Month: January 2009
FrasersCT – CIMB
Addressing tenant sustainability
• Met expectations. 1Q09 results were in line with Street and our expectations. DPU for 1Q09 was 1.67cts, 24% of our full-year forecast. Gross revenue of S$19.5m deteriorated 3.2% yoy due to planned asset enhancement work at Northpoint. Additionally, property expenses increased 7.5% on higher property taxes. However, net property income margins improved to 65.9% from 63.8%, supported by doubledigit growth in rental reversions for Causeway Point (+18.9%) and Anchorpoint (+17.5%). Portfolio occupancy climbed to 88.7% from 87.7% in 4Q08 as occupancy at Northpoint improved despite ongoing asset enhancement work.
• Budget measures to aid retail tenants. A 40% property tax rebate for commercial buildings has been announced in Budget 2009. Management will be passing on the rebate benefits to its tenants. While this will not result in DPU improvements, it should help to retain tenants, who are facing increasingly difficult retail sales. Other fiscal measures which would ease tenants’ operating costs and stimulate retail spending include: 1) a 12% cash grant of up to S$300 of each employee’s monthly wage to businesses; 2) the underwriting of bank loans to SMEs by the government; 3) a 20% personal income tax rebate, capped at S$2,000; and 4) additional GST credits for households.
• Maintain Outperform and target price of S$1.06. We maintain our DPU estimates. The government’s fiscal measures and management’s decision to pass on tax-rebate benefits to tenants should support tenants’ business sustainability in the short to medium term. FCT remains our preferred pick for suburban retail exposure for its lower 0.52x P/BV vs. CMT’s 0.6x. Maintain Outperform.
AscottREIT – DBS
Murky Skies
ART reported a good set of FY08 results backed by a strong underlying portfolio performance. Unitholders were rewarded with a DPU of 8.78 Scts, translating to a 17% yield based on today’s closing price. Looking ahead, we view catalyst for the stock appears lacking in the near term while negative headwinds are likely to impair stock re-rating. Maintain HOLD, TP S$0.61.
Results in line. FY08 distributional income of S$53.6m, DPU of 8.78 Scts were in line with expectations. Gross revenues and Gross profits increased 24% and 37% to S$193.4m add S$69.7m respectively, driven by organic RevPAU growth of 10% to S$145 and contribution from new assets.
Outlook challenging. While results were the group’s strongest since listing, outlook in FY09 remains challenging due to decreased business activity at its major operational markets, leading to slowing demand for its serviced residences. Management guides that booking volumes have softened and expects FY09 performance to be weaker sequentially. Our forward FY09-10 DPU estimates of 7.8 Scts reflect a 10% decline in portfolio RevPAU. Downside risk exists in the event of a more than expected decline in economic activity at its major operational markets
HOLD for further earning visibility. Facing an uncertain outlook coupled with continued negative newsflow of a worsening economic environment, we view that these might limit stock price performance in the near term. Re-rating opportunities will largely be macro-led, hinging on an improved economic outlook in their main operational markets, i.e Vietnam, Singapore and China. Maintain HOLD.
AscottREIT – CIMB
More vulnerable
• Met expectations. 4Q08 and full-year DPU numbers were in line with Street and our expectations. Full-year gross revenue of S$192.4m was up 24.2% yoy on strong performances from Singapore (higher daily rates), Australia (Somerset St George’s Terrace, Perth acquired last year), China (higher daily rates during Olympics), Japan (rental housing) and Vietnam (higher daily rates). NPI margins fell qoq from 52.5% to 43.9% on declines in Singapore, Japan and China. Significantly higher property expenses in Singapore and Japan, as well as room-rate declines after the Olympics in China caused the dip in NPI margins.
• REVPAU declined 18.4% qoq. Although REVPAU only dipped 3.6% yoy to S$133, the qoq decline was much starker at 18.4%. Declines were led by ART’s major markets of China (-43%) and Singapore (-12.2%). The average length of stay had also fallen from more than eight months in FY07 to seven months, the result of increased customer preference for shorter leases of under one year.
• Cap rates, asset leverage up. As at 15 Dec 08, ART’s portfolio value declined by S$88.9m, mainly because of lower valuation for its serviced residences in China and Japan. Cap rates expanded by 50-100bp in the latest valuation. With this valuation, asset leverage rose to 38.1%, still healthy.
• Bracing for tough times. Management admits that the challenges ahead are “unprecedented” and expects 2009 to be weaker than 2008. However, capital management remains prudent and the bulk of refinancing (S$382.5m) will only be due in 2011.
• Maintain Underperform and target price of S$0.56. We maintain our DPU estimates for FY09-10 and introduce FY11 forecasts. Forward yields of 14% and a P/BV of 0.32x make the stock cheap vs. the REIT average of 0.41x. Nonetheless, due to the short tenure of serviced residences vs. traditional property segments like industrial and commercial, ART remains more vulnerable to profit volatility in a deteriorating economic environment. Maintain Underperform.
AscottREIT – BT
Ascott Reit’s Q4 distributable income falls 20%
ASCOTT Residence Trust (ART) yesterday announced a distributable income of $10.32 million for the fourth quarter of 2008, a fall of 20 per cent from the previous corresponding period’s $12.85 million because of one-off expenses.
The one-off expenses amounting to about $1.7 million related mainly to a refurbishment cost. ART said that excluding this one-off item, distribution could have been just 6 per cent lower due to higher finance costs.
Distribution per unit (DPU) for the quarter also fell 20 per cent year-on-year, to 1.69 cents.
For its serviced residences, the Pan-Asian residence real estate investment trust registered a 4 per cent year-on-year in revenue per available unit (RevPAU) to $133 for the three months ended Dec 31, 2008. This was mainly because demand for serviced residences in China saw a fall after the Beijing Olympics.
For the full year, distributable income was 19 per cent better at $53.7 million. As Ascott Residence Trust Management Limited (ARTML) chief executive Chong Kee Hiong said of ART’s FY2008 performance, ‘everything is still up’. ARTML, the trust’s manager, is a subsidiary of CapitaLand.
DPU for the full year rose 14 per cent to 8.78 cents, a distribution yield of 17.4 per cent based on ART’s closing price of 50.5 cents per unit on Thursday.
The higher distribution was due to strong operating performance in 2008, a result of organic growth as well as contributions from new acquisitions.
However, rental income might decrease the coming year, as Mr Chong expects tenants to renew on shorter terms. ‘It is quite clear that people are renewing for shorter stays, and the average length of stay will drop.’
Revenue for the quarter came to $47.7 million, 11 per cent higher year-on-year. Full-year revenue was $192.4 million, a 24 per cent increase. Upon completion of its latest acquisition in Vietnam, ART’s portfolio will expand to 38 properties worth $1.53 billion in 11 cities.
Mr Chong said: ‘We will continue to apply cost containment measures as well as control our discretionary capital expenditure to maximise asset yield.’
ART expects its operating performance in 2009 to ‘remain profitable but lower than 2008’.
Suntec – BT
Suntec Reit distribution income surges
Jump of 31.7% to $44.1m for the Oct-Dec period; DPU for quarter also up at 2.858 cents
SUNTEC Real Estate Investment Trust (Suntec Reit) has reported a distribution income of $44.1 million for the quarter ended Dec 31, 2008, a jump of 31.7 per cent.
The distribution per unit (DPU) for the quarter came to 2.858 cents, up 25.4 per cent year-on-year. This works out to an annualised DPU of 11.339 cents, representing a yield of 17.4 per cent based on Suntec Reit’s closing unit price of 65 cents on Jan 21.
Suntec Reit has changed its financial year-end from Sept 30 to Dec 31, and for the 15 months ended Dec 31, achieved a DPU of 13.303 cents.
For the October-December 2008 quarter, gross revenue rose 16.8 per cent to $63.5 million and net property income jumped 28.1 per cent to $47.9 million.
Regarding Suntec Reit’s dividend payout ratio, CEO of ARA Suntec, Yeo See Kiat, said: ‘We’re giving 100 per cent. We’ve been giving 100 per cent since day one.’ ARA Suntec is the manager of Suntec Reit.
When asked about the request by some Reits to the government for a reduction in the minimum payout ratio to Reit unit-holders to as low as 50 per cent and yet still enjoy tax concessions, Mr Yeo said temporarily lowering the cap would give Reits a bit of flexibility in these tough times. However, Suntec Reit is not considering such a temporary measure, Mr Yeo noted, adding that if Suntec Reit had wanted to, it could have lowered its payout ratio to the currently-permissible cap of 90 per cent.
When asked whether Suntec Reit intends to pass the Budget’s tax rebates to retailers seeking to benefit from the government measure, Mr Yeo said that he might be willing to talk to the retailers on an individual basis but Suntec Reit had to go through the Budget concessions in detail before it could give a clear answer.
Asked about refinancing, Mr Yeo said: ‘We have worked very hard to maintain our credit rating.’ Suntec Reit’s average all-in financing cost for the quarter was 3.26 per cent and its gearing stood at 34.3 per cent as at Dec 31, 2008.
‘Whilst our next major refinancing is only due in December 2009, we are currently working on the refinancing ahead of its maturity,’ Mr Yeo added.