Month: July 2010
LMIR – OCBC
DPU disappoints on higher tax expenses
NPI in line. LMIR Trust (LMIR) reported 92% YoY and 72.5% QoQ gains in 2Q revenue to S$40.1m, this as LMIR collected additional income from services charges receipt and utilities cost recovery on seven of its retail malls with the 31 Dec expiry of the operating costs agreement in place at listing. That additional income was offset by the additional costs incurred, relating to the maintenance and operation of the malls. 2Q10 reflects the full six months effect for 1H10 due to a delay in the transfer of operations. Net property income of S$21.6m was up 17% YoY and 6% QoQ, boosted by the strong Indonesian Rupiah (IDR) against the Singapore Dollar (SGD). NPI was in line with our S$21.6m estimate in both SGD and IDR terms. Retail mall occupancy improved 360 bps to 97.4% from three months ago; this is significantly higher than the market average of 82.7%. LMIR is leveraged at 10.3% debtto-assets as of 30 Jun.
But DPU disappoints on tax. 2Q10 DPU fell 20% YoY and 13% QoQ to 1.04 S cents. The manager attributed this to the appreciation in the IDR, which has caused the gap between the hedged rate on distributions and the physical rate to reverse unfavorably in the last four quarters. LMIR booked a realized (cash) forex loss this quarter of S$2.4m versus a loss of S$1.7m in 1Q10 and a realized gain of S$1.2m in 2Q09. This is likely to be a continuing issue as we estimate 3Q’s hedged rate is roughly 15% higher (unfavorably) than current levels. While we had expected the forex impact, DPU was 14% below our 1.21 S cents estimate due to actual tax expense of S$5.5m versus our S$3.6m estimate. The manager explained that it is now incurring revenue tax on the additional service charge and utilities income. It is exploring options to increase tax, and also operational, efficiencies.
Valuation. We have adjusted our earnings estimates to reflect the additional service charge and utilities income and additional operating expenses; we also incorporate actual 1H10 results. Additionally, we have adjusted our tax estimates upwards. On the plus side, we have increased our occupancy estimates. Our FY10-11F DPU estimates fall 11.5% and 12.6% to 4.4 S cents and 4.5 S cents. Finally, our fair value estimate (at an unchanged 20% discount to SOTP value) falls to S$0.52 from S$0.55 previously. With an estimated total return of 14%, maintain BUY on valuation grounds.
MLT – CIMB
Strengthening foothold in Japan
Three more Japanese logistics centres in the bag
Maintain Neutral; target price raised to S$0.89 from S$0.86. MLT announced that it has entered into a binding MOU to acquire three Japanese logistics centres located in the Kanto region of Greater Tokyo for S$200m and an initial net yield of 7.3%. MLT’s acquisitions this year total S$386m, exceeding our forecast of S$357m. We increase our acquisition assumption by S$114 to a total of S$500m for this year, though we continue to assume that there would be some equity issuance for sizeable acquisitions after this as gearing (43.6% after the acquisition) threatens to cross management’s comfort threshold of 45%. Our FY10-12 DPU estimates increase by 2-3% and our DDM-based target price rises accordingly to S$0.89 from S$0.86 (discount rate 8.6%). However, we foresee that organic growth potential will be limited while significantly accretive acquisitions might be difficult to come by given its large portfolio size. Maintain Neutral. We expect re-rating catalysts from announcements of more sizeable accretive deals and positive rental reversions after converting single-user buildings to multi-user ones.
Purchase consideration of S$200m (¥13bn) for three assets. The vendor of the three assets is Kabushiki Kaisha A-Max, a logistics facility development and management company. Initial net property yields are 7.3% for a single net lease structure (net of maintenance expense). However, we anticipate that net yields to MLT would be watered down to about 5.4% after a 20% Japanese withholding tax. This is moderately more attractive than yields from its existing Japanese portfolio of 5%. After this acquisition, management expects asset leverage to rise to 43.6%
Long lease term. The three assets have been 100% leased for the next 8-10 years. Two of the properties, Iwatsuki Logistics Centre and Iruma Logistics Centre, have remaining 8-year leases with a major 3PL logistics player Oji Transportation; while Noda Logistics Centre will be leased to Izu Express Trucking, a logistics service provider, on a fresh 10-year lease.
Valuation and recommendation
Increasing our acquisition assumptions. Earlier, we had assumed S$357m of acquisitions for FY10. Our assumption has been exceeded by S$29m after this acquisition. In view of the manager’s ambition to ramp up acquisitions, we raise our acquisition assumption by S$143 to a total of S$500m for this year. We continue to believe that there will be some equity issuance for sizeable acquisitions after this as gearing threatens to cross management’s comfort threshold of 45%. Our DPU estimates increase by 2-3% for FY10-12 after the change and our DDM-based target price rises accordingly to S$0.89 from S$0.86 (discount rate 8.6%). We believe that distribution from MLT will remain stable with increased contributions from a stable market like Japan. However, we foresee that organic growth potential will be limited
while significantly accretive acquisitions might be difficult to come by given its large portfolio size. Maintain Neutral.
CDL H-Trust – Phillip
• 2Q10 revenue of $30.7 million, net property income of $28.7 million, distributable income of $24.1 million
• 2Q10 DPU of 2.57 cents, 1H10 distribution of 4.89 cents
• Maintain Hold, fair value of $1.93
CDL HT recorded 2Q10 revenue of $30.7 million (+51.9 % y-y, +15.4% q-q), net property income of $28.7 million (+49.2% y-y, +16.1% q-q) and distributable income of $24.1 million (+38.7% y-y, +11.6% q-q). $2.41 million was retained for 2Q10 and total income retained in 1H10 was $4.57 million. DPU for the 2Q10 was 2.57 cents (+36.0% y-y, +10.8% q-q). The trust will be paying out 4.89 cents for 1H10. The improved performance was on the back of sustained growth in the tourism sector as well as full quarter contribution from the Australia hotels (acquired in Feb 2010).
The Singapore portfolio experienced a strong performance. Revenue grew 32.7% from a year ago. Improved performance was seen across all the Singapore hotels. Occupancy for the Singapore hotels was 88.5%, up almost 14 percentage points from 1Q09 where the lowest was recorded during the recession. RevPar (Revenue per available room) also rebounded to $195. Revenue from the Orchard Hotel Shopping Arcade was flat, with occupancy rate held steady at 81%. The Australia properties contributed a full quarter revenue of $4.4 million while the New Zealand property accounted for $2.1 million. Percentage breakdown of the gross revenue is Singapore; 78.7%, Australia; 14.4%, New Zealand; 6.9%.
CDL HT raised gross proceeds of $200 million in a private placement earlier this month and $196.5 million was used to repay debt. It now has total debt of $326.4 million with gearing at 18.6%.
CDL HT has benefitted from the rebound in the tourism sector. Tourist arrivals continued to register double-digits growth from a year ago. The increase in tourist arrivals had translated into higher hotel occupancy and RevPar. CDL HT performance is very much in-line with the market statistics. For the 1H10, CDL HT is slightly ahead of the industry average with occupancy rate of 86.4% and RevPar of $185 against the industry’s occupancy and RevPar average of 85% and $174.
We continue to have an optimistic outlook on the tourism sector and think y-y growth will last through the year. We like CDL HT for its positioning in the sector and also its lightened balance sheet which will enable it to capitalize on acquisition opportunities. We adjusted our FY10E revenue and DPU up slight by 1% and 0.6% to reflect the positive outlook. However we think CDL HT is fairly value with the recent run-up in price and we are maintaining our Hold recommendation with fair value of $1.93.
CDL H-Trust – CIMB
More legs to run
• In line; maintain Outperform and DDM-based target price of S$2.04 (discount rate 8.6%). 2Q10 results were broadly in line with Street and our expectations as we anticipate a back-loaded 2H10. 2Q10 DPU of 2.57cts (after deducting income retained for working capital) forms 23% of our full-year estimate and 25% of consensus. 1H10 DPU of 4.89cts for distribution is also broadly in line (45%). With dividend yields compressed to 5.6%, we believe accretive acquisitions are impending with the likely target markets being Singapore, Japan, Vietnam and India. We also believe REVPAR could grow further and expect BTMICE to be the next propeller beyond 2010, providing stock catalysts.
• 45% REVPAR growth. 2Q10 DPU was up 35.7% yoy on sharp increases in both occupancy and average room rates in Singapore hotels. Occupancy at 88.5% (+13.1% pts yoy) and average room rates at S$220 (+23.6% yoy) lifted REVPAR to S$195 (+45.4% yoy). More significantly, the growth in 2Q10 room rates was 24% vs. +3% in 1Q10 as occupancy edged closer to 90%. Average room rates of S$220 were 14% shy of CDLHT’s last peak of S$255. Management shared that weekend occupancy, typically much weaker than weekday occupancy, had also swelled to the mid-80%, with weekday occupancy way over 90%.
• BTMICE to spur next leg of growth. While increased corporate and leisure travel has boosted REVPAR substantially, we believe there is room for further organic growth, which should come from the BTMICE segment from 2011. Typically, event and convention organisers delay forward bookings until they have sighted convention venues. We believe forward bookings will ramp up as both Marina Bay Sands and Resort Worlds gradually open up their remaining sections over 2010-11. With anecdotal occupancy of hotels in both resorts at market levels, there should be good spillover demand for CDLHT’s hotels.
MLT – OCBC
Acquisition frenzy continues
Announces more acquisitions. Mapletree Logistics Trust (MLT) announced its intention to acquire three distribution centers in the Kanto region (Greater Tokyo) of Japan. MLT has signed a binding Memorandum of Understanding with the vendor – a logistics facilities development and management company. The three assets are on long-term leases of between eight and 10 years. The purchases are expected to be completed by end 3Q10.
Financed fully through debt. The total acquisition cost is estimated at JPY13b or S$201m. The properties will be acquired at an average initial NPI yield of 7.3%, compared to an average implied property yield of 5.0% on MLT’s existing Japan portfolio. The purchases will be fully funded by debt, increasing MLT’s leverage to approximately 43.6% debt-toassets. On a pro forma basis, the manager expects an accretion of 0.33 S cents (+5.5%) over the annualized 1H10 DPU of 6.0 S cents. Note MLT estimates that accretion drops to +0.01 S cents (+0.2%) if the acquisitions were 60% equity financed at an issue price of S$0.84, a 5% discount to the current price.
Equity issue likely, in our view. Since Dec 09, the manager has announced or completed S$430m of acquisitions, all financed by debt. We note that MLT is fast approaching its 45% medium-term leverage target. At the same time, MLT looks far from sated with its acquisition spree (in our opinion), with both sponsor and third party assets up for grabs. As such, we believe equity fund-raising (EFR) is likely in the next six to 12 months, and sooner rather than later. At the recent 2Q10 analyst briefing, the manager indicated that any potential EFR is likely to take the form of a private placement, citing the faster / more flexible time frame and lower discount versus rights issues. MLT can issue up to 20% of its existing unit base through a private placement. The manager also emphasized that the purpose of any EFR would be to allow MLT to continue to grow rather than to de-leverage.
DPU estimates adjusted upwards. We have adjusted our earnings estimates to account for the impact from these acquisitions with contributions estimated from 01 Oct 2010 onwards. This raises our FY10-11F DPU estimates by 1.7% and 5.5% respectively to 6.3 S cents and 7.0 S cents. Our fair value estimate is also up from S$0.86 previously to S$0.89. With uncertainty about the timing and quantum of any EFR, and an estimated total return of 7.7%, we maintain our HOLD rating on MLT.