Month: July 2008
CDLHTrust – CIMB
Outstanding REVPAR growth
• In line. 2Q08 results were in line with Street and our expectations. DPU of 3.03cts forms 28% of our full-year forecast of 10.9cts. Gross revenue of S$29.5m surged 42.4% yoy, led by full contributions from Novotel Clark Quay and outstanding growth in revenue per available room (REVPAR). 1H08 DPU of 5.89cts was in line with our expectations, at 54% of our full-year estimate.
• Outstanding REVPAR, contrary to official statistics. CDLHT’s Singapore hotel REVPAR of S$222 in 2Q08 was up 30.6% yoy. This was attributed to a 29.4% surge in average daily rates to S$255 and a 1.1%-pt growth in average occupancy rates to 87.1%. The growth in occupancy defied STB’s recent statistics showing a 3.4%-pt drop in average occupancy rates for Singapore hotels to 83%.
• REVPAR to moderate in 2H08; acquisitions difficult. Following two months of negative newsflow on the Singapore hospitality sector, CDLHT’s share price had fallen some 28% from its last high of S$2.01. While rising inflation, an appreciating S$ and slowing visitor arrivals are valid concerns, we believe REVPAR growth will slow but not collapse in 2H08 as: 1) Singapore’s hotel supply remains tight till 2010; 2) rising construction costs will benefit existing hotels; and
3) CDLHT’s well-located mid-tier hotels have room for upside in relation to 5-star hotels. Nonetheless, its sharply depressed share price has pushed up trading yields to about 7.8%, which far exceeds our assumption of a 5.6% net property yield (for Singapore assets), making acquisitions in the near future difficult.
• Downgrade to Neutral from Outperform with lower target price of S$1.78 (from S$2.38). In view of CDLHT’s strong REVPAR performance, we have raised our FY08 occupancy assumption for its Singapore portfolio to 86% (from 84%), and average room rate growth assumption to 38% (from 33%). However, we now assume no new acquisitions for FY08. Overall, we raise our FY08 DPU estimate by 3.2% but cut our FY09-10 estimates by 8-9%. Our DDM-based target price
(discount rate 8.5%) correspondingly drops to S$1.78 (from S$2.38).
Suntec – OCBC
Yet another strong quarter
Strong quarter, once again. Suntec REIT (Suntec) reported S$42m in 3Q distributable income, up 40.2% YoY and 11.8% QoQ. The REIT performed well on a QoQ basis – it recorded S$59.2m in gross revenue from its portfolio ex-One Raffles Quay (ORQ), up 5.8% from 2Q. NPI margin, which increased from 76.1% in 2Q to 77.6%, should actually have dipped slightly if not for a much lower provision for property tax in 3Q. Suntec will pay out 2.793 S cents to investors, up 10.9% from last quarter’s 2.52 S cents payout. This works out to an annualized yield of about 7.3%.
Portfolio is doing well. Gross revenue from Suntec City (both office and mall) rose 6.4% QoQ to S$51.3m, despite a slight dip in occupancy levels. The Park Mall and Chijmes assets also saw QoQ increases in revenue. Meanwhile, with 100% occupancy and no near-term expiries, contribution from ORQ (in the form of income support from the vendor; interest income; and dividend income) was relatively flat QoQ. These leases are at rates severely below market rates and reversionary growth from ORQ should start gaining traction in FY11.
Rent reversions still the focal point. Reversionary growth continued to drive Suntec’s performance in 3Q as the trust digested lease renewals and replacements secured on about 14% of its total portfolio NLA over 2Q and 3Q. Rentals are continuing to show strength at both Suntec’s office and retail properties – management disclosed that a recent lease at Suntec City’s Office Towers was secured in June at around S$15 psf/month – a first for the REIT. Suntec City Mall also saw a new high with committed average passing rent crossing S$11 psf/month for the first time.
We expect more reversionary growth. We believe near-term growth will be driven by rent reversions – about 46% of Suntec’s office portfolio ex- ORQ is up for renewal over 4Q08 and FY09. Current rentals being secured by the REIT are between S$12 and S$15 psf per month – we expect office rentals to peak by year end and hold – and even if rents slide back a little, there is still plenty of upside potential for its properties earning less than S$6 psf/month. The weak appetite for S-REITs has gifted investors with a great yield opportunity – we continue to like Suntec for its assets, its consistently strong performance, and its high distribution yield. We reiterate our BUY rating and S$1.71 fair value estimate.
Suntec – DBS
Still trending up
Story: Suntec Reit reported a Q3 bottomline growth of 40% yoy and 9% qoq to $42m on a 27% improvement in topline to $59.2m. The better showing was due to higher operating performance, lower expense ratio of 22.5% and inclusion of associate income from ORQ. Q3 DPU came in at 2.793cts, translating to an annualized yield of 7.3%.
Point: Rental reversions from Suntec Office remained strong. The group renewed about 89,000sf of NLA during the quarter at between $12-15psf, higher than the $11.50-13.50psf transacted in 2Q. This helped lift average portfolio office rents to $6.30psf/mth. Looking forward, we believe the pace of office rental growth should decelerate given the softer economic outlook and increasing supply. Nevertheless, with another 644,789sf (45.8%) of NLA to be renewed in 4QFY08 and FY09, Suntec is well placed to benefit from the wide spreads between the passing and new office rents. The retail component also did well with average rents at Suntec Mall surpassing $11psf/mth, or c15% over previous levels. Plans for Park Mall asset enhancement activities are likely to be announced by end FY08. This is likely to provide further
upside surprise to earnings when completed. Refinancing concerns have abated as the group recently completed a $400m debt refinancing due Oct 08, through a club loan. Beyond this, it has a further $125m (MTN programme) due in FY09 and $700m (CMBS issue) maturing in FY10.
Relevance: We have tweaked our FY08 and FY09 DPU to 9.0cts and 10.2cts to adjust for the better than expected office rentals. The stock is offering 5.9% and 6.7% FY08/09 yields. Maintain Buy with a DCF-backed price target of $1.75, reflecting a higher risk free rate
assumption of 3.9% and lower terminal growth of 0.5%.
Suntec – UOBKH
3QFY08: Record distribution with boost from office portfolio
Suntec REIT reported gross revenue of S$59.2m in 3QFY08, an increase of 26.9% yoy. It benefited from positive rental reversion from office space at Suntec City and Park Mall. Revenue contribution from office space increased 41% yoy to S$25.2m. Suntec Office Towers achieved committed occupancy of 99.5% in Jun 08. New leases were signed at between S$12 to S$15psf pm compared to S$11.50 to S$13.50psf pm last quarter. One Raffles Quay (ORQ) provided earnings contribution of S$11.9m. Revenue from retail space increased 18.2% yoy to S$34m. 79,439sf of retail space was renewed at Suntec City Mall at 14.8% above preceding rental rates.
Distributable income gained 40.2% yoy to S$42m. Suntec REIT announced record DPU of 2.793 cents for 3QFY08, an increase of 24.9% yoy.
Benefitting from improved connectivity to Suntec City. Accessibility to Suntec City will improve as it will be served by the Esplanade and Promenade MRT stations when the new Circle line is ready in 2010. Suntec REIT will also benefit from increased MICE (meetings, incentive travel, conventions and exhibitions) activities due to increased shopper traffic at Suntec City Mall, which is linked to Suntec Singapore International Convention and Exhibition Centre.
No refinancing risk. Suntec REIT has refinanced bridging loan of S$400m due in Oct 08 with a 3-year unsecured loan facility from a panel of banks. According to management, the interest rate for the new loan facility is slightly lower than current average cost of borrowings of 3.36%. Having completed the refinancing for outstanding bridging loan related to the acquisition of ORQ, Suntec REIT does not have any major requirement for refinancing in FY08 and FY09.
Reiterate BUY. Suntec REIT has a balanced portfolio of quality retail and office properties. Suntec REIT provides FY09 distribution yield of 7.4%, an attractive spread of 4% over the 10-year Singapore government bond yield at 3.4%. We have increased our target price from S$1.90 to S$2.10 based on dividend discount model (required rate of return: 8.5%, terminal growth: 2.8%) as we roll over to FY09 financial performance.
FrasersCT – UOBKH
Defensive strength from suburban malls
Growth from Causeway Point and Anchorpoint in 4QFY08. Revenue contribution from Causeway Point increased 7% yoy to S$13.8m in 3QFY08 and accounted for 66.3% of total revenue. 6,708sf or 1.6% of net lettable area (NLA) at Causeway Point was renewed in 3QFY08 at 17.3% above preceding rental rates. Revenue contribution from Anchorpoint more than tripled to S$1.7m after a 40% increase in rents and recovery to full occupancy after completion of asset enhancement initiative. Overall occupancy was 95.7% in 3QFY08 compared to 92.9% last year. This is despite lower occupancy of 82.9% at Jun 08 for Northpoint due to asset enhancement works. Distributable income increased 19.1% yoy to S$12.2m. FCT declared DPU of 1.88 cents for 3QFY08, up 12.6% yoy, and will be paid on 29 Aug 08.
Cushion from income retained. FCT has retained DPU of 0.18 cents in 1QFY08, 0.19 cents in 2QFY08 and 0.1 cents in 3QFY08, a total of 0.47 cents. FCT is committed to distributing 100% of distributable income and the retained income will be distributed in 4QFY08. This will mitigate negative impact from asset enhancement works at Northpoint, which will affect higher yielding space at Level 1 to level 4 in 4QFY08. The upgrade is scheduled for completion in Jun 09. Management expects average rent for Northpoint to increase 17.4% to S$12.91psf pm after the asset enhancement initiative is completed.
Northpoint 2: on track for injection by Mar 09. Construction for Northpoint 2 is on schedule to obtain temporary occupation permit (TOP) by Aug 08. 96% of NLA is already committed or in advance stage of negotiation. FCT has entered into a put and call option agreement with sponsor Frasers Centrepoint Limited for the purchase of Northpoint 2 at between S$139.5m to S$170.5m. The mall is targeted for injection into FCT in 1HFY09 (by Mar 09).
FCT has a ready pipeline of acquisitions that will double total NLA to more than 1.2m sf when fully completed. Besides Northpoint 2, we expect YewTee Point and Bedok Mall with NLA of 80,000sf each to be injected in 3QFY09 and 2QFY11 respectively. We estimate that the three new malls will contribute 29% of total revenue in FY12.
No refinancing risk. FCT has a conservative level of gearing at 29.5%. There is no requirement for refinancing till Jul 2011 when term loan of S$260m matures. Moody’s Investor Service has provided corporate rating of A3.
Maintain BUY. FCT focuses on suburban retail malls located in the HDB heartland, which provides defensive qualities. It provides distribution yield of 6.2% for FY08 and 6.7% for FY09, an attractive spread of 2.8% and 3.3% over 10-year Singapore government bond yield of 3.4%. Our target price for FCT is S$1.55 based on dividend discount model (required rate of return: 8.5%, terminal growth: 2.8%).