Month: February 2010
CRCT – JPM
Portfolio still a work-in-progress
• FY09 results in line. CRCT announced FY09 DPU of S$0.0814/unit after retaining 1.1% of income, annualizing 6.8% yield and is in line with J.P. Morgan and consensus estimates, thanks to effective cost cutting and lower interest expense. Portfolio was revalued up in RMB terms by 1.2% to RMB5.7bn, 6.3% passing yield. Stock will trade ex-2H09 DPU of S$0.0406/unit on 8th March.
• Shift in leasing strategy. Management indicated that the negative rental reversion for 2H09 is partly due to the trust’s strategic move towards a lower base rent but a higher turnover component lease structure. Total gross revenue did increase 2.9% Y/Y on a SSS basis. The new lease structure, in our view, would allow the trust to be more competitive in rent negotiations, but introduced a lot more volatility in earnings. We also estimate that overall rental will increase only if the revise GTO rent component equals to previous base rent.
• Still a work-in-progress portfolio. With management still trying out different lease structures and also different tenant mix, we see CRCT’s portfolio still a work in progress. The operating performance is likely to be unexciting for the next 2 quarters in our view. Therefore, we have revised our FY10E – FY12E DPU estimates down by 3-5%. In addition, given management is unlikely to acquire assets from CMA, we have retained our long-term growth rate at a lower level of 3%.
• We retain our Neutral rating, but reduce our Dec-10 DDM based price target to S$1.25/unit as we lower our earnings estimates. Key risks to our rating and price target include surprises on operating fundamentals both on the upside or downside; and the uncertain timing of the introduction of China REIT code, which is likely to support or even lift up the valuation of the trust.
CDL H-Trust – Phillip
Acquisition
• Buys 5 hospitality properties in Australia at a purchase consideration of A$175 m
• Fixed rent portion from properties more than 90%, providing more stability to overall portfolio
• Gearing increases approximately to 30.0%
• Maintain hold recommendation, fair value raised to $1.96
Acquisition
CDL HT announced that it has entered into sales and purchase agreements to purchase 5 hospitality properties located in Australia for a purchase consideration of A$175 million (S$220.9 million). The purchase price is 8% below the market valuation of A$190.4 million. The properties come with a relatively long term lease agreement which expires in 2012 and rental comprises of a fixed component and a variable component. The lessee will pay an annual fixed rent of A$13.7 million and 10% of excess net operating profit. The fixed rent portion is approximately 93% of total rent.
With the addition of the Australia properties, the portfolio now consists of 80% Singapore properties, 14% Australia properties and 6% New Zealand properties. Revenue contribution from Singapore will decrease from 90% to 79%, New Zealand revenue will decrease from 10% to 8% while Australia will contribute 13% to total revenue.
The properties are acquired at a net property yield of 8.4%, which will bring accretion to the portfolio pre-acquisition net property yield of 5.4%. The properties are purchased at a cost of A$153,600 per key, in contrast to the replacement cost estimated by CBRE and Davis Langdon Australia Pty Ltd of A$376,000 – A$449,000 per key. The properties have achieved an average occupancy of more than 80% from 2007 to 2009. Average RevPAR for the properties in 2009 was A$116.
Funding
The acquisition is to be wholly debt funded through an equal weightage of AUD loan and SGD loan. The loan is funded by a multi-currency bridging facility that has a maturity period of one year. We estimate total loans will increase to $524.6 million. Gearing post acquisition will rise to 30%.
Financial Impact
With the contribution from Australia, the portfolio income stream is strengthened, as the minimum rent income will increase from 50% to approximately 56%. The addition also diversifies the geographical concentration. We think that CDL HT has made a good acquisition, considering the stability it brings to the overall portfolio and the attractive valuations of the properties. The initial portfolio has almost 90% of revenue contribution from Singapore and there is a lot of optimism built into Singapore tourism industry. The revenue stream from Australia will buffer the impact if the optimism fails to materialize. We add in the contribution to our projections, which, gives us a revenue growth for FY10E of 29.3%. Our adjusted DPU forecast for FY10E is 9.9 cents, up from our initial forecast of 9.02 cents. We raised our fair value to $1.96 and maintain a hold recommendation.
CRCT – DBS
Steady retail revenues
At a Glance
• 4Q09 DPU of 2.04 Scts in line
• Balance sheet metrics stable, gearing at 33.6%
• c26% of its FY09 revenue base up for renewal in FY10
• Maintain HOLD, TP adjusted to S$1.22.
Comment on Results
4Q DPU of 2.04 Scts in line. CRCT 4Q09 results were in line with our expectations. Gross revenues and net property income were 5.3% and 0.8% lower yoy at S$29.6m and S$20.3m respectively. The weaker performance was mainly due to weaker RMB and S$, tenant remixing activities at Wangjing mall coupled with lower performance from Saihan Mall as its AEI activities are still underway. Income available for distribution grew a marginal 1.3% to S$12.9m.
Book NAV of S$1.04. The trust also revalued up its book value by 1.2%, gearing levels remained the same at 33.6%, interest cover is high at 8.0x.
Performance should remain stable in 2010. While occupancy levels remained relatively stable at 95%, rental reversions at Wangjing (-4.9%) and Xizhimen (-3.3%) continued to be negative in 4Q09 due to tenant remixing but declines narrowed when compared to a year ago. Performance was somewhat offset by stronger performance at Xinwu Mall (+61.9%). Looking ahead, CRCT will be (i) renewing 23.5% of its space in FY10F; of which the majority will be from Xizhimen, Saihan and Wangjing malls.
Recommendation
Maintain HOLD, TP S1.22 based on DCF. While we like CRCT for exposure into China’s consumption and urbanization story in the longer term, we see limited upside to our target price at current levels. Our TP is adjusted upwards as we roll forward our numbers.
K-REIT – BT
K-Reit buys half of Brisbane office block for A$166m
K-REIT Asia has bought a 50 per cent stake in an office building in Brisbane, Australia, its first acquisition outside Singapore.
It paid Charter Hall Opportunity Fund No 4 A$166 million (S$206.5 million) for the stake in the Grade A commercial building, the same as its appraised value.
The seller has also signed an income support agreement until 2012 that will top up the difference between actual cashflows and a guaranteed net cashflow of A$12.8 million a year.
The building at 275 George Street was completed in April last year and comprises 40,317 sq m of office space over 30 floors plus 1,431 sq m of retail space. K-Reit said it was 99.4 per cent leased and two Australian corporations, Telstra and Queensland Gas, have 10-year leases.
Ng Hsueh Ling, chief executive of K-Reit Asia Management, said the acquisition will add 10 per cent to K-Reit Asia’s asset size, or from $2.1 billion to $2.3 billion. The building is expected to be immediately yield accretive and has a weighted average lease expiry (WALE) of 9.4 years. This will extend the WALE of K-Reit’s present portfolio to 5.9 years from 5.2 years.
K-Reit said the purchase will be funded entirely by proceeds from its recent rights issue, which will improve aggregate leverage from 27.7 per cent as at Dec 31 to 25.2 per cent after the deal is completed this quarter.
K-Reit recently reported distributable income for the fourth quarter increased 11.4 per cent to $19.4 million. For the full year, distributable income to unitholders increased 21.1 per cent to $70.5 million. It said then it was considering buying a stake in Marina Bay Financial Centre from parent Keppel Land.