Month: October 2010
a-iTrust – DBSV
Hit by stronger S$ exchange
• Stable 2H10 outlook
• Development projects on track; pre-leasing activities slightly behind schedule in our view
• Downgrade to HOLD given limited upside to S$1.08 TP
2Q11 DPU of 1.70 Scts in line. Topline and net property income (“NPI”) were in line with expectations at S$29.6m (-3% yoy, -4% qoq) and S$18.2m (-5%yoy,-4% qoq) respectively; the declines due to a stronger S$:Rp exchange rate. As such, distributable income came in 8% lower at S$13.2m, translating to a DPU of 1.70Scts.
2H10 outlook is stable. Earnings in Rp remained stable with rental revenues inching upwards but offset by lower maintenance and operations income. A further 19% of its space is to be renewed in 2HFY11. While its operations in Bangalore and Hyderabad are expected to continue to see positive reversions, they are expecting to see moderate pressure in Chennai (ITPC) given the large competing supply situation there. As such, we moderate our rental growth assumptions from +2% to flat in 2H10, resulting in a slight reduction in our forward estimates.
1.7m sqft of development projects on track, pre-leasing activities slight behind schedule, in our view. 2 out of 3 buildings (Zenith in ITPC & Park Square Retail Mall in ITPB, +1.19m sq ft) will be completing soon. Pre-commitments are at 20% and 47% respectively, slightly slow for Zenith in our view. Negotiations are on-going and we remain confident that a-itrust will be able to fill the remaining space in the coming quarters. However, the slower than expected take-up will mean that earnings growth from these completions will likely be felt only from 2H FY12.
Downgrade to HOLD, TP S$1.08. While we like a-itrust as a premier space provider in India, we see limited upside to our price objective from current levels. As such, we downgrade to HOLD. Aitrust offers FY11-12F yields of c 6.7-7.7%.
Upside surprise. Upside surprise will hinge on acquisitions that the trust could undertake given its low gearing of 22%, which is not factored in our estimates.
ART – OCBC
3Q10 results mostly in line; maintain BUY rating
3QDPU of 1.85 S-cents. Ascott Residence Trust (ART)’s 3Q10 gross revenue of S$46.5m edged up 4.8% YoY and 4.6% QoQ. However, gross profit dropped 4% YoY but rose 1.8% QoQ to S$21.2m. The manager attributed the YoY decline in gross profit to a one-time charge of prior years’ property tax of S$0.3m for an Indonesian property previously not assessed by the tax authority. Excluding further one-off adjustments in both 3Q10 and 3Q09, gross profit would have been S$21.4m and S$20.4m respectively, representing an increase of 5% YoY. The trust also declared 3Q DPU of 1.85 S cents, translating to a drop of 3.7% YoY and 1.1% QoQ. This was largely due to 419.66m new private placement units issued on 22 Sep to fund the acquisition of 28 new properties which was completed on 1 Oct. Recall that ART has previously acquired these service residence properties from its sponsor, comprising 26 in Europe and one each in Singapore and Vietnam for a sale consideration of S$969.6m. If we exclude the new private placement units, 3Q DPU would be 1.93 S cents, representing an increase of 0.5% YoY or 3.2% QoQ.
Advanced Distribution. As a result of the equity fund raising, ART will declare, in lieu of the scheduled distribution, an advanced DPU of 1.74 S cents for the period from 1 Jul to 21 Sep (day immediately prior to the date of private placement). The advanced distribution will be paid out on 19 Nov. As the trust distributes semi-annually, the remaining 3Q10 DPU of 0.11 S cents will be credited into the distributable income from 22 Sep to 31 Dec.
Portfolio Performance. ART’s RevPAU increased 7% YoY in 3Q10, mainly led by RevPAU growth of 37% in Singapore. The better performance in Singapore is mainly due to the successful launch of the refurbished apartment units of Somerset Grand Cairnhill and Somerset Liang Court. RevPAU for Australia, China, Indonesia and The Philippines also increased in 3Q10. We are also seeing better performance in Shanghai arising from World Expo. However, Tianjin’s performance declined due to increased competition and reduction in corporate accommodation budget. Japan is also facing weak market demand and lower profits due to higher repair, maintenance and advertising expenses.
Maintain BUY. Our investment thesis on ART is intact and we look forward to the performance results and revenue contribution of the 28 newly acquired properties in 4Q10. Management has also stated its confidence in delivering the forecasted 4Q DPU of 1.84 S cents as disclosed in the Offer-Information-Statement (13-Sep). Maintain BUY with an unchanged fair-value of S$1.38.
ART – DBSV
Stellar Singapore!
• 3Q10 DPU of 1.85 Scts in line
• Stellar Singapore operations drove portfolio growth
• Expanded portfolio provides stable and visible income source ahead
• Maintain BUY for exposure to booming travel industry in Asia. TP S$1.38 (20% total return)
3Q10 DPU of 1.85 Scts in line. Ascott REIT (“ART”) topline and gross profit of S$43.5m (+5% yoy, +5% qoq) and S$21.1m (-6% yoy, +2% qoq) respectively were in line with expectations. Led by strong performances in its Singapore and Philippines operations, ART achieved a portfolio RevPAU of S$130/night in 3Q10 (+7% yoy, +4% qoq) on the back of slight uptick in occupancies to 83%. Distributable income remained stable at S$11.9m, translating to a DPU of 1.85 Scts (excluding distribution to placement units, DPU will have been 1.94 Scts).
Performance pulled ahead by Singapore, With inventory in Singapore fully operational, it delivered a stunning 31% growth in topline, which was in line with expectations, driven by higher RevPAU (S$243/night, +37% yoy). This is followed closely by its operations in Australia (RevPAU: S$153, +15%yoy) and Philippines (S$137, +4% yoy), due to improved demand for rooms amid rebounding travel activities. Operations in the other remaining countries were relatively mixed.
Asia to drive 53% of topline growth going forward. With the recent portfolio injections from the sponsor completed, ART will derive 53% of its income from Asia and the remaining 47% from Europe. This will form a stable and visible income source for ART from 4Q10 onwards. We moderate our FY10-11 DPU forecast slightly to account for a stronger S$.
BUY call maintained, TP S$1.38. With FY11-12 prospective yield of c6.6-6.7%, ART offers investors an attractive exposure to the recovery in global travel & business activities. Current price offers total return of 20%.
CMT – DBSV
Taking a prudent step
• 3Q10 distribution income up a marginal 4.0% qoq, within expectations
• Proactive actions taken to manage FY11 refinancing exposure
• Maintain Buy and TP $2.09
In line with expectations. 3Q10 revenue of $148m was 4.0% higher qoq, while NPI improved by 2.5% to $101m. Performance was boosted by the additional income from Clarke Quay, acquired in early July 2010 and a more robust leasing environment. Renewals and new leases totaling to 247,891 sf, contributed an incremental $1.5m to topline on positive rental reversion of 2.1% yoy while portfolio occupancy was up 0.1ppt qoq to 99.6%. Footfalls at CMT’s malls increased by 3.2% yoy on the back of improving consumer sentiment and tourist arrivals. Gross turnover psf grew 5.6% YTD. Distributable income improved 2.8% to $75.2m (DPU: 2.36cts) based on c95% payout ratio as the group retained $10.1m of tax-exempt income from CRCT to be paid out in FY11.
Mitigating refinancing risk in 2011. In FY11, the group will face 2 major refinancing exercises comprising $346.4m share of Raffles City CMBS and the $550m CBs with a put option in July 2011. To manage potential DPU dilution from the premium payable on the CBs if/when it gets put, the group had deferred payment of tax-exempt income from CRCT into next year and is currently reviewing its refinancing options. While we expect interest expense to rise post loan roll-over, this is likely to be partially mitigated by cheaper funding sources for its CMBS. Operation-wise, 4Q earnings are likely to be lifted upon the completion of its AEI works at Raffles Place from Oct and positive rent renewals from the remaining 6.9% of NLA this year.
Maintain Buy. We are adjusting our FY10 and FY11 DPU to reflect the push back of CRCT’s dividend income. We believe CMT will continue to be one of the main beneficiaries of rising retail sales given its major estimated 25% share of retail space in Singapore. Our DCF-backed TP of $2.09 translates to an FY11 yield of 5%. We maintain our Buy call on CMT with a total return of 8.5%.
Cambridge – DBSV
Attractive 9% yield
• S$50.4m cash call to fund property purchases
• Improved financial metrics, slight accretion to DPU
• 300 bps spread above Sreit sector average yield of 6.0% is attractive, Upgrade to BUY, TP revised to S$0.58
S$50.4m cash call to fund growth opportunities. Cambridge REIT (“CIT”) announced an equity fund raising (“EFR”) of S$50.4m via (i) private placement of 56.5m units (fully subscribed) and a preferential offering of up to 38.5m units, at S$0.531 per unit (fixed at 4.9% VWAP to price on 19 Oct).
Target yields of properties to be >8.0%. Proceeds will be used to fund the purchase of 4 properties of which 1 is a development project – CIT’s first undertaking. Post EFR, CIT will have stronger financial metrics (gearing of 36.4% after scheduled loan repayment in Nov’10), and reduced concentration of lease expiry in FY13-14 to 56.9%.
Enhancement plans unveiled, to boost DPU. CIT also unveiled AEI plans for 2 of its properties at a cost of S$13.1m, where incremental NPI yield is expected to be in excess of 15%. With the share placement and AEI works, we raised our forward FY11 DPU estimates to 2%.
3Q10 DPU of 1.18 Scts in line. Lower 3Q10 revenue and net property income (“NPI”) of S$18.2m (-2.6% yoy) and S$15.9m (-2.6% yoy) respectively were due to ongoing divestment program. Performance in 4Q10 should be lifted by contribution from its new acquisitions completed in recent weeks.
TP revised to S$0.58, Upgrade to BUY. We see relative value in Cambridge REIT given its high FY11-12 yield of 8.9-9.2%, which is a 300 bps above the average Sreit peers. Income visibility and stability is strong, given that most of its properties are sale-and-leaseback properties. Upgrade to BUY and raised TP to S$0.58.