Fibra Shop-4Q16:Small operating beat;DPS still going down but at a slower than expected pace

Q: How did the results compare vs. expectations?

    A: Revenues of P268m were 3% above our forecast (up 14% YoY). This is mostly dueto higher than expected average rent per sqm. NOI of P193m was also 3% aboveexpectations (up 15% YoY) on a 72.1% margin (vs. our 72.3% forecast). EBITDA ofP178m was 4% above our forecast (up 15% YoY) leading to a Net Income of P129m(1% above expectations). And on a 100% pay-out ratio, the announced dividend pershare is P0.2660. This was a smaller sequential decrease than what we expected (6%above our forecast, down 3% QoQ and down 5% YoY) and implies an 8.3%annualized yield.

    Q: What were the most noteworthy areas in the results?

    A: On the positive side same-shopping-center NOI growth of 16% YoY is prettyimpressive. Granted this includes some expansions in some of its shopping centers, butan NOI margin expansion of more than 200bps show the market is still on very positiveterritory. On the negative side, DPS continues to fall QoQ on the back of higher interestexpense (due to the rate exposure) wiping the NOI/FFO YoY increases. This was slightlyless than we feared, but still significant. We note management mentioned it is in theprocess of hedging its rate exposure. We expect to hear more about this in tomorrow’scall.

    Q: How would we expect investors to react?

    A: We would expect a neutral reaction to the results as a dividend yield of 8% for aFibra with this size/liquidity is not that attractive relative to what can be found in thesector today (i.e., some Fibras paying dividend yields above 10%).

    Valuation: our rating is Sell, our DDM-derived PT is P12.5/shareWhile buybacks may give some support to the shares, we still see some fundamentaldownside from here. We will closely monitor the hedging strategy that is yet to come.