A
2016A
2017F
2018F
2019F
282 (70.8) 212 (20.1) 0.0 (35.8) 0.0 156 0.0 0.0 0.0 156 312 12.5 168
288 (67.1) 221 (26.3) 0.0 (39.3) 3.63 159 0.0 0.0 0.0 159 299 13.7 172
375 (84.3) 291 (41.2) 0.0 (51.7) 0.0 198 0.0 0.0 0.0 198 198 21.3 219
446 (100) 346 (36.9) 0.0 (63.1) 0.0 246 0.0 0.0 0.0 246 246 14.6 260
458 (102) 356 (37.3) 0.0 (63.6) 0.0 255 0.0 0.0 0.0 255 255 14.8 270
5.7 8.4 9.3 100.0 74.9 55.1 59.6 7.1 6.2 3.7 4.6 5.4
1.9 4.3 1.9 100.0 76.7 55.2 59.9 9.1 5.9 3.7 4.5 5.0
30.3 31.7 24.6 100.0 77.5 52.8 58.4 11.0 6.0 3.7 4.7 4.8
18.9 19.0 24.3 100.0 77.6 55.1 58.4 8.3 6.4 3.9 5.0 4.9
2.6 2.8 3.6 100.0 77.7 55.7 58.9 8.1 6.5 4.0 5.1 5.0
Increase in top line due to MBC I acquisition
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 238
Company Guide Mapletree Commercial Trust
Quarterly / Interim Income Statement (S$m) FY Mar 2Q2016 3Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
4Q2016
1Q2017
2Q2017
71.3 (16.5) 54.8 (5.4) (6.9) (9.8) 8.57 41.3 0.0 0.0 41.3 41.3 10.1 42.8
73.8 (17.2) 56.6 (5.1) 0.0 (10.1) (0.2) 41.3 0.0 0.0 41.3 198 2.81 44.3
73.0 (18.0) 55.0 (8.2) 0.0 (9.9) 0.73 37.7 0.0 0.0 37.7 178 5.98 42.9
73.4 (17.1) 56.3 (5.5) (9.9) (10.6) 10.6 40.9 0.0 0.0 40.9 40.9 13.2 43.5
88.1 (19.7) 68.4 (6.7) (3.5) (12.0) 2.64 48.9 0.0 0.0 48.9 48.9 7.43 53.7
2 1 7 76.9 100.0
3 3 0 76.7 100.0
(1) (3) (9) 75.4 100.0
1 2 9 76.7 100.0
20 22 20 77.7 100.0
Balance Sheet (S$m) FY Mar
2015A
2016A
2017F
2018F
2019F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
4,199 4.91 54.9 0.0 3.29 0.57 4,263
4,342 3.52 63.6 0.0 5.04 1.08 4,415
6,129 3.52 92.7 0.0 6.56 1.08 6,302
6,140 3.52 110 0.0 7.81 1.08 6,332
6,152 3.52 113 0.0 8.01 1.08 6,346
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
189 61.7 5.15 1,358 32.3 2,617 0.0 4,263
355 51.8 5.15 1,197 42.8 2,764 0.0 4,415
355 65.1 5.15 1,993 42.8 3,841 0.0 6,302
355 77.3 5.15 1,972 42.8 3,880 0.0 6,332
355 78.9 5.15 1,944 42.8 3,921 0.0 6,346
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(63.0) (1,492)
(50.8) (1,488)
(62.6) (2,255)
(73.6) (2,216)
(75.0) (2,186)
0.2 0.2 36.3 1.3
0.2 0.2 35.1 1.2
0.2 0.2 37.3 1.2
0.3 0.3 36.7 1.2
0.3 0.3 36.2 1.3
Both new asset (MBC I) and existing assets contributed to the positive performance over the quarter
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 239
Company Guide Mapletree Commercial Trust
Cash Flow Statement (S$m) FY Mar
2015A
2016A
2017F
2018F
2019F
156 0.0 0.33 0.0 3.07 44.3 204 (7.9) 0.0 0.0 0.0 0.03 (7.8) (136) (40.0) 0.0 (34.9) (211) 0.0 (15.6)
159 0.0 0.0 0.0 3.81 50.1 213 (7.4) 0.0 0.0 0.0 0.46 (6.9) (157) 0.0 0.0 (40.3) (197) 0.0 8.72
198 0.0 0.0 0.0 11.8 21.3 231 (1,856) 0.0 0.0 0.0 0.0 (1,856) (186) 797 1,044 0.0 1,655 0.0 29.1
246 0.0 0.0 0.0 11.0 14.6 271 (11.2) 0.0 0.0 0.0 0.0 (11.2) (221) (21.7) 0.0 0.0 (243) 0.0 17.2
255 0.0 0.0 0.0 1.39 14.8 271 (11.4) 0.0 0.0 0.0 0.0 (11.4) (229) (27.6) 0.0 0.0 (257) 0.0 2.75
9.49 9.26
9.81 9.64
7.57 (56.1)
8.88 8.87
9.06 8.73
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Singapore Research Team Derek TAN Mervin Song
ASIAN INSIGHTS
VICKERS SECURITIES Page 240
Singapore Company Guide
Mapletree Greater China Commercial Trust Version 6
Refer to important disclosures at the end of this report
| Bloomberg: MAGIC SP | Reuters: MAPE.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Only a speed hump
Last Traded Price ( 4 Jan 2017): S$0.95 (STI : 2,921.31) Price Target 12-mth: S$1.11 (17% upside and 7.6% yield)
Quality will shine through. We maintain our BUY call and TP of S$1.11 for Mapletree Greater China Commercial Trust (MAGIC). While MAGIC faces the challenge of a stronger SGD and higher Potential Catalyst: Acquisitions and delivery of positive rental reversions property taxes at Gateway Plaza, we believe these factors are only despite concerns over a downturn in the HK retail market speed humps in the near term. As MAGIC cycles through these Where we differ: Below consensus due to impact of higher property taxes at headwinds over the next few quarters, the strength of core asset Gateway Plaza Festival Walk (c.70% of net property income (NPI)) as well as the Analyst boost from the Sandhill acquisition will shine through. Moreover, Mervin SONG CFA +65 6682 3715 [email protected] MAGIC offers an attractive yield in excess of 6% which we believe Derek TAN +65 6682 3716 [email protected] is high considering that its portfolio of quality properties is still delivering healthy (7-23%) rental reversions. Festival Walk’s defensive positioning. The strong market positioning of Festival Walk makes it well placed to weather the headwinds in the HK retail market. Located in Kowloon Tong’s mid to upper residential area and next to City University of Hong Kong, it serves the needs of the local community rather than mainland Chinese tourists which have been the main reason for the fall in HK retail sales. In addition, due to the mall’s strong track record, we understand there remains a queue of potential tenants eager to be located within the mall. Combined with occupancy costs of c.19% which is in the middle of the 16-22% range for other malls in HK, this bodes well for rents going forward. This is evidenced by rental reversions of 15% in 1H17.
Price Relative S$
Relative Index
1.3
220
1.2
200 180
1.1
160 1.0 140 0.9
120
0.8 0.7 Mar-13
100 80
Mar-14
Mar-15
Mar-16
Mapletree Greater China Commercial Trust (LHS) Relative STI (RHS)
Forecasts and Valuation FY Mar (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 281 229 319 178 4.55 4 6.54 4 120 20.8 6.9 0.8 36.2 4.0
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016A 337 277 415 200 6.40 41 7.25 11 124 14.8 7.7 0.8 39.4 5.3
2017F 351 283 152 200 5.46 (15) 7.17 (1) 123 17.3 7.6 0.8 39.3 4.4
2018F 365 295 155 205 5.54 1 7.27 1 121 17.1 7.7 0.8 39.3 4.5
B: 7
0 7.20 S: 0
0 7.30 H: 2
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: JC, PY
Full contribution from Sandhill Plaza yet to be realised. With the S$412m acquisition of Sandhill Plaza in Shanghai only completed in June 2015, MAGIC’s earnings should receive a boost over the coming year, which should help mitigate any potential slowdown in HK, negative drag from higher property taxes in Beijing, and a strengthening SGD. Valuation: We maintain our DCF-based TP of S$1.11 which has incorporated lower occupancy and higher taxes at Gateway Plaza partially offset by higher occupancies at Sandhill Plaza. Key Risks to Our View: The key risk to our view is a significant downturn in the HK and Chinese economies, causing a decline in rents at Festival Walk, Gateway Plaza and Sandhill Plaza. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Mapletree Investment Pte Ltd Norges Bank AIA Co Ltd Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trusts
2,787 2,633 / 1,816
VICKERS SECURITIES Page 241
30.6 7.7 6.0 55.7 3.9
Company Guide Mapletree Greater China Commercial Trust Net Property Income and Margins (%) 90.6%
250
88.6%
86.6%
200
84.6% 150 82.6% 100
80.6%
50
78.6%
0
76.6% 2014A
2015A
2016A
Net Property Income
2017F
2018F
Net Property Income Margin %
Net Property Income and Margins (%) 84%
75
83% 83%
70
82% 65
82% 81%
60
81% 80%
55
80%
Net Property Income
2Q2017
1Q2017
4Q2016
3Q2016
2Q2016
1Q2016
79%
4Q2015
50
3Q2015
Full-year contribution from Sandhill Plaza. This year, MAGIC’s earnings should receive a boost from the full year contribution of the Sandhill Plaza acquisition which was only completed in June 2015. MAGIC should also benefit from positive rental reversions as passing rents are approximately 10% below market rates.
300
2Q2015
Earnings Drivers: Festival Walk still the star. Investors have raised concerns over the slowing retail market in Hong Kong impacting MAGIC’s core property Festival Walk. However, we believe Festival Walk will continue to deliver, although achieving lower rental reversions (estimated at 10-15%) than the 20-21% delivered over the past two years. We believe overall rental income will remain on an uptrend and not turn negative due to the following factors: (1) the mall’s prime location in Kowloon Tong offering tenants exposure to nearby established upscale residential areas, students and staff from the nearby City University of Hong Kong, and high transit crowd as the mall is located next to Kowloon Tong Station which is an interchange between Kwun Tong Line (which serves Kowloon East) and East Rail Line (which connects to the Shenzhen border) and, (2) the mall’s strong track record and resiliency. During the SARS epidemic and GFC, tenant sales were flattish.
S$ m
1Q2015
CRITICAL DATA POINTS TO WATCH
Net Property Income Margin %
Distribution Paid / Net Operating CF 1.0
(x)
0.9 0.8 0.7
Past rental reversions still provide support to Gateway Plaza’s earnings. Gateway Plaza has achieved 25-33% uplift in rents over the past two years. The benefits from the positive rental reversions should continue to flow through, despite potential headwinds in the near term due to increase in supply within the Beijing office market and recent jump in vacancy. In the medium/long term, Gateway Plaza should remain well placed given the recent decision in August 2015 by the Beijing Municipal Commission of Development and Reform to ban new large-scale public developments including office buildings within the East Fifth Ring Road, West Fifth Ring Road, North Fifth Ring Road and South Fourth Ring Road which covers the central area of six urban districts of Beijing. Acquisition pipeline from sponsor. MAGIC’s sponsor has several malls, office buildings and business parks in China and HK which have yet to be stabilised or are in the process of being constructed. Subject to the price paid, these properties could potentially provide MAGIC with a pipeline of DPU-enhancing acquisitions.
ASIAN INSIGHTS
0.6 0.5 0.4 0.3
0.2 2014A
2015A
2016A
2017F
2018F
2017F
2018F
Interest Cover (x) (x) 6.00 5.00 4.00
3.00 2.00 1.00
0.00 2014A
2015A
2016A
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2 Page 242
Company Guide Mapletree Greater China Commercial Trust
Balance Sheet: Optimised gearing levels. As at end-September 2016, MAGIC’s gearing stood at c.40% which is at an optimal level. Nevertheless, given the new 45% gearing limit for S-REITs in January 2016, MAGIC’s ability to pursue further acquisitions without further equity raisings is constrained. Moderate exposure to rising interest rates. Currently, 85% of the MAGIC’s borrowings are on fixed rates which partially insulates the REIT against rising interest rates in the near term. Share Price Drivers: Festival Walk continuing to deliver. Investors have been concerned over the outlook for retail rents in Hong Kong and risk of negative rental reversions at Festival Walk. While acknowledging a moderating outlook, we think these fears are overplayed given Festival Walk’s suburban location, low exposure to tourists (c.10-15% of tenant sales) and lack of exposure to luxury products. Evidence of this can be seen by the ability to achieve 15% positive rentals reversions in 1H17. This and continued delivery of DPU growth over the coming few quarters should allay the growth fears and trigger a re-rating. Key Risks: Foreign exchange risks. While FX over the past two years has been a tailwind, the depreciation of the HKD and CNY would negatively impact MAGIC’s DPU and NAV per share on a lagged basis. MAGIC hedges its income to smooth out the volatility from movements in FX rates. Economic risks. A significant economic downturn in Hong Kong and China would cause a decline in rents for retail and office properties. This in turn would negatively impact MAGIC’s earnings and DPU.
Aggregate Leverage (%) 40.0%
35.0% 30.0% 25.0%
20.0% 15.0%
10.0% 2014A
2015A
2016A
2017F
2018F
2017F
2018F
ROE (%) 5.0%
4.0%
3.0%
2.0%
1.0%
0.0% 2014A
2015A
2016A
Distribution Yield (%) (%)
+2sd: 10.1%
10.0
8.0
+1sd: 8.1%
6.0
Avg: 6.1%
4.0
-1sd: 4.1%
2.0
-2sd: 2.1%
0.0 2013
2014
2015
2016
2017
PB Band (x)
Company Background MAGIC is a Singapore real estate investment trust (S-REIT) established with the investment strategy of principally investing, directly or indirectly, in a diversified portfolio of income-producing commercial real estate in the Greater China region.
1.4
(x)
1.3 1.2
1.1
+2sd: 1.04x
1.0
+1sd: 0.94x
0.9
Avg: 0.85x
0.8
-1sd: 0.75x
0.7
-2sd: 0.65x
0.6 0.5 Apr-13
Apr-14
Apr-15
Apr-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3 Page 243
Company Guide Mapletree Greater China Commercial Trust
Income Statement (S$m) FY Mar Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016A
2017F
2018F
268 (51.4) 216 (24.4) (2.0) (42.0) 0.0 148 (30.5) 0.0 0.0 117 387 50.9 168
281 (51.8) 229 (25.1) (7.0) (40.4) 0.0 157 (33.8) 0.0 0.0 123 319 55.0 178
337 (59.2) 277 (40.6) 40.7 (64.5) 0.0 213 (37.8) 0.0 0.0 175 415 24.6 200
351 (68.0) 283 (23.0) 0.0 (72.2) 0.0 187 (35.9) 0.0 0.0 152 152 48.4 200
365 (70.4) 295 (24.3) 0.0 (78.2) 0.0 192 (37.0) 0.0 0.0 155 155 49.9 205
137.0 140.7 113.4 100.0 80.8 43.8 62.9 9.1 4.4 2.5 3.5 4.6
5.1 6.1 4.9 100.0 81.6 43.8 63.3 8.9 4.0 2.4 3.3 5.1
19.7 21.0 42.5 100.0 82.4 52.1 59.4 12.1 5.3 3.0 3.6 3.7
4.2 1.8 (13.6) 100.0 80.6 43.2 57.0 6.6 4.4 2.5 3.7 3.6
4.1 4.3 2.4 100.0 80.7 42.5 56.2 6.6 4.5 2.5 3.9 3.5
Recovery in distributable income on the back of positive rental reversions at Festival Walk, improvement in occupancy at Gateway Plaza as well as increased contribution from the recently acquired Sandhill Plaza
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 244
Company Guide Mapletree Greater China Commercial Trust
Quarterly / Interim Income Statement (S$m) FY Mar 2Q2016 3Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
4Q2016
1Q2017
2Q2017
84.6 (15.1) 69.5 (6.8) (0.5) (16.6) 0.0 45.6 (7.1) 0.0 38.5 38.5 11.1 49.5
88.2 (15.7) 72.5 (7.3) 1.33 (17.0) 0.0 49.5 (7.5) 0.0 42.0 42.0 8.96 51.0
87.8 (14.8) 73.0 (7.8) 4.66 (17.3) 0.0 52.6 (16.4) 0.0 36.2 276 16.9 53.0
85.0 (15.5) 69.4 (6.0) 1.12 (17.5) 0.0 47.1 (7.7) 0.0 39.4 39.4 11.8 51.3
83.1 (15.8) 67.3 (5.2) 1.01 (17.3) 0.0 45.8 (7.6) 0.0 38.3 38.3 10.8 49.1
11 11 (46) 82.1 100.0
4 4 9 82.2 100.0
0 1 (14) 83.1 100.0
(3) (5) 9 81.7 100.0
(2) (3) (3) 81.0 100.0
Balance Sheet (S$m) FY Mar
2014A
2015A
2016A
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
4,722 8.00 133 0.62 8.33 0.87 4,873
5,349 1.00 125 0.77 11.1 0.80 5,488
5,922 9.30 207 0.85 10.7 4.05 6,154
5,927 9.30 208 0.85 11.2 4.05 6,160
5,932 9.30 203 0.85 11.6 4.05 6,161
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
0.0 64.0 37.6 1,853 79.0 2,840 0.0 4,873
274 76.3 45.2 1,710 122 3,260 0.0 5,488
462 147 37.9 1,960 130 3,416 0.0 6,154
462 153 37.9 1,960 130 3,416 0.0 6,160
462 154 37.9 1,960 130 3,416 0.0 6,161
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(91.8) (1,720)
(109) (1,859)
(169) (2,215)
(175) (2,214)
(175) (2,219)
1.4 1.4 38.0 0.9
0.3 0.3 36.2 0.7
0.3 0.3 39.4 0.6
0.3 0.3 39.3 0.6
0.3 0.3 39.3 0.6
Increase in gearing on the back of the debt-funded acquisition of Sandhill Plaza
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 245
Page 5
Singapore Company Guide
Mapletree Industrial Trust Version 7
Refer to important disclosures at the end of this report
| Bloomberg: MINT SP | Reuters: MAPI.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Bring on HP!
Last Traded Price (4 Jan 2017): S$1.65 (STI : 2,921.31) Price Target 12-mth: S$1.90 (15% upside and 6.8% yield) Potential Catalyst: Better than expected results Where we differ: Our estimates more conservative than consensus Analyst Derek TAN +65 6682 3716 [email protected] Singapore Research Team [email protected] Mervin SONG CFA +65 6682 3715 [email protected]
Steady set of results with upside from 3QFY17 onwards. 2QFY17 (FYE Mar) topline and net property income (NPI) was up 1.8% and 4.3% to S$84.2m and S$63.6m respectively, mainly on the back of higher rentals achieved coupled with better cost containment. As a result, NPI margins came in higher at 75.6% vs 73.8% a year ago. Interest costs were fairly stable. As a result, distributable income was 3.4% higher at S$50.6m, but DPU rose a slower 1.4% mainly due to higher units in issue (dividend reinvestment scheme coupled with management fees issued in units previously).
Price Relative S$
Relative Index
2.0 1.9
207
1.8
187
1.7 167
1.6 1.5
147
1.4
127
1.3
107
1.2 1.1 Jan-13
Jan-14
Jan-15
Mapletree Industrial Trust (LHS)
Forecasts and Valuation FY Mar (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2016A 332 245 273 198 10.6 4 11.2 8 137 15.6 6.8 1.2 30.3 8.0
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
Jan-16
87 Jan-17
Relative STI (RHS)
2017F 343 253 196 203 10.9 3 11.3 1 137 15.2 6.8 1.2 30.2 8.0
2018F 362 262 202 208 11.2 3 11.5 2 136 14.7 7.0 1.2 30.3 8.2
2019F 378 274 213 217 11.8 5 12.0 4 136 14.0 7.3 1.2 30.4 8.6
11.1 B: 9
11.8 S: 1
12.3 H: 7
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Maintain BUY, TP S$1.90. We maintain our BUY call and TP of S$1.90 on Mapletree Industrial Trust (MINT) on the back of a steady DPU growth profile of 2.3% over FY17-19F (vs 1.2% industrial REIT average). The REIT offers high earnings visibility and we have confidence that the Manager has the flexibility to execute on more developments to exploit its conservative balance sheet. This implies potential upside to earnings.
Flexibility from low gearing. MINT’s balance sheet is lowly geared at c.30%, which is one of the lowest in the industrial REIT sector, and gives the Manager significant debt-funded capacity for acquisitions or to undertake developments by taking part in built-to-suit projects (BTS) or asset enhancement initiatives. We have not assumed any further acquisitions or developments (apart from those announced) in our forecast. Valuation: MINT’s resilience is a value trait in this market and has yet to be reflected in its current share price. We maintain our BUY call and TP S$1.90. Key Risks to Our View: Rising interest rates An increase in refinancing rates will negatively impact distributions. However, we note that MINT has minimised these risks by having c.68% of its interest cost hedged into fixed rates. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Mapletree Investments Pte Ltd Schroders Plc AIA Group Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trusts
1,802 2,964 / 2,082 34.2 7.0 5.0 53.8 3.0
VICKERS SECURITIES Page 246
Company Guide Mapletree Industrial Trust Net Property Income and Margins (%) S$ m
Contribution from the new HP property will be timely just when the REIT is facing rental pressure on its portfolio. The restructuring of the rent free is a positive surprise. The redistribution of the six-month rent free for both phase 1 (completing in 4QCY16) and phase 2 (completing in 2QCY17) over the first 18 months will mean a more even distribution in topline and costs for the REIT. This implies minimal downside risk to DPUs in 2017 which has been a concern for investors. Instead, we now see a steady growth profile of 2.3% over FY17-FY19 vs industrial average of 1.2%.
76.8%
150
74.8%
100
72.8%
50
70.8%
0
68.8% 2015A
2016A
2017F
Net Property Income
2018F
2019F
Net Property Income Margin %
Net Property Income and Margins (%) 77%
71%
53
70%
Net Property Income
2Q2017
72%
55
1Q2017
73%
57
4Q2016
74%
59
3Q2016
75%
61
2Q2016
76%
63
1Q2016
65
4Q2015
MINT’s earnings growth outlook is double that of the industrial REIT average. With organic growth slowing, the next thrust of growth will come from the completion of its built-to-suit project from HP, which emerges from the redevelopment of the Telok Blangah cluster (expected TOP for phases 1 and 2 in 2H16 and 1H17 respectively).
78.8%
200
3Q2015
With the softening of market rents due to a slowing economy, we are forecasting rental reversions to moderate further and expect the Manager to be increasingly focused on maintaining occupancies, a strategy which we believe will result in the trust delivering steady dividends in an increasingly competitive environment.
80.8%
250
2Q2015
Earnings Drivers: Modest organic growth outlook. MINT has consistently delivered strong returns to shareholders post IPO, driven mainly from the marking to market of its leases which were below market rates. As most of its properties have already undergone at least one round of reversions, most of the leases are now at or near-market levels in our view.
300
1Q2015
CRITICAL DATA POINTS TO WATCH
Net Property Income Margin %
Distribution Paid / Net Operating CF 1.0
(x)
0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 2015A
2016A
2017F
2018F
2019F
2018F
2019F
Interest Cover (x) (x) 8.60
Development projects in Kallang Basin cluster to optimise portfolio rent. MINT has also kick-started the development of a new hi-tech building at Kallang Basin cluster 4 at an estimated cost of S$77m, returning c.8% when completed in 4Q17. We believe that demand for the property will be strong given the good location in the central part of Singapore. The Manager has ample headroom to fund this development.
8.50 8.40 8.30 8.20 8.10 8.00
7.90 7.80 7.70
Low gearing a positive. MINT’s gearing is low at close to 30%, makes it one of the lowest-geared industrial REITs, offering the Manager significant debt-funded capacity for acquisitions or to undertake development by taking part in built-to-suit projects (BTS) or asset enhancement initiatives. With a centrally located industrial portfolio, we believe that there is an opportunity to do more re-development projects which will be value accretive (to NAV and DPUs).
ASIAN INSIGHTS
2015A
2016A
2017F
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2 Page 247
Company Guide Mapletree Industrial Trust
Balance Sheet: Low gearing allows for opportunistic acquisitions, developments. Current gearing is conservative, implying that the Manager has the capability to take on debt-funded acquisitions when the opportunity arises. The Manager will be utilising its headroom towards higher-yielding development projects (built-to-suit project for HP and Kallang Basin cluster 4) which we estimate to yield 8-9%, which is higher than acquisitions. Post development, we believe gearing will still be within management's comfortable level at around 30%. Stable weighted average debt-to-maturity. MINT has a wellstaggered debt profile with a majority of debt due for repayment only from FY17/18 onwards. With c.68% of its borrowings on fixed interest rates, MINT is well protected against future increases in interest rates.
Aggregate Leverage (%) 30.0% 25.0% 20.0%
15.0% 10.0% 2015A
2016A
2017F
2018F
2019F
2018F
2019F
ROE (%) 8.0%
7.0% 6.0% 5.0% 4.0% 3.0%
Share Price Drivers: Better-than-expected rental reversions/acquisitions will boost earnings and share price. We are forecasting modest rental uplifts of 0-3%. The REIT's ability to maintain or beat expectations will mean upside to our/consensus forecasts. In addition, acquisitions or further development projects which are accretive to earnings will likely result in upside to TP and share price.
2.0%
1.0% 0.0% 2015A
2016A
2017F
Distribution Yield (%) (%) 8.2
7.7
+2sd: 7.6%
Key Risks: Rising interest rates. An increase in refinancing rates will negatively impact distributions. However, MINT has minimised the impact as c.80% of its interest cost has been fixed.
7.2
Economic risk. A deterioration of the economic outlook could have a negative impact on industrial rents and occupancies as companies cut back on production and require less space. Industrial rents have a strong historical correlation with GDP growth.
5.2 2013
Company Background Mapletree Industrial Trust (MINT) is a real estate investment trust which invests primarily in income-producing industrial assets located in Singapore. Its portfolio includes a diverse mix of business parks, science parks, ramp-up warehouses and flatted factories.
+1sd: 7.2% Avg: 6.9%
6.7
-1sd: 6.6% -2sd: 6.2%
6.2 5.7
2014
2015
2016
PB Band (x) 1.6
(x)
1.5
1.4
+2sd: 1.32x +1sd: 1.26x Avg: 1.19x -1sd: 1.13x -2sd: 1.06x
1.3 1.2 1.1 1.0 0.9 Jan-13
Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3 Page 248
Company Guide Mapletree Industrial Trust
Income Statement (S$m) FY Mar Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2015A
2016A
2017F
2018F
2019F
314 (85.3) 229 (27.1) 0.0 (23.6) 0.0 178 (1.1) 0.0 0.0 177 374 (194) 181
332 (86.5) 245 (28.9) 0.0 (25.6) 0.0 191 0.0 0.0 0.0 191 273 (74.8) 198
343 (90.1) 253 (30.5) 0.0 (26.4) 0.0 196 0.0 0.0 0.0 196 196 6.99 203
362 (99.8) 262 (31.0) 0.0 (28.8) 0.0 202 0.0 0.0 0.0 202 202 5.53 208
378 (103) 274 (31.5) 0.0 (30.4) 0.0 213 0.0 0.0 0.0 213 213 4.06 217
4.9 6.5 8.2 100.0 72.8 56.4 57.6 8.6 8.2 5.2 6.0 8.6
5.6 7.2 7.7 100.0 73.9 57.5 59.7 8.7 8.0 5.3 6.2 8.4
3.5 3.2 2.9 100.0 73.7 57.2 59.2 8.9 8.0 5.3 6.2 8.4
5.5 3.6 3.1 100.0 72.4 55.9 57.4 8.6 8.2 5.4 6.3 8.0
4.4 4.7 5.1 100.0 72.6 56.3 57.3 8.3 8.6 5.6 6.6 8.0
Driven mainly from the contribution from HP building
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 249
Company Guide Mapletree Industrial Trust
Quarterly / Interim Income Statement (S$m) FY Mar 2Q2016 3Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
4Q2016
1Q2017
2Q2017
82.7 (21.7) 61.0 (7.3) 0.0 (6.3) 0.0 47.4 0.0 0.0 47.4 47.4 1.51 48.9
83.3 (21.4) 61.9 (7.3) 0.0 (6.4) 0.0 48.2 0.0 0.0 48.2 48.2 2.08 50.3
84.0 (22.0) 62.0 (7.2) 0.0 (6.6) 0.0 48.3 0.0 0.0 48.3 130 (79.9) 50.4
84.1 (20.3) 63.8 (7.3) 0.0 (6.4) 0.0 50.1 0.0 0.0 50.1 50.1 1.38 51.5
84.2 (20.6) 63.6 (7.4) 0.0 (6.6) 0.0 49.7 0.0 0.0 49.7 49.7 0.89 50.6
1 1 2 73.8 200.0
1 1 2 74.3 200.0
1 0 0 73.8 200.0
0 3 4 75.9 200.0
0 0 (1) 75.6 200.0
2015A
2016A
2017F
2018F
2019F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
3,424 3.63 72.0 0.0 16.2 0.0 3,516
3,558 0.36 54.3 0.0 11.4 0.0 3,624
3,660 0.36 78.8 0.0 16.4 0.0 3,755
3,702 0.36 38.6 0.0 17.3 0.0 3,758
3,706 0.36 42.5 0.0 18.1 0.0 3,767
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
125 70.3 0.0 949 58.8 2,312 0.0 3,516
47.4 79.7 0.0 974 57.9 2,465 0.0 3,624
47.4 100 0.0 1,089 57.9 2,461 0.0 3,755
47.4 106 0.0 1,089 57.9 2,458 0.0 3,758
47.4 110 0.0 1,094 57.9 2,457 0.0 3,767
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(54.0) (1,003)
(68.3) (967)
(83.9) (1,057)
(88.5) (1,098)
(92.4) (1,099)
0.5 0.5 28.2 1.7
0.5 0.5 30.3 1.9
0.6 0.6 30.2 1.7
0.4 0.4 30.3 1.7
0.4 0.4 30.4 1.7
Balance Sheet (S$m) FY Mar
Gearing to remain steady at close to 30%.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 250
Page 5
Company Guide Mapletree Industrial Trust
Cash Flow Statement (S$m) FY Mar
2015A
2016A
2017F
2018F
2019F
178 0.0 (1.0) 0.0 (4.7) 32.5 205 (54.5) 0.0 0.0 0.0 0.0 (54.5) (97.5) (54.3) 0.0 (22.4) (174) 0.0 (23.8)
191 0.0 0.0 0.0 14.3 14.8 220 (43.5) 0.0 0.0 0.0 0.0 (43.5) (115) (53.5) 0.0 (25.7) (194) 0.0 (17.6)
196 0.0 0.0 0.0 15.6 2.79 215 (102) 0.0 0.0 0.0 0.0 (102) (203) 115 0.0 0.0 (88.1) 0.0 24.5
202 0.0 0.0 0.0 4.58 2.84 210 (42.1) 0.0 0.0 0.0 0.0 (42.1) (208) 0.0 0.0 0.0 (208) 0.0 (40.2)
213 0.0 0.0 0.0 3.90 2.89 219 (3.8) 0.0 0.0 0.0 0.0 (3.8) (217) 5.00 0.0 0.0 (212) 0.0 3.95
12.0 8.62
11.4 9.78
11.0 6.25
11.4 9.29
11.9 11.9
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
Source: Company, DBS Bank Target Price & Ratings History 1.90
S$
2
1.80
1.70
1.60
Dat e of Report
Closing Pric e
1:
26 Apr 16
1.64
1.64
BUY
2:
12 J ul 16
1.79
1.81
HOLD
3:
27 J ul 16
1.78
1.90
BUY
4:
22 Aug 16
1.77
1.90
BUY
4 3
12- mt h T arget Rat ing Pric e
S.No.
1
1.50
1.40 Oct-15
Feb-16
Jun-16
Oct-16
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Derek TAN Singapore Research Team Mervin SONG CFA
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 251
Singapore Company Guide
Mapletree Logistics Trust Refer to important disclosures at the end of this report
Version 5 | Bloomberg: MLT SP | Reuters: MAPL.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Firepower to acquire
Last Traded Price (4 Jan 2017): S$1.02 (STI : 2,921.31) Price Target 12-mth: S$1.15 (13% upside and 7.1% yield) Potential Catalyst: In line Where we differ: Estimates are in line with consensus Analyst Derek TAN +65 6682 3716 [email protected] Singapore Research Team [email protected] Mervin SONG CFA +65 6682 3715 [email protected]
Acquisitions and developments to drive growth The issuance of S$250m perpetual securities in May 2016 @ 4.18% has enabled MLT to lock in attractive long-term funding for the REIT. Since then, MLT has deployed close to S$161m and we see more acquisitions in the pipeline. We believe that opportunities will come from its Sponsor, and third parties in Australia, Korea, and China. Acquisitions should more than compensate for weaknesses in the various markets that MLT operates in.
Price Relative S$
Relative Index
1.5
222
1.4
202
1.3
182
1.2
162
1.1
142
1.0
122
0.9
102
0.8 Jan-13
Jan-14
Jan-15
Mapletree Logistics Trust (LHS)
Forecasts and Valuation FY Mar (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2016A 350 291 190 183 7.66 20 7.38 (2) 102 13.3 7.2 1.0 39.5 7.5
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
Jan-16
Maintain BUY, TP S$1.15. Mapletree Logistics Trust (MLT) is emerging stronger post balance sheet recapitalisation and we see acquisitions as a catalyst to drive earnings and share price upside. With firepower to execute on strategic purchases, MLT remains on a growth path. BUY maintained, yield of 7.0-7.2% is attractive for a strong quality name.
82 Jan-17
Relative STI (RHS)
2017F 360 299 172 179 6.91 (10) 7.19 (3) 101 14.8 7.1 1.0 37.0 6.8
2018F 375 316 182 185 7.29 5 7.41 3 101 14.0 7.3 1.0 37.5 7.2
2019F 390 327 187 188 7.53 3 7.57 2 101 13.5 7.4 1.0 37.5 7.4
7.30 B: 7
7.50 S: 0
7.80 H: 9
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
2Q16 results in line. Top line and net property income are up 4.7% and 5.3% y-o-y to S$91.5m and S$76.8m respectively. Higher revenues were mainly driven from acquisitions (portfolio expanded by six properties to 124 as of 2QFY17). Distributable income is up by 1.0% while DPU is flat mainly due to higher interest incurred on the issuance of close to S$250m worth of perpetual securities. Valuation: We upgrade our BUY call and TP at S$1.15 which has imputed acquisitions in our forecasts. Key Risks to Our View: Acquisitions ramping up faster than expected. A faster-thanprojected acquisition pace or a better-than-expected outlook for the Singapore warehouse market will translate to positive surprises to earnings estimates, and re-rate the stock higher. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Temasek Holdings Private Ltd
2,500 2,550 / 1,785 39.4
Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
ASIAN INSIGHTS ed: TH / sa: YM, PY
60.5 2.9
VICKERS SECURITIES Page 252
Company Guide Mapletree Logistics Trust Net Property Income and Margins (%) S$ m
400
CRITICAL DATA POINTS TO WATCH
350
91.0%
300
89.0%
250
85.0%
150
83.0%
100
81.0%
50
0
79.0% 2015A
2016A
2017F
Net Property Income
2018F
2019F
Net Property Income Margin %
Net Property Income and Margins (%) 86% 79
85%
77
85% 84%
75
84%
73
83%
71
83% 82%
69
82%
Net Property Income
2Q2017
1Q2017
4Q2016
3Q2016
2Q2016
1Q2016
81%
4Q2015
81%
65
3Q2015
67
2Q2015
Acquisitions to buffer against modest organic growth prospects. The issuance of S$250m perpetual securities in May 2016 was locked in at 4.18%, a good rate in our view. Since then, MLT has deployed close to S$161m into four properties in Australia (c.S$84.4m), and one each in Vietnam and Malaysia at yields of c.7.1-9.9%. The Manager remains on a lookout for acquisitions, targeting to deploy capital from its recent perpetual issuance. Based on a S$161m worth of deals announced year-to-date, the Manager is looking to deploy a further S$90m in opportunities. Markets of Australia and from the Sponsor's pipeline remain key sources of acquisition possibilities. Apart from that, the Manager is keen to re-deploy capital through selective divestments. They are reviewing potential sale of mature, lowyielding assets in Japan, China and Malaysia.
87.0%
200
1Q2015
Earnings Drivers: Pressure on margins to ease as pace of property conversions slow. We are forecasting a modest decline/flattish outlook for distributions over FY17F-18F on the back of ongoing headwinds from a weakening rental outlook in Singapore and also Korea. However, downside risk is expected to ease given the lower pace of conversions. This stems from efficiency loss and higher vacancy rates as master-tenants look to return un-utilised space in the assets. Looking ahead, with only 10.1% of leases left to be renewed in FY17, we believe downside risk should be marginal.
Net Property Income Margin %
Distribution Paid / Net Operating CF 1.0
(x)
0.9 0.8
0.7 0.6 0.5 0.4
In the longer term, we see a sizeable and growing pipeline of development properties from the Sponsor, Mapletree Investments that is available for MLT to acquire in the medium term. Potential assets for acquisitions are mainly in the development stages across Asia, especially in China, Japan, HK and Vietnam, where demand for logistics warehouses remains robust. China remains a key growth area, where the proliferation of e-commerce will drive demand for more logistic space.
0.3 2015A
2016A
2017F
2018F
2019F
2018F
2019F
Interest Cover (x) (x) 9.00 8.00 7.00 6.00 5.00 4.00
Development projects to drive value in the medium term. MLT has completed the AEI at Mapletree Logistics Hub in Toh Guan (GFA expanded by 2.7x to 63,500 sqm). Occupancy is estimated to be c.92% as of 2Q16. There is another development project in the works at 76 Pioneer Road, which will develop into a 5storey ramp-up warehouse, increasing its GFA by 1.8x to 72,000 sqm. This project will complete in 3QFY18F.
ASIAN INSIGHTS
3.00
2.00 1.00 0.00 2015A
2016A
2017F
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2 Page 253
Company Guide Mapletree Logistics Trust
Balance Sheet: Gearing of c.38% remains within management's comfortable range. Post the issuance of S$250m in perpetual securities to fund acquisitions, we project gearing to settle around c.38%. With a fairly optimised balance sheet, we believe that the Manager may need to raise new equity if any acquisition opportunity arises in the medium term. Well-staggered debt maturity profile; interest cost remains stable. Interest rates remain stable at 2.3%, and are expected to remain low given that a majority of its debts are in JPY, HKD and RMB, where interest rates in those currencies are still soft. To hedge against currency volatility, the Manager typically takes on local-denominated loans (pegged to the maximum of asset values in each overseas market). MLT has a long debt-to-maturity (3.76 years as at end-2QFY17) and proactively renews its loans ahead of time.
Aggregate Leverage (%) 40.0% 35.0% 30.0% 25.0% 20.0% 15.0%
10.0% 2015A
2016A
2017F
2018F
2019F
2018F
2019F
ROE (%) 7.0% 6.0%
5.0% 4.0% 3.0% 2.0%
Potential buy-back of perpetual in September 2017. Given the strong demand for launch of perpetual securities (S$250m @ 4.18%), we see the potential for MLT to refinance its first tranche of perpetual securities (S$350m @ 5.375%) to a lower rate. The first callable date will be in September 2017. A 1% drop in coupon will mean S$3.5m in savings (c.1.5% of distributions).
1.0% 0.0% 2015A
2016A
2017F
Distribution Yield (%) (%) 8.6 8.1
+2sd: 7.9%
7.6
Share Price Drivers: Ability to drive growth through acquisitions. We remain optimistic on the Trust's ability to drive growth through acquisitions. After its first foray into Australia, we see the Trust further deepening its exposure through strategic purchases over the medium term. The Manager is also looking to divest lowyielding assets in Singapore and Japan, and re-cycle the proceeds into higher-yielding assets. The deployment of proceeds from recent perpetual issues will mean upside to earnings. Key Risks: Rise in interest rates. The Manager has hedged the majority of its debt into fixed rates but is expected to see increased cost of funds when these loans are rolled over in the coming year. Company Background Mapletree Logistics Trust (MLT) is a real estate investment trust which invests in logistics warehouses in the Asia Pacific region. It currently owns warehouses in Singapore, Japan, China, South Korea, Vietnam, Australia and Hong Kong.
ASIAN INSIGHTS
+1sd: 7.3%
7.1
6.6
Avg: 6.7%
6.1
-1sd: 6.1%
5.6
-2sd: 5.5%
5.1 4.6 2013
2014
2015
2016
PB Band (x) 1.7
(x)
1.5
+2sd: 1.34x
1.3
+1sd: 1.23x 1.1
Avg: 1.11x
0.9
-2sd: 0.88x
-1sd: 1x
0.7 Jan-13
Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
VICKERS SECURITIES Page 3 Page 254
Company Guide Mapletree Logistics Trust
Income Statement (S$m) FY Mar Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2015A
2016A
2017F
2018F
2019F
330 (52.7) 277 (24.3) (15.4) (32.3) 0.0 205 (29.1) (0.5) (18.8) 157 241 (56.1) 185
350 (59.0) 291 (56.9) 34.0 (43.4) 10.8 235 (25.8) (0.5) (18.9) 190 190 (6.9) 183
360 (60.8) 299 (43.5) 0.0 (41.5) 0.0 214 (15.0) (0.5) (26.7) 172 172 2.00 179
375 (58.9) 316 (43.0) 0.0 (46.0) 0.0 227 (15.9) (0.5) (29.3) 182 182 1.00 185
390 (62.1) 327 (43.2) 0.0 (50.6) 0.0 234 (16.4) (0.5) (29.3) 187 187 1.00 188
6.2 3.7 (16.2) 100.0 84.0 47.6 56.0 7.4 6.4 3.4 4.9 7.8
6.0 4.8 21.1 100.0 83.1 54.4 52.4 16.3 7.5 3.8 4.3 5.4
2.9 2.9 (9.5) 100.0 83.1 47.8 49.8 12.1 6.8 3.3 4.6 6.2
4.2 5.7 5.5 100.0 84.3 48.4 49.2 11.5 7.2 3.4 4.9 5.9
3.8 3.5 3.3 100.0 84.0 48.1 48.4 11.1 7.4 3.5 5.0 5.6
Growth driven mainly from acquisitions as organic growth remains modest
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 255
Company Guide Mapletree Logistics Trust
Quarterly / Interim Income Statement (S$m) FY Mar 2Q2016 3Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
4Q2016
1Q2017
2Q2017
87.5 (14.5) 73.0 (19.2) (1.5) (10.0) 0.0 42.3 (4.5) (0.1) 32.9 32.9 13.2 46.2
88.9 (14.8) 74.2 (13.0) 3.44 (12.0) 0.0 52.6 (6.0) (0.2) 41.7 49.1 (2.6) 46.5
88.5 (15.8) 72.6 (18.1) (5.0) (12.1) 0.0 37.4 (11.8) (0.1) 20.9 57.2 (12.4) 44.8
89.6 (14.4) 75.2 (15.5) (17.2) (11.6) 0.0 30.9 (3.5) (0.2) 21.5 21.5 24.6 46.0
91.6 (14.8) 76.8 (19.0) (9.2) (11.4) 0.0 37.2 (4.8) (0.2) 24.8 24.8 21.8 46.6
3 3 (35) 83.4 100.0
2 2 27 83.4 100.0
(1) (2) (50) 82.1 100.0
1 4 3 84.0 100.0
2 2 15 83.9 100.0
2015A
2016A
2017F
2018F
2019F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
4,631 12.4 107 0.0 20.5 16.7 4,788
5,070 14.8 93.3 0.0 18.2 11.5 5,207
5,311 14.8 3.83 0.0 9.00 11.5 5,350
5,355 14.8 6.89 0.0 9.38 11.5 5,397
5,359 14.8 11.3 0.0 9.74 11.5 5,406
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
56.7 164 8.84 1,575 94.6 2,882 6.04 4,788
234 154 6.36 1,824 111 2,872 6.03 5,207
234 120 16.2 1,747 111 3,115 6.53 5,350
234 125 17.1 1,791 111 3,112 7.02 5,397
234 130 17.5 1,795 111 3,111 7.52 5,406
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(136) (1,525)
(130) (1,965)
(116) (1,978)
(121) (2,018)
(126) (2,018)
0.6 0.6 34.1 1.0
0.3 0.3 39.5 0.8
0.1 0.0 37.0 0.8
0.1 0.0 37.5 0.8
0.1 0.1 37.5 0.8
Balance Sheet (S$m) FY Mar
Gearing remains stable
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 256
Page 5
Company Guide Mapletree Logistics Trust
Cash Flow Statement (S$m) FY Mar
2015A
2016A
2017F
2018F
2019F
205 0.0 (3.9) 0.0 (0.8) 35.5 236 (247) 0.0 0.0 0.0 0.82 (246) (177) 207 0.0 (29.9) 0.08 2.78 (7.4)
235 0.0 (3.7) 0.0 (7.0) 6.28 231 (389) 0.0 0.0 0.0 (0.6) (390) (183) 426 17.9 (18.9) 242 0.0 83.3
214 0.0 (5.2) 0.0 (24.5) 0.0 185 (242) 0.0 0.0 0.0 0.0 (242) (179) (76.8) 0.0 223 (32.5) 0.0 (89.5)
227 0.0 (15.0) 0.0 4.65 0.0 217 (43.8) 0.0 0.0 0.0 0.0 (43.8) (185) 43.8 0.0 (29.3) (170) 0.0 3.06
234 0.0 (15.9) 0.0 4.45 0.0 222 (3.9) 0.0 0.0 0.0 0.0 (3.9) (188) 3.90 0.0 (29.3) (214) 0.0 4.39
9.63 (0.5)
9.59 (6.4)
8.40 (2.3)
8.52 6.95
8.74 8.76
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
Source: Company, DBS Bank Target Price & Ratings History
S$ 1.11
1.06
5 7
3 1.01
4 0.96 1
2
12- mt h T arget Rat ing Pric e
Dat e of Report
Closing Pric e
1:
08 J an 16
0.99
1.15
2:
04 F eb 16
0.94
1.15
BUY
3:
03 May 16
1.05
1.10
HOLD
4:
31 May 16
0.98
1.10
HOLD
5:
27 J ul 16
1.08
1.15
BUY
6:
22 Aug 16
1.08
1.15
BUY
7:
26 Oct 16
1.06
1.15
BUY
S.No.
6
BUY
0.91
0.86 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Derek TAN Singapore Research Team Mervin SONG CFA
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 257
Singapore Company Guide
OUE Commercial REIT Version 6
Refer to important disclosures at the end of this report
| Bloomberg: OUECT SP | Reuters: OUEC.SI
DBS Group Research . Equity
4 Jan 2017
HOLD
Concerns to weigh on share price
Last Traded Price ( 4 Jan 2017): S$0.70 (STI : 2,921.31) Price Target 12-mth: S$0.74 (6% upside and 7.5% yield)
Impediments to re-rating. We maintain our HOLD call for OUE Commercial REIT (OUECT) and a TP of S$0.74. While we see long term value in OUECT as it trades at over 20% discount to its book value and offers >7% yield, we believe the stock will be range bound near term, due to its above-average gearing (around 41%), relatively small capitalisation and fears over falling office rents ahead of new office supply in 2017.
Potential Catalyst: Better than expected results Where we differ: In line with consensus Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Uplift from One Raffles Place (ORP). With an income support arrangement providing income stability to OUE Bayfront, contributing a third of net property income (NPI) till 2018, earnings upside would come from driving a better performance at ORP. With initial yield estimated at 3.4%, the Manager is actively seeking to push occupancy rates closer to c.95% from c.91% currently.
Price Relative
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 101 75.6 79.2 56.1 5.09 nm 4.38 (8) 94.6 13.7 6.3 0.7 37.5 5.2
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016F 177 137 43.0 69.0 3.31 (35) 5.30 21 93.6 21.0 7.6 0.7 37.5 3.5
2017F 178 138 42.2 68.3 3.23 (3) 5.22 (2) 92.7 21.5 7.5 0.7 37.5 3.4
2018F 177 137 39.8 65.9 3.02 (7) 4.99 (4) 91.9 23.1 7.2 0.8 37.6 3.2
0 5.1 B: 1
0 5.2 S: 0
0 5.2 H: 3
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Earnings risk possible in FY17. As OUECT’s proactive forward renewals have reduced the number of leases expiring in FY16, the greatest earnings risk for OUECT is in FY17. There are approximately 16% of leases by net lettable area (NLA) at OUE Bayfront and 26% at ORP that are up for renewal in FY17. The risk of negative rental reversions arises as rents for these leases were signed during the better times in FY14/15. The potential magnitude of falling rents is still uncertain as it is unclear how aggressive the management of the new office buildings will be in discounting rental rates. Valuation: We maintain our DCF-based TP of S$0.74. Key Risks to Our View: The key risk to our view is a greater-than-expected fall in spot Grade A office rents to below S$7 per square foot per month (psf/mth). At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) OUE Realty Pte Ltd Tong Gordon Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Financials / Real Estate Investment Trusts
1,298 902 / 622 65.1 5.9 29.0 0.07
VICKERS SECURITIES Page 258
Company Guide OUE Commercial REIT Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Prime office assets in the Central Business District (CBD). OUE Commercial Trust (OUECT) comprises three Grade A commercial assets – OUE Bayfront Property and One Raffles Place (ORP) in downtown Central Business District in Singapore, and Lippo Plaza Property in Shanghai, China. The REIT’s total asset under management (AUM) is S$3.4bn, where Singapore contributes close to c.84% of the value. Net Property Income and Margins (%)
Better earnings diversity from the acquisition of a quality asset. The acquisition of ORP (completed in October 2015) was a significant milestone for OUECT as the acquisition more than doubled OUECT’s Singapore NLA (to c.1m sqft from c.400k presently) and portfolio size. From an operational standpoint, we see increased flexibility for the property manager to crosssell and expand its addressable tenant base, as ORP is a different office product when compared to OUE Bayfront. This will thus improve its product offerings to existing and prospective tenants, as well as result in a higher portfolio retention rate.
Distribution Paid / Net Operating CF
Immediate earnings uplift from ORP to drive earnings growth through operational optimisation. OUECT's acquisition of the c.68% beneficial interest in ORP at an average valuation of S$2,382 psf is attractive in our view. While initial yield is estimated to be c.3.4%, the Manager has continued to deliver operationally, through optimising occupancy and rents since taking over. Earnings visibility through Sponsor’s income support for OUE Bayfront till 2018. OUE Bayfront is under an income support arrangement, whereby the Sponsor has undertaken to top up any revenue shortfall below S$14.25m per quarter (or S$57m a year) for a period of five years, up to a maximum sum of S$50m. This provides earnings visibility and downside protection amid potential supply-induced market volatility in 2016-17.
Interest Cover (x)
With OUECT outperforming its initial estimates and thus drawing less from the annual income support amount, this demonstrates the Manager’s flexibility in leasing arrangements in order to maintain a steady earnings profile going forward. Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2 Page 259
Company Guide OUE Commercial REIT
Balance Sheet: Gearing remains high compared to peers. At c.41% post acquisition of ORP, OUECT has one of the highest gearing levels among S-REIT peers, which average in the mid-30’s.
Aggregate Leverage (%)
Long debt tenure minimises refinancing risk. OUECT’s weighted average debt-to-expiry was 1.8 years in 3Q16, with c.78% of debt hedged into fixed rates for 2.7 years. The REIT will have no debt expiring until FY17, reducing near-term refinancing risk. Share Price Drivers: Lower gearing level will partly allay concerns. We believe that the recent lacklustre share price performance could be due to OUECT’s higher gearing versus the S-REITs’ average of c.35%. Given a deteriorating office outlook, investors are concerned that OUECT may need to raise further equity to shore up its balance sheet in the event of deterioration in office values, resulting in the REIT breaching the 45% gearing limit. Rebound in operational results. The office market is on a downtrend, in our view, given looming supply in the midst of weak demand for space. While OUECT has still been able to achieve positive rental reversions for 9M16, we believe this will moderate with risk of negative reversions ahead.
ROE (%)
Distribution Yield (%)
Key Risks: Concentration risk. While the acquisition of ORP will diversify asset-specific risks, OUECT is still heavily exposed to Singapore’s CBD office market via ORP and OUE Bayfront, which account for >80% of earnings. Any downturn or weakness in the Singapore office market could have a significant negative impact on ORP, and the REIT. Decline in office rents. Given the expected increase in office supply over the next two years, there is risk that office rents could fall beyond our expectations, causing OUECT to miss our DPU estimates.
PB Band (x)
Interest rate risk. A rise in interest rate will have a negative impact on distributions. However, the Manager is actively overseeing its exposure through forward hedges and has c.78% of its interest cost hedged into fixed rates with a fairly long duration of 2.7 years. Company Background OUE Commercial REIT (OUECT) is an office REIT with a portfolio of office assets located in prime CBD locations in Singapore and China.
ASIAN INSIGHTS
Source: Company, DBS Bank
VICKERS SECURITIES Page 3 Page 260
Company Guide OUE Commercial REIT
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2015A
2016F
2017F
2018F
101 (25.4) 75.6 (12.5) 0.0 (26.0) 32.1 69.3 (10.4) (1.5) 0.0 57.4 79.2 (21.8) 56.1
177 (39.9) 137 (18.4) 0.0 (54.8) 0.0 63.7 (13.4) (7.3) 0.0 43.0 43.0 31.3 69.0
178 (40.3) 138 (17.1) 0.0 (57.5) 0.0 63.5 (13.9) (7.3) 0.0 42.2 42.2 31.4 68.3
177 (39.9) 137 (15.7) 0.0 (60.3) 0.0 61.0 (13.9) (7.3) 0.0 39.8 39.8 31.4 65.9
41.2 40.5 nm 100.0 74.9 56.8 55.5 12.3 5.2 2.2 2.1 2.4
75.0 81.0 (25.1) 100.0 77.4 24.3 39.0 10.4 3.5 1.2 2.7 2.2
0.8 0.8 (1.7) 100.0 77.4 23.7 38.3 9.6 3.4 1.2 2.8 2.1
(0.8) (0.8) (5.7) 100.0 77.4 22.5 37.3 8.9 3.2 1.1 2.7 2.0
Driven mainly by better performance at Lippo Plaza, offsetting weakness in Singapore
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 261
Company Guide OUE Commercial REIT
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
20.6 (5.1) 15.6 0.03 0.28 (5.5) 0.0 10.4 (1.3) 0.0 9.13 8.04 5.05 13.1
40.3 (10.7) 29.7 (9.3) 30.6 (11.4) 21.8 61.4 (6.5) 0.0 55.0 53.5 (34.6) 17.6
42.9 (9.7) 33.3 (3.5) (0.4) (13.7) 0.0 15.7 (3.9) 0.0 11.8 9.97 8.44 17.0
45.7 (10.5) 35.2 (4.4) (0.3) (13.8) 0.0 16.8 (4.5) 0.0 12.4 10.7 8.45 17.7
44.2 (8.9) 35.3 (4.1) 0.01 (14.2) 0.0 17.1 (4.4) 0.0 12.7 11.0 7.58 17.2
5 6 (3) 75.5 100.0
96 91 502 73.6 100.0
6 12 (79) 77.5 100.0
6 6 5 77.1 100.0
(3) 0 3 80.0 100.0
Balance Sheet (S$m) FY Dec
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
3,403 21.4 25.9 0.0 13.6 0.03 3,464
3,408 21.4 48.8 0.0 12.3 0.03 3,491
3,414 21.4 56.5 0.0 12.4 0.03 3,504
3,419 21.4 63.3 0.0 12.3 0.03 3,516
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
1.73 54.1 11.0 1,302 99.9 1,762 233 3,464
1.73 68.2 11.0 1,307 99.9 1,762 240 3,491
1.73 68.8 11.0 1,313 99.9 1,762 248 3,504
1.73 68.2 11.0 1,318 99.9 1,762 255 3,516
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%)
(51.4) (1,278)
(66.9) (1,260)
(67.3) (1,258)
(66.9) (1,257)
0.6 0.6 37.5
0.8 0.8 37.5
0.8 0.8 37.5
0.9 0.9 37.6
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 262
Page 5
Company Guide OUE Commercial REIT
Cash Flow Statement (S$m) FY Dec
2015A
2016F
2017F
2018F
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash
69.3 4.24 (1.6) 0.0 (3.4) 9.00 77.6 (594) 0.0 0.0 0.0 (1.2) (595) (50.2) 363 212 (12.6) 512 2.50 (2.8)
63.7 0.0 (13.4) 0.0 15.5 31.3 97.1 (5.3) 0.0 0.0 0.0 0.0 (5.3) (69.0) 5.31 0.0 (5.3) (69.0) 0.0 22.8
63.5 0.0 (13.9) 0.0 0.45 31.4 81.3 (5.4) 0.0 0.0 0.0 0.0 (5.4) (68.3) 5.35 0.0 (5.3) (68.2) 0.0 7.78
61.0 0.0 (13.9) 0.0 (0.5) 31.4 78.0 (5.3) 0.0 0.0 0.0 0.0 (5.3) (65.9) 5.30 0.0 (5.3) (65.9) 0.0 6.81
Operating CFPS (S cts) Free CFPS (S cts)
7.18 (45.8)
6.30 7.08
6.18 5.81
5.94 5.50
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Mervin SONG CFA Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 263
Singapore Company Guide
OUE Hospitality Trust Version 6
Refer to important disclosures at the end of this report
| Bloomberg: OUEHT SP | Reuters: OUER.SI
DBS Group Research . Equity
4 Jan 2017
BUY
Keep the faith
Last Traded Price ( 4 Jan 2017): S$0.69 (STI : 2,921.31) Price Target 12-mth: S$0.72 (5% upside and 6.6% yield) Potential Catalyst: Acquisitions and better than expected results Where we differ: Below consensus on expectations of recovery in the Singapore hospitality market in 2018 Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Multiple levers to pull to drive earnings in 2017. We expect Mandarin Orchard Singapore (MOS) to report a 4% decline in revenue per available room (RevPAR) in FY17 versus 0% growth previously. However, we believe DPU growth is still achievable in 2017. This is underpinned by full year contribution of CPEX, draw down of S$7.5m income support for CPEX, as well as the increased contribution from Mandarin Gallery following the opening of the Michael Kors and Victoria Secret stores in 2H16.
Price Relative S$
Relative Index
1.0
215
1.0
195
0.9 175
0.9
155
0.8
135
0.8
115
0.7
95
0.7 0.6 Aug-13
75
Aug-14
Aug-15
OUE Hospitality Trust (LHS)
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 125 109 77.7 87.4 5.21 (6) 6.07 (3) 83.6 13.2 8.9 0.8 41.8 6.2
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
Aug-16
Relative STI (RHS)
2016F 116 101 62.5 77.2 3.86 (26) 4.30 (29) 80.1 17.8 6.3 0.9 37.6 4.7
2017F 120 105 67.8 81.6 3.76 (2) 4.52 5 79.4 18.2 6.6 0.9 37.7 4.7
2018F 125 109 69.6 83.7 3.84 2 4.60 2 78.7 17.8 6.7 0.9 37.7 4.9
(1) 44.5 B: 3
0 5.0 S: 0
5.2 H: 4
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: YM, PY
Boost from timely acquisition. We reiterate our BUY call with a TP of S$0.72. While we now expect the recovery in the Singapore hospitality market to only occur in 2018 from 2017, OUE Hospitality Trust (OUEHT) is one of the best-positioned hospitality REITs to ride out near term headwinds. In fact, through the rebasing of its DPU in FY16 and its timely acquisition of Crown Plaza Changi Airport extension (CPEX) OUEHT should still deliver healthy 5% growth in DPU in 2017.
Removal of overhang. OUEHT’s share price corrected over the past year due to the overhang from (1) potential capital raising to fund the acquisition of CPEX, and (2) gearing that was over 40%. However, these concerns have now been addressed, following the recent rights issue which resulted in OUEHT’s gearing falling to c.37%. Valuation: We maintain our DCF-based TP of S$0.72 which has incorporated delayed expectations for a recovery in the Singapore hospitality market from 2017 to 2018. Key Risks to Our View: Competitive landscape. The key risk to our view is a weakerthan-expected outlook for the Singapore hospitality market. In addition, rents at Mandarin Gallery may fall below expectations if there is a significant deterioration in the Singapore retail scene. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) OUE Realty Ptd Ltd Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trusts
1,790 1,226 / 852 40.0 60.0 0.43
VICKERS SECURITIES Page 264
Company Guide OUE Hospitality Trust Net Property Income and Margins (%) 96.7% 94.7% 92.7%
90.7% 88.7% 86.7% 84.7%
82.7% 2014A
2015A
2016F
Net Property Income
2017F
2018F
Net Property Income Margin %
Net Property Income and Margins (%) 90%
30
89%
29
89%
28
88% 88%
27
87%
26
87%
25
86%
Net Property Income
3Q2016
2Q2016
1Q2016
4Q2015
85%
3Q2015
85%
22
2Q2015
86%
23
1Q2015
24
4Q2014
Stability from fixed rentals. Besides having a more diversified portfolio following the acquisitions of CPCA and CPEX, a significant proportion of OUEHT’s earnings is stable and visible. This arises from minimum S$45m rental from its Sponsor for Mandarin Orchard, and S$22.5m from Crown Plaza Changi Airport.
200 180 160 140 120 100 80 60 40 20 0
3Q2014
Earnings Drivers: Increased contribution from Crowne Plaza Changi Airport. The main earnings driver for OUEHT over the coming year is the increased contribution from the acquisition of the Crown Plaza Changi Airport extension (CPEX) in August 2016 which will add another 243 rooms to the 320-room Crowne Plaza Changi Airport (CPCA) acquired on 30 January 2015. The enlarged CPCA caters to transit passengers as well as visitors to the Singapore Expo and businesses at Changi Business Park. The property offers OUEHT exposure to a submarket that has limited competition, and is a diversification away from Mandarin Orchard which is more focused on the tourism market. While underlying contribution from CPEX is likely to be lower than originally anticipated, this is mitigated by S$7.5m worth of income support that OUEHT is available for draw down over three years.
S$ m
2Q2014
CRITICAL DATA POINTS TO WATCH
Net Property Income Margin %
Distribution Paid / Net Operating CF 1.2
(x)
1.1 1.0
Recovery at Mandarin Gallery. In 2016, Mandarin Gallery Mall suffered from a dip in occupancies, negative rental reversions and fit out period associated with the new Michael Kors and Victoria Secret stores. Nevertheless, earnings from the property should recover in 2016, as occupancies have since recovered and the retail mall will no longer contend with the loss of income from the fit out period for Michael Kors and Victoria Secret.
0.9 0.8 0.7
0.6 0.5 0.4 0.3 2014A
2015A
2016F
2017F
2018F
2017F
2018F
Interest Cover (x)
Short-term headwinds at Mandarin Orchard but supply constrained in the medium term. OUEHT’s Mandarin Orchard (MOS) hotel faces some short-term headwinds due to the 5-6% p.a. growth in new hotel rooms in 2016 and 2017 as well as weak corporate demand. This is likely to result in a decline in RevPAR for MOS. Nevertheless, with the Singapore government not releasing any new hotel sites for development over the last two years constraining supply in the medium term, and supply only projected to only increase by 0.3% in 2018, we expect a recovery for MOS and the Singapore hospitality market in a couple of years’ time. Expansion through acquisitions. Over the medium term, we expect OUEHT to make DPU-accretive acquisitions to expand its portfolio of properties. Its sponsor, OUE Limited, owns service residences at OUE Downtown and a 30% stake in Marina Mandarin, which are potential acquisition targets for OUEHT. In
ASIAN INSIGHTS
(x) 8.00 7.00 6.00 5.00
4.00 3.00 2.00 1.00
0.00 2014A
2015A
2016F
Source: Company, DBS Bank
addition, we understand the REIT is exploring acquisition opportunities in Europe, Japan and the US.
VICKERS SECURITIES
Page 2
Page 265
Company Guide OUE Hospitality Trust
Balance Sheet: Equity raising to fund acquisition. Following the recent S$239m rights issue (441.9m units at S$0.54 per unit) and acquisition of Crown Plaza Changi Airport extension, OUEHT’s gearing has settled around the 37% level.
Aggregate Leverage (%)
40.0%
35.0% 30.0%
25.0%
Share Price Drivers: Delivery of DPU. OUEHT’s share price corrected over the past year due to the overhang from (1) the potential capital raising to fund the acquisition of CPEX, (2) gearing that was over 40% and (3) weakness in the overall Singapore hospitality market. While the Singapore market is likely to remain weak, having taken the dilution associated with the rights issue and suffered lower occupancies and earnings at Mandarin Gallery to secure Michael Kors and Victoria Secret as tenants in 2016, OUEHT is poised to deliver DPU growth on the back of the acquisition of CPEX as well as full contribution from new stores at Mandarin Gallery. We believe the delivery of an increase in DPU in 2017, will re-rate OUEHT ahead of a potential recovery in the Singapore hospitality market in 2018.
20.0% 15.0%
10.0% 2014A
2015A
2016F
2017F
2018F
2017F
2018F
ROE (%) 6.0% 5.0%
4.0% 3.0% 2.0% 1.0%
0.0%
Influx of tourists and lack of new supply. The performance of hospitality REITs is correlated to the growth in tourist arrivals and hotel supply. Should Singapore receive an influx of tourists, sentiment towards OUEHT’s stock price will improve. In addition, with no hotel sites being released by the government over the last two years, this will constrain supply in the medium term which should increase OUEHT’s scarcity value over time.
2014A
2015A
2016F
Distribution Yield (%) (%)
+2sd: 11.5%
11.0 9.0
+1sd: 8.3%
7.0
Avg: 5.2%
5.0
Key Risks: Interest rate risk. Any increase in interest rates will result in higher interest payments that the REIT has to make annually to service its loan. This reduces the income available for distribution, which will result in lower DPU for unitholders. We understand c.90% of the group’s borrowings are on fixed rates. Competitive landscape. The Singapore hospitality market has been impacted by a decline in tourist arrivals this year. Any further deterioration in demand would pose a downside risk to our earnings estimates.
3.0
-1sd: 2% 1.0 -1.02013
2014
2015
2016
2017
PB Band (x) 1.3
(x)
1.2
1.1
+2sd: 1.1x
1.0
+1sd: 1.01x
Avg: 0.93x
0.9
-1sd: 0.84x
0.8
Company Background OUE H-Trust is a Singapore-based REIT, with the principal investment strategy of investing, directly or indirectly, in a portfolio of income-producing hospitality assets.
-2sd: 0.76x 0.7 0.6 Dec-13
Dec-14
Dec-15
Dec-16
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3
Page 266
Company Guide OUE Hospitality Trust
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016F
2017F
2018F
116 (12.7) 103 (11.1) 0.0 (13.4) 0.0 78.7 0.0 0.0 0.0 78.7 78.6 10.4 89.0
125 (15.5) 109 (12.1) 0.0 (22.2) 0.0 74.8 0.0 0.0 0.0 74.8 77.7 9.64 87.4
116 (15.0) 101 (13.4) 0.0 (25.2) 0.0 62.5 0.0 0.0 0.0 62.5 62.5 14.7 77.2
120 (15.3) 105 (10.1) 0.0 (27.3) 0.0 67.8 0.0 0.0 0.0 67.8 67.8 13.9 81.6
125 (15.8) 109 (10.2) 0.0 (29.6) 0.0 69.6 0.0 0.0 0.0 69.6 69.6 14.0 83.7
128.8 130.2 166.5 100.0 89.0 67.9 76.8 9.6 6.5 4.3 5.3 6.9
7.5 5.8 (5.0) 100.0 87.6 60.0 70.1 9.7 6.2 3.8 5.1 4.4
(6.8) (7.3) (16.4) 100.0 87.1 53.8 66.5 11.6 4.7 2.8 4.1 3.5
3.7 4.0 8.4 100.0 87.3 56.3 67.8 8.4 4.7 2.9 4.2 3.5
4.0 4.1 2.7 100.0 87.4 55.6 66.8 8.2 4.9 3.0 4.4 3.4
Growth in distributable income largely due to the full year contribution from recently acquired Crown Plaza Changi extension as well as drawdown of S$7.5m worth of income support.
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 267
Company Guide OUE Hospitality Trust
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
32.7 (3.9) 28.8 (3.1) 0.0 (5.7) 0.0 19.9 0.0 0.0 19.9 19.9 3.07 23.0
33.0 (4.1) 28.8 (3.0) 0.0 (6.6) 0.0 19.3 0.0 0.0 19.3 22.2 0.57 22.8
30.1 (3.9) 26.3 (3.0) 0.0 (6.5) 0.0 16.8 0.0 0.0 16.8 16.8 2.86 19.7
26.9 (3.7) 23.2 (2.9) 0.0 (7.1) 0.0 13.2 0.0 0.0 13.2 13.2 3.39 16.6
33.3 (3.9) 29.4 (3.6) 0.0 (5.8) 0.0 20.0 0.0 0.0 20.0 19.0 2.21 22.3
10 12 17 88.1 100.0
1 0 (3) 87.4 100.0
(9) (9) (13) 87.2 100.0
(11) (12) (22) 86.2 100.0
24 27 52 88.4 100.0
Balance Sheet (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
1,756 0.0 31.3 0.0 9.27 0.0 1,797
2,054 6.25 31.4 0.0 8.88 0.37 2,101
2,264 6.25 52.2 0.0 8.88 0.37 2,332
2,267 6.25 46.3 0.0 8.88 0.37 2,329
2,271 6.25 39.7 0.0 8.88 0.37 2,326
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
0.0 7.19 2.58 583 5.36 1,198 0.0 1,797
292 11.4 2.01 585 3.25 1,207 0.0 2,101
292 11.4 2.01 585 3.25 1,438 0.0 2,332
292 11.4 2.01 585 3.25 1,435 0.0 2,329
292 11.4 2.01 585 3.25 1,432 0.0 2,326
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(0.5) (552)
(4.1) (846)
(4.1) (825)
(4.1) (831)
(4.1) (838)
4.2 4.2 32.5 1.2
0.1 0.1 41.8 0.7
0.2 0.2 37.6 0.8
0.2 0.2 37.7 0.8
0.2 0.2 37.7 0.8
Decrease in gearing due to the recent S$239m rights issue
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 268
Page 5
Company Guide OUE Hospitality Trust
Cash Flow Statement (S$m) FY Dec Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
2014A
2015A
2016F
2017F
2018F
78.7 0.0 0.0 0.0 (13.8) 22.9 87.9 (0.1) 0.0 0.0 0.0 0.03 (0.1) (104) 0.0 0.0 (13.8) (117) 0.0 (29.5)
74.8 0.0 0.0 0.0 0.76 32.9 108 (293) 0.0 0.0 0.0 0.04 (293) (88.2) 292 0.0 (19.2) 185 0.0 0.06
62.5 0.0 0.0 0.0 0.0 11.9 74.4 (210) 0.0 0.0 0.0 0.0 (210) (77.2) 0.0 234 0.0 156 0.0 20.8
67.8 0.0 0.0 0.0 0.0 11.0 78.8 (3.0) 0.0 0.0 0.0 0.0 (3.0) (81.6) 0.0 0.0 0.0 (81.6) 0.0 (5.9)
69.6 0.0 0.0 0.0 0.0 11.2 80.8 (3.8) 0.0 0.0 0.0 0.0 (3.8) (83.7) 0.0 0.0 0.0 (83.7) 0.0 (6.6)
7.14 6.17
7.49 (12.8)
4.59 (8.4)
4.37 4.21
4.46 4.25
Net proceeds from recent right issue (441.9m units at S$0.54 per unit)
Source: Company, DBS Bank Target Price & Ratings History
0.78
S$
12- mt h T arget Rat ing Pric e
0.76
S.No.
Dat e of Report
Closing Pric e
0.74
1:
06 J an 16
0.71
0.85
BUY
2:
21 J an 16
0.69
0.85
BUY
3:
09 May 16
0.67
0.75
BUY
4:
02 Aug 16
0.69
0.75
BUY
5:
05 Sep 16
0.68
0.75
BUY
6:
01 Nov 16
0.69
0.72
BUY
0.72
4
0.70 1 2
6
0.68 0.66
3
5
0.64 0.62 0.60 Jan-16
May-16
Sep-16
Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank Analyst: Mervin SONG CFA Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 269
Singapore Company Guide
Soilbuild Business Space Reit Version 6
Refer to important disclosures at the end of this report
| Bloomberg: SBREIT SP | Reuters: SBSR.SI
DBS Group Research . Equity
4 Jan 2017
BUY
A helping hand from the sponsor
Last Traded Price ( 4 Jan 2017): S$0.66 (STI : 2,921.31) Price Target 12-mth: S$0.75 (15% total return and 9.3% yield ) Potential Catalyst: Better than expected results Where we differ: More conservative estimates than consensus Analyst Derek TAN +65 6682 3716 [email protected] Singapore Research Team [email protected] Mervin SONG CFA +65 6682 3715 [email protected]
Acquisition of Bukit Batok Connection to drive earnings as portfolio undergoes tenant churn. The timely acquisition of Bukit Batok Connection from sponsor Soilbuild Group will diversify the REIT’s earnings and lengthen its weighted average lease expiry (WALE) to 4.7 years. This more than compensates for potential operational headwinds from other assets in the portfolio. In addition, the Manager is actively re-tenanting 72 Loyang Way where Technics is expected to progressively vacate. We understand that the Manager has found tenants for a substantial portion of the space but at lower rents.
Price Relative
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
Negatives priced in, BUY and TP of S$0.75 maintained. With a dividend yield of close to 9.0%, Soilbuild Business Space Reit (SBREIT) offers one of the highest in the industrial space. Despite operational headwinds, we believe that the worst is over. SBREIT’s recent asset acquisition will diversify its portfolio, and updates on back-filling of vacated space at 72 Loyang Way will increase investor confidence for the stock. Maintain BUY.
2015A 79.3 67.8 51.7 57.9 5.28 2 6.49 5 79.8 12.4 9.9 0.8 36.2 6.7
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016F 85.8 72.7 51.0 58.4 5.32 1 6.09 (6) 84.5 12.3 9.3 0.8 35.8 6.5
2017F 92.7 79.4 55.7 63.3 5.38 1 6.11 0 78.4 12.2 9.3 0.8 35.6 6.9
2018F 95.3 81.6 57.5 64.5 5.51 2 6.18 1 78.4 11.9 9.4 0.8 35.5 7.0
0 6.10 B: 4
0 6.30 S: 0
0 5.90 H: 1
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
Look out for asset revaluation. We believe that portfolio valuation could soften come year end, mainly from weaker net property income portfolio-wide, and from 72 Loyang Way after the loss of income from its master tenant. Based on our estimates, a 10%-20% drop in valuations in its properties will only result in gearing rising to 37% (from 36% currently), which is well within the REIT’s comfortable level. Valuation: We have a DCF-backed TP of S$0.75 which has factored in the likely NAV devaluation. Maintain BUY, supported by an attractive yield of over 9.0%. Key Risks to Our View: Interest rate risks. Rise in interest rates in the medium term will have a negative impact on distributions but the Manager has substantially hedged out these risks with a high percentage of fixed-rate borrowings. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Chap Huat Lim Schroders Plc Jinquan Tong Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trusts
ASIAN INSIGHTS ed: JS/ sa: YM, PY
1,042 683 / 471 24.9 8.0 6.9 59.4 0.68
VICKERS SECURITIES Page 270
Company Guide Soilbuild Business Space Reit Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Well-staggered lease expiry profile offers income stability. SBREIT has a healthy weighted average lease-to-expiry (WALE) profile of 4.7 years by gross rental income as at 3Q16. Within SBREIT’s portfolio, 49% of net property income is derived from master lease agreements that provide long-term leases ranging from 5-15 years which contain annual escalations in the range of 2.0-5.0%, ensuring a steady growth profile.
Net Property Income and Margins (%)
Steady occupancy rates; Manager to focus on tenant retention rate. In view of the increasing supply outlook, the Manager of SBREIT is looking to forward renew expiring leases with the aim of maintaining a high level of portfolio occupancy. Outlook remains modest with rental reversions expected to moderate for its main properties (West Park Biz Central and Tuas Connection). Given the competitive industrial landscape, the Manager is aiming to retain tenants rather than pushing rents higher, which in our view, is a right strategy to underpin earnings resiliency. Acquisitions to drive earnings. The acquisition of Bukit Batok Connection will contribute from 4Q16. We expect distributions (and DPUs) to increase q-o-q from the full-quarter contribution of Bukit Batok Connection. This is expected to compensate for the expected weakness in rental reversions from WestPark Biz Central and Tuas Connection 9 and back-filling of vacated space at 72 Loyang Way. While the property will be leased-back to the sponsor on a 7–year lease, we understand that underlying occupancy is improving, currently at c.43%-44% with tenants from diversified industries taking up space. We believe that the acquisition provides much needed stability and visibility to the REIT’s earnings especially coming from the uncertainty regarding 72 Loyang Way and the general negative rental reversions felt across the assets in the portfolio Technics re-tenanting update. Impact of Technics not paying rent is compensated by the drawdown of cash from 18-month deposit that SBREIT has called on. As at 3Q16, we understand that the Manager is already in discussions with a number of tenants who might be interested to take up the vacated space as 72 Loyang Way (Technics’ Property) is undergoing a judicial management process. If these discussions are concluded, most of the vacated space is expected to be filled up. However, rental rates are expected to be lower that the estimated c. S$3.0psf that Technics was paying. That said, we believe that the successful back-filing of space at 72 Loyang Way will provide investors with increased comfort on the income stability going forward.
ASIAN INSIGHTS
Distribution Paid / Net Operating CF
Interest Cover (x)
Source: Company, DBS Bank
VICKERS SECURITIES
Page 2 Page 271
Company Guide Soilbuild Business Space Reit
Balance Sheet: Gearing remains within management's comfort level. SBREIT's current gearing remains at the lower end of management’s range of 35-40% which provides sufficient headroom and financial flexibility for the REIT to acquire opportunistically.
Aggregate Leverage (%)
Prudent capital management; 100% of interest costs hedged into fixed rates. All-in cost of debt fell marginally to 3.42% from 3.44%. Average debt maturity stays at 3.1 years and interest rate for 88.5% of borrowings has been fixed. Share Price Drivers: High yields of >8.0%; one of the highest among S-REITs. SBREIT currently offers one of the highest yields among industrial REITs. We believe this is unjustified given the REIT’s superior portfolio of high-quality industrial assets with a niche exposure in the business park segment, which is expected to deliver a more resilient performance than peers. In addition, with 49% of its income pegged to single-tenant properties, we believe that SBREIT offers one of the strongest income visibilities among industrial REITs. Better-than-expected operational performance. Better-thanprojected rental reversions from its main assets - namely West Park Biz Central and Tuas Connection - will mean upside to our DPU forecasts, implying higher TPs. In addition, with investors’ concerns of rising vacancy risks due to increased competition from new completing supply, the ability to maintain a sustained occupancy profile will lift investors’ confidence in SBREIT’s ability to deliver consistent returns over time.
ROE (%)
Distribution Yield (%)
Key Risks: Higher interest rates. Any increase in refinancing rates will negatively impact distributions. The Manager has put in place interest rate swaps/MTNs of 1-4 years to essentially convert c.98% of its debt into fixed rates.
PB Band (x)
Company Background Soilbuild Business Space REIT is a real estate investment trust that invests in income-producing real estate used primarily for business space purposes in Singapore. Its flagship asset is Solaris, located in the one-north business park. The REIT is backed by Soilbuild Group, a household name in the construction and real estate business in Singapore.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3 Page 272
Company Guide Soilbuild Business Space Reit
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016F
2017F
2018F
68.1 (10.8) 57.4 (6.5) 0.0 (9.7) 0.90 42.1 0.0 0.0 0.0 42.1 42.1 8.11 50.2
79.3 (11.6) 67.8 (7.8) 0.0 (12.8) 0.0 47.1 0.0 0.0 0.0 47.1 51.7 6.21 57.9
85.8 (13.1) 72.7 (8.5) 0.0 (13.2) 0.0 51.0 0.0 0.0 0.0 51.0 51.0 7.39 58.4
92.7 (13.3) 79.4 (8.5) 0.0 (15.2) 0.0 55.7 0.0 0.0 0.0 55.7 55.7 7.57 63.3
95.3 (13.6) 81.6 (7.6) 0.0 (16.5) 0.0 57.5 0.0 0.0 0.0 57.5 57.5 7.02 64.5
177.4 178.4 180.7 100.0 84.2 61.7 73.6 9.6 6.5 4.2 5.1 5.3
16.4 18.2 12.0 100.0 85.4 59.4 72.9 9.8 6.7 4.2 5.3 4.7
8.1 7.2 8.2 100.0 84.7 59.4 68.1 9.9 6.5 4.0 5.1 4.9
8.1 9.3 9.3 100.0 85.6 60.1 68.3 9.1 6.9 4.2 5.4 4.7
2.7 2.8 3.2 100.0 85.7 60.4 67.7 8.0 7.0 4.3 5.6 4.5
Driven by acquisitions
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 273
Company Guide Soilbuild Business Space Reit
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
20.7 (2.9) 17.8 (1.8) 0.0 (3.5) 0.0 12.5 0.0 0.0 12.5 12.5 2.65 15.1
20.4 (2.9) 17.5 (2.4) 0.0 (3.1) 0.0 12.0 0.0 0.0 12.0 16.5 (1.4) 15.1
20.1 (2.9) 17.2 (1.8) 0.0 (3.1) 0.0 12.4 0.0 0.0 12.4 12.4 2.24 14.6
19.6 (2.2) 17.3 (1.7) 0.0 (3.2) 0.0 12.4 0.0 0.0 12.4 12.4 2.31 14.7
19.7 (2.5) 17.3 (1.8) 0.0 (3.4) 0.0 12.1 0.0 0.0 12.1 12.1 2.47 14.6
6 6 8 85.9 100.0
(1) (2) (4) 85.6 100.0
(1) (2) 3 85.4 100.0
(3) 1 0 88.5 100.0
1 0 (3) 87.5 100.0
Balance Sheet (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
1,031 0.96 21.0 0.0 0.82 0.55 1,054
1,191 3.41 16.8 0.0 2.44 1.24 1,215
1,289 3.41 23.1 0.0 0.86 1.24 1,318
1,291 3.41 27.0 0.0 0.93 1.24 1,324
1,293 3.41 29.9 0.0 0.95 1.24 1,329
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
94.6 8.68 2.58 274 23.0 651 0.0 1,054
0.0 10.1 2.72 399 57.2 746 0.0 1,215
0.0 8.58 2.72 439 57.2 811 0.0 1,318
0.0 9.27 2.72 439 57.2 816 0.0 1,324
0.0 9.53 2.72 439 57.2 821 0.0 1,329
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(9.9) (348)
(9.2) (382)
(9.2) (415)
(9.8) (412)
(10.1) (409)
0.2 0.2 35.8 0.9
1.6 1.5 36.2 1.0
2.2 2.1 35.8 1.0
2.4 2.3 35.6 1.0
2.6 2.5 35.5 1.1
Gearing to remain steady
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 274
Page 5
Company Guide Soilbuild Business Space Reit
Cash Flow Statement (S$m) FY Dec
2014A
2015A
2016F
2017F
2018F
42.1 0.0 0.0 0.0 3.41 8.40 53.9 (94.8) 0.0 0.0 0.0 0.0 (94.8) (49.4) 91.5 (0.1) 0.0 41.9 0.0 1.00
47.1 0.0 0.0 0.0 (0.7) 10.7 57.1 (124) 0.0 0.0 0.0 0.0 (124) (55.7) 29.6 90.0 (1.6) 62.3 0.0 (4.2)
51.0 0.0 0.0 0.0 0.04 5.59 56.6 (98.3) 0.0 0.0 0.0 0.0 (98.3) (58.4) 40.0 66.4 0.0 48.0 0.0 6.33
55.7 0.0 0.0 0.0 0.63 5.77 62.1 (2.0) 0.0 0.0 0.0 0.0 (2.0) (63.3) 0.0 7.07 0.0 (56.2) 0.0 3.90
57.5 0.0 0.0 0.0 0.23 5.22 63.0 (2.0) 0.0 0.0 0.0 0.0 (2.0) (64.5) 0.0 6.52 0.0 (58.0) 0.0 2.95
6.24 (5.1)
6.48 (7.5)
5.90 (4.3)
5.93 5.80
6.01 5.84
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Derek TAN Singapore Research Team Mervin SONG CFA
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 275
Singapore Company Guide
SPH REIT Refer to important disclosures at the end of this report
Version 4 | Bloomberg: SPHREIT SP | Reuters: SPHR.SI
DBS Group Research . Equity
4 Jan 2017
HOLD
Potential influx of new traffic to Paragon
Last Traded Price ( 4 Jan 2017): S$0.96 (STI : 2,921.31) Price Target 12-mth: S$1.00 (4% upside and 5.9% yield) Potential Catalyst: Better-than-expected rental reversion; acquisition of Seletar Mall Where we differ: More bullish on rents at selected Orchard Rd malls Analyst Singapore Research Team Derek TAN +65 6682 3716 [email protected]
Price Relative
Forecasts and Valuation FY Aug (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2015A 205 156 154 139 6.08 (29) 5.47 1 94.3 15.7 5.7 1.0 25.5 6.5
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016A 210 161 128 141 5.02 (17) 5.55 1 93.4 19.0 5.8 1.0 25.5 5.3
2017F 226 164 127 145 4.97 (1) 5.66 2 92.7 19.2 5.9 1.0 26.0 5.3
2018F 231 168 129 148 5.02 1 5.72 1 92.1 19.0 6.0 1.0 26.2 5.4
B: 3
5.7 S: 0
5.7 H: 3
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: TH / sa: JC, PY
Stock is fairly priced. We currently have a HOLD recommendation, with TP of S$1.00. SPH REIT's dividend yield of 5.7% reflects the strength of its assets and stability of earnings. However, at this point we believe that comparable retail S-REITs offer more attractive yields. Paragon to continue to drive earnings growth. We believe that Paragon will continue to outperform the rest of Orchard Road for both retail and office assets, due to its (a) location and frontage in the prime Orchard Road shopping district, as well as (b) proximity to the Mount Elizabeth medical cluster. As such, we assume reversions of 3.5-4.0% for Paragon. A linkbridge connecting Cairnhill redevelopment and Paragon, to be opened in November/December 2016, may draw new traffic to the mall. At Clementi Mall, more than 50% lease expirations in FY17 could set a new base for rent. Potential acquisition a catalyst. With a healthy gearing of 25.7% and cost of debt of 2.82%, SPH REIT is well poised for debtfunded acquisitions. The next growth catalyst for the REIT will be the acquisition of the Sponsor’s 70% stake in Seletar Mall. However, we believe this acquisition is likely to be more of a medium term-prospect, as the mall was only completed in December 2014 and is still on its first lease cycle. Valuation: We have a DCF-backed target price of S$1.00, implying a dividend yield of 5.7% for FY17F-18F. Due to the lack of nearterm catalysts and limited upside to TP, we maintain our HOLD call. Key Risks to Our View: Short WALE due to lease expirations at Clementi Mall. The portfolio has a relatively short WALE of 2.3 years by NLA. 18.5% of portfolio NLA (c.166,000 sqft) will expire in FY17. The majority comes from Clementi Mall where more than 50% or close of 104,000 sqft of the mall’s NLA are due in the next 12 months. At A Glance Issued Capital (m shrs) 2,551 Mkt. Cap (S$m/US$m) 2,436 / 1,692 Major Shareholders (%) Singapore Press Holdings 68.7 Free Float (%) 31.3 3m Avg. Daily Val (US$m) 0.70 ICB Industry : Real Estate / Real Estate Investment Trusts
VICKERS SECURITIES Page 276
Company Guide SPH REIT Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Maximising mall efficiency to generate higher yields. At the Paragon, the additional 7k sqft of net lettable area (NLA) to be generated by the chiller decanting project is progressing as scheduled. Once completed, it is expected to generate additional revenue of c.S$1m p.a. and ROI of >7%. This project will be spread over three years from September 2015 to March 2018, in order to coincide with various lease expiries of tenants in the area. Stable earnings profile over FY17 and FY18. SPH REIT secured overall rental reversions 5.4% for FY16 (5.2% for Paragon; 7.8% for Clementi Mall) while maintaining a track record of 100% occupancy. As at 31 August 2016, the REIT’s portfolio had a weighted average lease expiry (WALE) of 2.3 years and 2.2 years by NLA and gross rental income respectively. We expect earnings to be stable over the next two years. The next largest leasing tranche will be in FY17, when 51.6% of the mall’s NLA will come up for renewal. Regardless of the results, earnings next year should be stable due to the income support from the Sponsor at Clementi Mall. However, reversion levels are still crucial as they could set a new base for Clementi Mall when the income support ends in 2018. Healthy occupancy costs ensure a vibrant medium-term outlook for the malls. While Paragon’s occupancy costs rose to 19.6% as tenant sales grew at a slower rate than rents, we note that this is still within the healthy range for a mall in Orchard Road, where tenants are typically willing to count higher rents as part of marketing costs. Higher sales growth in subsequent years will allow the REIT to generate higher rental revenue in a sustainable manner.
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Revitalised tenant mix. The REIT has a strategy to continuously restructure the tenant mix to keep its investment properties relevant to respective target shoppers. The aim is to enable the REIT to reap better tenant synergies to improve traffic and potentially boost the attractiveness of its malls which can lead to higher rental reversions and renewals.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2 Page 277
Company Guide SPH REIT
Aggregate Leverage (%)
Balance Sheet: Gearing. SPH REIT has maintained a healthy gearing ratio at 25.7% that is well within the Manager’s comfortable range of up to 40%. This provides the REIT with significantly larger headroom for debt financing should it decide to gear up on acquisitions. Net Asset Value (NAV) per unit. NAV of S$0.94 is underpinned by stable asset valuations. Share Price Drivers: Potential acquisitions. With a healthy gearing at 25.7% and cost of debt of 2.82%, SPH REIT is well poised for debt-funded acquisition activities. The next growth catalyst for the REIT will be the acquisition of the Sponsor’s 70% stake in Seletar Mall, which was completed in December 2014. However, this acquisition is likely to be more of a medium-term prospect, as the mall is still in its first leasing cycle and has yet to stabilise.
ROE (%)
Key Risks: Interest rate risk. The REIT has muted exposure to changes in interest rates with no debt maturing until 2018 and 85.9% of its S$850m debt facility on a fixed rate basis. Distribution Yield (%)
Visitor traffic is trending down by 2.5% and 2.4% for FY16 full year at Paragon and Clementi Mall respectively. However, we do not believe it is a concern. Paragon’s tenant sales registered a positive growth of 1.4%, and more traffic could be drawn from the opening of the linkbridge. Decline at Clementi Mall was most likely from the unproductive traffic as a new MRT exit at Clementi station opened early in the year provides an alternative route for the train passengers.
6.3
(%)
+2sd: 6.1%
6.1 5.9
+1sd: 5.8%
5.7
Avg: 5.5%
5.5 5.3
-1sd: 5.2%
5.1 4.9
-2sd: 4.9%
4.7 4.5 2013
2014
Short WALE mainly due to Clementi Mall. The portfolio has a relatively short WALE of 2.3 years by NLA. 18.5% of portfolio NLA (c.166,000 sqft) will expire in FY17. The majority comes from Clementi Mall.
2015
2016
PB Band (x)
Management fees payable in units. The REIT is one of the few S-REITs that pays 100% of management fees in units as opposed to cash (S$16.3m in FY16, 11.7% boost to distributions). We believe that DPU growth may not be sustainable in the longer term due to continuous share dilution and the Management has no plans to tweak the payment structure. Source: Company, DBS Bank
Company Background SPH REIT is a real estate investment trust that invests in income-producing retail malls in Singapore. It currently owns the Paragon Mall within the Orchard Road district, as well as Clementi Mall, located in the west of Singapore.
ASIAN INSIGHTS
VICKERS SECURITIES Page 3 Page 278
Company Guide SPH REIT
Income Statement (S$m) FY Aug Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016A
2017F
2018F
202 (51.6) 151 (17.2) 0.0 (19.6) 103 217 0.0 0.0 0.0 217 217 22.5 136
205 (49.5) 156 (17.7) 0.0 (21.0) 36.6 154 0.0 0.0 0.0 154 154 21.6 139
210 (48.7) 161 (17.9) 0.0 (23.1) 7.69 128 0.0 0.0 0.0 128 128 21.2 141
226 (62.0) 164 (16.9) 0.0 (19.6) 0.0 127 0.0 0.0 0.0 127 127 18.2 145
231 (63.6) 168 (17.2) 0.0 (21.3) 0.0 129 0.0 0.0 0.0 129 129 18.4 148
(6.7) (5.2) 85.0 100.0 74.5 107.1 67.4 8.5 9.6 6.8 4.2 6.8
1.4 3.3 (29.1) 100.0 75.9 74.9 67.5 8.6 6.5 4.7 4.2 6.6
2.2 3.4 (16.9) 100.0 76.8 60.9 67.3 8.6 5.3 3.9 4.4 6.2
7.7 1.8 (0.3) 100.0 72.5 56.3 64.4 7.5 5.3 3.8 4.5 7.5
2.4 2.4 1.7 100.0 72.5 55.9 63.9 7.4 5.4 3.9 4.6 7.1
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 279
Company Guide SPH REIT
Quarterly / Interim Income Statement (S$m) FY Aug 4Q2015 1Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
2Q2016
3Q2016
4Q2016
50.8 (12.6) 38.2 (4.3) 0.0 (5.8) 36.6 64.7 0.0 0.0 64.7 132 5.42 33.6
52.1 (12.0) 40.1 (4.5) 0.0 (5.8) 0.0 29.8 0.0 0.0 29.8 28.6 5.48 35.3
53.1 (12.5) 40.6 (4.6) 0.0 (5.8) 0.0 30.3 0.0 0.0 30.3 30.7 6.18 36.4
52.2 (12.2) 40.0 (4.6) 0.0 (5.8) 0.0 29.6 0.0 0.0 29.6 29.3 5.36 35.0
52.2 (12.0) 40.2 (4.3) 0.0 (5.7) 7.69 37.9 0.0 0.0 37.9 28.1 4.17 34.4
(1) (3) 121 75.1 104.8
3 5 (54) 77.0 95.4
2 1 1 76.5 97.5
(2) (1) (2) 76.6 98.8
0 0 28 77.0 104.5
Balance Sheet (S$m) FY Aug
2014A
2015A
2016A
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
3,159 13.5 90.7 0.0 5.91 0.0 3,269
3,213 14.4 77.4 0.0 5.01 0.37 3,310
3,230 7.99 67.4 0.0 5.89 0.0 3,311
3,240 7.99 43.3 0.0 5.89 0.0 3,297
3,245 7.99 46.6 0.0 5.89 0.0 3,305
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
0.0 35.1 0.0 843 37.7 2,353 0.0 3,269
249 30.2 0.0 596 36.7 2,398 0.0 3,310
0.0 34.2 0.0 846 42.7 2,389 0.0 3,311
0.0 11.9 0.0 856 42.7 2,387 0.0 3,297
0.0 12.2 0.0 866 42.7 2,385 0.0 3,305
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(29.2) (752)
(24.9) (768)
(28.3) (779)
(6.0) (813)
(6.3) (819)
2.7 2.7 25.8 3.5
0.3 0.3 25.5 3.4
2.1 2.1 25.5 3.5
4.1 4.1 26.0 3.5
4.3 4.3 26.2 3.5
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 280
Page 5
Company Guide SPH REIT
Cash Flow Statement (S$m) FY Aug
2014A
2015A
2016A
2017F
2018F
114 0.12 0.0 0.0 21.0 39.5 175 (2.7) (0.2) 0.0 0.0 0.21 (2.7) (115) 0.0 (9.0) (17.8) (142) 0.0 29.8
117 0.16 0.0 0.0 1.28 40.0 158 (15.3) (0.1) 0.0 0.0 0.61 (14.8) (138) (0.2) (18.8) 0.0 (157) 0.0 (13.3)
120 0.21 0.0 0.0 (1.9) 16.1 134 (8.5) (0.1) 0.0 0.0 0.85 (7.8) (139) (1.0) (22.3) 0.0 (162) 0.0 (35.6)
127 0.0 0.0 0.0 (22.3) 16.3 121 (9.9) 0.0 0.0 0.0 0.0 (9.9) (145) 10.0 0.0 0.0 (135) 0.0 (24.1)
129 0.0 0.0 0.0 0.29 16.5 146 (5.0) 0.0 0.0 0.0 0.0 (5.0) (148) 10.0 0.0 0.0 (138) 0.0 3.37
6.10 6.82
6.22 5.66
5.36 4.95
5.61 4.35
5.66 5.48
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Singapore Research Team Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 281
Singapore Company Guide
Suntec REIT Version 5
Refer to important disclosures at the end of this report
| Bloomberg: SUN SP | Reuters: SUNT.SI
DBS Group Research . Equity
4 Jan 2017
HOLD
Fairly priced
Last Traded Price ( 4 Jan 2017): S$1.65 (STI : 2,921.31) Price Target 12-mth: S$1.71 (4% upside and 6.1% yield) Potential Catalyst: Better-than-expected operational results Where we differ: Estimates in line with consensus Analyst Mervin SONG CFA +65 6682 3715 [email protected] Derek TAN +65 6682 3716 [email protected]
Weak retail outlook to cap upside from asset enhancement initiative. Assuming a typical 3-year lease cycle, tenants at phase 1 and 2 of the Suntec mall will be entering their first reversionary cycle in 2016 and 2017. We understand that rental reversion trends have been mixed, given the weak operating climate. The Manager is looking to tweak the tenant mix going forward.
Price Relative
Forecasts and Valuation FY Dec (S$m) Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%)
2014A 282 192 317 230 9.18 (8) 9.40 1 216 18.0 5.7 0.8 34.7 4.3
Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2015A 330 229 354 252 8.95 (2) 10.0 6 215 18.4 6.1 0.8 35.8 4.2
2016F 344 243 192 256 7.56 (16) 10.0 0 210 21.8 6.1 0.8 37.5 3.6
2017F 352 250 200 259 7.77 3 10.0 0 206 21.2 6.1 0.8 38.0 3.7
B: 0
0 10.0 S: 9
0 10.0 H: 12
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: JC, PY
Range bound for now. We maintain our HOLD call with a TP of S$1.71. We believe Suntec REIT’s share price will be range bound in the near term due to headwinds in the retail sector, which will likely cap its earnings as Suntec mall’s rents have underperformed the Manager’s initial target. In addition, there could be downside risk for the REIT’s office assets, which are expected to see some volatility in rents and occupancies when new office supply enters the CBD from 2016 onwards.
But expect stable DPU through increased contribution from Australian assets and capital distributions. Despite potential downside risk to earnings at Suntec REIT’s Singapore properties, we expect a stable DPU profile going forward. This will be achieved through (i) increased earnings contribution from the completion of 177 Pacific Highway (Sydney) project in 2H16 and the recent acquisition of a 25% stake in the Southgate Complex in Melbourne, and (ii) payout of proceeds from the disposal of Park Mall. Valuation: With limited upside to our DCF-based TP of S$1.71 we maintain our HOLD recommendation. Key Risks to Our View: Upside risk from acquisitions and better rental performance. The key risks to our neutral view are DPU accretive acquisitions and/or better rental performance achieved despite the headwinds in the Singapore office and retail market. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) Gorden Tang Ltd Blackrock ARA Re Investment Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
2,534 4,180 / 2,904 11.0 6.9 6.0 71.1 6.5
VICKERS SECURITIES Page 282
Company Guide Suntec REIT Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Office portfolio faces some earnings risk. Suntec REIT currently owns three office assets in Singapore’s CBD – Suntec Office, One Raffles Quay (ORQ; 33%), and MBFC Towers 1 and 2 (33%). With the expected oversupply of the Singapore office market upon the completion of several new offices at the end of 2016 and 2017, Suntec REIT’s properties may face stiffer competition for its tenants as well as downward pressure on rents. Partially mitigating this is the significant forward renewals already completed at ORQ and MBFC Tower 2 as well as the strong positioning of Suntec Office which has the advantage of ample car parking spaces, connectivity to two MRT stations and a wide choice of amenities given its location next to Suntec City Mall. Retail headwinds. With Singapore consumers cutting back on discretionary spending and compared to the initial rents signed at Suntec Mall during more buoyant times, rents at Suntec Mall will likely continue to be under pressure. Nevertheless, with the recent appointment of Mr Chan Kong Leong formerly of CapitaMalls Asia, recent changes in tenant mix including the introduction of new to market retail brands, improved marketing, greater number of events as well as better engagement with its tenants, tenant sales and foot traffic have improved. This should largely arrest the decline in rents, signaling a potential a stabilisation of retail rents if the improvement in tenant sales and foot traffic is sustained. Secure income contribution from 177 Pacific Highway. Suntec REIT’s 177 Pacific Highway property located in North Sydney which was finally completed in August 2016 will provide geographic diversification to its portfolio and improve the REIT’s income stream. The property is anchored by Leighton Holdings will take up 76% of the net lettable area for an approximate lease period of 10 years. 30% stake in redevelopment of Park Mall offers development upside. Suntec REIT completed the sale of Park Mall for S$412m in 4Q15, and has taken a 30% stake in the JV which will completely redevelop Park Mall into a commercial development comprising two office towers with an ancillary retail podium. Suntec REIT will subsequently have the option to acquire one of the two office towers. While details of this redevelopment project have yet to be finalised, acquisition of the office tower will be a long-term growth driver for the REIT.
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Source: Company, DBS Bank
Recent acquisition of Southgate property in Melbourne. Suntec REIT recently announced the acquisition of 25% stake in Southgate, a mixed office retail property in Melbourne for A$154.9m. This acquisition adds another leg of growth that will mitigate the slowdown faced by Suntec REIT in Singapore.
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2 Page 283
Company Guide Suntec REIT
Balance Sheet: Comfortable level of gearing. Post the acquisition of 25% interest in the Southgate Complex, Suntec REIT’s gearing is expected to stabilise around the 37% level.
Aggregate Leverage (%)
Minimal refinancing needs in FY16-17. Suntec REIT has more than 60% of its borrowings hedged and minimal refinancing requirements for the remainder of FY16 and in FY17. As such, the REIT is fairly well protected against near-term interest rate volatility. ROE (%)
Share Price Drivers: Better-than-expected performance at Suntec City retail. Higher occupancy rates at Suntec City retail, as well as better-thanexpected rental reversions, would present upside to our earnings estimates. Acquisitions. The Manager could redeploy remaining proceeds of c.S$284m from the divestment of Park Mall into yieldaccretive acquisitions, which would boost DPU growth and diversify the REIT’s earnings base. Key Risks: Retail rental reversion risk. With a slowdown in retail sector, rents at Suntec City Mall may face downward pressure causing weakness in Suntec REIT’s DPU.
Distribution Yield (%)
Vacancies at Suntec office. While we have flagged MBFC and ORQ as key earnings risks in the Trust’s office portfolio, we believe that occupancy and rents will remain stable at Suntec Towers (office) due to its more differentiated product offerings. Thanks to Suntec office’s staggered lease expiry profile, any decline in rents will not be evident immediately. However, higher vacancies could present some downside risks to our earnings assumptions.
PB Band (x)
Company Background Suntec REIT has a portfolio of office and retail properties in Singapore and Australia. Its most prominent asset is Suntec City, which comprises four office towers, a retail mall, and a convention centre, located close to the city area of Singapore.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 3 Page 284
Company Guide Suntec REIT
Income Statement (S$m) FY Dec Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2013A
2014A
2015A
2016F
2017F
234 (85.4) 149 (57.7) 20.1 (55.3) 11.0 239 4.72 (17.6) 0.0 226 364 (172) 211
282 (90.8) 192 (77.2) 19.3 (44.8) (3.4) 225 (7.0) 1.75 0.0 219 317 (97.6) 230
330 (100) 229 (59.1) 13.8 (47.2) 7.34 244 (6.7) (12.1) 0.0 225 354 (121) 252
344 (101) 243 (46.0) 0.0 (43.6) 0.0 210 (10.2) (7.5) 0.0 192 192 63.8 256
352 (102) 250 (46.8) 0.0 (54.4) 0.0 219 (11.7) (7.9) 0.0 200 200 58.9 259
(10.6) (9.0) (6.7) 100.0 63.5 96.4 90.2 24.7 4.7 2.8 1.1 1.6
20.6 28.9 (2.8) 100.0 67.9 77.7 81.5 27.3 4.3 2.6 1.3 2.6
16.7 19.6 2.7 100.0 69.6 68.4 76.5 17.9 4.2 2.6 1.9 3.6
4.3 5.8 (14.6) 100.0 70.6 56.0 74.6 13.4 3.6 2.1 2.1 4.5
2.5 3.1 3.8 100.0 71.0 56.7 73.5 13.3 3.7 2.2 2.1 3.7
Driven mainly from the contribution of 177 Pacific Highway and Southgate in Australia
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 285
Company Guide Suntec REIT
Quarterly / Interim Income Statement (S$m) FY Dec 3Q2015 4Q2015 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
1Q2016
2Q2016
3Q2016
86.1 (27.6) 58.5 (12.4) 1.01 (14.8) 5.08 51.2 (2.0) (2.3) 46.9 46.9 12.1 63.6
87.5 (25.1) 62.5 (12.6) 1.17 (10.6) (2.9) 94.1 (1.6) (5.4) 87.1 216 11.8 228
78.3 (24.4) 54.0 (12.3) 0.0 (20.5) (2.1) 35.0 (1.3) (1.3) 32.4 32.4 14.7 51.1
78.9 (26.3) 52.7 (12.2) 0.0 (9.1) (1.7) 46.2 (1.4) (1.4) 43.4 43.4 16.0 67.4
82.4 (25.1) 57.2 (13.0) 0.0 (10.9) 1.33 55.3 (1.7) (1.4) 52.2 52.2 8.13 64.3
6 3 6 67.9 100.0
2 7 86 71.4 100.0
(11) (14) (63) 68.9 100.0
1 (2) 34 66.7 100.0
4 9 20 69.5 100.0
Balance Sheet (S$m) FY Dec
2013A
2014A
2015A
2016F
2017F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
5,741 2,370 181 0.01 29.1 0.0 8,322
5,948 2,488 150 0.0 16.7 0.14 8,602
5,800 2,704 445 0.0 12.8 3.04 8,965
5,852 2,859 396 0.0 13.4 3.04 9,123
5,854 2,859 395 0.0 13.7 3.04 9,125
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
772 91.2 20.8 2,389 64.0 4,844 141 8,322
0.0 107 23.3 2,981 73.0 5,305 113 8,602
370 108 21.7 2,843 60.2 5,444 119 8,965
370 109 30.6 3,048 60.2 5,380 126 9,123
370 110 32.1 3,098 60.2 5,321 134 9,125
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(82.9) (2,980)
(113) (2,831)
(114) (2,767)
(123) (3,022)
(125) (3,072)
0.2 0.2 38.0 0.8
1.3 1.3 34.7 0.9
0.9 0.9 35.8 0.9
0.8 0.8 37.5 0.8
0.8 0.8 38.0 0.8
Gearing to inch higher to 38%
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 286
Page 5
Company Guide Suntec REIT
Cash Flow Statement (S$m) FY Dec Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
2013A
2014A
2015A
2016F
2017F
239 0.0 (4.1) (172) (1.3) 91.2 153 (189) 0.0 0.0 0.0 (32.6) (222) (208) 260 0.0 (1.0) 50.6 0.0 (18.6)
225 0.0 0.0 (139) 14.4 95.7 196 (96.4) 0.0 0.0 0.0 30.5 (65.9) (224) 98.2 342 (376) (160) (1.7) (31.6)
244 0.0 (1.8) (100) 3.70 85.3 231 (40.8) 304 (15.0) 56.2 (123) 181 (247) 139 0.0 (7.1) (115) (1.7) 296
210 0.0 (1.3) (57.2) 0.25 0.0 152 (52.0) 0.0 (155) 57.2 0.0 (150) (256) 205 0.0 0.0 (51.4) 0.0 (49.2)
219 0.0 (10.2) (70.5) 0.87 0.0 140 (2.0) 0.0 0.0 70.5 0.0 68.5 (259) 50.0 0.0 0.0 (209) 0.0 (0.8)
6.81 (1.6)
7.59 4.15
9.04 7.57
5.96 3.93
5.39 5.34
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Mervin SONG CFA Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 287
Singapore Company Guide
YTL Starhill Global REIT Version 4
Refer to important disclosures at the end of this report
| Bloomberg: SGREIT SP | Reuters: STHL.SI
DBS Group Research . Equity
4 Jan 2017
BUY
The Magic of Payout Ratio
Last Traded Price ( 4 Jan 2017): S$0.76 (STI : 2,921.31) Price Target 12-mth: S$0.87 (15% upside and 6.9% distribution BUY for asset diversification and high income visibility from master leases. We like YTL Starhill Global REIT (SGREIT) for its yield) diversified portfolio of prime retail and office assets in the Asia Pacific region. Singapore, Australia, and Malaysia which accounted for 62.6%, Potential Catalyst: Turnaround signals at Wisma Atria; appreciation of 19.5%, and 14.6% of net property income (NPI) in FY16 (FYE June) MYR and/or AUD against SGD respectively, limiting exposure and thereby risk to any single country. Where we differ: We are largely in line with consensus With c.45% of top line derived from master leases or long leases, the Analyst REIT offers investors income stability and visibility, as well as upside Singapore Research Team [email protected] potential from rental reversions embedded in the master leases. Derek TAN +65 6682 3716 [email protected] Wisma Atria turning positive as occupancy edged back up. Wisma Atria (Retail)’s occupancy improved to 99.5% from 94.9% over the last three quarters and footfall has increased by 6.6% y-o-y, thanks to the tenant mix reconfiguration and the reopening of Isetan department store in the same mall. We understand that the decline in revenue was a result of converting level 1 from Fashion into F&B, which consists of stickier tenants but yields lower rents. This is expected to drive higher footfall for the floor going forward. The gradual re-opening of Isetan should drive more footfall into the mall and eventually translate to higher rents on other floors.
Price Relative
Forecasts and Valuation FY Jun (S$m) 2015A* Gross Revenue 295 Net Property Inc 238 Total Return 175 Distribution Inc 172 EPU (S cts) 7.68 EPU Gth (%) 40 DPU (S cts) 7.60 DPU Gth (%) 52 NAV per shr (S cts) 91.6 PE (X) 9.8 Distribution Yield (%) 10.1 P/NAV (x) 0.8 36.0 Aggregate Leverage (%) ROAE (%) 8.3 Distn. Inc Chng (%): Consensus DPU (S cts): Other Broker Recs:
2016A 220 170 164 117 3.94 (49) 5.18 (32) 92.5 19.2 6.9 0.8 36.1 4.3
2017F 228 176 117 117 5.37 36 5.20 0 92.7 14.1 6.9 0.8 36.1 5.8
2018F 234 182 122 122 5.59 4 5.43 4 92.8 13.5 7.2 0.8 36.2 6.0
B: 8
0 5.20 S: 0
0 5.40 H: 3
*FY2015A contains six quarters due to rebasing of financial year. Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
ASIAN INSIGHTS ed: JS / sa: JC, PY
Tasting the sweetness of prudent payout. SGREIT has been retaining 3-5% of distributable income to fund working capital, and it therefore has certain flexibility to manage future distributions without touching its capital. In addition, it has been paying management fees in cash, not units, hence there is no pressure from any dilution in its equity base. Valuation: Our DCF-derived TP is S$0.87. Maintain BUY. Key Risks to Our View: Upside risk from AUD and MYR currency appreciation. As c.34% of net property income is derived from assets in Malaysia and Australia, an appreciation of any of these currencies versus SGD would present upside to our estimates. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders (%) YTL Corp Bhd AIA Group Ltd Free Float (%) 3m Avg. Daily Val (US$m) ICB Industry : Real Estate / Real Estate Investment Trust
2,181 1,647 / 1,135 35.8 8.0 56.2 1.3
VICKERS SECURITIES Page 288
Company Guide YTL Starhill Global REIT Net Property Income and Margins (%)
CRITICAL DATA POINTS TO WATCH Earnings Drivers: Strong performance from local assets. SGREIT is primarily exposed to Ngee Ann City and Wisma Atria in Singapore, which together account for 63% of top line and 68% of asset value. These assets offer a mix of stability from Toshin’s master lease at Ngee Ann City and upside potential from Wisma Atria, whose shorter leases provide exposure to strong retailer demand for prime Orchard Road space in Singapore. Weaker reversions for Wisma Atria on the horizon. That said, we would not be surprised if reversions in upcoming quarters turn negative, as a portion of leases expiring in the year ahead will come from fashion tenants on the first floor, whose performances have been generally weak. These tenants are more reticent about committing to space given (a) lacklustre fashion sales, and (b) uncertainty over the outcome of the newly renovated Isetan. However, we expect earnings at Wisma to still see good growth, driven by stronger reversions from tenants on the basement and second floors (selling watches & jewellery). Growing presence in Australia. The REIT acquired Myer Centre Adelaide for A$288m, located in Adelaide’s prime CBD retail core, in May 2015. With the inclusion of the Myer Centre acquisition, rental income contribution from Australia doubled from 10% to 20% in FY16. Visible earnings growth from rental reviews at master leased assets. In FY16, the base rent for Toshin (master tenant at Ngee Ann City, Singapore) increased 5.5%, whereas Katagree (master tenant at Starhill Gallery and Lot 10, Malaysia) extended its lease with 6.7% rental uplift. Looking ahead, SGREIT has annual rent review for key tenants in Australia; David Jones’ next lease review is in August 2017.
Net Property Income and Margins (%)
Distribution Paid / Net Operating CF
Interest Cover (x)
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 2 Page 289
Company Guide YTL Starhill Global REIT
Balance Sheet: Future acquisitions to be partly funded via equity. Gearing rose to 35% after the acquisition of Myer Centre Adelaide. Given the Manager’s comfortable range of 35% gearing, any further acquisitions or developments could trigger an equity fund raising exercise.
Aggregate Leverage (%)
Debt free in FY2017. Weighted debt tenure is 3.4 years at an average interest cost of 3.06%. With 96% of debt hedged into fixed rates and less than 1% of total debt requiring refinancing in FY16/17, exposure to volatile short rates is minimised. ROE (%)
Share Price Drivers: Development/ AEI opportunities in Singapore and Australia. The Manager has several AEI opportunities to improve portfolio performance in the near and medium term. SGREIT will be undertaking AEI works in Central Plaza, Perth, renovating the shop façade to incorporate anchor tenants, as well as converting some of the upper floors from office and storage to retail use. Other potential development/AEI opportunities include activating 116k sqft of vacant retail space in the fourth and fifth floors of Myer Centre, Adelaide, as well as developing the Spanish Steps between Wisma Atria and Ngee Ann City, where the REIT has unutilised gross floor area of c.100k sqft.
Distribution Yield (%)
Key Risks: Currency risk. SGREIT’s overseas properties have been affected by forex volatility and operational headwinds. In Malaysia and Australia, stable underlying asset performance has been masked by the depreciation of the MYR and AUD against the SGD, resulting in currency translation losses and weaker DPU performance. Macroeconomic risks in China – retail oversupply and austerity hits Chengdu asset. Contributions from Chengdu have been hit by ongoing austerity measures and oversupply of retail space, resulting in steady declining earnings contribution since 2013. The property in Chengdu has revalued downwards from S$66.3m to S$44.7m as at 30 Jun 2016. The property will be converted from a fashion retailer to a home furnishing mall, with a 10-year tenancy. While the asset’s contribution to portfolio NPI is expected to drop to 1% from 1.5%, we believe the long-term tenancy has mitigated any further downside risk. Company Background Starhill Global REIT is a real estate investment trust that invests in income-producing upscale retail and/or office assets in the Asia Pacific region. In Singapore, it owns portions of Ngee Ann City and Wisma Atria. It also owns assets in Malaysia, Australia, Japan and China.
ASIAN INSIGHTS
PB Band (x)
Source: Company, DBS Bank
VICKERS SECURITIES Page 3 Page 290
Company Guide YTL Starhill Global REIT
Income Statement (S$m) FY Jun Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Preference Dividend Net Income After Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Dist. Payout Ratio (%) Net Prop Inc Margins (%) Net Income Margins (%) Dist to revenue (%) Managers & Trustee’s fees to sales(%) %) ROAE ROA (%) ROCE (%) Int. Cover (x)
2014A
2015A
2016A
2017F
2018F
201 (42.8) 158 (17.6) 0.0 (29.6) 4.68 115 (2.9) 0.0 0.0 112 250 (139) 111
295 (57.2) 238 (26.5) 0.0 (45.3) (1.0) 165 0.56 0.0 0.0 165 175 (3.0) 172
220 (49.4) 170 (48.9) 0.0 (37.9) 0.0 83.6 2.32 0.0 0.0 85.9 164 (47.4) 117
228 (52.4) 176 (21.8) 0.0 (37.3) 0.0 117 0.40 0.0 0.0 117 117 0.0 117
234 (52.5) 182 (21.8) 0.0 (38.2) 0.0 122 0.41 0.0 0.0 122 122 0.0 122
7.9 6.3 5.1 97.3 78.7 56.1 55.3 8.8 5.8 3.9 4.8 4.7
46.9 50.5 47.1 95.6 80.6 56.1 58.2 9.0 8.3 5.4 7.0 4.7
(25.5) (28.3) (48.1) 97.0 77.5 39.1 53.0 22.2 4.3 2.7 3.8 3.2
3.8 3.2 36.2 97.0 77.0 51.3 51.3 9.5 5.8 3.7 4.8 4.1
2.7 3.4 4.2 97.0 77.6 52.1 52.1 9.3 6.0 3.8 5.0 4.2
FY2015 consists of 6 quarters due to the revision of its financial year end.
Room to increase payout ratio in order to maintain DPU when necessary
Source: Company, DBS Bank
ASIAN INSIGHTS Page 4
VICKERS SECURITIES Page 291
Company Guide YTL Starhill Global REIT
Quarterly / Interim Income Statement (S$m) FY Jun 1Q2016 2Q2016 Gross revenue Property expenses Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Net Income Tax Minority Interest Net Income after Tax Total Return Non-tax deductible Items Net Inc available for Dist. Growth & Ratio Revenue Gth (%) N Property Inc Gth (%) Net Inc Gth (%) Net Prop Inc Margin (%) Dist. Payout Ratio (%)
3Q2016
4Q2016
1Q2017
56.8 (13.2) 43.6 (4.9) 0.0 (9.4) (2.2) 27.1 (0.9) 0.0 26.2 0.0 3.81 28.6
55.6 (11.9) 43.7 (4.9) 0.0 (9.5) 1.74 31.1 (0.9) 0.0 30.2 0.0 (0.2) 28.8
53.6 (12.1) 41.6 (4.7) 0.0 (9.8) (9.7) 17.4 (0.2) 0.0 17.2 0.0 10.7 27.5
53.7 (12.3) 41.4 (4.8) 0.0 (9.2) (19.4) 8.03 4.21 0.0 12.2 0.0 (61.8) 28.1
55.3 (12.4) 42.9 (4.9) 0.0 (9.3) (3.3) 25.4 (0.3) 0.0 25.1 0.0 4.33 28.4
10 6 (7) 76.8 95.1
(2) 0 15 78.6 95.8
(4) (5) (43) 77.5 98.3
0 0 (29) 77.2 98.9
3 4 105 77.6 96.3
Balance Sheet (S$m) FY Jun
2014A
2015A
2016A
2017F
2018F
Investment Properties Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
2,854 20.5 58.0 0.0 10.2 0.03 2,943
3,116 20.4 51.6 0.0 5.18 0.12 3,193
3,137 2.54 77.0 0.0 5.93 0.14 3,222
3,139 2.54 18.4 0.0 29.7 0.14 3,190
3,151 2.54 19.0 0.0 30.5 0.14 3,203
ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities
53.6 43.0 2.14 792 41.9 2,010 0.0 2,943
146 37.2 2.23 983 41.9 1,983 0.0 3,193
15.4 39.5 2.66 1,108 39.5 2,018 0.0 3,222
15.4 3.53 2.66 1,108 39.5 2,021 0.0 3,190
25.4 3.63 2.66 1,108 39.5 2,025 0.0 3,203
Non-Cash Wkg. Capital Net Cash/(Debt) Ratio Current Ratio (x) Quick Ratio (x) Aggregate Leverage (%) Z-Score (X)
(35.0) (788)
(34.1) (1,078)
(36.1) (1,046)
23.6 (1,105)
24.3 (1,114)
0.7 0.7 29.4 1.1
0.3 0.3 36.0 1.0
1.4 1.4 36.1 0.9
2.2 2.2 36.1 1.0
1.6 1.6 36.2 1.0
Revenue consists of a one-off compensation of S$1.9m from an early termination at Wisma Atria which has been filled up
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES Page 292
Page 5
Company Guide YTL Starhill Global REIT
Cash Flow Statement (S$m) FY Jun
2014A
2015A
2016A
2017F
2018F
115 0.0 (3.5) 0.0 24.6 4.68 141 (59.4) 0.0 0.0 0.0 0.53 (58.9) (100) 38.4 0.0 (39.9) (102) (1.8) (21.3)
165 0.0 (3.8) 0.0 52.3 (1.0) 212 (317) (0.8) 0.0 0.0 1.55 (316) (162) 308 0.0 (45.9) 99.8 (2.8) (6.5)
83.6 0.28 (1.7) 0.0 73.1 0.0 155 27.2 0.0 0.0 0.0 0.92 28.0 (113) (9.8) 0.0 (37.3) (160) 2.15 25.4
117 0.0 0.40 0.0 (59.8) 0.0 57.3 (2.3) 0.0 0.0 0.0 0.0 (2.3) (114) 0.0 0.0 0.0 (114) 0.0 (58.5)
122 0.0 0.41 0.0 (0.7) 0.0 121 (12.3) 0.0 0.0 0.0 0.0 (12.3) (118) 10.0 0.0 0.0 (108) 0.0 0.62
5.69 3.99
7.44 (4.8)
3.77 8.36
5.37 2.52
5.59 5.00
Pre-Tax Income Dep. & Amort. Tax Paid Associates &JV Inc/(Loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Net Invt in Properties Other Invts (net) Invts in Assoc. & JV Div from Assoc. & JVs Other Investing CF Net Investing CF Distribution Paid Chg in Gross Debt New units issued Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Operating CFPS (S cts) Free CFPS (S cts)
S$10m AEI on Australia property
Source: Company, DBS Bank Target Price & Ratings History
Source: DBS Bank Analyst: Singapore Research Team Derek TAN
ASIAN INSIGHTS Page 6
VICKERS SECURITIES Page 293
Industry Focus Singapore Developers & REITs Research Team Directory Analyst Regional Timothy Wong Joanne Goh Paul Yong, CFA Ben Santoso Sachin Mittal Lim Sue Lin Chong Tjen-San, CFA Hong Kong / China Carol Wu Alice Hui, CFA Addison Dai Alexander Lee, CFA Alison Fok Andy Yee, CFA Chris Ko Danielle Wang, CFA Dennis Lam Eric Yee Ian Chui Jeff Yau, CFA Keith Tsang Ken HE, CFA Mark Kong, CFA Mavis Hui Patricia Yeung Rachel Miu Susanna Chui Tam Tsz-Wang, CFA Tony Wu, CFA Trista Qin Indonesia Maynard Arif Tiesha Narandha Putri William Simadiputra Benedictus Agung Swandono Research Team Malaysia Wong Ming Tek Bernard Ching Cheah King Yoong, CFA Quah He Wei, CFA Toh Woo Kim Lynette Cheng Marvin Khor Ruzanna Faruk Inani Rozidin Singapore Janice Chua Andy Sim, CFA Derek Tan Ho Pei Hwa Mervin Song, CFA Rachel Tan Suvro Sarkar Allfie Yeo Thailand Chanpen Sirithanarattanakul Thanawat Patchimkul Thaninee Satirareungchai Chaipat Thanawattano Namida Artispong Wasu Mattanapotchanart Apichaya Ketruttanaborvorn Research Team Korea Lee Eun Young
Sector
Head, Group Research Regional Equity Strategist Transport Plantations, Animal Protein Telecoms Banking infrastructure, Conglomerates
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Head of Research, China Property Deputy HOR, Consumer Basic materials, Clean energy (wind power, nuclear) Strategy Consumer China Property Small Mid Caps China Property Small Mid Caps Consumer Hong Kong Property Hong Kong Property Automobile, Infrastructure, Machinery China Property Healthcare Consumer Environmental, Industrial Automobile, Infrastructure, Machinery Telecom/Media/Tech Telecom/Media/Tech Small Mid Caps China Property
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Head of Research, Strategy, Automotive, Consumer Infrastructure, Transportation, Consumer Telecommunications, Mining Banks and Multifinance Infrastructure, Transportation, Consumer, Bank & Multifinance Plantation, Animal Protein, Telecommunications, Property & Industrial Estate, Healthcare
[email protected] [email protected] [email protected] [email protected]
Executive Director Head of Malaysian Research Consumer, Gaming Property, Utilities Telecommunication, Media, Technology Banks, Non-bank Financials Transport , Plantation Auto, Rubber Glove Oil & Gas
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Head of Research, Strategy, Industrials Consumer Services Property, Reits Industrials Property, Reits Property, Healthcare Industrials, Transport Consumer Services
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Head of Research, Strategy, Property, REITs Oversea research Banking & Finance Energy & Utilities, Petrochemicals Food and Beverage, Tourism, Commerce Telecom, Property, REITs Construction, Healthcare, Small-caps Commerce, Electronics, Air Transportation, Small-caps
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Basic Materials, Utilities
[email protected]
ASIAN INSIGHTS
[email protected]
VICKERS SECURITIES
Page 103
Page 294
Industry Focus Singapore Developers & REITs
DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends Completed Date: 6 Jan 2017 18:50:56 (SGT) Dissemination Date: 6 Jan 2017 20:15:55 (SGT) GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) (b)
such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
ASIAN INSIGHTS
VICKERS SECURITIES
Page 104
Page 295
Industry Focus Singapore Developers & REITs
ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in the report. The DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. As of 6 Jan 2017, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates have proprietary positions in CapitaLand Commercial Trust, Frasers Commercial Trust, Keppel REIT, Suntec REIT, CapitaLand Retail China Trust, CapitaLand Mall Trust, Croesus Retail Trust, Frasers Centrepoint Trust, SPH REIT, Mapletree Commercial Trust, Mapletree Greater China Commercial Trust, YTL Starhill Global REIT, Ascendas REIT, Cache Logistics Trust, Cambridge Industrial Trust, Frasers Logistics & Industrial Trust, Mapletree Industrial Trust, Mapletree Logistics Trust, Soilbuild Business Space Reit, Ascendas Hospitality Trust, Ascott Residence Trust, CDL Hospitality Trusts, Far East Hospitality Trust, Frasers Hospitality Trust, OUE Hospitality Trust, Parkway Life Real Estate Investment Trust, RHT Health Trust, Keppel DC REIT, Manulife US REIT, CapitaLand, City Development, Global Logistic Properties, UOL Group, Wing Tai recommended in this report as of 30 Nov 2016. 2.
DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
3.
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share capital in Frasers Commercial Trust, CapitaLand Retail China Trust, Croesus Retail Trust, Mapletree Greater China Commercial Trust, YTL Starhill Global REIT, Ascendas REIT, Frasers Logistics & Industrial Trust, Mapletree Logistics Trust, Soilbuild Business Space Reit, Ascott Residence Trust, CDL Hospitality Trusts, Frasers Hospitality Trust, RHT Health Trust, Keppel DC REIT, Manulife US REIT, CapitaLand recommended in this report as of 30 Nov 2016.
4.
DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 1% of any class of common equity securities of Frasers Commercial Trust, Croesus Retail Trust, YTL Starhill Global REIT, Frasers Logistics & Industrial Trust, Soilbuild Business Space Reit, Ascott Residence Trust, CDL Hospitality Trusts, Frasers Hospitality Trust, Keppel DC REIT, Manulife US REIT as of 30 Nov 2016.
5.
DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates beneficially own a total of 5% of any class of common equity securities of Croesus Retail Trust as of 30 Nov 2016.
6.
7.
8.
9.
Compensation for investment banking services: DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from CapitaLand Commercial Trust, Frasers Commercial Trust, OUE Commercial REIT, CapitaLand Mall Trust, Croesus Retail Trust, Mapletree Commercial Trust, Mapletree Greater China Commercial Trust, YTL Starhill Global REIT, Ascendas REIT, Frasers Logistics & Industrial Trust, Mapletree Industrial Trust, Mapletree Logistics Trust, Soilbuild Business Space Reit, Ascendas Hospitality Trust, Ascott Residence Trust, Frasers Hospitality Trust, OUE Hospitality Trust, Parkway Life Real Estate Investment Trust, RHT Health Trust, Keppel DC REIT, Manulife US REIT, City Development, United Engineers as of 30 Nov 2016. DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for CapitaLand Commercial Trust, Frasers Commercial Trust, Suntec REIT, CapitaLand Mall Trust, Croesus Retail Trust, Mapletree Commercial Trust, Mapletree Greater China Commercial Trust, YTL Starhill Global REIT, Ascendas REIT, Frasers Logistics & Industrial Trust, Mapletree Industrial Trust, Mapletree Logistics Trust, Soilbuild Business Space Reit, Ascendas Hospitality Trust, Ascott Residence Trust, Frasers Hospitality Trust, OUE Hospitality Trust, Parkway Life Real Estate Investment Trust, RHT Health Trust, Keppel DC REIT, Manulife US REIT, City Development, United Engineers in the past 12 months, as of 30 Nov 2016 DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
Directorship/trustee interests Euleen Goh Yiu Kiang, a member of DBS Group Holdings Board of Directors, is a Non-Exec Director of CapitaLand as of 1 Jan 2017.
ASIAN INSIGHTS
VICKERS SECURITIES
Page 105
Page 296
Industry Focus Singapore Developers & REITs
10
Disclosure of previous investment recommendation produced DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.
RESTRICTIONS ON DISTRIBUTION This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of General or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia
This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong
This report is being distributed in Hong Kong by or on behalf of, and is attributable to DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission and/or by DBS Bank (Hong Kong) Limited which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission. Where this publication relates to a research report, unless otherwise stated in the research report(s), DBS Bank (Hong Kong) Limited is not the issuer of the research report(s). This publication including any research report(s) is/are distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS Bank (Hong Kong) Limited. This report is intended for distribution in Hong Kong only to professional investors (as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and any rules promulgated thereunder.) For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at [email protected].
Indonesia
This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.
Malaysia
This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR
ASIAN INSIGHTS
VICKERS SECURITIES
Page 106
Page 297
Industry Focus Singapore Developers & REITs
Singapore
This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.
Thailand
This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.
United Kingdom
This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.
Dubai
This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
United States
This report was prepared by DBS Bank Limited. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.
Other jurisdictions
In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
DBS Bank Ltd. 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 e-mail: [email protected] Company Regn. No. 196800306E
ASIAN INSIGHTS
VICKERS SECURITIES
Page 107
Page 298
Industry Focus Singapore Developers & REITs Asian Equities Sales, Sales Trading and Research Contacts Sales Heads
Tel:
Email:
Kenneth Tang Andrew Au Graham Booth Elaine Yu Narisara Viseskosin
65-6398 6951 852-2820 4992 44-20-7618 1881 1-212-826 3553 662 657 7759
[email protected] [email protected] [email protected] [email protected] [email protected]
Sales Trading Contacts
Tel:
Email:
Vivian Goh Franco Law Charles Davies Brenda Wong
65-6398 6927 852-2971 1828 44 20 7618 1883 1 212 826 3558
[email protected] [email protected] [email protected] [email protected]
Research Contacts
Tel:
Email:
Timothy Wong Janice Chua Carol Wu Wong Ming Tek Chanpen Sirithanarattanakul Maynard Priajaya Arif
65 6682 3691 65 6682 3692 852-2863 8841 603-2711 0956 662-657 7824 6221 3003 4930
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Singapore Hong Kong London New York Thailand
Singapore Hong Kong London New York
Regional Singapore Hong Kong Malaysia Thailand Indonesia
DBS Vickers Securities – Regional Offices HONG KONG DBS Vickers (Hong Kong) Ltd 18th Floor Man Yee Building 68 Des Voeux Road Central Central, Hong Kong Tel: 852-2820 4888 Fax: 852-2868 1523 Member of The Stock Exchange of Hong Kong
MALAYSIA AllianceDBS Research Sdn Bhd 19th Floor, Menara Multi-Purpose Capital Square, 8 Jalan Munshi Abdullah 50100 Kuala Lumpur Tel: 603 2604 3333 Fax: 603 2604 3921
INDONESIA PT DBS Vickers Securities (Indonesia) DBS Bank Tower, Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5, Jakarta 10350, Indonesia Tel. 6221-3003 4900, Fax: 6221-3003 4943
THAILAND DBS Vickers Securities (Thailand) Co Ltd 15th Floor Siam Tower 989 Rama 1 Road Pathumwan, Bangkok 10330 Tel: 66-2-658 1222 Fax: 66-2-658 1269
UNITED STATES DBS Vickers Securities (USA) Inc 777 Third Avenue Suite 26A New York, New York 10017 Tel: 1-212-826 1888 Fax: 1-212-826 8704 Member of FINRA and SIPC
UNITED KINGDOM DBS Vickers Securities (UK) Ltd 4th Floor Paternoster House 65 St Paul's Churchyard London EC4M 8AB United Kingdom Tel: 44-20-7618 1888 Fax: 44-20-7618 1900 The Financial Conduct Authority (FCA)
ASIAN INSIGHTS
SINGAPORE DBS Bank Ltd 12 Marina Boulevard Level 40, Marina Bay Financial Central Tower 3 Singapore 018982 Tel: 65-6878 8888
VICKERS SECURITIES
Page 108
Page 299
Related Documents
Chile 1pdf
December 2019 139
Theevravadham 1pdf
April 2020 103
Majalla Karman 1pdf
April 2020 93
Rincon De Agus 1pdf
May 2020 84
Exemple Tema 1pdf
June 2020 78
Investigacion De Los Accidentes 1pdf
December 2019 115More Documents from "Gerardo Garay Robles"
355293323-3-1-1-3-notulen-penyusunan-manual-mutu
August 2019 17
Produk Nasional
May 2020 46
03. 1 C1-ppwp_1
August 2019 58