Month: April 2009
Suntec – Nomura
First look
After market close in Singapore today, Suntec REIT announced its 1Q09 results and that it has secured refinancing for all S$825mn of debts maturing this year. 1Q09 results beat our and consensus expectations, and we think management’s ability to achieve steady rentals in 1Q09 while keeping vacancy low is commendable in the current market. While the cost of refinancing appears to be above our expectation, we expect the share price to react positively to the news.
Strong 1Q; refinancing secured
Cambridge – CIMB
Stable for now
• Results in line. 1Q09 results are in line with consensus and our expectations. DPU of 1.29cts forms 27% of our forecast for FY09. Gross revenue of S$18.4m was flat qoq, but net property income of S$16.1m was up 6% qoq as CREIT benefited from land-rent and property-tax rebates. Portfolio occupancy was 99.2% as at 31 Mar 09, down marginally from 99.5% in Dec 08.
• Covenants on debt facility may strain cash flow. Management clarified that its weighted average effective interest rate is 5.9% p.a., and not 7.2% as reported in an SGX release on 18 Feb 09. Management earlier assumed that the swap cost of S$18.35m would be expensed over the tenure of the new debt facility. It will now recognise the change in fair value and expense off S$18.35m. Although the need to repay this S$18.35m over the tenure of the CIT facility will not affect distribution, cash flow may be strained. Management is exploring options to increase cash proceeds which could include the divestment of non-core assets, scrip dividends and a rights issue, among others.
• Adequate buffer before cash lock-up is triggered. Management revealed more debt covenants, including a loan to value (LTV) ratio of 55% and a debt service cover ratio of 2.2x, and lenders’ right to lock up cash proceeds if the LTV reaches 50% or if the debt service cover ratio reaches 2.5x. The revelation of the second covenant is worrying, implying that lenders could technically halt distribution to unitholders. Nonetheless, we take comfort in the relative stability in the medium term as asset values will need to decline by about 25% before the 50% LTV is breached, in our estimation.
• Maintain Outperform with lower target price of S$0.47, still based on DDM valuation (discount 9.6%). We lower our occupancy assumption to 95% from 98% to reflect possibly increased cases of tenant default. Our 2009-11 DPU forecasts fall by 9-12%. Nonetheless, we expect CREIT’s performance to be stable, with only 6.1% of rental income expiring between now and 2012, 16 months of security deposits on average, and 5.4 years of weighted average remaining lease term (by income).
Suntec – OCBC
FY09 refinancing clouds clear
DPU up 2% QoQ. Suntec REIT recorded a 2.3% QoQ and 16% YoY increase in 1Q09 revenue to S$64.9m. Unitholders get 2.918 S cents for the quarter (up 2% QoQ and 15.9% YoY). Results were better than expected, with Suntec’s gross revenue and distributable income outperforming our 1Q estimates by about 4-7%.
Rents down but still incremental. An overhang of supply and uncertainty of demand are key concerns for the office sector. 3.7% of Suntec City office lies vacant, up from 1.8% a quarter ago. We understand that a couple of tenants are only renewing part of previously occupied space. The manager said maintaining occupancy above the 90% level is a key priority. Some 527k sf of office leases are up for renewal in FY09, with an average rent of S$5.33 psf pm. The manager has already renewed more than half of these, at around S$9.96 psf pm on average. The remaining 237.6k sf of office space expiring this year is currently earning an average rent of S$6.64 psf pm – we note the margin of safety between achieved rents (down 11% QoQ) and average rents on expiring leases (up 25%) has narrowed quite dramatically – but is still adequate, in our opinion.
S$825m facility in place. Suntec has secured a S$825m term loan facility to refinance the S$125m in MTN and S$700 in CMBS loans maturing this year. The deal, a seven-bank club loan facility, is structured as a S$725m 3-year loan and a S$100m 7-year fixed rate loan. The manager said the facility costs a blended all-in interest margin of less than 375 bps over the base rate (versus an all-in financing cost of 3.02% in 1Q09). The cost of debt is significantly higher, but a fair reflection of the current lending environment, in our view. This announcement clears one “elephant in the room” but it does not change our view on Suntec’s potential need for an equity issue to address falling capital values.
We still see some value. Our SOTP value for Suntec is S$0.91, down 4% from S$0.95 due to minor adjustments. Our fair value estimate is unchanged at S$0.80, a 12% discount to our SOTP value. This incorporates our assumption of a S$500m equity issue at the S$0.60 level. Suntec is up 31% since our last report in March. We still see some room on the upside, with current price levels 21% below our fair value, along with a 14% FY09F yield (35% total return). Maintain BUY.
Suntec – DBS
Laying refinancing concerns to rest
At a Glance
• Refinances entire $825m debt, no more debt due till 2011
• Results in line with projections
• Outlook dampened by weak office outlook, but likely factored into share price
• Upgrade to Buy with TP of $0.82
Successfully refinances $825m loan. Suntec announced it has secured a club loan with 7 banks to refinance the entire $825m maturing this year, underlining the strength of its portfolio and credit standing. The deal comprise of $725m 3- year loan and $100m 7-yr fixed rate loan at a blended all-in interest spread of less than 375bps. With this, the group has no further existing debt due till 2011.
1Q09 results largely in line. Results came in largely in line with expectations as the group renewed 0.3msf of office space and 71000sf of retail space, representing 13% of its portfolio NLA. This was partially offset by lower office occupancy of 97.4%. Office rents achieved average $9.98psf, 11% lower qoq while retail rents remained largely stable. Looking forward, we expect office rents to remain weak owing to slowing demand. The group has a remaining 13% of office and 32% of retail NLA to be renewed in 2009. The office leases are likely to enjoy positive rental reversion, although much smaller than before, as the average level of the expiring contracts are at a low $6.64psf/mth.
Upgrade to Buy. Share price is likely to react positively to the removal of the refinancing overhang. The stock is currently trading at 0.34xP/bk NAV and gearing of 34%. Our 2009/10 DPU projections of 10.7cts and 9.3cts have assumed a 50% drop in peak/trough office rents and a vacancy level of up to 15%. Yield is at an attractive 16.2% and 14%. Upgrade to Buy with TP of $0.82.
a-iTrust – DBS
Underlying Portfolio Strength
• Results were in line with estimates
• Secured income base
• Acquisition possibilities present upside surprise
• Upgrade to BUY, TP S$0.65 based on DDM
Results in line. Ascendas India Trust (AiT) reported 4Q09 results in line with our expectations. Gross revenues and NPI grew by 13% and 8% to S$17.4m and S$16.1m respectively. Growth was driven by (i) income contribution from Crest, (ii) positive rental reversions, (iii) higher operations and maintenance income. Distributable income came in 25% higher to 15.6m, translating to a DPU of 2.05 cts. For FY09, AiT delivered a DPU of 7.54 Scts, translating to a yield of 15%.
As of 31st March’09. AiT recorded a 5% devaluation on its properties. This was a result of more conservative cap rates used by valuers. NAV declined to S$0.89 as a result.
Secured income base. Looking ahead, AiT has only 13% of its NLA up for renewal in FY10, we believe that AiT should be able to keep occupancies relatively stable given (i) each tenant accounted for <4% (ii) strong retention rate of 89% for expiring leases in FY09.
Headroom for growth. Potential upside surprise will come from its ROFR from Ascendas Land Int’l & Ascendas India Devt Fund, which are not currently factored in our models. Current gearing of 9% presents headroom of S$220m before reaching 35% gearing.
Upgrade to BUY, TP $0.65. At current levels, AiT presents attractive value for investors looking to leverage on the mid-long term growth prospects of India’s IT parks space while receiving a FY10-11 DPU yield of 12-14%. Upgrade to BUY, TP S$0.65 based on lower cost of equity assumptions (CE of 15%), in line our DBSV economist view of a bottoming of India’s economy in 1H09.