Simons Trading Research

Author: simonsg   |   Latest post: Tue, 26 Jan 2021, 11:05 AM


Keppel REIT - Rent Moderation; Headwinds Ahead, Stay at SELL

Author: simonsg   |  Publish date: Tue, 26 Jan 2021, 11:05 AM

Headwinds Ahead, Stay at SELL

  • Keppel REIT (SGX:K71U)’s 2H FY20 DPU, up 4.6% y-o-y was ahead of our estimates and in-line with the street. This was due to stronger-than-expected Singapore occupancy and lower borrowing costs.
  • Rents have moderated and its outlook remains challenging given uncertainties in office demand amid the macro downturn and work-from-home entrenchment. We continue to see headwinds for leasing out vacancies and at pressured rents. This is especially in the coming quarters as firms reassess options post-COVID.
  • We anticipate further downsizing by financial institution tenants (~33% of its NLA).
  • Keppel REIT’s DPU growth is unexciting versus peers, and we maintain SELL, at a S$0.90 DDM-based target price (COE: 7.0%, LTG: 1.0%).

Uptick in Leasing

  • Leasing activity picked up in 4Q20, with new demand and expansion from finance (~37%), real estate (34%) and technology (14%) tenants. Keppel REIT has backfilled ~60% of the space vacated by UBS at One Raffles Quay, and management aims to raise this to 90% in 1Q21.
  • Rental reversion moderated further to +12.7% in 4Q20 and +14.8% for FY20 (from +15.0% in 3Q20 and +15.4% in 9M20). Average weighted signing rents of S$11.02 psfpm (-0.1% q-o-q) remains above Grade A core CBD market average of S$10.40 psfpm, while simple average rents were S$11.61 psfpm (-1.7% q-o-q).
  • Management expects single-digit positive rental reversion for the year.

Pivoted Towards Longer WALE in Australia

  • Keppel REIT has pivoted towards rental stability with its recent Australian acquisitions offering a longer WALE. 311 Spencer Street, completed in Jul 2020, is fully leased to the State of Victoria for 30 years to serve as the headquarters for the Victoria Police.
  • Its recent expansion into Sydney’s Silicon Valley, with the acquisition of Pinnacle Office Park for AUD306.0m (S$303.3m) at an initial 5.25% NPI yield and a 4.8-year WALE, however sees it competing for similar suburban offices with Ascendas REIT (SGX:A17U).

Done Deal in Singapore, Limited Acquisition Catalysts

  • Keppel REIT's Singapore portfolio valuation fell 1.5% y-o-y due to weaker occupancies and rents; despite this cap rates tightened at Marina Bay Financial Centre Towers 1 & 2 and One Raffles Quay (from 3.63% to 3.45%).
  • Keppel REIT's gearing rose to 37.3% after the acquisition of Pinnacle Office Park and the S$300m (3.15%) perpetual securities issuance. Its S$657.2m acquisition of Keppel Bay Tower at 4.0% NPI yield is expected to be completed in 2Q21, and could lift DPUs by 2.9%.
  • Keppel REIT's high trading yield versus tighter Singapore office yields suggests further acquisition-growth opportunities are likely to be overseas (South Korea and Australia).

Source: Maybank Kim Eng Research - 26 Jan 2021

Labels: Keppel Reit
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Mapletree Logistics Trust - Another Steady Quarter

Author: simonsg   |  Publish date: Tue, 26 Jan 2021, 11:01 AM

Results in Line, Further Re-rating Ahead

  • Mapletree Logistics Trust (SGX:M44U) delivered a stable 3QFY21 (Oct 2020 to Dec 2020) as DPU rose 1.0% y-o-y due to higher rental income and earlier acquisitions offsetting its divestments and provisions for rental relief.
  • Mapletree Logistics Trust’s growing APAC-focused AUM is well-positioned to capture the sector’s multiple structural growth themes, i.e. rising e-commerce demand and supply chain diversification, which have been accelerated by the pandemic.
  • Mapletree Logistics Trust remains among our top S-REIT picks.

Better Reversions in HK, China, Vietnam, Malaysia

  • Mapletree Logistics Trust's revenue and NPI rose 15.5% y-o-y and 14.9% y-o-y due to higher contributions from existing properties, acquisitions and the completed Ouluo Phase 2 redevelopment.
  • Portfolio occupancy was stable at 97.1%, reflecting lower occupancies in Hong Kong and Japan, partly offset by higher occupancies in China and South Korea.
  • Its portfolio rental reversion was +1.6%, up slightly from +1.5% in 2Q21, mainly contributed by its leases in Hong Kong (+3.0%), China (+2.6%), Vietnam (+3.7%) and Malaysia (+2.2%).

Strong Leasing Activity

  • Leasing activity was strong with 266,000 sqm (~4% of portfolio) renewed or replaced during the quarter (from 326,000 sqm in 2Q21). Single-asset expiries over FY21-22 remained low at 2.2% and its WALE was stable at 3.7 years.
  • Demand continues to be driven by e-commerce tenancies and 3PLs. In Singapore, management is seeing an uptick in last-mile activity, which has offset slower demand for general cargo. The supply outlook remains constructive and we see positive demand-led fundamentals supporting rental recovery

Balance Sheet Sound, Eyeing South Korea, India

  • Mapletree Logistics Trust's leverage has declined q-o-q from 39.5% to 36.8% as of end-Dec 2020, after the completion of the S$644m equity fund raising. Mapletree Logistics Trust's AUM has risen from S$9.0b to S$10.2b with the acquisitions of the China, Malaysia and Vietnam portfolio, and two deals in Australia and Japan.
  • Debt headroom at S$3.0b (50% limit) on our estimates is ample to fund further deals, as management looks to add another S$200-400m from third-parties in South Korea and India.

Source: Maybank Kim Eng Research - 26 Jan 2021

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Parkway Life REIT - Steadily Growing

Author: simonsg   |  Publish date: Mon, 25 Jan 2021, 11:04 AM

  • Parkway Life REIT's 4Q20 and FY20 distribution of S$0.0357 and S$0.1379 per unit were slightly above our FY20F projections.
  • Improved Singapore operations and contributions from new Japan acquisitions boosted performance.

Parkway Life REIT's 4Q20 Results Highlights

  • Parkway Life REIT (SGX:C2PU) posted a 9% y-o-y increase in 4Q20 gross revenue to S$30.6m, thanks to additional contributions from four Japan assets bought in Dec 2019 and Dec 2020, appreciation of the ¥, and higher Singapore hospital income.
  • Distributable income to unitholders grew a larger 6.7% y-o-y to S$21.6m as Parkway Life REIT benefited from lower interest cost due largely to a low interest rate environment, realised forex gain as well as release of S$0.9m of COVID-19 related relief measures retained earlier.
  • 4Q20 and FY20 distribution of S$0.0357 and S$0.1379 per unit were slightly ahead of our expectations at 26.6%/102.6% of our FY20 forecasts.

Organic Growth and New Acquisitions Boosted Bottomline

  • Singapore hospitals achieved a 1.2%/1.2% y-o-y increase in 4Q20 revenue/NPI to S$17.5m/S$16.7m on upward minimum guarantee rent revision of 1.17%. This adjustment commenced on 23 Aug 2020 and will last until 22 Aug 2021. This provides the trust with strong income visibility.
  • Its Japan operations reported a 9.3% y-o-y expansion in 4Q NPI to S$11.8m, due to additional rental contributions from four properties acquired in Dec 2019 and Dec 2020 as well as a stronger ¥.

Strong Balance Sheet, New Japan Property Boost FY21F Earnings

  • In Dec 2020, Parkway Life REIT completed the acquisition of a nursing home in the Greater Tokyo region in Japan for S$21.2m. The purchase is yield accretive, based on a property yield of 6.4% and should boost its earnings from Dec 2020 onwards.
  • Parkway Life REIT’s asset portfolio stands at ~S$2bn as at end-Dec 2020. Parkway Life REIT continued to strengthen its balance sheet as it put in place 6-year committed loan facilities to term out two loans due in Jun 2021 and extended its debt maturity to 3.5 years.
  • As at end-4Q20, Parkway Life REIT's gearing stood at 38.5%. Assuming a gearing of 45%, Parkway Life REIT has further debt headroom of S$243.8m to fund potential new purchases.

Reiterate HOLD Rating with Target Price $4.11

  • We raise our Parkway Life REIT's FY21-22F DPU forecast by ~2% as we factor in contributions from the new acquisition made in Dec 2020.
  • While we like Parkway Life REIT for its stable yield backed by its defensive income structure, our recommendation remains a HOLD given the 6% total return based on current Parkway Life REIT's share price. We would be buyers on any share price weakness.
  • Upside risks include accretive acquisitions while downside risks include deflationary periods whereby Singapore rent revisions would revert to 1%.

Source: CGS-CIMB Research - 25 Jan 2021

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Keppel REIT - Boosted by New Contributions

Author: simonsg   |  Publish date: Mon, 25 Jan 2021, 11:03 AM

  • Keppel REIT's 2H20/FY20 distribution of S$0.0293/S$0.0573 per unit were slightly above our FY20F projections.
  • Expect positive rental reversion in FY21F, visible inorganic growth drivers.
  • Reiterate ADD on Keppel REIT with a higher DDM-based target price of S$1.29.

Keppel REIT's 2H20 Results Highlights

  • Keppel REIT (SGX:K71U) reported a 12.6%/5.5% y-o-y rise in gross revenue and distributable income to S$94.7m/S$99.8m, thanks to contributions from T Tower, Victoria Police Centre and lower borrowing costs, partly offset by divestment of Bugis Junction Tower, COVID-19 tenant relief measures and absence of capital gains distributions.
  • For FY20, Keppel REIT achieved a distributable income of S$194.6m, +2.8% y-o-y, translating to a distribution of S$0.0573/unit, slightly above our projections.
  • Keppel REIT revalued its portfolio down by 1.5% at end-FY20, resulting in a Book Value per unit of S$1.29.

High Portfolio Occupancy, Expect Positive Reversions in FY21F

  • Portfolio committed occupancy stood at 97.9% at end-Dec 2020. Keppel REIT renewed/leased ~1.2m sqft of space in FY20 (~250k sqft in 4Q), of which 24% are new leases from the banking, insurance and financial services as well as real estate sectors.
  • Keppel REIT achieved positive rental reversion of 14.8% in FY20 (+12.7% in 4Q). In terms of impact from COVID-19, management shared that it had total rental deferrals of S$1.9m and had provided a total of S$14.6m (including government property tax rebates and cash grants) of tenant relief measures in FY20.
  • Looking ahead, Keppel REIT has 17.5% and 16.8% of leases to be renewed/reviewed in FY21F and FY22F respectively. With expiring rents averaging a low S$9.76psf in FY21F, management expects to continue to achieve positive reversions when these leases are re-contracted.

Visible Inorganic Growth Drivers

  • In terms of portfolio management, FY20 was an active year for Keppel REIT with the completion of the Victoria Police Centre in Jul 2020 and completion of the purchase of Pinnacle Office Park in Sydney in Dec 2020. Contributions from the latter should be felt from FY21F.
  • In addition, Keppel REIT recently announced the proposed acquisition of Keppel Bay Tower for S$657.2m or at a property yield of 4%. The transaction is pending unitholders approval. As such, we have not included the new income into our current forecast.
  • Keppel REIT’s gearing stands at 37.7% at end-FY20F and it has a small 5% of its total debt due to be refinanced in FY21F. Management indicated that it continues to look for new growth opportunities within its existing markets.

Reiterate ADD Rating

  • We tweak our Keppel REIT's FY21-22F distribution forecast up marginally post results.
  • Potential catalysts include the redeployment of divestment proceeds to new accretive acquisitions and a better-than-projected office rental market, while downside risks include longer-than-expected frictional vacancy from tenant movements due to a slowdown in demand for office space.

Source: CGS-CIMB Research - 25 Jan 2021

Labels: Keppel Reit
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Singapore Exchange - Platform Play

Author: simonsg   |  Publish date: Sun, 24 Jan 2021, 10:05 AM

Resilient Platform Poised to Deliver Amidst Volatility

  • SGX (SGX:S68)’s 1H21 PAT came ahead of Street/MKE expectations supported by contributions from recent acquisitions and stronger cash equities volumes.
  • Derivatives saw limited disruption from the departure of key contracts pointing to the resilience of its multi-asset platform. Higher contract pricing, strong equity market velocity and new product launches should continue to support earnings momentum and keep dividend visibility high, in our view.
  • We raise our target price to S$11.48 from S$10.77. Maintain BUY.

Acquisitions Delivering

  • The integration of BidFX and Scientific Beta contributed 6% of SGX's revenues in 1H21. Strengthening demand for fixed income listings together with new product launches – especially in the ESG space – should continue to drive growth going forward, we believe.
  • Management claims they are willing to leverage SGX’s balance sheet (current debt-to-equity 9.6%) for further accretive acquisitions. This should be a positive catalyst, given their track record so far.

Tailwind From Cash Equities, Derivatives

  • Derivative volumes increased 4% y-o-y despite the exit of key MSCI contracts. The newly introduced FTSE contracts seem to be gaining traction. SGX’s ability to retain liquidity here is a strong indicator of the successful execution of its multi-asset platform. While derivative fees fell 5% y-o-y on the back of introductory pricing for the new FTSE contracts, we expect this to normalise in 2H21.
  • Separately, cash equity average daily traded value (ADV) increased 19% y-o-y and velocity rose to 49% (~34%). Clearing fees increased 2.5% y-o-y driven by a larger retail mix, we believe. Liquidity support by central banks and the COVID-19 recovery theme could continue to support this momentum, in our view.
  • We have raised our FY21 average daily value (ADV) forecasts to S$1.3bn (from S$1.0bn).

Raise SGX Target Price to S$11.48. Maintain BUY

  • Our changes to equity and derivative volumes and fee expectations have raised FY21-23E PAT by 1-7%. We refresh our blended multi-stage DCF (WACC 7.2%, 1% terminal growth) and peer P/E (upgraded to 29x target) price to S$11.48.
  • In past growth cycles, SGX's share price has traded up to 26-27x P/E.

Source: Maybank Kim Eng Research - 24 Jan 2021

Labels: SGX
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CapitaLand Integrated Commercial Trust - Recovery on Track

Author: simonsg   |  Publish date: Thu, 21 Jan 2021, 11:03 AM

Larger REIT Set for Growth

  • CapitaLand Integrated Commercial Trust (SGX:C38U)’s 4Q20 revenue and NPI rose 36.0% y-o-y and 36.4% y-o-y, after the CCT-CMT merger exercise while FY20 distribution per unit fell 27.4% y-o-y, marginally below ours’ and street’s estimates.
  • CapitaLand Integrated Commercial Trust has emerged as Singapore’s largest REIT and among Asia’s largest with a S$22.3b AUM across 24 retail, office and integrated development assets. Valuations are undemanding vs history and peers at 4.7% FY21 dividend yield and 1.1x FY21E P/B.
  • Maintain BUY on CapitaLand Integrated Commercial Trust. We see near-term catalyst from distribution recovery in 2021 and medium-term earnings upside as it leverages added development capacities into value-accretive AEIs and redevelopment opportunities.

Retail Negative Reversions to Moderate

  • CapitaLand Integrated Commercial Trust's retail occupancy stayed at 98.0% at end-Dec 2020, with rental reversion at -6.6%, versus -4.4% at 3Q20, while FY20 reversions ranged from -2.5% (for IMM) to -22.2% (Raffles City). Footfall continued to improve in 4Q20 to 67.9% of pre-COVID levels while tenant sales rose to 94.5% (101.3% for suburban, 83.7% for downtown malls). This was driven by home furnishing (+27.8% y-o-y), jewellery & watches (+12.9% y-o-y) and books & stationary (+10.8% y-o-y).
  • We expect negative reversions to moderate with easing in social-distancing measures, and as retail recovery gains traction. The rent-relief cycle seen in 3Q20 has peaked, with tenant expansion in 2021-22.

Office NPI Supported by AEIs, CapitaSpring

  • CapitaLand Integrated Commercial Trust's office occupancy dipped q-o-q to 94.9% from 95.2% and this fell in SG from 95.5% to 95.1%. Grade A office rents fell 4% q-o-q to S$10.40 psfpm, in line with our estimates. In 4Q20, 167k sf was leased with new demand primarily from financial services (86%).
  • We see higher vacancies in 2021 but NPI growth will be supported by the commencement of its WeWork lease at 21 Collyer Quay in 4Q21, rising occupancy at 6 Battery Road and improving earnings from CapitaSpring from 2022. The latter’s pre-commitment has risen q-o-q to 38.0% from 34.9% and should climb to 60% upon completion.

Upside From Higher Development Headroom

  • CapitaLand Integrated Commercial Trust's portfolio values, supported by stable cap rates were unchanged h-o-h. We expect CapitaLand Integrated Commercial Trust to scale up on its enlarged asset base, supported by low 40.6% gearing and S$1.4-3.8b debt headroom (45-50% limit).
  • CapitaLand Integrated Commercial Trust's sponsor offers a S$5.2b acquisition pipeline but we think management will likely prioritise its value-accretive AEIs and redevelopment plans with the higher S$5.8b development headroom and view its less resilient downtown malls - Raffles City, Clarke Quay and Plaza Singapura as key candidates.

Source: Maybank Kim Eng Research - 21 Jan 2021

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