First REIT: 3Q11 results within expectations (OCBC)

3Q11 DPU of 1.92 S cents. First REIT (FREIT) reported a set of 3Q11 results which were within our expectations (excluding any one-off distribution). Gross revenue surged 79.2% YoY to S$13.7m due largely to new contributions from three of its recently-acquired properties; while distributable amount to unitholders jumped 125.7% YoY to S$12.1m. The latter was boosted by a one-off gain distribution of S$2.2m arising from the total gain on divestment of the Adam Road property amounting to ~S$8.7m. The balance will be distributed to unitholders at the discretion of the manager of FREIT in future periods. Sequentially, gross revenue and distributable amount rose 3.4% and 22.2% respectively. DPU of 1.92 S cents represented a decline of 1.0% YoY due to an enlarged unit base from the effects of the 5-for-4 rights issue in Dec 2010 but increased 21.5% QoQ due to the oneoff distribution highlighted earlier. For 9M11, gross revenue increased 77.2% to S$40.1m and formed 74.3% of our full-year projection. Excluding the special non-recurring distribution of 0.34 S cents per share, 9M11 DPU of 4.74 S cents constituted 75.0% of our FY11 forecasts.

New acquisitions could occur soon. First REIT has a strong pipeline of possible acquisition targets from its sponsor Lippo Karawaci (Lippo), of which it has a right of first refusal. Lippo has placed strong emphasis on its Hospitals segment due to the rising demand for quality healthcare services in Indonesia. Media reports have also stated that the group is aiming to sell some of its hospital assets by this year or in 2012 while FREIT said that it is already engaging in preliminary discussions with Lippo on the possibility of acquiring some these assets.

Likely to be debt funded. We believe that these acquisitions, should it occur, would likely be funded by debt given its low gearing ratio of 15.1% as at 30 Sep 2011. This leaves FREIT with ample debt headroom of S$86.0m-S$138.4m before reaching its comfortable gearing ratio range of 25%-30%.

Defensive qualities in times of uncertainty; upgrade to BUY. We expect FREIT's long master leases with downside revenue protection to provide resilience and stability to its income stream, which would provide an attractive investment merit in times of global uncertainties. FREIT also offers a good proxy to the growing healthcare scene in Indonesia. With a pull-back in its share price since our downgrade to HOLD, we believe that value has re-emerged again. Our RNAV-derived fair value estimate is unchanged at S$0.84, but as this represents a total return of 14.0%, we upgrade the stock to BUY.

Frasers Centrepoint Trust: Strong uplift from Causeway Point (OCBC)

Record high DPU. Frasers Centrepoint Trust (FCT) announced 4QFY11 DPU of 2.35 S cents, representing an 8.8% YoY and 20.5% QoQ increase. This is the highest-ever quarterly DPU paid out, and surpassed both our and consensus forecasts. Coupled with 9MFY11 DPU of 5.97 S cents, fullyear DPU amounted to 8.32 S cents, or 5.8% ahead of our estimates (2.7% above consensus). This translates to a 5.7% DPU yield.

Strong performance from Causeway Point. The solid performance, we note, was achieved on the back of strong performance upswing from Causeway Point (CWP), following the re-opening of refurbished sections. This lifted FCT's quarterly gross revenue and NPI to S$34.1m (+5.1% YoY) and S$25.3m (+13.7% YoY) respectively. Management shared with us that 65.5% of the refurbished works at CWP had been completed, and the asset enhancement initiative (AEI) is on track to fully complete in Dec 2012. With next phase of work to shift to the higher levels, we expect the disruption to revenue to be more muted.

Healthy financial and operating statistics. FCT's financial position as at 30 Sep remained at a healthy level of 31.3% (vs. 31.7% at end-3Q) in spite of a 15.3% QoQ increase in total debt, helped by portfolio revaluation gain of S$97.2mn. The average rental rate for renewal leases signed in 4Q was also 7.9% higher than the preceding leases. In addition, its portfolio occupancy improved from 87.6% in 3Q to 95.1%, boosted by sharp recovery in occupancy at CWP from 78.3% to 92.0% in the same period.

Positive outlook. Going forward, we believe FCT will continue to post significant growth in its rental income as the full contribution of CWP and newly-acquired Bedok Point has yet to be realized. According to management, CWP is expected to provide over 20% increase in NPI when the AEI is completed, while its occupancy rate is likely to stay above 90% throughout. Bedok Point, on the other hand, is likely to add S$7m to FY12 NPI.

Upgrade to BUY. We raise our FY12 forecasts by 3.3-8.3% to factor in the latest results and lower cost of debt. We also introduce our FY13 estimates and roll over our RNAV-based valuation to FY12. Consequently, our fair value is now raised from S$1.57 to S$1.68. We turn positive on FCT as its suburban malls are likely to remain relatively resilient even in times of market uncertainty. We also like its strong execution and steady pipeline of assets from its sponsor. Upgrade from Hold to BUY.

CapitaLand: Focus on key residential launches ahead (OCBC)

3Q11 within expectations. CapitaLand (CAPL) announced 3Q11 PATMI of S$80.2m, down 82.6% YoY mostly due to earnings recognized for DPS units at The Seafront at Meyer and Latitude in restated 3Q10 earnings as required by the new INT FRS 115 standards. 3Q11 earnings came in mostly within our expectations and 9M11 PATMI now forms 72.4% of our FY11 forecast. Top-line of S$608.6m also came in line, with 9M11 numbers constituting 75.3% of our annual forecast.

Bedok and Bishan launches to be key catalysts ahead. We estimate that the group sold 67 units in 3Q11, mostly at The Interlace, d'Leedon and Urban Resort for a total sales value of ~S$150m, compared to 271 units sold (S$565m) over 1H11. The sequential slowdown, however, is expected to reverse with new project launches at Bedok and Bishan in 4Q11-1Q12. We believe the market is likely to focus on the performances of these launches as key share price catalysts in the short term.

Chinese homes sales could slow further. The pace of home sales in China moderated in 3Q11 to ~RMB 0.7b (410 units sold) versus RMB 1.9b (930 units) in 1H11. We expect the downtrend to continue due to purchase restrictions and further tightening conditions in China. For the new CapitaLand Value Homes unit, we understand that its Wuhan project (2,600 units) is set to commence construction by end 2011. The Raffles City Chengdu project also achieved structural top-up in 3Q11 and we expect retail operations to begin by 2Q12.

Balance sheet remains strong. We saw the group commit another ~S$2b in new investments in 3Q11, bringing the YTD total to S$7b while net gearing remained at a relatively low 28% with about S$5.5b of cash on its balance sheet. We believe this is a key strength of the group and that capital deployment could well slow down in 4Q11 given macro uncertainties and that the group has reached its S$5-6b target for FY11.

Maintain BUY with revised S$2.91 fair value. We revise our fair value estimate to S$2.91 from S$3.46 previously to reflect latest valuations for its listed holdings and weaker forecasts for the office sector. In addition, we also apply a higher 20% discount (versus 15% previously) to RNAV, in-line with our valuations for other major developers, to reflect heightened macrorisks since our last update. Maintain BUY. Possible catalysts ahead are strong performances at Bedok and Bishan launches and a stronger share buy-back program.