Month: April 2008
AscottREIT – CIMB
Good start to the year
• 1QFY08 results above expectations. Gross revenue of S$45.6m was up 58% yoy on strong REVPAU growth, particularly in the Philippines (+36%) and Singapore (+34%); and contributions from 18 rental housing apartments in Japan acquired last year. Reported revenue was slightly below expectation (22% of full-year forecast) due to a seasonal first-quarter lull in China, the largest income contributor (22% of gross revenue). However, distribution income of S$14.2m and DPU of 2.3cts came in above Street (26% of full year) and our estimates (28% of full year) on lowerthan- expected operating costs and interest expense, and higher non-tax
deductibles.
• Gross operating margins higher than forecast. Gross operating margins were 51%, or 5% pts above our forecast of 46% for 2008. Strong REVPAU growth coupled with the introduction of higher-margin rental housing in Japan and overall cost efficiencies accounted for the improvement.
• Income stream expected to remain stable. Expected slower economies and higher inflation rates in Asia (including Singapore, China, Japan and Vietnam) are likely to affect the hospitality industry in Asia. However, contributions from ART’s portfolio should remain stable, as: 1) 52% of its income comes from the long-stay segment of six months to beyond 12 months; 2) ART has a geographically diverse portfolio which reduces risk concentration; and 3) hotel supply in some Asian markets, particularly Singapore, the Philippines, and Vietnam, is tight. These are ART’s significant markets.
• Forecasts unchanged; maintain Outperform and target price of S$1.74. Our DDM-derived target price (discount 8.4%) stays at S$1.74. At current price levels, ART offers a prospective total return of 45.7% from a 6.5% yield and 39.2% potential price upside.
AREIT – ML
FY08 results inline
FY08 results inline
A-REIT reported FY08 results with distribution of 14.1cps, up 10.8% vs FY07 and inline with ML estimate of 14.0cps. Distribution growth was attributable to a 16% increase in net property income of which 10% was driven by income contribution from new acquisitions and 6% was driven by organic growth.
Business Parks and Hi-Tech key growth sectors
The spillover effect from tightness in CBD office continues to benefit A-REIT via portfolio exposure to business and science parks. Renewal rates for business parks improved 46% while Hi-Tech renewals were up 40% vs 2007. Portfolio wide occupancy was slightly down vs 3Q however remains high at 98.4%.
Development exposure reaching cap, Gearing 38%
A-REITs has committed developments to the value of S$309mn which equates to 8% of the regulated 10% development cap. In our opinion this limits A-REITs ability to participate in additional near term developments. Current gearing is at 38%. This is below stated target gearing of 45% but close to historical highs.
Maintain Sell
We maintain our Sell on A-REIT and fair value estimate of S$2.09. While operationally the business is sound we believe better relative value can be found in industrial S-REIT peers. To play the Ascendas group strengths we suggest switching into a-iTrust, while to stay exposed to the Singapore industrial market we suggest switching into Cambridge Industrial.
CMT – UOBKH
1Q08: Organic growth from asset enhancements
Organic growth driven by asset enhancements. CapitaMall Trust (CMT) reported gross revenue of S$121.1m in 1Q08, an increase of 24.2% yoy. Revenue contribution from Bugis Junction, IMM Building and Raffles City grew 11.4%, 15.4% and 19.5% yoy respectively, benefiting from asset enhancement initiatives undertaken in FY07. 194,978sf of retail space representing 6.9% of total NLA was renewed at 10.4% over preceding rental rates in 1Q08. Net property income gained a faster 27.2% to S$84.7m in 1Q08 due to efforts to curb expenses, which was particularly successful at IMM Building.
Distributable income grew 27% yoy to S$65.4m. CMT announced DPU of 3.48 cents for 1Q08, an increase of 16% yoy, while retaining S$5.5m of its taxable income for distribution in subsequent quarters.
Enhancing Lot One and Bugis Junction. CMT will invest S$179.1m in FY08 for asset enhancement programmes. At Lot One Shoppers’ Mall, Levels 1 and 2 of the16,500sf four-storey retail extension was completed and tenants have commenced business. Level 1 of the retail extension will be connected to Chua Chu Kang MRT station. CMT will replace current opaque façade of the retail block at Bugis Junction with glass parapets to improve visibility of shops. Void areas at Levels 1 and 2 will be utilised for retail space and a mini-anchor space will be reconfigured to create six specialty shops.
The redevelopment of Sembawang Shopping Centre (SSC) with NLA of 128,413sf is on schedule for completion in 4Q08. CMT will decant 42,610sf of residential area and shift more retail space into the high-yielding basement, Level 1 and Level 2. 80% of total NLA has been committed and anchor tenants are Giant Hypermart, Daiso and Kopitiam.
Creating office blocks at Funan DigitaLife and Tampines Mall. CMT has received provisional permission to utilised unused gross floor area (GFA) of 385,500sf for Funan DigitaLife, which has only utilised 3.8 of its allowable plot ratio of 7.0. The unused GFA will be deployed for building a 4-storey office block with estimated net lettable area (NLA) of 277,630sf on top of the existing mall. NLA for retail will also increase by 14% from 296,601sf to 338,360sf. CMT was also granted an increase in plot ratio for Tampines Mall from 3.5 to 4.2. The additional GFA of 95,000sf will be utilised to build an office block on top of the existing mall. We expect construction to be completed by 2H 2010 and have factored in contributions from the two office blocks starting 1Q 2011.
Completed refinancing. CMT has refinanced S$312.8m bonds due in Feb 08 with S$320m term loan due in Aug 09. Interest rate for the term loan was fixed at 3.1%, lower than previous all-in rate of 4.3% for the bonds. CMT has also issued S$155m fixed rate note due in 2010 with interest rate at 3.25%. The company has largely completed the required refinancing for FY08. Current gearing is 35.3% and interest cover is comfortable at 4x in 1Q08.
Acquisitions in the pipeline. CMT is on track to increase asset size in Singapore from current S$5.9b to S$8b by 2010. Potential acquisitions in the pipeline from sponsor CapitaLand include Orchard Ion (NLA: 660,000sf), Clark Quay (NLA: 262,230sf) and One-North (GFA: 258,000sf). CMT will expand overseas with long-term target to have 30% of assets from overseas markets.
CMT provides FY08 distribution yield of 4.27%, a healthy spread of 1.92% over 10-year Singapore government bond yield at 2.35%. We have adjusted the terminal growth for our two-stage dividend discount model from 3.0% to 3.2% to reflect management’s ability to enhance rentals and capital values for its portfolio of retail malls. Our new target price for CMT is S$3.95.
AscottREIT – UOBKH
1Q08 DPU up 46.5% yoy to 2.33 S cents
Ascott Residence Trust (ART) posted 1Q08 revenue of S$45.6m, 58% higher yoy. This is driven by both acquisitions and strong organic growth. Acquisitions made after 1Q07 contributed S$12.7m revenue and S$7.1m net property income (NPI), 27.8% and 30.3% of total revenue and NPI respectively.
The serviced residences registered strong Revenue Per Available Unit(RevPAU) growth, 15% up from S$123 in 1Q07. As expected, Singapore portfolio enjoyed the strongest organic growth in 1Q08, with RevPAU increasing by 29% yoy to S$251.
Distribution per unit (DPU) increased 46.5% to 2.33 cents. This translates into an annualized DPU yield of 7.5%, compared with 10-year Singapore government bond yield of 2.3%.
We have a BUY rating on ART with target price at S$1.77. We will have a detailed analysis later.
PST – UOBKH
Lower DPU in 1Q08, but should improve with impact of new ships
Pacific Shipping Trust (PST) reported a net profit of US$0.466m for 1Q08. Excluding fair value losses on interest rate swaps of US$3.645m, net profit would have been US$4.111m. This appears to be ahead of our 2008 net profit of US$14.0m. Net profit for the remaining quarters of the year should register higher earnings due to the impact of 2 new containerships.
However, PST has declared a DPU of 0.97 US cts, 6.7% lower than 1Q07’s 1.04 US cts. PST has lowered its payout to 90% from 100% because it believes it is prudent to set aside cash to provide for future working capital and to support long-term strategic development of the trust. We have assumed a payout of 95% in FY08 instead of 90%. We are currently forecasting a DPU of 4.4 US cts for FY08. Maintain BUY and our target price of US$0.50.