Month: May 2009
CCT – OCBC
Results above expectations
Results exceeded our expectations. CapitaCommercial Trust (CCT) delivered a strong set of 1Q09 results that exceeded our expectations. Gross revenue increased 34.5% YoY to S$97.5m but on a QoQ comparison, the increase was a marginal 0.3% as higher contributions from the positive rental reversions of the office buildings were offset by the weaker contribution from Raffles City’s hotel revenue. Property operating expenses increased 27.9% YoY due to its acquisitions but fell 12.6% QoQ as cost savings measures took effect. As such, net property income for 1Q09 increased 40.8% YoY and 6.5% QoQ to S$69.9m. DPU for 1Q09 has also increased 25.1% YoY and 19.6% QoQ to 3.24 S-cents, translating to an annualized yield of 15.2%.
89% of FY09 forecast GRI locked in. During the first 4 months of 2009, CCT secured new leases and renewals for 335,800 sq ft of spaces. Positive rental reversion on a weighted average basis was ~49% higher than previously signed rents. This was also better than our expectations as we had expected weaker reversionary growth from CCT due to the declining office rental market. With that, CCT has now locked in 89% of our forecast gross rental income (GRI) for FY09, which amounts to S$318.1m. An additional GRI of S$35.8m had been locked in since CCT announced its FY08 results, which further enhanced DPU visibility for FY09.
Completed refinancing for FY09. CCT also announced that it had secured commitment for a 3-year secured term loan of up to S$160m. The loan is secured against HSBC Building and the all-in margin for the term loan is 3% per annum, which is lower than what we have expected in the current tight credit market. As at end-1Q09, CCT had a gearing level of 38.3% which we think, is unsustainable in light of the falling rents and capital values of office buildings in Singapore. With another S$885m and S$1,012m (assuming early redemption by bond holders) of borrowings due for refinancing in FY10 and FY11, we continue to believe that an equity fund raising will be inevitable over the mid-term.
Fair value raised to S$1.33; Maintain BUY. After a better-than-expected positive rental reversions in 1Q09, we are now raising our FY09 and FY10 DPU forecasts to 11.2 S-cents (previously 10.2 S-cents) and 9.9 S-cents (previously 8.7 S-cents) respectively, which translate to attractive FY09 and FY10 DPU yields of 13.1% and 11.6%. Our fair value has now been raised to S$1.33 (previously S$1.06). We maintain our BUY recommendation for CCT.
CDLHTrust – CIMB
On track
• On track. 1Q09 results are in line with consensus and our expectations. DPU of 1.97cts forms 26% of our forecast for FY09 and was up 10% qoq (one-off expenses in 4Q08 for additional property tax with respect to 2006-07 and one-off MCST fees paid to Liang Court Complex). Net property income of S$20.6m declined 21.2% yoy, in line with falling tourist arrivals in Singapore and weakening demand for hotel accommodation.
• REVPAR down 20%. CDLHT’s Singapore portfolio occupancy hit a record low of 74.8%, down 8.9% pts from 4Q08. Revenue per available room (REVPAR) declined 20.2% qoq.
• Refinancing in the bag. CDLHT has secured a 3-year S$350m facility from DBS Bank to refinance all its S$297m debt due in Jul 09. This is made up of a S$270m term loan and a S$80m committed revolving credit facility. Based on the announced interest margin of 2.6% p.a., we estimate all-in cost of debt of 4.3%, below our assumption of 4.5%. The facility is secured on all of CDLHT’s five Singapore properties. Separately, CDLHT has another S$300m uncommitted multi-currency unsecured bridging loan facility, also with DBS. After the refinancing, asset leverage will be 19.7%.
• Maintain Outperform and DDM-based target price of S$0.68. The rest of 2009 would be difficult for CDLHT if visitor arrivals, which have been declining in the past 10 months, worsened. Although the rate of decline had slowed in Mar 08, more downside is possible if swine flu escalates into an epidemic. Nonetheless, we draw comfort that: 1) CDLHT’s properties are operated by seasoned hotel players; 2) management is working closely with the operators to drive revenue and contain cost; 3) there are no refinancing issues till 2012; and 4) Singapore’s experience with SARS has resulted in more precautionary measures in place. Thus, swine flu may not be as great a threat as feared. In the event of a further occupancy decline, CDLHT remains protected by its fixed rent component, which we estimate would translate into a DPU of 3.42cts, assuming a 90% payout (see report dated 27 Mar 09). Based on the last closing price of S$0.58, this would be a yield of 5.9%. Maintain target price of S$0.68 (discount 10.8%), still based on DDM valuation.