Month: August 2012
MLT – OCBC
PORTFOLIO OPTIMIZATION VIA CAPITAL RECYCLING
- Acquisition to be DPU-accretive
- Divestment amount above valuation
- Enhanced market position in South Korea
Acquisition of warehouse in South Korea
Mapletree Logistics Trust (MLT) announced on 28 Aug that it will acquire Hyundai Logistics Centre in Gyeonggi-do, South Korea for a consideration of ~S$24.6m. The property comprises two blocks of three-storey dry warehouses and has a total GFA of 32,300 sqm. Both the leases to its two key tenants, E-Land World (major apparel and retail company) and Korea Environment & Resources Corp (government corporation) provide for built-in rental escalation. According to management, the initial NPI yield is 9.0% and is expected to be DPU-accretive. We understand that the acquisition is targeted to complete by Dec 2012.
Divestment of 30 Woodlands Loop
Separately, MLT had entered into an agreement to divest 30 Woodlands Loop in Singapore for S$15.5m. This represents a significant 50.5% and 40.9% premium to its purchase price of S$10.3m in 2007 and valuation of S$11.0m in Mar 2012 respectively. A net disposal gain of ~S$5.0m is expected. We note that the decision to divest the property came as a result of limited growth potential (building specifications no longer suitable for modern warehousing requirements) and attractive offer on hand. The divestment is expected to be completed by Feb 2013, and the sale proceeds will be redeployed to partially fund the acquisition in South Korea. As the investment is financed by a combination of debt and equity, gearing is only expected to inch up slightly from 37.0% as at 30 Jun to 37.2% upon completion of both transactions.
Maintain BUY
We view both transactions positively as it clearly reflects MLT’s capability to optimize portfolio returns through proactive asset management and as the acquisition is likely to strengthen MLT’s market position in South Korea. The capital recycling initiative and overseas acquisition were also spot on with our projections made in our 21 Aug S-REIT sector report. We now tweak our forecasts to accommodate the two transactions. Our FY13-14F DPUs are raised by 0.3-0.7%, but there is no change to our fair value of S$1.19. BUY.
Hospitality REITs – DMG
More investment options in tourism space
Historically, the de facto proxy for the hospitality sector has been CDL Hospitality Trusts due to its liquidity and size. With the proliferation in recent hospitality REITs listings, investors will have more choices to play the tourism theme going forward. Ascendas Land recently listed its maiden hospitality trust comprising 10 hotels in Australia, China and Japan in a S$385m listing, offering 437.3m units at S$0.88 each. Meanwhile, Far East Hospitality Trust (Far East HT) is offering 706m units at S$0.93 each to raise S$656m, which will have an initial portfolio comprising seven hotels and four serviced residences worth S$2.1b. These REITs derive the majority of their asset values and income from Singapore and Australia, two markets with favourable demand-supply outlook, with rising tourist arrivals that should drive up room rates and occupancies further.
Buoyant outlook for Singapore hospitality space. CDL HT and Far East HT are both leveraged to the Singapore tourism market, deriving over 80% of revenue from Singapore. Both trusts should continue to benefit from the rising tourist arrivals to the city state, which reached a historical high of 13.2m arrivals last year and is poised to attract 14-15m visitors this year. A host of new attractions, together with the integrated resorts and a growing MICE market should ensure that room demand continues to lead supply, driving high occupancies and room rates. The Singapore Tourism Board (STB) expects tourist arrivals to reach 17m by 2015 (representing 6.9% CAGR during FY11-FY15).
Outlook for Australia hospitality underpinned by favourable demand-supply dynamics. In Australia, the market is equally buoyant, driven by a resilient domestic corporate travel market and rising tourist arrivals from Asian markets such as Japan and China. Due to high replacement costs, new supply in the country is limited and has helped to keep occupancies in gateway cities above 80%. The above trends are favourable for Ascendas HT, which have seven hotels in Australia accounting for 70% of its assets.
Our key picks: CDL HT and Far East HT. The forward yield for Ascendas HT is the highest among the three at 8.0%. Concurrently, CDL HT is trading at FY13F yield of 6.5% while Far East HT trades at 6.3% yield. Yields aside, we believe other important factors to consider include cost of funding, track record of the sponsor, growth of the underlying markets and attributes of the underlying properties. In this regard, we consider CDL HT and Far East HT as having superior risk-adjusted returns. Currently, we have BUY recommendation for CDL HT (BUY, TP S$2.20), a positive view on Far East HT and a neutral view on Ascendas HT.
CDL H-Trust – OCBC
3Q12 YOY WEAKNESS LIKELY FOR THE SECTOR
- Potentially weak 3Q for SG hotels
- Last year’s 3Q was exceptional
- Demand to outstrip supply
Possibly soft 3Q12 for Singapore hotels
Hotels in Singapore may be seeing lower average room rates in 3Q12 on a YoY basis, according to a hospitality industry player we spoke to. For example, a 5-star hotel may be charging S$250++ while they may have charged S$300++ a year ago. In percentage terms, the decline might be less pronounced for higher-end hotels. CDLHT’s hotels are best characterized as being in the two middle tiers (Midtier and Upscale) based on their historical RevPAR figures, and should perform at least in line with the general market.
3Q11 was particularly strong
But a YoY decline for the hospitality sector would not be surprising as 3Q11 was exceptionally strong; 3Qs are traditionally weak quarters. Pickup among hotels for the period of the F1 (21st-23rd Sep) has apparently been poor so far except for hotels in the Marina Bay area. The pricing power of the hotels relative to walk-in customers and corporates may have declined because of reduced booking visibility but this may be buffered by increased pricing power versus certain travel agents.
Demand to surpass supply
According to CBRE, hotel room supply in Singapore is estimated to grow at 4.6% p.a. for 2012-2014 from 49,719 rooms in 309 hotels as of end 2011. CBRE estimates that the spread of hotel rooms by categories as of end 2011 was 14% Economy, 29% Mid-tier, 46% Upscale and 11% Luxury. Based on this, we calculate that the 2012-2014 growth rates of hotel room supplies by tiers are as follows: Economy (7.2% p.a.), Mid-tier (6.4% p.a.), Upscale (3.4% p.a.), Luxury (1.6% p.a.). As a whole, the Mid-tier and Upscale categories are expected to grow at 4.6% p.a., in line with the general market and comparing favorably to hotel room demand, which we expect to grow at 6.4% p.a. for 2012-2015.
Maintain HOLD
We keep our fair value of S$2.06 on CDLHT. As there might be better buying opportunities after the 3Q12 results are out, we maintain our HOLD rating for now.
FE-HTrust – SGX
From SGX,
PUBLIC OFFER
Summary
- 14.6x subscribed for Public Offer (50,000,000 Units Available)
- Stabilizing Units = 65,873,000 Units (Stabilizing Action for max. 30 Days)
- Listing on 27 Aug 12 (Mon) 2pm
FE-HTrust – CIMB
New local tourism proxy
FEHT stands out among hospitality trusts in Singapore for its pure local exposure and potential for improved yields. It has one of the strongest acquisition pipelines among the hospitality trusts, offering growth visibility all the way till 2016.
Its offer price of S$0.93 translates to yields of 6.0-6.3% for FP12-FY13 and 1x P/BV. This is priced near the forward yields of 6.0-6.2% and 1.2x P/BV for its closest peer, CDLHT, previously the main liquid proxy for the buoyant local tourism industry.
New proxy
After its listing on 27 Aug, FEHT will be the first and only Singapore-focused hotel and serviced residence hospitality trust listed locally. Prior to this, CDLHT was the chief proxy for the buoyant local tourism industry. FEHT’s listing will provide an alternative. FEHT stands out for its pure local exposure, room for organic growth through improved yields and ROFR pipeline from its sponsor. Its positioning and asset locations are arguably not as strong as CDLHT’s, though this could present upside from improved yield management and asset enhancement.
Strongest local acquisition pipeline
FEHT has one of the strongest local acquisition pipelines among locally-listed hospitality trusts. These include ROFR to seven local assets (three hotels and four residences) at a time when accretive third-party assets
are hard to find. This pipeline provides acquisition visibility all the way until 2016. Acquisitions could reinforce FEHT’s local hospitality positioning.
Priced near closest peer
FEHT’s shareholding structure is tight with its sponsor holding 52/56% stakes (depending on whether the over-allotment option is exercised) and cornerstone investors holding another 23.5%. The institutional offering has been over 30x subscribed, closing at S$0.93, the top end of its pricing range. At pro-forma yields of 6.0-6.3% for FP12-FY13 and 1.0x P/BV, FEHT is priced near its closest peer, CDLHT, which trades at 1.2x P/BV and forward yields of 6.0-6.2%, assuming 90% payouts.