Month: April 2010
A-REIT – Daiwa
Soft occupancy remains a concern
What has changed?
• Ascendas Real Estate Investment Trust (AREIT) announced its 4Q FY10 results on 19 April 2010. The distribution per unit (DPU) of 2.73¢, down 16.6% QoQ, was 10.8% below our forecast.
Impact
• Net-property income (NPI) was 8.7% below our forecast on lower-than expected revenue (due to a lower overall occupancy rate of 95.7% as at 31 March 2010 versus 96.5% as at 31 December 2009, and the decommissioning of 1 Senoko Avenue for redevelopment) and higher-than-expected expenses due to the expiry of the property-tax rebates, and higher utilities and ad-hoc maintenance charges.
• After fine-tuning our assumptions, we have revised up our DPU forecasts by 0.5% for FY11 and 1% for FY12. We have also revised down our net-property income (NPI) forecasts by about 1%, but have also adjusted downward our finance-cost assumptions by about 8% after the manager locked in its borrowing costs for the next 3.1 years at 3.94% p.a. (fixed rate). It also redeemed €165m of CMBS ahead of its expiry in 2012, and issued S$300m of 2015 exchangeable collateralised securities (ECS) at a coupon of only 1.6%.
Valuation
• We have raised our six-month target price, based on parity with our RNG valuation (a finite-life Gordon Growth model) slightly, to S$1.68 (from S$1.66). We have not changed our effective cap-rate assumption of 7% (consisting of an assumed discount rate of 8.5% and an internal growth rate of 1.5%).
Catalysts and action
• We maintain our 4 (Underperform) rating for AREIT, which trades at a price to to NAV (as at 31 March 2010) of 1.26x. We regard the FY11 DPU yield of 7.0% as rich, considering that the prevailing cap rate for the portfolio is also about 7%. We believe AREIT has room for some acquisitions, but with an overall occupancy rate (91.2% for its multi-tenanted properties versus 93.1% in previous quarter) that still appears delicate (in our opinion) and some refinancing requirement for FY11, we expect the manager to tread cautiously during this recovery phase.
CMT – DBSV
Revving all engines
At a Glance
• Results in line
• Revving organic and AEI growth drivers
• Maintain Buy, TP $2.02
Comment on Results
Results in line with street estimates. 1Q10 revenue was up 3.4% yoy to $139.1m while NPI grew a better 5.7% to $97.7m on lower expense ratio of 30%. Distribution income (after retaining $9.5m of income and CRCT dividend) increased 13.6% yoy to $71.1m on lower interest cost. During the quarter, 132,107sf NLA (4.3% of total) of space were renewed at an average 6.2% higher rate than previously while occupancy slipped marginally to 99.4% due to the termination of a mini-anchor tenant at Plaza Singapura.
Revving all engines. Looking ahead, earnings will be driven by organic rental hikes, AEI and new acquisitions/ developments. As in 1Q10, leases are re-contracted at higher levels and we believe this trend could continue given the improving economic outlook. In addition, progressive completion of AEI works at Raffles City basement, J8 and Tampines Mall from 2Q10 onwards and the rebuilding of JEC by early 2012, would provide new fuel to grow income stream in the medium term. The purchase of Clarke Quay, at NPI yield of 5.6%, could add an estimated 0.1cts to FY10 DPU. On the capital management side, recent issues of S$200m and US$500m MTN helped to diversify its funding sources, extend maturity profile as well as unencumber assets. The group would also focus on rolling over $1.057b worth of loans and CBs that are due in 2011.
Recommendation
Maintain Buy, TP $2.02. We maintain our Buy call on CMT with a TP of $2.02, translating to a total return of 13.6%. In addition to good organic growth prospects, we believe CMT is well placed to acquire new assets or development activities with a strong balance sheet and low gearing of 34.7%. These have not been factored into our current valuations and could provide further upside to our numbers when actualized.
CMT – DMG
No surprises in earnings; fully valued
1Q10 results moderately below expectations. CMT reported 1Q10 DPU of 2.23¢ (+13.2% YoY; -7.1% QoQ) on higher gross revenue from the full contribution of Sembawang Shopping Centre following its asset enhancement works. Annualised DPU came in at 9.04¢, which is 4% below ours and street’s estimates of 9.4¢. We, however, believe CMT will see sequential improvement in its DPU over the next few quarters in view of positive rental reversions for its other properties as well as the distribution of the S$9.5m retained earnings. CMT will trade ex-1Q10 distribution on 27 April 2010. CMT trades at an unexciting yield of 4.9%, justifying our NEUTRAL view on the counter with a DDM-derived TP of S$1.90.
Retained S$9.5m from its distributable income. Had that amount been distributed, CMT’s DPU would have been 0.29¢ higher. Management decided to err on the side of caution by retaining part of its distributable income, given that the bulk of the leases due to expire this year were locked-in at a high rate during the heydays of 2007. Management cautioned that achieving positive rental reversions for those expiring leases may be challenging in 2H10.
Portfolio occupancy stable; asset enhancement in the works. CMT’s portfolio occupancy remained relatively unchanged at 99.4%. Unitholders have approved the acquisition of the S$268m Clarke Quay mall, which we believe will be mildly yield accretive (adding 0.11¢ to FY10 DPU). Asset enhancement works for Raffles City and Jurong Entertainment Centre are on track for completion by end-2010 and early 2012, respectively. To date, 70% of Raffles City’s NLA that will be created on Basement 1 & 2, has been committed.
Maintain NEUTRAL rating. While we continue to recognize CMT’s impeccable mall management expertise, valuations for the counter appear rich compared against its historical heyday yield of 5.7%. We believe CMT is in good position to undertake acquisitions owing to its strong balance sheet and low cost of equity. We have, however, not factored any acquisitions into our assumptions. Without accretive acquisitions, we believe the stock is fully valued.
CMT – CIMB
Mixed signals
• DPU in line; maintain Neutral; target price raised to S$1.93 from S$1.91. 1Q10 results met Street and our expectations. DPU of 2.23cts forms 24% of our full-year estimate. We adjust our assumptions to include S$6.8m of capex for Junction 8 and Tampines Mall and S$700m of Euro-medium-term notes issued this month. Our DPU estimate falls by 2% for 2010 but increases by up to 3% for 2011-12 as contributions from asset enhancement flow in. Our DDM-based target price (discount rate 8.1%) rises to S$1.93 (from S$1.91) as a result. Improving retail sales and an anticipated jump in tourist arrivals this year augur well for CMT. However, in the course of recovery, there could be bouts of volatility particularly for malls in central areas where supply has increased. As a result, maintain Neutral on the stock.
• Opex could rise in 2H10. Available income for distribution was S$80.6m in 1Q10. Some S$9.5m has been retained on the side of caution in view of a record number of leases due for renewal in 2H10 (60% of the total due this year), and an anticipated rise in utility costs with rising oil prices. Nonetheless, management is committed to a 100% payout for the year. If the full S$80.6m were paid out, 1Q10 DPU would have been 2.53cts, or 28% of our full-year forecast.
• Mixed signs for retail sales. Net property income grew 5.7% yoy to S$97.7m, attributed mainly to full contributions from Sembawang Shopping Centre following asset enhancement work in Dec 09, lower interest cost after a repayment of borrowings in 2009 and higher rental rates for new and renewed leases. Average growth rate of lease renewals in 1Q10 was 2% per year, a stark improvement from the average 0.8% in FY09. There were also higher GTO contributions in more trade categories than a year ago. Nonetheless, the improvement was tainted by the closure of Barang Barang in Plaza Singapura due to liquidation. Separately, retention rates in Raffles City were exceptionally low at 20% (vs. a portfolio average of 73.4%) in the quarter due to an active change of tenants.
A-REIT – DMG
Earnings below expectations due to one-off fees
4QFY10 results below with expectations. A-REIT reported 4QFY10 DPU of 2.73¢ (-15.5% YoY; -16.5x% QoQ), representing 20% of our FY10 DPU forecast of 13.62¢. A-REIT registered an FY10 DPU of 13.1¢. Earnings were below ours and street’s forecasts due mainly to the one-off upfront fees for certain loans that were amortised. Had these fees been amortised over the tenure of the loan, A-REIT’s 4QFY10 DPU would have been 0.35¢ higher, at 3.08¢ instead. This would have brought its FY10 DPU in-line with ours and street’s forecasts. A-REIT will trade ex-4Q10 distribution on 23 Apr 2010. At our TP, A-REIT offers a yield of 6.2%, a reasonable peg in our view. Maintain NEUTRAL.
Occupancy fell marginally; redevelopment of 1 Senoko Avenue. Reflecting the stabilisation in global demand, A-REIT’s portfolio occupancy declined marginally to 95.7% from 96.5% in 3QFY10. For its multi-tenanted properties, occupancy moderated to 91.2% from 93.1%. Following the repossession of 1 Senoko Avenue, this property will be redeveloped in two phases to fully utilize its permitted plot ratio (from the current 0.6x to 2.5x) and will target potential tenants in the food processing industry.
Focus on built-to-suit and other acquisition opportunities. With a gearing of about 32%, A-REIT has significant dry powder to undertake acquisition and development projects. 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. A marginal revaluation deficit of S$53.7m (-1.1%) was booked. This has no impact on the distribution. Management has guided for a flat year in FY11. We maintain our FY11 DPU forecast of 13.7¢ as dividends are well supported by the long-term leases. A-REIT trades at an FY11 yield of 6.9%. Should we factor a more bullish yield peg of 6%, A-REIT’s recursive fair value would be S$2.28, an upside of 15%. Maintain NEUTRAL. Buy on dips.