Month: January 2010
Fortune – DBS
A safe play in a volatile market
At a Glance
• FY09 result was slightly above our expectation for stronger property income and lower interest expense.
• Earnings outlook should remain stable offering attractive yield
• Maintain BUY, TP raised to HK$3.71.
Result Highlights
FY09 distribution income grew 12% to HK$338m, slightly ahead of our estimate, because of stronger-than-expected property income. But DPU fell 18% to HK$0.302 as Fortune REIT financed property acquisitions primarily through rights issue.
Total revenue grew 10% to HK$701m, driven by maiden contribution from three newly acquired rental properties and improved performance of its existing portfolio. There was a modest 4.2% rental reversion for renewals. However, net property income grew only 7%, as cost-to-income ratio inched up to 27.3% from 25% the year before. Portfolio occupancy reached a new high of 96.4% at Dec 09 after vacancies at Smartland and The Household Center improved considerably in 4Q09. Interest expense fell 13% to HK$88m on lower borrowing costs, despite additional loans raised to partly fund the acquisitions. Gearing remains low at 23.7% because of larger shareholders’ equity led by revaluation surplus on investment properties. Fortune REIT has room to make yieldaccretive acquisitions worth up to HK$2.1bn without tapping the equity market, before its gearing hits the 35% ceiling limit.
Recommendation
In 2010, Fortune REIT plans to revamp and reposition City One Shatin Property to give the mall a new image and strengthen its retail offerings. Unit price of Fortune REIT has rebounded 24% from the low in September. Despite this, it still offers distribution yield of 7.4% for FY10 and 7.7% for FY11. In view of its resilient earnings and better trading liquidity postacquisition, Fortune REIT would be a safe play in a volatile market. We roll forward our valuation to FY11, with DDMbased target price of HK$3.71. Maintain BUY.
CDL H-Trust – BT
CDLHT posts 88.9% average occupancy
But weaker room rates drag down RevPAR by 13.6% to $159 in Q4’09
CDL Hospitality Trusts (CDLHT), a favourite stockmarket proxy for the improving outlook for Singapore’s tourism sector, achieved an average occupancy rate of 88.9 per cent for its five Singapore hotels in the fourth quarter last year, a better showing than the fourth quarters of the preceding two years.
‘We’re seeing demand levels back to where they were prior to the economic crisis, albeit room rates are lower,’ said Vincent Yeo, CEO of the trust’s manager.
‘In November 2009, we did the highest occupancy rate ever bar one month (since the inception of our Reit in July 2006),’ he added.
However, weaker room rates dragged down room revenue per available room (RevPAR) by 13.6 per cent to $159 in Q4 2009 from $184 in Q4 2008. RevPAR peaked at $222 in Q2 2008.
The trust posted income available for distribution to unitholders of about $21.7 million for Q4 2009, a 14 per cent improvement from the same year-ago period.
Despite a 7.1 per cent year-on-year (y-o-y) drop in gross revenue to $26.1 million in Q4 2009, CDLHT achieved a 14 per cent y-on-y rise in net property income to $24.7 million. This was due to lower property tax expenses (inclusive of a 40 per cent property tax rebate granted by the Singapore government last year) and lower other property expenses.
The latest Q4 distributable income reflects a distribution per unit (DPU) of 2.58 cents.
For full year ended Dec 31, 2009, CDLHT posted total distributable income of $75.8 million, a decline of 17.6 per cent from the preceding year. The trust is paying out a total of $71.7 million, reflecting a 94.6 per cent payout ratio. It is retaining the balance $4.1 million (which is tax-exempt income) to help fund future capital expenditure on its properties.
CDLHT had $5.7 million in cash and cash equivalents as at end-2009.
CDLHT, which pays distributions semi-annually, will be making a payout of 4.71 cents per unit for the second half of last year. The full-year 2009 payout works out to 8.57 cents, which translates to nearly 5.2 per cent yield based on the counter’s $1.66 closing price yesterday.
The trust, which was listed on the Singapore Exchange in July 2006, owns five hotels in Singapore – Orchard, Grand Copthorne Waterfront, M, Copthorne King’s and Novotel Clarke Quay – and Orchard Hotel Shopping Arcade. It also owns a hotel in New Zealand – the Rendezvous Hotel Auckland.
London-listed Millennium & Copthorne Hotels (M&C), as sponsor of CDLHT with a 39.5 per cent stake, has given a right of first refusal to sell its Singapore properties to the trust for a five-year period starting from CDLHT’s listing date in July 2006. M&C will open a new hotel, Studio M, in the Robertson Quay area around April.
M&C’s parent City Developments has a stake in the St Regis Singapore. Overseas, the trust’s acquisition strategy is dependent on where the deals emerge and ‘the markets where we’re seeing the most deals flow are Australia and Japan’, Mr Yeo said.
Singapore’s pool of hotel rooms is expected to increase by about 5,800 rooms or 17 per cent this year. Most of the additional supply will come from the two integrated resorts (IRs).
Achieving even a 0.5-night increase in the average length of visitor stay in Singapore will help to offset a large part of the additional supply in 2010, Mr Yeo argues.
The demand-pull factors in Singapore are escalating to a new plane with the opening of the IRs. With a mix of gaming entertainment, conference facilities and the Universal Studios theme park, ‘the IRs mark a significant step forward in Singapore’s transformation into a world-class travel destination and a preferred mono-travel destination’, the trust manager said.
Mr Yeo said that ‘gaming is somewhat addictive so you could see very frequent visits’ from visitors in neighbouring countries such as Indonesia and Malaysia.
The draw of the IRs should also help to convert some of the transit passengers at Changi Airport to visitor arrivals into Singapore.
‘Less than 7.4 million of a total of 37.2 million passengers passing through Changi Airport in 2009 would have visited Singapore,’ the trust manager noted.
FCT – OCBC
Goes the private placement route
Goes the private placement route. Frasers Centrepoint Trust (FCT) announced that it has raised S$182m through a private placement of 137m new units. The issue price of S$1.33 is at the top end of the indicated S$1.29 to S$1.33 price range. It is priced at a 5% discount to the last closing price of S$1.40. FCT said the placement was oversubscribed. The funds will be used to part-finance the acquisitions of YewTee Point (YP) and Northpoint 2 (NP2) from its sponsor. FCT will pay S$164.6m for NP2 and S$125.7m for YP, at 5.78% and 5.87% net property income yields respectively, based on FCT’s forecast of forward income.
Advanced distribution details. The new units are expected to be listed on 04 Feb and will be eligible to enjoy distributions thereafter. Existing units will receive an advanced distribution for the period from 01 Jan to 03 Feb. The manager currently estimates this amount at 0.71 S cents with the exact quantum announced later. The units trade ex-advanced distribution on 01 Feb with the distribution payable on or around 17 Mar.
Larger equity issue than expected. The equity fund raising (EFR) method was in line with our expectation and preference (more accretive). We had assumed an S$1.30 issue price. The amount of net proceeds raised is the biggest surprise. We had assumed FCT would fund the S$290 m acquisitions on the basis of 45-55 debt-equity – requiring net proceeds of roughly S$160m net proceeds. In contrast, the actual net proceeds of S$177.8m are roughly equivalent to 61% of the asset cost.
Strategic benefits. The acquisition of NP2 will combine what is physically one mall at the REIT level. The acquisitions will also increase FCT’s portfolio size by 25% to S$1.46b and further diversify the portfolio. Additionally, the placement is likely to increase free float and boost trading liquidity. Lastly, the increase in size and float may, in our view, raise FCT’s profile with institutional investors (thus benefiting retail investors).
Valuation. The manager expects the completion of the acquisitions to be no later than Jul 2010. Note we currently assume the acquisitions are completed on 01 Apr but, with the EFR out of the way, an earlier completion is increasingly likely. We are adjusting our estimates for the actual equity issue details. We increase our fair value estimate for FCT from S$1.47 to S$1.50 and upgrade our rating to BUY (12.6%
total return).
FCT – BT
FCT launches private placement
Reit to use proceeds to part finance its acquisition of malls
FRASERS Centrepoint Trust (FCT), a shopping centre real estate investment trust (Reit), yesterday launched a private placement of 137 million new units to part finance its acquisition of Northpoint 2 and Yew Tee Point malls.
The issue price range is $1.29 to $1.33 per new unit, which will generate gross proceeds of $176.7 million to $182.2 million. The actual issue price will be determined after a book-building process.
Of these sums, $173.3 million to $177.8 million will be used to pay for the two malls, which are costing FCT about $295 million in total, inclusive of transaction costs. The rest will be funded by debt.
The issue price range of $1.29 to $1.33 per new unit reflects a discount of 3.7 per cent to 6.6 per cent to the adjusted volume-weighted average price of $1.3805 per unit for trades done on the full market day on Jan 25. Trading in FCT units was halted yesterday.
The manager of FCT has appointed DBS Bank as the sole financial adviser and Citigroup Global Markets Singapore and DBS Bank as the joint lead managers and underwriters of the private placement.
Existing unitholders will receive an advance distribution per unit of about 0.71 cent for the period from Jan 1, 2010 to the day immediately before the date of issue of the new units under the private placement.
The books closure date for the advance distribution will be Feb 3 at 5pm.
FCT has in place a range of loan facilities which it may use to part finance the purchase of Northpoint 2 and Yew Tee Point.
These include a total of $185 million in unutilised bridge loan facilities as well as a total of $1.165 billion that remains untapped under two separate multi-currency medium-term note programmes.
The trust – which currently owns Causeway Point in Woodlands, Northpoint in Yishun and Anchor Point in the Queensway/ Alexandra Road area – will see its gearing increase from about 30.4 per cent as at Jan 1, 2010 to 33.2 per cent after the acquisition of the two malls.
The value of the trust’s deposited property is expected to increase by 25.2 per cent from about $1.167 billion as at Jan 1 to $1.462 billion.
AIMSAMPIReit – BT
AIMS AMP to pay special distribution
AIMS AMP Capital Industrial Reit yesterday said a special distribution of 0.95 cent a unit will be paid on March 23. Unitholders with units in their CDP account as at Nov 30 will be entitled to the special distribution with the exception of 221.4 million units issued to AMP Capital Investment and cornerstone investors on Nov 24, ’09.
AIMS AMP Capital Industrial Reit changed its name from MacArthurCook Industrial Reit on Dec 24 following a recapitalisation exercise and the appointment of AMP Capital Holdings as co-sponsor.
The recaptalisation exercise was bitterly opposed by minority unitholders and Cambridge Industrial Reit, which had bought a close to 10 per cent stake after the announcement of the exercise.
They were upset that the deal diluted their holdings severely and was too favourable to new investors as AMP, the various cornerstone investors, and then sponsor AIMS Financial Group. CIT used its units to mount a week-long campaign to get unitholders to reject the refinancing proposal. It wanted unitholders to vote for CIT to manage the Reit instead.
But just days before a crucial meeting to vote on the proposal, CIT said the Monetary Authority of Singapore had blocked its plan to manage both Reits due to a possible conflict of interest.