Month: January 2010
CDL H-Trust – JPM
Keep the faith in Integrated Resorts
• Keeping the faith. CDREIT has more than quadrupled since the trough in Mar 09, and has outperformed the FSSTI index by 110.5% in the last 12 months. While volatility for hospitality stocks tends to increase before large events such as the opening of 2 integrated resorts (IRs), we maintain our Overweight rating on CDREIT on the back of J.P. Morgan’s bullish view towards the two IRs.
• Raising our estimates. We raise our earnings estimates for FY10EFY12E by 18% as we increase our room rate forecast and expect the trust to revert to 100% dividend payout ratio. Our revised estimates assumes RevPAR for Singapore hotels at S$191/day and S$210/day for FY10E and FY11E, which compares to the peak RevPAR of S$208/day achieved in 2008.
• Earnings risk still on the upside. Given that no. of rooms per casino table for the 2IRs in Singapore is much lower than that in Malaysia and Macau, we see greater opportunity for hoteliers such as CDREIT to further increase its RevPAR. We estimate that every 10% increase in CDREIT’s RevPAR would increase our DPU estimate by 12%. In addition, the trust could utilize its lowly geared balance sheet for yield accretive acquisitions.
• We reiterate our Overweight rating on CDREIT, and raise our Dec-10 DDM based price target to S$2.00/share (S$1.85/share previously). The increase in PT is a result of an increase in earnings estimates and a reduction in LT growth forecast to 2.3%. Key risks to our rating and price target include a failure for the 2 IRS to attract visitors to Singapore and a worse than expected operating performance.
A-REIT – BT
A-Reit Q3 property income up 9.7%
ASCENDAS Real Estate Investment Trust (A-Reit) yesterday posted a net property income of $81.3 million for the third quarter ended Dec 31, 2009 – up 9.7 per cent from a year ago.
Higher gross revenue – boosted by rental income from newly completed development projects – and lower property expenses helped lift the industrial Reit’s earnings. As a result, distributable income rose 13.4 per cent to $61.2 million over the same period.
Despite this, distribution per unit (DPU) fell 19.3 per cent to 3.27 cents in Q3, from 4.05 cents a year ago. This reflected the larger unit base, partly due to A-Reit’s share placement and preferential offering exercises.
On a proforma basis, adjusting for the increased number of units, DPU for Q3 last year would have been 2.88 cents. Compared with the DPU in Q3 this year, there would have been a 13.5 per cent increase.
For the rest of this financial year, the manager ‘expects to be able to deliver a return that is in line with market expectations’.
As at Dec 31, A-Reit’s portfolio comprised 91 properties with a total asset value of about $4.8 billion. The occupancy rate for the portfolio was 96.5 per cent, down from 97.2 per cent at Dec 31, 2008.
A-Reit still managed to secure positive rental reversion for renewed leases at its business and science parks, hi-tech industrial properties and logistics and distribution centres in the financial year to date.
‘However, the manager observed signs of moderation in the rate of positive rental reversion in line with current market rental trends,’ the Reit said.
A-Reit was also working on reducing its exposure to ‘vulnerable’ tenants. Its manager earlier identified 12,098 square metres of space as ‘vulnerable’. It has repossessed and re-let 2,416 sq m of space with no negative financial impact, and taken legal action against a tenant occupying 8,843 sq m.
As at Dec 31, A-Reit’s aggregate leverage stood at 31.2 per cent, sharply lower than the 42.2 per cent a year ago. It is in the process of refinancing a $300 million term loan facility maturing in March.
A-Reit units closed two cents lower at $2.02 yesterday.
A-REIT – DMG
Delivers another steady quarter
3QFY10 results in-line with expectations. A-REIT reported a 13.5% YoY gain (-6.0% QoQ) in 3QFY10 DPU to 3.27¢. Annualised 9MFY10 DPU came in at 13.6¢, marginally above our FY10 forecast of 13.3¢ (Street’s forecast 13.2¢). Net property income was up 9.7% due to positive rental reversion and contributions from new acquired properties and development projects. A-REIT will trade ex-3Q10 distribution on 22 Jan 2010. We fine-tune our FY10 DPU estimate to 13.62¢ from 13.26¢ to account for marginally higher occupancies. We correspondingly raise our TP to S$2.11 from S$2.05. At our TP, A-REIT offers a yield of 6.5%, a reasonable peg in our view. Maintain NEUTRAL.
Occupancy fell marginally; tenancy default risk low. Reflecting the stabilisation in global demand, A-REIT’s portfolio occupancy declined marginally to 96.5% from 96.8% in 2QFY10. For its multi-tenanted properties, occupancy moderated to 93.1% from 93.3%. According to management, AREIT has about 12,098 sqm of its 2m sqm of NLA (0.4% of gross monthly rental income) which could run the risk of default. Of this, 2,416 sqm had since been repossessed and re-let with no negative financial impact. In the current quarter, A-REIT has taken legal actions against a tenant occupying 8,843 sqm (0.5% of portfolio NLA) of space and contributing 0.2% of monthly gross revenue.
Focus on built-to-suit and other acquisition opportunities. Following its S$296m equity fund raising exercise, A-REIT has a sturdier balance sheet with gearing of about 31%. Management has indicated that they will continue to scout for opportunistic acquisitions and/or built-to-suit development projects for high-credit quality tenants.
Stock almost fully valued; trading near peak valuations. At its current price, A-REIT offers investors a stable dividend yield of 6.8% for FY10 and FY11 – with dividends well supported by the long-term leases on single-tenanted buildings which accounts for 50% of revenue. Between 2005 and 2007, A-REIT traded at heyday yields of 6%, implying minimal upside from current valuations. Should we factor a more bullish yield peg of 6%, A-REIT’s recursive fair value would be S$2.27, an upside of only 13%. Maintain NEUTRAL. Buy on dips.