Month: July 2008
a-iTrust – DBS
1QFY09 results in line
Story: Ascendas India Trust (AiT)’s 1QFY09 results were within expectation. Gross revenue and net property income grew 23% and 20% y-o-y to S$28.6m and S$16m respectively. Distribution income of S$12.4m, translates into 1.65 cts DPU.
Point: Gross revenues and NPI were boosted by (i) recently completed additions; Vega at The V and Crest at ITPC, and (ii) higher portfolio occupancy of 97% from new tenant sign-ups, and (iii) higher than average rentals secured for c. 150,000 sq ft of its space. Moving forward, AiT has lined up a further 1.5m sq ft of SBA to be constructed over the next two years. Taking into account a possible delay in rental contribution from these spaces, we lowered DPU by 20.6% for FY09F to 6.9 cts and by 22.6% for FY10F to 7.6 cts. This adjustment is due to a staggered rental contribution post completion of these buildings.
DPU growth will be largely organic in the near term, with 38% of its portfolio up for renewal in FY09-10. The development potential of 2.7m sq ft of SBA, largely within a SEZ in ITPB, should support portfolio growth in the medium term. In addition, its pipeline of two ROFR with Ascendas Land Int and Ascendas India Devt Trust could be catalysts for upward earnings surprise when executed.
Relevance: Our DDM-backed price target is reduced to S$1.01 to reflect a higher risk free rate of 3.9%, 10% risk premium and lower terminal growth rate of 1%. AiT is currently trading at attractive FY09F and FY10F yields of 8.5% and 9.4% respectively, and offers 26% upside to our price target. We continue to like AiT for its quality portfolio, and its 3-pronged growth strategy of (i) proposed development pipeline, (ii) development potential of a further 2.7m sqft of SBA and (iii) 2 ROFR with its sponsor
AscottREIT – UOBKH
2QFY08: DPU up 9% yoy to 2.19 S cents; FY08 annualised yield at 8.1%
2QFY08 DPU grew 9% yoy to 2.19 S cents. With 1QFY08 DPU of 2.33 S cents, 1HFY08 DPU amounted to 4.52 S cents, or 26% yoy higher, translating into an annualised DPU yield of 8.1% vs 10-year Singapore government bond yield of 3.4%. 1HFY08 DPU accounts for 54% of our FY08 DPU forecast of 8.3 S cents. 2QFY08 revenue increased 13% yoy to S$46.0m, mainly driven by Revenue Per Available Unit (RevPAU) growth. All markets except for the Philippines registered positive revenue growth. Acquisitions contributed 5.4% and 6.8% of total revenue and gross profit respectively in 2QFY08.
Overall RevPAU increased 6% yoy to S$143 in 2QFY08, with occupancy rate at a high level of 82% on average. Of its seven markets, Singapore, Australia, Indonesia and Vietnam achieved higher RevPAU growth in 2QFY08. The Singapore and Australia markets achieved double-digit RevPAU growth in the quarter. The China market’s RevPAU was 4% lower yoy as reconfiguration projects generated smaller rooms. The Japan and Philippines markets were hit by increased competition and softening demand.
Gross margin widened to 50.6% vs 45.0% in 2QFY07, but was lower qoq (51.4% in 1QFY08). Yoy margin improvement was mostly due to RevPAU growth and the addition of high-margin rental housing properties in Japan. On a qoq basis, ART’s gross margin was affected by higher labour and utility costs.
Comfortable gearing. ART’s gearing ratio (Debt/Asset) stood at 34.5%, well below the 60% limit allowed by the Monetary Authority of Singapore (MAS) and our optimal gearing assumption of 45%. As of Jul 08, debt that will mature in FY08 amounted to S$85.5m, or 15% of total debt. Management is confident ART has more than enough committed lines to refinance the debt.
Stable outlook. Compared with hotels, the longer-term leases of ART’s portfolio (more than eight months on average) could cushion it against shortterm economic shocks. We also believe corporate travel, the key segment that ART’s service residences target, is more resilient than leisure travel. ART has guided that most markets – including Singapore, Australia, China, Indonesia and Vietnam – could see a stronger 2H08 on a yoy basis, although likely to be weaker compared with 1HFY08 amid uncertainties over inflation and financial turmoil. Japan and the Philippines are expected to continue to be affected negatively by softening demand in 2HFY08. All in all, Management expects operating performance in 2HFY08 to remain stable.
Extensive exposure to diversify currency risks. ART’s extensive exposure in seven countries helps diversify currency risks. According to ART’s estimate, Forex volatility made an impact of only 1%, or S$3m, on gross profit in 1H08. Management still likes the Vietnam market and believes the robust demand for extended stay will lead to a strong operating performance. Management also believes that, as Vietnam portfolio’s room rates are contracted in US dollars, the key risks lie in the time lag for repatriating earnings to Singapore (normally 2-3 months).
ART is a BUY; target price of S$1.57. Our valuation is based on the discounted cash flow model (WACC: 7.3%, terminal growth rate: 2.0%). With FY08 DPU yield estimated at 7.4%, ART’s valuation is very attractive given ART’s unique position as the only hospitality REIT under CapitaLand and its growth potential.
CCT – UOBKH
2Q08: Benefitting from positive rental reversion
CapitaCommercial Trust (CCT) reported gross revenue of S$74.4m in 2Q08, an increase of 25.2% yoy. Notable growth drivers were 6 Battery Road, Robinson Point and Capital Tower, where revenue contributions increased 99.3%, 35.4% and 15.5% yoy respectively. CCT benefitted from positive rental reversion with renewed and new leases committed in 1H08 at 193% higher than preceding rental rates. Net property income increased 18.6% yoy to S$51.5m while distributable income gained 23.2% yoy to S$36.1m. CCT announced DPU of 2.60 cents for 2Q08, an increase of 22.6% yoy.
CCT recognised gain of S$445.6m on revaluation of its investment properties. The higher valuation came largely from HSBC Building and 6 Battery Road, which are located within Raffles Place and its 60% stake in Raffles City. Its portfolio has expanded from S$5.7b to S$6.9b after completion of acquisition of One George Street (OGS). The stock is currently trading at a steep discount of 36.5% to NAV/share of S$3.12.
Benefiting from positive rental reversion in 2008 and 2009. Growth in rental rates has moderated as recent escalation in office rentals forced more companies to alternatives such as transitional office space and relocating support functions outside the Central Business District (CBD). Rentals for Grade A office space within Raffles Place increased a mild 1.7% qoq to S$17.82psf pm in 2Q08. Occupancy for Grade A offices dipped slightly from 99.1% in 1Q08 to 98.3% in 2Q08 (Source: Colliers). Nevertheless, CCT will benefit from positive rental reversion as leases expiring in 2009 and 2010 were contracted at rates significantly below current market rentals. For example, 49% of office space at Raffles City will expire in 2009. The current rental rate of S$5.69psf pm is way below prevailing rental of S$11.50psf pm for office space in the vicinity.
Completed financing package for One George Street. CCT utilised a myriad mix of instruments to finance the acquisition of OGS. The package comprises convertible bonds of S$370m, S$150m from its medium term note programme and 2-year term loan of S$650m. The effective interest rate for the package is 3.23% assuming all-in interest rate of 2.86% for the 2-year term loan, which has been lock in for six months, is maintained. The acquisition was completed on 11 Jul 08 and OGS will contribute to earnings from 3Q08 onwards. Gearings has increased to 35.7%, but remains at a manageable level.
CCT provides a diversified exposure to the office market in Singapore. It provides FY08 distribution yield of 5.6%, a spread of 2.2% over 10-year Singapore government bond yield at 3.4%.
ART – BT
SINGAPORE – Ascott Residence Trust (ART) on Wednesday said that its second quarter distributable income climbed 9.6 per cent to $13.3 million (US$9.83 million), from $12.1 million a year ago. Dividend per unit came to 2.19 Singapore cents, up 9.0 per cent from 2.01 cents for the same period last year.
ART said that its better performance was due to both organic growth across its portfolio, particularly in Singapore and Vietnam, and contributions from newly acquired properties over the past year. On the back of this, revenue for the second quarter rose 13.1 per cent to $46.0 million.
The trust added that the global financial turmoil triggered by the sub-prime crisis and the reduced credit supply have had some impact on the Asian hospitality industry in the first half of 2008.
‘Should these factors persist, there will be further impact on business travel patterns to the markets we operate in, although the group’s geographical diversity and extended stay business model allow it to mitigate these factors,’ the trust said.
ART will look to emerging markets such as China, Vietnam and India for acquisitions in the future, said Chong Kee Hiong, chief executive of the trust’s management team. — UMA SHANKARI, BT NEWSROOM.
FSL – OCBC
Acquisitions bump up 2Q
Strong 2Q, as expected. First Ship Lease Trust (FSLT) posted a strong set of 2Q results, largely in line with our estimates. The trust saw strong gains in 2Q revenue, up 63.1% YoY1 and 24.4% QoQ to US$20.7m. Net profit came in at US$1.99m, above our estimates due to a lower than estimated depreciation charge and the inclusion of exchange gains worth US$775k. The trust posted a distributable income (net profit plus noncash charges) of US$14m, in line with our expectations. FSLT will pay out 2.8 US cents for the quarter, up 22% YoY and 8% QoQ.
Acquisitions were the kicker. The strong gain in earnings was driven by the acquisition and delivery of four vessels worth US$280m over 2Q. The full impact of these four vessels on the trust’s earnings will be felt in 3Q, and we consequently expect next quarter’s DPU to rise by about 5%. Meanwhile, a fifth vessel costing FSLT US$70m will be delivered in 4Q – the trust is still in the midst of securing financing for the deal. If the acquisition is successfully completed, it will bump up earnings in 4Q and 1Q (full impact).
Debt-to-equity has hit self-imposed 1x target. The aggressive spate of acquisitions also means that FSLT’s debt-to-equity level has shot up from 0.36x last quarter to 1x in 2Q, and will further increase with the fifth vessel buy. Its current debt is on bullet repayment terms. More debt-funded buys on current equity levels may not be as DPU accretive as seen previously as lenders may now require the new debt to be on immediately amortizing terms or at a higher cost of debt. Meanwhile, an equity infusion to continue growing DPU could be dilutive as FSLT continues to trade at prohibitively high yields.
High DPU yield due to aggressive payout strategy. Unlike the other SGX-listed shipping trusts, FSLT does not retain any cash to replenish depreciating assets or to pay down debt. So the distribution paid out consists of both a return on asset and a fair compensation for the loss in value of the unit-holders’ invested capital. FSLT also pays out the depreciation on its leveraged assets. This is similar to the return of unitholders’ capital, except that FSLT is paying out the loss in value of debt-funded assets to unit-holders. This boosts payout in the earlier years, but ultimately debtors will have to be repaid the full principal amount. Maintain HOLD and S$1.20 fair value estimate.