Month: October 2012
Fortune – OCBC
9M12 DPU up 23% YoY
- Strong performance in line
- Impressive rental reversion
- Raise FV to HK$6.63; Maintain BUY
Good growth in 3Q12
9M12 DPU grew 23.1% YoY, representing the highest rate of growth in the REIT’s nine-year history. The results are in line with our expectations, with 9M12 DPU of 23.98 HK cents forming 74% of FY12 DPU estimate. 3Q12 revenue climbed by 22.6% YoY to HK$284.7m and NPI rose 22.9% YoY to HK$199.3m. 9M12 revenue increased by 21.1% to HK$822.1m. The 20.7% increase in 9M12 NPI to HK$581.4m can be broken down into an 11.6% increase from the two new properties acquired in mid-Feb and a 9.1% increase from the original portfolio due to strong reversion and AEI.
Strong rental reversion
Despite AEI at Fortune City One and Jubilee Square, portfolio occupancy only declined slightly from 96.5% as of 30 Jun to 96.1% as of 30 Sep. The average rental reversion clocked was impressive at 20.1%, among the highest level in years. The fraction of tenant’s trade mix attributable to non-discretionary retail sector remains constant at about 60%, giving the portfolio resiliency. Management indicates that even tenants who are in discretionary consumption may also renew leases at substantially higher rents, e.g. real estate companies are willing to accept paying double the rents they signed on for in 2010.
Price can appreciate further
We believe that there is room for further appreciation of FRT’s unit price. As we have written about in our report dated 8 Oct 2012, FRT can see further dividend yield compression (from unit price increases). Relative to the average yield for HK physical retail property (currently around 2.7%), FRT’s FY12F yield of 5.4% is above the historical average. At an NAV per unit of HK$8.32, FRT is trading at 0.7x NAV, significantly under the retail S-REITs average of ~1.1x. Gearing remains low at 24.6%.
Raise FV to HK$6.63
Rolling forward our DDM model to FY13, we raise our fair value from HK$6.49 to HK$6.63 and maintain our BUY rating on FRT. We believe that the FY13F DPU yield is attractive at 5.6%.
CDL H-Trust – Phillip
Below our expectation!
Company Overview
CDL HT is a stapled group comprising both REIT and Business Trust structures. Its mandate is to invest in a diversified portfolio of income-producing real estate which is primarily used for hospitality and/or hospitality related purpose.
- 3Q12 revenue $36.1mn, NPI $33.6mn, distributable income $26.3mn
- 3Q12 DPU of 2.72 cents
- Maintain Neutral with revised target price of S$1.970
What is the news?
Gross revenue and net property income came in at S$36.1mn (-0.8%y-y) and S$33.6mn (-1.1%y-y) respectively. The slump in top-line figures were because of the slowing global economies which undermined the financial and operational performances of its Singapore hotel portfolio. Currency translation loss from the weakening Australian dollar was also the cause of the fall. DPU was 2.72 cents in 3Q12 (2.77 cents in 3Q11), bringing 9-month DPU to 8.42 cents. This translates to 73%/70.8% of our FY12/consensus DPU estimates.
How do we view this?
3Q12 result was a disappointment. Even we expect higher DPU in the fourth quarter (driven principally by the F&B segment arising from the year-end festivities), CDL HT’s FY12 DPU is unlikely to meet our FY12 DPU estimate.
Investment Actions?
The prolonged slowdown in global economic conditions has caused companies to tighten their accommodation budget. In this regard, we believe hoteliers have less pricing power on the room rate moving forward. Company functions like meetings and conference business were also affected by the economic malaise and will continue to drag down CDLHT’s revenue. Hence, we adjust our top-line figures to better reflect the current market condition and lower our DPU estimates by 2.7% on average over FY12-FY16. We trim our price target to S$1.970 and maintain neutral given little upside based on the closing price of S$1.940.
StarHill Global – DBSV
Growth from Wisma Atria
- 3Q12 result in line; 9M DPU is 76% of our full year forecast
- Rising contribution from Wisma Atria, more upside after adjusting tenancy mix and upgrading works
- Maintain BUY rating; raised TP to S$0.84
3Q12 result in line; 9M DPU is 76% of our full year forecast
Highlights
Results in line. Gross revenues and net property income grew c.5.0% to S$46.3m and S$36.4m, respectively, again driven by Wisma Atria. Y-o-y, mall revenue grew 24%, while contribution from offices jumped 15%. This helped to offset weakness in Chengdu, where revenue fell 14% due to softening demand for mid-to-high end luxury goods. In the reviewed quarter, the trust retained S$0.8m for working capital this quarter. Despite that, 3Q12 DPU still rose by 11% y-o-y to 1.11 cts (net CPPU holders). 9M12 DPU is 76% of our forecast.
Our View
Better offering, higher retail sales. Footfall at Wisma Atria fell 10% y-o-y (+6.8% q-o-q) in 3Q12, but retail sales grew 6.5%. This might be due to the improved offering after AEI was completed in July. Footfall fell y-o-y due to reconfiguration works at some level 1 shops to accommodate new tenants; work started in July and is expected to be completed by year end. This should drive positive rental reversions ahead.
Office: continued positive rental reversion. Its office portfolio remains resilient with high 98.4% occupancy rate. Although a chunky c.36% of its leases (in terms of gross rents) is due for renewal in 2013, passing rents of S$8.0–S$8.5 psf pm, which is 5-10% below current signing rents, will mitigate downside risks and at the same time drive positive rental reversion going forward.
Healthy financial metrics. Gearing remains comfortable at 31%. The REIT has secured refinancing for a A$63m term loan that will mature in Jan 2013 and will not need refinancing until Sep 2013.
Recommendation
Maintain BUY; lifted TP to $0.84. We lifted our DCF-backed TP by 3.7% and FY13/14F DPU by 1-2% after accounting for higher rental income following the shop reconfiguration, as well as adjustments to Wisma Atria’s lease profile. There is further upside from new acquisitions that we have not factored into our numbers. Our new TP offers investors a total return of >10%.
StarHill Global – CIMB
Wisma Atria stars in 3Q
Starhill’s 3Q12 was strengthened by Wisma Atria asset enhancements, completed in Jul 2012, offset by a weaker Chengdu mall. Income was retained for working capital. Toshin negotiations are still in progress but potential rental upside has already been factored in.
3Q/9M12 DPU met expectations at 25%/72% of our full-year forecast but was slightly above consensus at 26%/76%. We tweak DPUs downwards for lower margins in Japan and weaker China growth. But we raise our DDM target price as we lower the discount rate from 8.4% to 7.9%. We remain Neutral on valuation grounds.
Wisma enhancements complete
A stronger performance at Wisma Atria was largely behind the 5% yoy rise in 3Q12 revenue and 5.7% increase in NPI. After the completion of enhancements in Jul 2012, shopper traffic increased 7% qoq while retail sales went up 7% yoy. Positive rental reversions led to another quarter of NPI growth, at 24.3% yoy this quarter (2Q12: 11.5%). This was offset by a weaker performance at Chengdu mall where NPI declined 14% yoy due to a softening high-end retail market.
Update on Toshin
Following the appeal on the Toshin master lease, Starhill and Toshin have jointly requested the President of the Singapore Institute of Surveyors and Valuers (SISV) to designate three valuers for the rent valuation. This is as per directions given by the Court of Appeal in Sep, which include disclosure of instructions given to valuation firms for the seven valuation reports obtained previously. Management expects upcoming valuation to be closer to market rents. We have factored in 10% rental reversion.
China growth?
Acquisition opportunities are, in our view, hard to come by. Despite media report of sponsor YTL’s intention to expand its presence in China, we see this as a mid- to long-term positive for Starhill. China retail asset values remain lofty while luxury retail sales remain soft amidst a saturated market in certain cities.
MCT – DBSV
Acquisition stars aligning
- In line, 6M DPU makes up 49% of our FY13 numbers
- Strong operational and financial metrics, supportive of new acquisitions
- Maintain BUY, TP raised to S$1.35 as we roll forward our numbers and factor in S$1bn of acquisitions
Another sterling quarter. MCT reported 2Q gross revenue and NPI growth of c.15% y-o-y each to S$51.8m and S$36.5m respectively. The better performance was driven by higher rental income from improved occupancies and better rental rates across all properties. As a result, DPU came in at 1.546Scts and 1HDPU makes up 49% of our full year forecast.
Organic growth drivers are still in place. Looking ahead, forward growth will be driven by positive rental reversions at VivoCity and improving pre-commitments at ARC (75.9% vs 60% a quarter ago). Meanwhile, average rent for VivoCity continued to trend up nicely to >S$11psf/mth. While occupancy cost has risen to 17%, it is still lower compared to city malls (c.20%). Hence, we believe the trust can continue to drive rents, albeit at a more modest pace, on the back of increasing shopper traffic and higher tenant sales.
Acquisitions likely to be the next catalyst. Gearing level is at 37.7% with only S$122m worth of refinancing due in April 2013. With the trust trading at 1.3x P/Bk NAV and an implied yield of 5%, we believe it has become a more effective platform for new acquisitions that can be funded through a mix of debt and equity. We now assume S$1bn of acquisitions @ 5.25% yield in FY13F (equity: debt ratio of 60:40), raising our FY14F estimate by 2%.
Maintain Buy. We continue to like MCT for its defensive nature backed by quality assets and healthy financial metrics. We believe a re-rating catalyst could come from new acquisitions such as Mapletree Business City and Mapletree Anson. As we roll forward our number and factor in S$1bn worth of acquisitions, we raise our target price to S$1.35.