Month: September 2009
CDL H-Trust – Phillip
A Satisfying Stay
We initiate coverage on CDL Hospitality Trust (CDL HT) with a BUY recommendation and fair value of $1.72. CDL HT currently owns hospitality related properties in Singapore and New Zealand. We believe the Trust is poised to benefit from the economic recovery coupled with the government efforts to boost the local tourism industry.
Tail-end of economic recession? Singapore technically exited the recession in 2Q09 with a q-q SAAR GDP of 20.7%. The official forecast from MTI is a contraction of 4% to 6% for 2009. That being said, the share price of CDL HT has re-rated from 0.3 times book value seen in March this year to approximately 1 times book value currently, on optimism of the recovering economy. We believe that CDL HT will continue to re-rate to its historical average of above 1.5 times book value seen during the economic boom of 2007 if the cards are lined up properly.
Tourism 2015. The Singapore government has set a target to achieve 17 million tourist arrivals and tourist revenue of $30 billion by 2015. Hospitality operators like CDL HT will stand to benefit from the government initiatives.
Healthy balance sheet. CDL HT has one of the lowest gearing among the S-REITs. We view this as prudence on management part in managing capital usage well. CDL HT has gearing of 19% and total debt of $287 million. We believe with the backing of a strong sponsor, it has better access to funding sources.
Strong sponsor, benefits aplenty. The sponsor of CDL HT is M&C Hotels plc which is majority owned by City Development Ltd. With a right of first refusal from the sponsor, there are ample acquisition opportunities for CDL HT to expand its portfolio. Furthermore, management has indicated that it has the expertise to operate its hotels if any of its lessees decides to terminate their leases.
FCT – OCBC
Poised for major league debut; upgrade to BUY
Physical integration a success. We visited Fraser Centrepoint Trust’s Northpoint mall (NP) to assess the success of the S$38.6m asset works. The goal was two-fold: transfer GFA from the fourth level to higher yielding lower levels; and fully integrate the asset with new extension Northpoint 2 (NP2) to create one seamless retail mall. The physical integration has been very successful, in our opinion. It is very hard to identify where NP ends and NP2 begins. The transition out of AEI is still taking place on upper levels as some tenants are still in the process of fitting-out.
But trust-level integration incomplete. We have commented on the lack of scale in FCT’s portfolio before and this is the most obvious opportunity: in essence, FCT owns only two-thirds of a prime asset. Despite a strong pipeline, FCT’s acquisition plans were put on hold when the credit crunch struck. Sponsor FNN [NOT RATED] continues to hold on to NP2 (85,500 sf). We believe that an acquisition is likely in the next six months as: 1) credit markets have stabilized; 2) FCT has re-rated strongly making an accretive acquisition more feasible; and 3) the market may prefer an acquisition to support another potentially cash-flow disruptive AEI project (now at Causeway Point). The put and call option agreement with FNN indicates a price range of S$139.5m to S$170.5m for NP2. We currently assume the buy is priced per the Sep-08 valuation of NP, at around S$1916 psf or S$164m. Note that YewTee Point (YT, 72,000 sf) is also “ready for acquisition”. If priced similarly, total acquisition cost is roughly S$302m.
Poised for major league debut. We have lowered our cost of equity assumption, changed our rent reversion assumptions from -5% and -7% in FY10-11 to 0% per year, and rolled over to FY10 (year end is 30 Sep). We also incorporate the NP2 and YT acquisitions at S$302m, with 70% of the cost funded via fresh equity at a 40% discount to the current price. This takes our fair value estimate from S$0.95 (at par to prior SOTP) to S$1.22. We turn positive on FCT as 1) acquisitions will create scale, enhancing FCT’s attractiveness for institutional investors (thus benefiting retail holders); and 2) the yield gap between FCT and CapitaMall Trust [HOLD; FV: S$1.53] is fairly wide even after allowing for a size and asset premium. Upgrade to BUY (16% total return). Our ideal entry point would be at any capital raising / acquisition announcement.
CDL H-Trust – CIMB
Time for a breather
• Downgrade to Neutral from Outperform; switch to PLife REIT. We are still positive on an IR-led recovery in Singapore, as reflected in our relatively bullish above-consensus estimates. We maintain our earnings estimates and DDM-based target price of S$1.41 (discount rate 9.06%). However, at 1.04x P/BV and yields of 5.5%, we believe CDLH-HT has been fairly valued. We recommend a switch to Parkway Life REIT (Outperform, S$1.10, target price S$1.31). PLife REIT trades at 0.8x P/V with a forward yield of 6.8%.
• 2H09 recovery likely to be stronger. Tourism indicators including visitor arrivals, average hotel room rates and occupancy levels are showing clear signs of emerging from trough levels. Additionally, we expect the short-term supply of hotel rooms to remain tight as the opening of new rooms at Singapore’s two integrated resorts is expected to be staggered over 2010-11. The likely early opening of Resorts World Sentosa is likely to revive REVPAR in 2H09.
• Acquisitions not likely in short term. Even though rising prices have depressed dividend yields, near-term acquisition catalysts appear to be lacking due to a conservative and value-hunting management.
• Up to 30% REVPAR recovery priced in for FY10. At our target price of S$1.41, we have assumed a REVPAR recovery of 30% for CDLHT’s Singapore hotels. At this level, CDL-HT will be trading at its book level of S$1.42/share.
IndiaBulls – BT
Indiabulls plans $200m rights issue at 16 cents a unit
Business trust also seeks to expand portfolio beyond office space
INDIABULLS Properties Investment Trust (IPIT) has proposed to issue some 1.25 billion new units at 16 cents each to raise $200.1 million.
The business trust also intends to look beyond office space to invest in retail, residential or hospitality assets.
IPIT is conducting the 53-for-100 renounceable and underwritten rights issue to reduce debt as the Mumbai office space market weakens – occupancies and rents have both declined, it said yesterday.
The trust had borrowings of $258.3 million as at June 30, against cash and cash equivalents of $6.7 million. The ratio of borrowings to total assets was 10.4 per cent.
Lower debt obligations would put it in a ‘better position to make commercial decisions’ and in a ‘stronger negotiating position with potential tenants’, it said.
The rights issue price of 16 cents is at a 48.4 per cent discount to IPIT’s closing price of 31 cents on Wednesday. The trust asked to halt trading in its units yesterday because of the cash call.
Of the $200.1 million to be raised, around $193 million, or 96.5 per cent, will go towards debt repayment. The remaining $7.1 million will pay for expenses incurred for the rights issue, and for corporate and working capital purposes.
Morgan Stanley Asia (Singapore) is the sole lead manager and underwriter of the deal.
Grapene Limited, which as at Sept 4 holds a stake of around 34 per cent in IPIT, made an irrevocable undertaking to take up its pro rata entitlement of 425.1 million rights units.
Grapene also inked a standby commitment agreement with Morgan Stanley Asia (Singapore) to subscribe for up to 700.4 million rights units in total, or 90 per cent of the rights units. The rights issue is subject to a whitewash resolution.
IPIT also proposed to adjust its principal objectives. ‘Having the flexibility to change the development mix of IPIT’s portfolio . . . would be prudent especially in light of the current slowdown in rentals as well as the softening of market demand for office space,’ it said.
From its initial focus of investing primarily in income-producing office space in India, IPIT could start looking at retail, residential or hospitality properties. It said it will keep more than 50 per cent of total lettable area in its portfolio in income-producing office space. IPIT could also start selling residential properties upon their completion.
IPIT will hold an extraordinary general meeting on Sept 29 to seek unitholders’ approval for the rights issue, whitewash resolution and expansion in objectives.
Business trusts and Reits allow unit-holders to receive dividend payments from operating cash flow instead of accounting profit. While Reits are required to pay 90 per cent of distributable income to unit-holders, there is no such requirement for business trusts.
ART – BT
Ascott Reit’s $1b note programme
ASCOTT Residence Trust (ART) now has access to $1 billion by way of a multi-currency medium term note (MTN). Ascott Residence Trust Management Ltd (ARTML), the Reit manager, has appointed DBS Bank to act as the arranger and the dealer of the MTN programme.
In a statement released yesterday, ARTML said the MTN may be used to refinance existing borrowings, to finance/ refinance investments, to on-lend to any trust, fund or entity in which ART has an interest, to finance/refinance any asset enhancement works and for the general working capital of the group.
In July, it was reported that ART plans to renovate Somerset Grand Cairnhill and Somerset Liang Court in phases. It was also reported then that ART had posted year-on-year declines in distributable income of 17 per cent for the second quarter and 20 per cent for H1. On a quarter-on-quarter basis, the Q2 2009 figure was up 2 per cent from the preceding quarter.
Most Reits have been adversely affected by the economic downturn. Since June, five other Reits have conducted rights issues or private placements for funds to raise more than $1.23 billion.