Month: July 2009
ART – CIMB
Holding firm
• In line. 2Q09 distributable income of S$11m (-17% yoy) and DPU of 1.79cts (-18% yoy) were in line with Street and our expectations, forming 25% of our full-year estimate. 1H09 DPU of 3.56cts forms 49% of our full-year forecast. Gross profit of S$20.8m fell 11% yoy but improved 5% qoq. Although demand for serviced residences slowed globally yoy, ART’s qoq performance was boosted by contributions from Somerset St Georges Terrace and Somerset Westlake which were acquired after 2Q08, and improved gross profit margins (+1.3% pts qoq).
• REVPAU of S$119 was down 17% yoy. With the exception of flat REVPAU in the Philippines (+1%), REVPAU in all other countries fell: Singapore (-39%), China (- 19%), Vietnam (-12%). Yoy, portfolio REVPAU of S$119 was down 17%.
• Asset value down S$60.6m to S$1.55bn; 100% cash distribution. As at 30 Jun 09, HVS International revalued ART’s portfolio at S$1.55bn (-1.8% from Dec 08 valuation). After revaluation, NAV is now S$1.36 and price/NAV is 0.62x. Management says cap rates had not changed from December levels, and the lower valuation was blamed on lower REVPAU assumptions for serviced residences in China and Japan. It expects valuations to remain flat in Dec 09, in line with an anticipated improved performance in 2H09. There has been more aggressive marketing of ART’s properties, particularly for longer stays of more than one month and it expects fruits by 2H09. REVPAU is expected to improve moderately by 5- 10%. ART says it will be maintaining its 100% cash distribution policy.
• Downgrade to Neutral from Outperform; no change in estimates and DDMbased target price of S$0.79 (discount rate 10.3%). We maintain our forecast of a 13% decline in full-year REVPAU, in keeping with guidance. Our capex assumptions for FY09-11 are also in line with guidance. ART has risen 22% since our upgrade on 10 Jul, to exceed our target price of S$0.79. As such, we downgrade it to Neutral.
ART – OCBC
Signs of stability; upgrade to BUY
QoQ improvement. Ascott Residence Trust posted a 2% QoQ increase in 2Q revenue to S$43m, and a 1.4% QoQ increase in distributable amount to S$11m. The 1H distributable amount made up 53% of our full year estimate. Portfolio RevPAU for the quarter was S$119 compared to S$120 in 1Q09. ART will pay out 3.55 S cents for 1H09.
Performance encouraging. Market concern was that performance would continue to slide in 2Q09 on top of the steep falls in the last two quarters. Instead performance in major markets levelled off or recovered slightly. ART noted that corporate travel is showing signs of life: for instance, project group demand – which had largely dropped off as companies froze spending – is back, albeit on shorter commitments. Going forward, the manager sees “signs of stability with a slight bias towards an uptrend” as aggressive marketing efforts and steep rate cuts pay off. Singapore and China guidance was positive. We do note that our channel checks show continued rate
weakness and aggressive free-nights promotions in the Shanghai and Beijing markets. Generally the extended-stay market seems to have bottomed out but the size and shape of the recovery is still uncertain, in our view.
Balance sheet concerns easing. ART recorded a revaluation deficit of S$61m, with 2Q NAV down 10% QoQ to S$1.36. The manager maintains it is comfortable within 45% leverage (40.7% now) and 3x interest cover (3.4x now), and does not need to recapitalize its balance sheet. The credit markets have unclogged and we don’t expect the S$105.7m loan maturing this year to present any significant refinancing challenges. We also believe that the need for, and impact from, any recapitalization-focused cash call has diminished in view of the recent price rally and improved operating outlook. Any equity-raising attempt would likely be paired to an acquisition,
in which case ART can afford to wait for even better equity pricing.
More benign expectations. Our FY09F and FY10F distributable amount estimates are up 9% and 17% over previous estimates, reflecting our expectation of stabilization at current levels. Our new SOTP value for ART is S$1.14 (prev: S$0.82). This excludes our previous cash call assumption, as its current valuation impact is minimal. Market conditions have eased dramatically and we feel the risk of further stress on ART’s portfolios and balance sheet has abated. Consequently, we are lowering our “uncertainty discount” to SOTP from 25% to 15%. Our new fair value estimate is S$0.97 (prev: S$0.61). Upgrade to BUY.
FCT – DBS
Solid as a rock
• In line with expectations
• Pace of rental growth on reversions still at double digits
• Outlook resilient, Northpoint construction works completed
• Buy with TP of $1.08
Results largely in line. FCT recorded a 3.4% yoy rise in distribution income to $12.1m (DPU 1.94cts) in 3Q09 on a 0.5% uptick in revenue to $21.2m. NPI improved 4.4% yoy to $14.7m thanks to lower maintenance and other expenses, which lowered expense ratio to 30.7%.
Rental growth on reversion maintained at double-digit levels. The better performance was attributed to renewal of 12% of portfolio NLA (77,566sf) in Q3 at rents 14% above preceding levels while overall occupancy remained at 93%. FY09 income is well secured with only 2% of NLA left to be contracted this FY. The group’s pure exposure to the suburban retail sector and lack of competing properties within its malls vicinity should continue to provide income resilience. It augurs well with 10%, 42% and 35% of its income is up for renewal in FY10, FY11 and FY12 respectively. Beyond this, AEI works at Northpoint will be completed and is 75% occupied presently. Up to 97% of the 149,400sf NLA is leased or under negotiation and average rents are expected to be 20% higher than before. This should lift bottomline by c8%.
New acquisitions remain a closely watched driver. Plans to include Northpoint II and Yew Tee Mall are still in place. With cost of equity declining owing to higher stock price, any transaction would likely be accretive for unitholders.
Maintain Buy. We have raised FY09 DPU to 7.3cts as rental rates have generally held up well vs our projection of a 5% decline. Share price have appreciated in recent weeks and the stock is trading at 0.8x P/bk NAV and implied portfolio yield of 6.5%. Our revised DCF target price of $1.08 offers a total absolute return of 15% over the next 12 months.
MapleTree – CIMB
Holding ground
• In line. Distribution income of S$28.7m (+27%) and DPU of 1.48cts (-23%) are in line with Street and our expectations (27% of full-year forecast). DPU contracted 22.6% yoy due to additional units from a rights issue in Aug 08, while qoq growth was marginal at 0.7%. 1H09 DPU of 2.95cts forms 53% of our full-year forecast. Revenue in 2Q09 slipped 2.4% qoq mostly due to a depreciation of the HK$ and ¥ against the S$. The impact of this on net property income (-1.2% qoq) was mitigated by reduced property expenses (-11% qoq) while the effect on distributable income was cushioned by the hedging of income streams from Hong Kong and Japan.
• Occupancy stable at 98.3%; renewals on track. Portfolio occupancy improved 0.3% pt to 98.3% in Jun 09. About 65% of the leases expiring in 2009 were successfully renewed in 2Q09. Average rental reversion rate was flat. Tenant arrears remained small at 1% of annualised gross revenue.
• Capital management. As at end-Jun 09, MLT had S$107m due for refinancing in 2009. Some S$40m has been earmarked from 1Q09 for partial refinancing of its medium-term note due in Oct 09. The remainder will be financed with a S$29m term debt and S$38m revolving credit facilities. In the longer term, management intends to reduce the concentration of debt due in 2012. Current asset leverage is 37.8% (excluding S$40m of borrowings ear-marked for refinancing). Weighted-average cost of debt fell to 2.7% from 3% in 1Q09. Management reiterates that it would not resort to an equity rights issue to lower asset leverage, and future acquisitions are likely to be funded by debt and equity, rather than completely debt.
• Maintain Neutral and target price of S$0.62. We maintain our estimates and DDM-derived target price of S$0.62 (discount rate 9.4%). Although the pressure to maintain occupancy and rents remains, we are encouraged by its relatively high tenant retention rate of 80% and success in securing refinancing at lower interest rates. We believe MLT will be able attain our forecast distribution for FY09.
MapleTree – DBS
Beating expectations
• 2Q09 results above street expectations
• Robust occupancy of 98%
• Offers growth on top of stability
• Maintain BUY, TP S$0.70 based on DCF, offering 26% total return
Results slightly above. MLT reported a good set of 2Q09 results, beating market expectations. 2Q09 distributable income came in 26% higher at S$28.6m (DPU of 1.48 Scts), underpinned by 19% growth in topline and net property income to S$51.9m and S$45.7m respectively. Performance on a sequential basis remained stable.
Occupancy remains high at 99%. The better performance came primarily from MLT keeping retentions high at 80%, resulting in high occupancy of 98% vs our estimate of 95%. With two-thirds of expiring revenue secured, come 2H09 forward renewal activities will only account for c7% of total revenue. We reduce our vacancy assumptions to c2% resulting in upward DPU adjustment of c. 5.8-6.6% in FY09-
10F.
Pipeline in waiting – Up to S$300m of assets. Management shared that sponsor’s pipeline lies in waiting, with possible c. S$300m worth of assets to be injected into the trust over the medium term. However, any injection will be financed through a combination of debt and equity and have to be accretive to unitholders. Gearing is targeted to remain at current level of 38%.
Maintain BUY, TP S$0.70. Current price at 0.7x P/BV is in line to its smaller industrial peers is attractive. With a strong sponsor support and a S$3.0bn- unencumbered portfolio, MLT offers a potential for growth, on top of a stable FY09F-10F prospective yield of 10%. Maintain BUY, our TP is raised to S$0.70 premised on increased earnings and a slight lowering in equity risk premium (-50bps to 7.0% WACC).