Month: November 2008
PLife – CIMB
Limited downside risks
• Maintain Outperform. PLife’s exposure to the resilient healthcare sector, long lease structures of up to 15 years and built-in rent increases pegged to the CPI give greater clarity to its income streams than for the other REITs under our coverage. With refinancing secured and a surplus war chest, PLife is positioned for stable growth even in a difficult financial climate.
• Outlook for healthcare remains positive. We expect demand for healthcare to grow strongly on the back of a greying Asian population, blooming medical tourism in the region and the Singapore government’s initiatives to establish a biomedical industry.
• Unchanged DDM-derived target price of S$1.30 (discount rate 8.1%). Management had been able to secure very favourable financing terms despite the credit crunch. We continue to like PLife for its attractive forward yields of more than 10% with the least earnings risk among the S-REITs. P/BV of 0.57x is also in line with the average S-REITs’ 0.51x. Maintain Outperform.
MLT – CIMB
Ready for rough times
• Upgrade to Outperform from Neutral. MLT’s rights issue earlier this year both addressed refinancing concerns and brought down its asset leverage to a healthy 37% from 56%. We expect new demand for industrial space to ease in tandem with an expected economic downturn. Nonetheless, MLT’s long weighted average lease to expiry of five years should provide visible income streams over the medium term.
• Unchanged target price of S$0.60 (discount rate 9.6%). At our target price, MLT has potential price upside of 42.8%, vs. the potential 15% upside for the STI. We upgrade MLT to Outperform from Neutral based on valuation. We believe that MLT’s rental resilience, healthy leverage and management’s conservatism after the rights issue will yield stable distribution to unitholders despite macroeconomic negatives. Current P/BV of 0.49x and forward yields of 13.2% are in line with SREIT averages. At these levels, MLT appears significantly cheaper than its closest peer A-REIT, whose P/BV is 0.94x with forward yields of 8.8%.
FCT – CIMB
Resilient performer
• Maintain Outperform. FCT is the best proxy for suburban retail mall space in Singapore, in our assessment. During past economic downturns, rents and occupancy levels of suburban retail space were the sturdiest, attributable to a dearth of suburban retail supply and tenants catering to non-discretionary spending.
• No new additions. We recently removed our forecast of acquisitions for Northpoint 2, Yew Tee Mall and Bedok Mall, while maintaining our expectation of near-full occupancy for FCT as there is no known coming supply in the vicinity of FCT’s major malls, Causeway Point and Northpoint.
• Unchanged DDM-derived target price of S$1.13 (discount rate 9.7%). With no major refinancing risks in the next two years, we expect distribution to remain stable. Current P/BV of 0.59x is moderately above the average in the S-REIT sector, but significantly lower than peer CMT’s 0.9x. Forward yields of 10.1% are below the average S-REITs’ 13.6%.
CDLHTrust – CIMB
Vulnerable in volatile times
• Downgrade to Underperform from Neutral. CDHLT is the largest hotel owner in Singapore by number of rooms. The global economic slowdown is negative for the short-stay hospitality sector which is traditionally vulnerable. Despite long master lease structures for its hotel assets, the minimum rent component for its initial four assets acquired at listing and Hotel Rendezvous in New Zealand only contribute a third of our gross revenue forecast for FY08. This subjects CDLHT’s gross revenue to a large degree of uncertainty. Slowing visitor arrivals in September despite the well-publicised F1 event is in line with our house view that the US financial crisis could result in a marked slowdown in Asia. Earlier, we had cut our REVPAR forecasts by 10-20% and removed our acquisition assumptions for FY09-10. The sole saving grace for CDLHT is its low asset leverage of 18.2%, which gives it ample financial flexibility.
• Unchanged DDM-derived target price of S$0.77 (discount rate 10.8%). A recent short rally has brought CDLHT’s share price close to our target price of S$0.77. Downgrade to Underperform from Neutral on valuation grounds.
CMT – CIMB
Still pricey
• Maintain Underperform. CMT has good exposure to retail malls in suburban Singapore as well as the downtown core of Singapore which are traditionally resilient to economic slowdowns. Nonetheless, strong upcoming supply in the central area, slowing visitor arrivals and a global economic slowdown are likely to hurt the retail business, particularly in the Orchard Road precinct. The ability to increase rents through asset enhancements may weaken on these accounts, although we are not expecting CMT’s occupancy levels to weaken substantially from current near-full levels. On the other hand, the decision to continue with the integration of Plaza Singapura and Atrium@Orchard may result in much higher capital expenditure, affecting CMT’s free cash flows.
• Unchanged DDM-derived target price of S$1.90 (discount rate 9.7%). CMT’s P/BV of 0.9x with forward yields of 6.9% still makes it expensive compared with its closest peer, FCT’s 0.59x with yields of 10.1%. Maintain Underperform in view of a weakening macroeconomic outlook.