Tokyo Tatemono (8804 JP) (Buy) 16/12 Q3 results

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Profit guidance hiked; high-rise condos perform well, next focus is on Yoyogi Park development

Tokyo Tatemono released results for 16/12 Q1-3 on 7 November and also issued revised full-year guidance for recurring profits and profits attributable to parent company shareholders, hiking its projections by ¥2.5bn apiece. The revisions reflect the posting of gains on the sale of property, plant, and equipment, as well as equity-method income from overseas operations and increased financial income. We have also revised our forecasts. However, we raise the cap rate we use to calculate our target price from 4.3% to 4.7%, yielding a target price of ¥1,910, to reflect a slower pace of office rent rises in Tokyo’s five central wards and increased uncertainty on global financial markets. We reaffirm our Buy rating.

Self-Storage REITs - 3Q16 Storage REIT Wrap-Up

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While NSA wrapped up storage earnings season with some solid results, the season was once again a roller coaster ride. PSA and EXR kicked off earnings season on October 26 with some relatively disappointing numbers, and the sector traded down nearly 6.0%. CUBE came out a day later with another strong beat-and-raise quarter. LSI’s portfolio struggled across the board with the lowest same-store growth in the sector and some hurricane-related expenses, and the LifeStorage portfolio experienced some issues that management is ascribing to previous ownership. Luckily, the group ended on a high note with NSA posting the highest revenue growth of the quarter. Meanwhile, JCAP’s portfolio continues to make gains as deals are leasing up faster than expected and blowing away initial underwriting.

First Look - Japan construction sector: sinkhole near Hakata Station - Taisei JV and Zenitaka JV doing work nearby

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According to the Fukuoka City Transportation Bureau, a huge sinkhole opened up at the 2-chome intersection near Hakata Station around 5:15am on 8 November. The cause of the sinkhole is currently under investigation. There were two Nanakuma Line subway extension projects under way near the site of the accident. A Taisei [1801]/Sato Kogyo/Morimoto/Sanki Construction/Saiko Kensetsu JV was carrying out work on a section of construction for a Nanakuma Line Hakata Station project, and a Zenitaka [1811]/JDC/Kyuken JV was carrying out work on the eastern section of a Nanakuma Line Nakama Station project. The value of orders (before tax) looks to be ¥10.8bn for the work being undertaken by the Taisei JV and ¥4.1bn for the work being carried out by the Zenitaka JV. 

DEA @ STRH - Quick Thoughts: Modest core FFO Beat, Guidance Maintained

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Modest core FFO Beat, Guidance Maintained

Rating: Buy

Market Cap (M): $826; Price: $18.60 as of 11/07/2016

Price Target: $21.00
Sector: Office REITs

Net-net: We think the stock could modestly outperform this morning, as core FFO results were a penny ahead of the consensus and our estimate. In addition, DEA reiterated its 2016 guidance (at the $1.21 midpoint), which remained slightly higher the street and our estimate. In short, DEA delivered what we had expected and we will look for additional details on the conference call at 10am (1-877-705-6003).

Core FFO Beats Consensus: Third-quarter FFO was $0.30 per share versus our estimate of $0.29ps and the consensus of $0.30. Excluding acquisition costs, normalized FFO of $0.32ps was $0.01 ahead of our estimate and the consensus (each $0.31ps). The $0.01 per share normalized FFO beat versus our estimate was driven by higher NOI and lower interest expense. Normalized FFO of $0.32ps was up 20.5% year-over year, driven by higher NOI and was partially offset by higher interest expense.

DNB NEWS & RESEARCH

PROSAFE:     U/G from SELL(HOLD), PT NOK0.30 due to recent restructuring
DNO NO:      REIT BUY, CUT PT from NOK14(12) on payment irregularity.
AKER:        REIT HOLD, UP PT from NOK252(316)
TNK:         REIT HOLD,CUT PT from $2.60(2.30) due to falling asset prices

Japan REIT sector - BOJ policy and US REITs behind correction?

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The Japanese REIT market has been weakening recently. The TSE REIT Index rose 5.6% between 4 January 2016 and the end of September, outperforming the TOPIX by 18%. From October through 7 November, however, the index fell 2.8%, underperforming the TOPIX by 5.2%. Major factors that could have played a part in this recent correction in the Japanese REIT market include (1) caution regarding the BOJ's yield curve control policy, and (2) the correction in the US REIT market amid increasing expectations for a rate hike by the Fed.

GLP J-REIT (3281 JP) (Buy) 16/8: acquisitions and rent hikes made as planned

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Planning annual investment of ¥40-50bn and aiming for 2-3% or more average rent increase

In September the REIT used the proceeds from an equity offering to fund the acquisition of GLP Atsugi II and four other logistics facilities for ¥58.2bn, equivalent to a weighted average NOI yield of 4.9%. GLP REIT still has a deep pipeline for acquisitions, including 17 Global Logistics Properties (GLP) assets valued at roughly ¥200bn (with NOI yield around 4.8%) on which it holds preemptive rights and 26 properties valued at just over ¥500bn either developed or operated by GLP through a fund. Based on the existence of these properties, GLPREIT plans to continue acquiring properties at an annual pace of ¥40-50bn. GLP developed ¥120bn in logistics facilities in Japan in 2015 and plans to continue such development at a pace of ¥70-100bn annually. And property management operations are robust at GLP REIT, with portfolio occupancy at 99.2% at end-16/8 and projected to be over 99% in 17/2 and 17/8 as well. Rent increases averaged 11.3% in 16/2 and 10.3% in 16/8. We use a fair-value dividend yield of 3.25% and fair-value cap rate of 3.75% to calculate our target price. We continue to value the REIT using discount rates that are around 50bp lower than the respective weighted averages for 36 REITs under our coverage.

CCI @ STRH - Expect Solid 3Q16, Focus on 2017 Guidance; Buy, $107 Target

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Expect Solid 3Q16, Focus on 2017 Guidance; Buy, $107 Target

Rating: Buy

Market Cap (M): $31,090; Price: $91.82 as of 10/18/2016

Price Target new: $107.00; Price Target prior:$107.00

Sector: Towers
 

What's Incremental To Our View

As the first and most U.S.-focused tower company to report, we believe CCI's results will set initial 2017 investor expectations for the group. Having recently met with largest customer (AT&T), management at CTIA and CCI’s CFO during 3Q16, we believe there is at least anecdotal evidence to suggest more tower activity in 2017. Importantly, we believe expectations for T's 2017 U.S. network spend remain muted. With CCI having pulled back with the RMZ and already-low growth expectations for 2017, we reiterate our Buy rating, $107 target.

Expect in-line to moderately above-guidance 3Q16 results – Given towers' high visibility, we do not expect material downside risk to 3Q16 results. Our estimates are largely at the high end of guidance as we consider management’s modest site leasing growth expectations achievable. Considering historical guidance conservatism, we would not be surprised to see an upward revision for full-year expectations.

Eyes on 2017 guidance – More important than 2016 guidance, we believe investors will focus squarely on management’s initial 2017 outlook. Specifically, despite the industry no longer speaking about individual customers’ activity, we expect investors to try to gauge CCI’s tone regarding their largest customer, AT&T (T, $39.36, NR), to determine if activity is poised to step up following a near 2-year lull. While we believe there is at least anecdotal evidence to suggest that is the case, investor expectations – as well as ours – remain muted in terms of how aggressive T’s 2017 network investments will be.

Small cell update – In our recent meeting with management, we dug into the small cell opportunity and defensibility of the business long-term. We came away more encouraged that, although small cells will likely be more competitive than the current macro tower market, the fiber density and networking expertise required to deploy and manage these networks provides greater barrier to entry and competitive differentiation, in our view. We expect small cells will continue to outgrow the more mature macro tower business, posting improved development yields along the way.

Maintain Buy, $107 target – With the stock pulling back in-line with the RMZ over the past 3 months, relatively low expectations for growth next year, an attractive dividend yield and discounted valuation to REIT peers, we continue to recommend CCI. Our CCI price target of $107 implies ~21x P/AFFO multiple on our 2017 estimate of $5.06 and ~21.3x EV/2016E EBITDA of $2.3B.

Daiwa House Industry (1925 JP) (Buy) September orders up 13%, Apr-Sep orders up 4%

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Large mixed-use development begun in Vietnam

Daiwa House Industry released monthly order receipt data for September on 13 October. Orders rose 13% y-y as those for condominiums fell 21% y-y, and those for rental housing fell 5%, but orders for single-family houses, including houses in subdivisions, rose 3%, and those for commercial buildings rose 24%. Orders for rental housing rose 2% y-y if the effect of orders for large scale properties (¥2bn and higher) received the same month a year earlier are excluded, which we view as solid. Apr-Sep orders were up 4% y-y, 3% if the effect of sales of development properties for logistics facilities and commercial buildings is excluded. We forecast orders will grow 2% y-y in 17/3, in line with the company's forecast, and data thus far has more or less trended in line with our forecast. We thus make no change to our earnings forecasts. Share price performance has been weak, including for rival companies, on concerns that vacancy rates will deteriorate as the rental housing construction market overheats. We think the concern is small that vacancy rates for rental housing will deteriorate at major housing companies, including Daiwa House Industry, but given that housing-related companies under our coverage are trading at only 13x our 17/3 EPS estimates, we lower our target price for Daiwa House Industry to ¥3,730. We think Daiwa House Industry should trade at a P/E that is 15% higher than the average for the companies under our coverage as we expect solid earnings at Daiwa House Industry backed by diversified operations. We see 15x as a fair 17/3 P/E valuation.

CHCT @ STRH - Quick Thoughts: Soft 3Q16 Investment Activity But Pipeline Helps Maintain Conviction

10b5-1 Activity Adds Another Level of Confidence

Rating: Buy

Market Cap (M): $274; Price: $21.81 as of 10/13/2016

Price Target: $26.00
Sector: Healthcare REITs

• Last night, CHCT released its 3Q16 investment activity below our expectations, but also disclosed a sizable pipeline and significant insider buying. The $12.1M investment activity in 3Q16 came in well below our $30M estimate. However, we would highlight that the company has already closed one deal subsequent to 3Q ($3.3M), has ~$27.2M aggregate activity under definitive purchase agreements and ~$18.6M aggregate activity with signed term sheets.
• While there may be some softness on the lower investment activity, the strong pipeline gives us confidence to maintain our conviction in the name. Also, management has previously communicated the potential for quarterly lumpiness with a longer term $25M-$30M quarterly average. Should the company close all of the definitive purchase agreements and signed term sheets in 4Q16, it would modestly exceed our 2H16 investment estimate ($61.2M vs. our $60ME).
• Our confidence level is further strengthened through the CEO Tim Wallace's stock purchase plan activity. In 3Q16 and 4Q16-to-date, he has acquired 91,851 shares for ~$2M. CEO Wallace established this trading plan early in 2016 with the ability to purchase up to the lesser of $4M or 200,000 shares. With the completed activity, he is ~50% complete on his 10b5-1 plan.
• In 3Q16, the company acquired four properties for an aggregate $12.1M with expected returns in the 9.2%-10.0% range. The pipeline post-3Q16 is robust, with one additional property closed ($3.3M with a 9.3% expected return), six properties under definitive purchase agreements for an aggregate $27.2M (9.0%-9.7% expected return range) and two properties with signed term sheets for an aggregate $18.6M (9.2%-9.6% expected return range).
• On the renewal front, 90.46% of leases maturing in the first three quarters of 2016 were renewed, and 100% of the 4Q16 lease maturities have been renewed or released.
• We await further details from management on the investment activity trends following the release of 3Q16 earnings on November 10th.