Month: October 2009
ART – BT
Ascott Reit distribution slips 25%
ASCOTT Residence Trust (Ascott Reit) said that third- quarter unit-holders’ distribution fell 25 per cent to $11.8 million from $15.9 million a year ago as it saw weaker demand for its serviced residences in Singapore and China.
Distribution per unit (DPU) was 1.92 cents for the quarter ended Sept 30, 2009, down 26 per cent from 2.61 cents in Q3 2008.
‘The lower performance as compared to Q3 2008 was a result of the global economic slowdown, increased competition from new supply in Beijing and Shanghai, and the strong performance in August 2008 due to the Beijing Olympics,’ said the real estate investment trust (Reit) in a statement. Revenue per available unit, or RevPAU, fell 24 per cent year-on-year to $124 in Q3 2009. The reduction in RevPAU was due to reduction in both average daily rates as well as occupancies at the group’s serviced residences. Revenue for Q3 2009 fell 17 per cent to $44.4 million.
The trust’s management said, however, that the challenges posed by the global economic downturn to the hospitality industry eased somewhat in Q3 2009 compared to Q2.
‘Our Q3 operating performance has shown further signs of stabilisation in hospitality demand,’ said Lim Jit Poh, the trust’s chairman. ‘While we remain cautious over the pace and extent of recovery, we are confident of the longer-term growth in the markets in which we operate.’ On a sequential basis, unit-holders’ distribution and DPU were 7 per cent higher than Q2’s $11 million and 1.79 cents respectively.
Ascott Reit’s portfolio operating performance also improved in Q3 over Q2, led by RevPAU growth in Japan, Singapore and China of 24 per cent, 15 per cent and 7 per cent respectively.
To ride on the expected upturn in demand as the economy recovers, Ascott Reit has accelerated its asset enhancement initiatives for selected properties. It will also continue to seek yield-accretive acquisitions, it said. The company’s shares fell 2 cents, or 1.8 per cent, to $1.07 yesterday.
Suntec – Daiwa
Net-property income weakens
What has changed?
• Suntec announced its 3Q09 results on 27 October. Net-property income (NPI) of S$47m was 2% below our forecast, but distribution per unit (DPU) of 2.75¢ was 22.5% above our forecast.
Impact
• NPI of S$47m declined by 3.6% QoQ. Gross revenue dipped by 4% QoQ with the major weakness coming from its core Suntec City property. Passing (monthly) rents at Suntec City Mall slipped to S$10.96/sq ft for 3Q09 from S$10.98/sq ft for 2Q09. Meanwhile, the manager signed leases at Suntec City
Office Towers for the quarter at an average of S$7.30/sq ft compared with S$8.42/sq ft for 2Q09 and S$9.96/sq ft for 1Q09.
• Much lower-than-expected net-financing cost was the major positive variance. Suntec’s average all-in financing cost as at 30 September 2009 was 2.88%, almost no adverse impact from the financial crisis.
• We have revised up our DPU forecasts by 9.3% for FY09, 1.3% for FY10 and 0.3% for FY11 after lowering our net financing cost assumptions and our NPI forecasts.
Valuation
• On our revised DPU forecasts, Suntec trades at a 12-month forward yield of 7.6%, one of the most attractive in the sector. We have not changed our six-month target price of S$1.16, based on our RNG valuation (a finite-life Gordon Growth Model), which assumes an effective portfolio cap rate of 6.1% (about 100 basis points above the prevailing cap rate).
Catalysts and action
• We maintain our 3 (Hold) rating for Suntec, in view of the discernible decline in NPI and passing rents and a lingering risk of equity fundraising. We expect Suntec’s fully-diluted NAV to decline from S$1.97 as at 30 September 2009 to S$1.45 by end of 2010 (gearing of 41.2%) and S$1.19 by end of 2011 (gearing of 45.6%).
Cambridge – Daiwa
Quarterly improvement in gross revenue and net-property income
What has changed?
• Cambridge announced its 3Q09 results on 27 October. Net-property income (NPI) was 1.3% above our forecast, while distribution per unit (DPU) of 1.34¢ was 9% above our forecast.
Impact
• Gross revenue increased by 1.3% QoQ and was 1.6% above our forecast. Overall occupancy improved to 99.7% (from 99.5% in the previous quarter). According to the manager, all leases expiring in 3Q09 were renewed. Rental renewal risk remains one of the lowest in the sector, with only 6.6% of leases (by gross revenue) up for renewal in 2009-12.
• The major positive variances came from lower-than-expected other trust expenses and higher-than-expected (pre-distribution) adjustments.
• We have revised up our DPU forecasts by 1.7% for FY09, 3.1% for FY10, and 2.6% for FY11 after raising our portfolio-occupancy assumption to 97.5% from 96%.
Valuation
• We have raised our six-month target price to S$0.54 (from S$0.53), based on our RNG valuation (a finite-life Gordon Growth Model), which assumes an effective portfolio cap rate of 7.5%. Cambridge trades at a 12-month forward yield of 11.1% based on our revised DPU forecasts. NAV was S$0.60 as at 30 September 2009.
Catalysts and action
• We maintain our 2 (Outperform) rating for Cambridge, as we believe its recent operating performance highlights the stability of its distributions. We believe Cambridge faces a moderate risk of equity fundraising, since the manager has guided for a long-term target gearing ratio of 30-35% compared with the latest gearing of 42.6%. However, the DPU dilution could be moderated from a successful sale of some assets above book value.
Ascott Reit – BT
SINGAPORE – Ascott Residence Trust (Ascott Reit) announced on Wednesday a distribution per unit of 1.92 cents for the third quarter ended Sept 30 2009, down 26 per cent from the same period last year but 7 per cent higher than the second quarter this year.
Third quarter income available for distribution fell 25 per cent to $11.8 million from last year but rose 7 per cent from the previous quarter.
Mr Lim Jit Poh, Ascott Residence Trust Management Limited’s Chairman said in a news release: ‘The severe challenges posed by the global downturn to the hospitality industry have eased. Our Q3 operating performance has shown further signs of stabilisation in hospitality demand.’
Mr Chong Kee Hiong, ARTML’s Chief Executive Officer added: ‘The better performance was led by revenue per available unit growth in Japan, Singapore and China of 24 per cent, 15 per cent and 7 per cent respectively in 3Q 2009 compared to 2Q 2009.’
‘To ride on the expected upturn in demand as the economy recovers, we have accelerated our asset enhancement initiatives for selected properties. We will also continue to seek yield accretive acquisitions.’
Suntec – JP Morgan
3Q09 results: Better than expected on lower financing costs
• Suntec REIT announced 3Q09 results, with DPU at S$0.0292/unit, down 2% Q/Q but 8% higher than our estimate on the back of lower financing costs (2.88% all-in costs) as a result of a higher proportion of short-term debt. Distributions YTD amounted to S$0.0816/unit, giving a 9.9% annualized yield based on yesterday’s closing price. Book value stood at S$1.95/unit with gearing of 34%. Stock will trade ex-3Q09 distribution on 2 November.
• Occupancy rate has improved, but rents still under pressure: We note that the occupancy rate for the portfolio improved on a sequential basis, with that of Suntec City Office back up at 94.8% versus 92.5% in 2Q09. Renewal rents, however, continued to fall, declining 12% Q/Q to S$7.30 psf pm. Passing rents for the trust’s retail portfolio also saw a modest decline. We retain our view that substantial negative rental reversion will start to kick in only in 2H10 and distributions are likely to bottom out only in 2012.
• Calibrating our earnings estimates: We raise our distribution estimates for 2009-2011 by 2-7% to factor in lower financing costs, especially for this year. Our Jun-10 DDM-based price target remains unchanged at S$1.00/unit, assuming an 8.5% discount rate and a 2% long-term growth rate.
• We retain our Underweight rating on Suntec: Key upside risks to our rating and price target include: 1) a potential fundraising that is likely to remove the EFR overhang; 2) incrementally more positive news flow for the sector in the near term; and 3) a quicker-thanexpected bottoming out and recovery of the rental market. Key downside risks include a worse-than-expected rental reversion cycle and a return to illiquid capital markets as we had a year ago.