Month: October 2010
CDLH-Trust – BT
CDLHT hotels enjoy strong demand
CDL Hospitality Trusts (CDLHT) achieved a record average occupancy rate of 91.6 per cent for its five Singapore hotels in the third quarter of this year, up 5.5 percentage points from the same year-ago period following strong visitor arrivals growth in Singapore.
Average daily rate rose 23.4 per cent over the same period, while room revenue per available room (RevPAR) for the Singapore properties rose 31.2 per cent year on year to $199 in Q3.
Helped by the improved performance of its Singapore hotels and a $4.3 million contribution from the Australian hotels acquired in Q1 this year, CDLHT’s gross revenue rose 38.4 per cent year on year to $31.6 million in Q3. Net property income swelled 40.9 per cent year on year to $30.16 million. Income available for distribution to stapled-security holders increased 44.6 per cent to $26.9 million but CDLHT is retaining $2.694 million for working capital (to fund refurbishment and other capital expenditure). Income available for distribution to stapled-security holders after deducting the retained sum increased 42.8 per cent to $24.2 million, reflecting distribution per unit of 2.54 cents for Q3. On an annualised basis, this works out to 10.08 cents, translating to an annualised distribution yield of 4.69 per cent based on CDLHT’s closing price of $2.15 as at Oct 28. The counter ended one cent lower at $2.14 yesterday.
CDLHT, which makes distributions semi-annually, will not be making a payout for Q3.
The trust owns five hotels in Singapore – Orchard, Grand Copthorne Waterfront, M, Copthorne King’s and Novotel Clarke Quay – and Orchard Hotel Shopping Arcade. It also owns Rendezvous Hotel Auckland and five hotels in Brisbane and Perth.
For the first nine months of 2010, gross revenue rose 35.6 per cent year-on-year to $88.95 million. Income available for distribution (less income retained for working capital) climbed 32.6 per cent to $65.4 million.
Standard Chartered Bank said in a report yesterday: ‘With gearing of 21 per cent and its entire portfolio of $1.74 billion of assets unencumbered, we think (CDLHT) can make any acquisition highly accretive. Potential acquisitions include Studio M at about $150 million from the sponsor (Millennium & Copthorne Hotels) within the next six months.’
Office REITs – OCBC
The Going gets Exciting as Competition Heats Up
Office rents strengthening. Office rents continued to strengthen in 3Q10 after turning around in the 2Q10. According to CRBE, Prime-Office rents averaged $7.40 psf/month, up from $6.90 psf/month in the previous quarter; Grade-A rents also rose 6.5% QoQ to average $9.00 psf/month. Major leasing deals were principally concentrated on new Grade-A developments. Financial institutions, legal firms, insurance and professional services remained the major source of occupier demand. Investment activity in the office market also warmed up. Improving visibility of the office recovery and rental cycle stand to benefit the four local Office REITs, namely Suntec REIT [BUY, FV: S$1.64], CapitaCommercial Trust (CMT) [HOLD, FV: S$1.52], K-REIT Asia [NOT RATED] and Frasers Commercial Trust (FCOT) [NOT RATED].
MBFC – the place to be at. K-REIT Asia and Suntec REIT intend to each acquire a one-third interest in Marina Bay Financial Centre (MBFC) Phase-One, constituting Towers 1 and 2, Marina Bay Link Mall and slightly less than 700 carpark lots. Excluding rental support, both are paying about $2400 psf for Singapore’s latest iconic development. MBFC is deemed a strategic acquisition on the back government’s commitment to pump more than S$1b into infrastructure works to support Marina Bay’s growth over the next 10-15 years and increasingly greater demand for Grade-A office space in Singapore. Noticeably, the acquisitions, if successful, will also propel Suntec’s investment properties to ~$5.8b, surpassing CCT’s S$5.2b (as reported in 3QFY10 results). K-REIT Asia’s investment properties, accounting for the divestment of both Keppel and GE Towers, will also levitate above S$2b from the current $1.38b. We view these two enlarged REITs as not only upping the stakes but also exerting pressure on CCT and FCOT, who have yet to announce any local acquisitions YTD.
Valuation. Office-REITs trade at an average forward yield of 5.6% and an average-price-to-book of 0.80x, which compares favourably to the broader S-REIT sector of 0.952x. We have a BUY rating on Suntec due to its wider exposure to the revitalizing Marina Bay area and improved quality of its office space (more Grade-A exposure) and we like K-REIT for similar reasons. We also noted that CCT is sitting on a cash pile of some S$731m following the sales of Robinson-Point and StarHub-Centre and certainly has the financial muscle for new acquisitions. In addition, we feel that market attitude towards Office REITs is turning due to increased leasing activity, better employment outlook and proactive lease management tactics taken by office landlords. We remain upbeat on the office sector recovery; and now have an OVERWEIGHT rating for the Office-REITs subsector.
Suntec – BT
Suntec Reit dips, ARA surges on MBFC deal
Analysts guarded on deal’s impact on trust but upbeat on fund manager
SUNTEC Real Estate Investment Trust endured a sell-down on the stock market yesterday after investors learnt of its planned $1.496 billion property purchase.
In contrast, ARA Asset Management – whose unit manages Suntec Reit – saw its share price surge to its highest level this year on the back of the same news.
Suntec Reit said on Tuesday evening that it is buying a one-third stake in some properties in Phase One of Marina Bay Financial Centre (MBFC) from Cheung Kong Holdings and Hutchison Whampoa. Its units ended trading at $1.56 before the announcement.
Yesterday, Suntec Reit fell as much as five cents or 3 per cent to an intraday low of $1.51. But it later recovered slightly to close at $1.54 – two cents down. Some 9.79 million units changed hands.
Views on how the deal would affect Suntec Reit ranged from the guarded to the positive. Moody’s Investors Service put on review for possible downgrade the Reit’s Baa1 corporate family rating and Baa2 senior unsecured debt rating.
‘The large transaction size, if substantially funded via debt, may pressure its ratings,’ said Moody’s senior vice-president Philipp Lotter.
Analysts from Deutsche Bank expect a slight 2.8-3.5 per cent accretion to Suntec Reit’s FY2011 distribution per unit from the deal. Taking into account other factors, they raised the target price for the counter to $1.65 from $1.58.
Sentiments surrounding ARA were more upbeat. Its share price, which closed at $1.29 on Tuesday, rose eight cents or 6 per cent to an intraday high of $1.37 yesterday.
The real estate fund manager gave up some of these gains to close at $1.33 – four cents higher.
Two research houses raised their target prices for ARA. ‘ARA, as the manager of Suntec Reit, stands to reap 1 per cent in acquisition fees or $15 million in FY2011,’ said CIMB’s Janice Ding, who upped the target price to $1.57 from $1.35.
DBS Vickers revised its target price to $1.65 from $1.30. ‘MBFC will form part of the asset under management (AUM) of Suntec Reit, thus increasing ARA’s recurring fee income base,’ said analyst Derek Tan.
‘ARA’s goal of $20 billion in total AUM by 2012 appears within reach.’
FCT – DBSV
Clear and visible growth
• Organic growth flattish in FY11 as Causeway Point undergoes a facelift
• Earnings could surprise on the upside from potential acquisitions, which could happen in 2011
• Maintain BUY, TP revised to S$1.74 (total return 15%)
Record 4Q10 DPU of 2.16 Scts in line. Fraser Centerpoint Trust (“FCT”) reported a topline and net property income of S$32.5m (+31%yoy, +6%qoq) and S$22.2m (+26%yoy, +3%qoq) respectively, boosted by the contribution from newly acquired Yewtee Point, Northpoint 2 malls and stronger trading performance of North Point 1 post enhancement works (“AEI”). Distributable to unitholders of S$16.5m includes a S$1.6m sum retained from prior quarters (maintaining 100% payout). The portfolio also saw a 3% revaluation gain of S$42.5m (+3%) or an NAV of S$1.29.
Organic growth flattish in FY11 as Causeway Point undergoes a facelift. We continue to see positive rental reversions. For FY10, average rents were renewed at 7% higher rates. Average occupancy levels stood at 98.1%, slightly down from 99.4% a year ago. This is due to lower occupancy rates at Causeway Point (97% in 4Q10 vs 100% in 4Q09) given the ongoing AEI at the mall. While we expect occupancy levels to head down further in the coming quarters as work intensifies, we project limited impact on DPU given that works are phased over a long period of 30 months and earnings in FY11 should be somewhat offset by the full year contribution from YewTee Point and Northpoint.
Bedok Mall could be injected into FCT by 2011. The mall is currently 99% committed and is awaiting TOP in the coming months. The manager is guiding for an injection in 2011 with a potential equity fund raising to part fund this acquisition. We have not factored in this acquisition in our numbers as yet.
BUY call maintained, TP revised to S$1.74. FCT offers investors a solid FY11-12F yield of 5.3-5.5%, backed by resilient earnings from its portfolio of sub-urban malls. Catalysts for further upside to earnings hinges on the acquisition of the Bedok mall asset. BUY maintained with revised TP of S$1.74 as we roll forward our numbers to FY11.
Suntec – Phillip
•3QFY10 of $63.2 million, net property income of $50.6 million, distributable income of $46.2 million
•3QFY10 DPU of 2.502 cents
•Acquiring 1/3 MBFC
•Maintain Hold, pending more details of acquisition
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Suntec REIT recorded 3Q10 revenue of $63.2 million (+2.1% y-y, +1.3% q-q), net property income of $50.6 million (+7.6% y-y, 6.7% q-q) and distributable income of $46.2 million (- 3.2% y-y, +0.6% q-q). 3Q10 DPU was 2.502 cents (-14.3% y-y, -1.0% q-q). Essentially we note the office portfolio has been improving in the past five quarters with occupancy edging up every quarter. Reversionary rent for leases secured in the quarter at Suntec City Office was $7.39 psfpm. Although this still represents a decrease of approximately 45% from the peak in two years ago, it has stayed relatively constant in the past five quarters and we believe the trough is already past. Like we mentioned in previous reports, this is a conscious effort by management to retain tenants and gain occupancy rate in the prospect of the completion of new supply of office space in the vicinity. The retail portfolio has also shown consistent results. Revenue contribution breakdown from the office and retail portfolio is 47% and 53% respectively, which has been steady in the past five quarters as well.
Additionally, Suntec REIT announced that it is proposing to acquire one-third interest in Marina Bay Financial Centre (MBFC). The purchase price is $1,495.9 million inclusive of an income support of $113.9 million over 60 monthsThe REIT has not determined the method of funding and will announced in due course. Fig 1. Revenue breakdown ($’m) vs occupancy breakdown (%)