Suntec – DBS
Strengthening foothold in the Marina area
• Maiden exposure to Suntec Convention
• Long term strategic rewards offset near term neutral earnings impact
• Maintain Buy with TP of $1.18
Takes 20% stake in Suntec Convention. Suntec is investing S$25m for a 20% share of ARA Harmony Fund, a private equity fund set up to own the Suntec Convention Centre. Under the terms of the agreement, Harmony will pay S$235m for the landmark asset with c.1msf of convention space. The fund will be managed by listed ARA Asset Management via asset and convention and exhibition service agreements.
Small investment, strategic positioning. Although the purchase is not expected to have any significant impact in the near term, we view this acquisition positively given i) firstly, it would deepen the group’s presence in the rapidly expanding convention hub in the Marina area; and ii) secondly, an effective controlling ownership of the entire Suntec City mixed development asset could open opportunities for future enhancements in the long run. Furthermore, we see potential for further streamlining of ownership that would provide Suntec with more synergies and economies of scale. In terms of financial impact, this purchase will raise Suntec’s leverage ratio marginally from 33.9% to 34.2%.
Maintain Buy. Suntec’s valuation remains inexpensive with at 0.55x P/bk NAV and DPU yield of 9.8-8.1% over FY09-10, even after assuming further rental depreciation of office rentals. Our DCF-backed TP of $1.18 offers 17% upside.
CDL H-Trust – CIMB
Worst should be over
• DPU in line. 2Q09 results were in line with our expectations but exceeded consensus. Payout to unitholders is 90%, at S$15.8m. This translates to a DPU of 1.89cts, or 21% of our full-year forecast. 1H09 DPU amounts to 3.86cts, or 49% of our full-year forecast, which assumes a 90% payout. Actual DPU available for distribution based on a 100% payout for 1H09 is 4.25cts, 54% of our FY09 forecast.
• Room rates down 30% yoy; occupancy down 12% pts yoy. CDLHT’s Singapore portfolio occupancy was 75.5% (-12% pts yoy), recovering moderately (+1%) from the last quarter. This was despite more difficult operating conditions with cancellations and meetings held back due to H1N1. Average room rate for the Singapore portfolio was down to S$178 (-30% yoy). However, this fall is measured against 2Q08, CDLHT’s strongest quarter since its listing.
• More surprises in the bag. Management revealed that July’s occupancy had risen above 80% in Singapore, in line with industry performance. This is a positive start to 2H09. We are expecting more events such as the F1 night race, the continuance of the APEC Conference 2009 till November, and the return of bookings for conferences and meetings postponed by H1N1. We expect more upside surprises from: 1) possibly reduced interest cost as loans could be refinanced at lower margins; 2) a return of payout to 100% as early as 2H09 if conditions continue to improve; and 3) room rates priced on a daily basis.
• Maintain Outperform; DDM-based target price raised to S$1.41 (from S$0.99). CDLHT’s performance has met our above-consensus estimates despite difficult conditions. We are positive that it is out of the woods. Hence, we revise our assumptions for: 1) full-year average occupancy to 75-85% (from 70-80%); and 2) average room rate up by 15% in 2010, from +3%. We maintain our 90% payout assumption. Our DPU forecasts increase by 4-11% following the changes in our assumptions. Our target price rises accordingly to S$1.41 (discount rate 9.1%), offering 19% potential price upside and forward yields of 7%. We believe CDLHT will be one of the key beneficiaries of integrated resorts opening in 2010.
MREIT Blog
Dear All,
Some of you may have noticed that one of our blogs, http://mreit.blogspot.com/ (on Malaysia REITs) had been removed by blogger (the service provider) as of yesterday. We do not know the reasons behind this and have appealed to them. We have yet to receive any reply.
In the meantime, we have created a temporary replacement at http://m-reit.blogspot.com/ but currently, there’s only one entry (July 2009).
This sudden action by blogger has made us realized how vulnerable we are, of losing all our data. We will be considering the possibilities of creating a mirror site with another blog service provider or to start our own website (so that we won’t be at the mercy of any provider). So, watch this space as we will keep you updated of our alternative actions.
Thank You!
Suntec – CIMB
Suntec REIT’s 2Q09 results exceeded both the Street and our expectations on a stronger topline, better net property income margins, and lower interest expense. Distributable income of S$47.7m (+14% yoy) and DPU of 2.98cts (+7% yoy) form 32% of our full-year forecasts. 1H09 DPU of 5.9cts also exceeded expectations at 64% of our full-year forecast. Office occupancy declined 2.6% pts to 94.8% while retail occupancy was stable at 98.4%. In view of the strong 1H, we have moderated our rental decline assumptions and assumed higher net property income margins. Our DPU forecasts for FY09-11 rise by 8-20%. Our target price rises accordingly to S$1.28 from S$1.07 (discount rate 9.4%), still based on DDM valuation. Maintain Outperform.
CDLHTrust – BT
Fewer tourists, H1N1 take toll on CDLHT in Q2
Trusts’ distributable income falls 36.8% to $15.8m, DPU drops to 1.89 cents
CDL Hospitality Trusts (CDLHT) has posted a 36.8 per cent year-on-year fall in its second-quarter distributable income to $15.8 million, dragged down by lower tourist arrivals and the impact of the H1N1 outbreak.
The result brings its distribution per unit (DPU) for the three months ended June 30 to 1.89 cents, down from 3.03 cents in the year-ago period.
‘This achievement comes amidst a challenging operating environment for CDLHT in the first half of 2009,’ said Vincent Yeo, chief executive of the trust’s manager. ‘On the back of the global economic turmoil, the tourism and hospitality sectors at large have seen a sharp reduction in travel and tourist arrivals.
‘The situation was further exacerbated in the second quarter by the global outbreak of Influenza A (H1N1) and the knee-jerk reaction of the public to the viral flu, which led to some cancellations and postponement of events. Despite tougher conditions in Q2 2009, we are heartened that our hotels managed to maintain a relatively healthy level of profitability as a result of our proactive cost containment measures.’
The real estate portfolio in CDLHT includes Orchard Hotel, Grand Copthorne Waterfront Hotel, M Hotel, Copthorne King’s Hotel and Novotel Clarke Quay, New Zealand’s Rendezvous Hotel Auckland, and the Orchard Hotel Shopping Arcade.
Net property income for the three months ended June fell 30.6 per cent to $19.2 million. Gross revenue shed 31.5 per cent to $20.2 million.
Average occupancy rate slipped to 75.5 per cent from 87.1 per cent in the same quarter last year. Average daily room rate also shrank 30.2 per cent to $178.
‘The outlook for CDLHT for the rest of 2009 will depend largely on an upturn in visitor arrivals as market sentiment continues to improve, with the economy recently displaying incipient signs of recovery,’ said Mr Yeo. ‘We are already seeing some improvement in demand in the months of June and July as both corporate and leisure travel showed signs of an uptrend compared to the first five months of 2009.’
Before deducting for income retained for working capital, income available for distribution in the quarter went down 30.6 per cent to $17.4 million.
For the first half of the year, distributable income fell 33.5 per cent to $32.3 million. Gross revenue slipped 25.6 per cent to $42.8 million, while net property income dropped 26 per cent to $39.8 million.
The balance sheet showed a $293 million debt repayable yesterday. To refinance that, CDLHT had earlier secured a three-year $350 million bank facility, consisting of a $270 million term loan and an $80 million committed revolving credit facility.
The new facility bears interest at the Singapore dollar swap offer rate plus an interest margin of 2.6 per cent per annum.
Following the announcement of its results, which were released late on Thursday night, shares of CDLHT closed 3 cents up at $1.21 yesterday.