Month: July 2010
CDL H-Trust – DBSV
Approaching blue skies
• 2Q10 results a prelude to stronger 2H10
• Acquisitions are likely. Assumed S$150m in our models
• Maintain BUY with revised TP of S$2.14
2Q10 a strong quarter. 2Q results were in line. Gross revenue increased 51.9% yoy to S$30.7m boosted by the robust portfolio performance and added contributions from Australian portfolio. Net property income rose by an encouraging 43% yoy to S$20.6m. 2Q RevPAR grew to S$195 (+45% yoy, 6% qoq). Income available for distribution came in at S$21.7m (DPU of 2.87 Scts), before retained income for working capital purposes. For 1H10, CDL HT will be distributing 4.89 Scts.
With continual room rate hikes, CDL HT will reach previous RevPAR peaks of S$222/night in 2011. We expect continued demand squeeze for rooms in 2H10 on the back of upcoming events, Youth Olympics Games and Formula One. Its hotels are relatively full at average occupancies of 89%. Hence CDL HT will deliver stronger earnings through incremental room rate hikes. In addition, FY11 earnings will benefit from the renewal of CDL HT’s global corporate accounts, which were locked in at low average rates back in Sept-Nov’09. Hence, we raised FY11 RevPAR growth to 15% (from +12% currently) in anticipation of higher secured rates.
Geared for growth – assuming S$150m worth in acquisitions by end 2010. Management is on the lookout for assets (in Singapore, Japan as well) and we expect the trust to make the acquisitions within the next 6 months. Studio M, currently held by its sponsor is a likely target, as the hotel is currently operating at >90% occupancies and room rates of S$150-S$170 per night. We have assumed asset injection of S$150m @ 6.5% yield, funded by debt.
BUY, TP adjusted to S$2.14. We raised our TP to S$2.14 (from S$2.03 previously) on higher FY11 earnings with new acquisition assumptions. We strongly believe that CDL HT is at the beginning of a multi-year secular recovery in the local tourism sector. Execution on acquisitions will drive earnings growth and act as future catalysts for the stock. Stock offers an attractive FY11 yield of 6.5%
CDL H-Trust – DMG
Experiencing supernormal organic growth
2Q10 results beat street’s expectations. CDLHT reported 2Q10 DPU of2.87¢ (+38.6% YoY; +11.2% QoQ), in-line with of our FY10 DPU forecast of 11.1¢ but 10% above street’s forecasts of 10.3¢. Net property income surged 49% YoY to S$28.7m on the back of higher RevPARs achieved for all of its hotel properties. RevPAR rose 45% YoY (above our 30-43% estimates) due to a 13ppt surge in occupancy to 89% and 24% rise in average daily rate of S$220. Maintain BUY, DDM-derived TP of S$2.30. Our top S-REIT pick.
1m visitors in July – a banner figure for the media. Visitor arrivals continued to power ahead, surging 27% in June, chalking 7 consecutive months of record visitor arrivals. Judging from the current growth momentum, we expect Singapore visitor arrivals to cross the 1m figure in July (possibly even hitting 1.1m) – a banner figure for the media. The Singapore Tourism Board (STB) is expected to publish those figures between 25-27 Aug. We expect the pipeline of events such as the inaugural Youth Olympic Games (August) and Singapore Grand Prix (September) to augment the buzz within the sector; hence creating significant euphoria and engendering further yield compression for CDLHT. According to management, STB was sanguine that visitor arrivals may even surpass current expectations of 11.5-12.5m visitors for 2010.
Acquisition on the cards; Studio M hotel could be next. Management hinted that they may undertake another acquisition within a few months and Studio M hotel could be its top acquisition choice given the shorter-than expected gestation of Studio M; with occupancy over 90% and ARR of ~S$170. CDLHT is also on a lookout for hotels in Japan which offer yields of 6-7%.
Maintain BUY; our top S-REIT pick. We maintain our TP of S$2.30, in view that strategic acquisitions will likely boost longer-term DPU growth potential. Recent cash call confirms management’s interests in undertaking strategic acquisitions within the next few months. Stock trading at attractive FY11 yield of 6.4%.
CCT – BT
Is CCT saving cash hoard for Market Street Car Park?
CAPITACOMMERCIAL Trust (CCT) reiterated last week that it will not distribute a special payout to unit-holders when it completes its $380 million sale of StarHub Centre in September. Likewise, it did not return proceeds to shareholders when it completed the sale of Robinson Point in April.
The trust has said it is setting aside the net cash proceeds from these two divestments – totalling about $577.5 million – for future acquisitions and to reduce debt.
On the debt front, CCT can choose to refinance debt when it falls due, given its current gearing ratio is relatively low at about 33 per cent.
As for acquisitions, the trust has thus far found it difficult to buy office blocks. In fact, it has been selling office blocks which it believes have reached the optimal stage of their life cycle as office assets – such as Robinson Point and StarHub Centre.
CCT’s manager says it is keen to increase its exposure to the Singapore Grade A office sector. But buying such assets in today’s market is not easy for a Reit, as owners of Grade A office buildings are pricing the recovery in rents into their asking prices. As a result, the yields on these properties are not high enough to generate accretion for a Reit if it were to buy such expensive assets.
Given this challenge, some analysts think that instead of keeping its cash for future acquisitions, CCT could be saving it for something else – perhaps to re-visit plans to redevelop Market Street Car Park into a Grade A office project.
It was in January 2008 that CCT first disclosed it had obtained outline planning permission (OPP) from the Urban Redevelopment Authority to redevelop Singapore’s first multi-storey car park into a new office tower with gross floor area of about 850,000 sq ft and a maximum plot ratio of 14.49. It estimated the total cost then at $1-1.5 billion.
But the global financial crisis struck – and Singapore office rents started to slide. In January 2009, CCT’s manager announced its decision to abort the redevelopment plan, citing the uncertain market outlook and tight credit conditions, as well as high development cost and significant project size.
Quizzed about the possibility of re-visiting the Market Street plan at CCT’s second-quarter results briefing last week, CapitaCommercial Trust Management chief executive Lynette Leong said the OPP had lapsed, but added that the group continually reviews its assets. She also said that the Market Street property is generating an attractive net yield of more than 8 per cent based on its $47 million valuation as at June 30, 2010, thanks to a shortage of CBD parking lots. The yield surpasses that for office space.
However, some analysts think that the time could be right for CCT to make a fresh planning application to redevelop Market Street Car Park into offices. And approval from authorities should again be forthcoming. For one, there is concern among property consultants about a potential shortage of new prime Grade A office space post-2012. The redevelopment of Market Street Car Park into offices could help alleviate this to some extent.
Redeveloping the property will mean the loss of 704 CBD parking lots that provide season and hourly parking. But of course, the authorities could always require CCT to reinstate this supply in its new project. And some relief will come soon from 250 public parking lots – for hourly parking – that will be ready by October this year underneath the Lawn @ Marina Bay, which is part of the Marina Bay Financial Centre project.
Standard Chartered Equity Research estimates the cost of redeveloping Market Street Car Park has fallen from 2008, probably to $1 billion to $1.1 billion today, given lower construction costs and development charges now. ‘If the Grade A office building (about 850,000 sq ft) conversion is completed by 2015 and rented for $10-14 per sq ft a month, the yield on cost would be about 6-8 per cent and development profit would be 6-25 cents per unit,’ it said.
Given CCT’s $6 billion asset size and the rule that development properties must make up no more than 10 per cent of a Reit’s asset size, CCT will no doubt have to seek the appropriate structure to undertake the development, perhaps jointly with parent CapitaLand.
A cash hoard will come in handy for such a venture.
MLT – CIMB
Temporary occupancy weakness
• In line; maintain Neutral. 1H10 DPU of 3cts met Street and our expectations, forming 49% of our full-year estimate. Despite lower revenue from increased vacancy rates in Malaysia, Hong Kong and Singapore, 1H10 distributable profit grew 7.8% yoy, lifted by lower property expenses, lower borrowing costs, and the partial hedging of cash flows from Hong Kong and Japan. We maintain our estimates and DDM-based target price of S$0.86 (discount rate 8.6%) as we have already assumed moderate rental growth of 2% and S$357m worth of acquisitions for this year (of which S$186m has been realised). MLT offers dividend yields of 6.9% for FY10. We expect re-rating catalysts from announcements of accretive acquisitions, development work and any refinancing on improved credit terms in the near term.
• Net property income (NPI) flat qoq. 2Q10 NPI of S$45.8m was flat qoq as lower occupancy in Singapore, Hong Kong, Malaysian and Chinese was ameliorated by lower maintenance expenses and one-off provisions for doubtful debt in 2009. The partial hedging of Hong Kong and Japanese cash flows also supported distributable income despite currency losses against the strengthening S$.
• Portfolio occupancy of 97% as at Jun 10, down from 98% in Mar 10. Regions with declining occupancy were Malaysia (-5% pts); Hong Kong (-3% pts), Singapore (-1% pt) and China (-1% pt). Management attributed the shortfall in Malaysia (two properties) and Singapore (one) to conversion from single-user assets to multitenanted buildings in an attempt to lift rents further as leases expired in the quarter. Particularly for the two Malaysian assets, pre-commitments from new tenants would have lifted occupancy to 97-98%. The fall in Hong Kong’s occupancy was blamed on the departure of key tenant, Lane Crawford, when its lease expired. Management is confident of finding replacement tenants at positive reversions over preceding rents.
StarHill Gbl – DBSV
Stable performance, refinancing done
At a Glance
• 2Q10 DPU of 0.91 Scts in line, down 4% yoy
• Re-financing of near term debt done
• Maintain BUY and TP S$0.73
Comment on Results
2Q10 DPU of 0.91 Scts. Gross revenues and net property income were higher by 11.4% yoy and 7% yoy to S$37.2m and S$28.8m respectively. The better performance was mainly attributed to a full quarter’s contribution from David Jones asset (DJA) slightly offset by lower office revenues and weaker RMB/S$ exchange rate. Interest costs were 22% higher yoy due to the loan taken for DJA acquisition. As such, distributable income came in at S$18.0m (-4% yoy), translating to a DPU of 0.91 Scts.
Stable earnings profile in 2Q10 but overseas portfolio performance hit by strengthening S$. Stable 2Q performance reflected the resilient retail portfolio in Singapore +4% yoy. However, this was offset by lower office occupancies (-3%yoy) and overseas properties’ earnings were down 2%, excluding DJA, due to weaker RMB/S$. In RMB terms, Chengdu reported 8% higher gross sales.
Bullet loan expiring in 2010 settled. Apart from S$124m MTN issuance recently, SGREIT has also completed its refinancing of near term expiring debt with a new 3-year facility of S$496m, secured over SGREIT’s interest in Ngee Ann City, with a consortium of 5 banks. Interest costs is expected to inch up to 3.5-3.6% post refinancing.
Recommendation
Maintain BUY, TP S$0.73 with prospective yields of 6.7-7.5%. At a P/BV of 0.7x, SGREIT is trading below its Sreit peers average of 1.0x. Forward yields of 6.7-7.5% are attractive.