Month: August 2011
CMT – DBSV
Temasek and Singtel take up space at The Atrium@Orchard and JCube respectively
CMT announced that Temasek Holdings, an existing tenant at The Atrium@Orchard, will be taking up additional office space in the same building, while Telecom Equipment (Singtel) will be taking a 3-year lease at JCube.
Temasek Holdings taking up space at The Atrium@Orchard
Temasek Holdings currently has an existing lease at The Atrium@Orchard due to expire on 30 April 2012. With the additional space taken up, the group including its wholly owned subsidiary Fullerton Fund Management, will be the anchor tenant and will be occupying the majority of the office space at The Atrium@Orchard. To recap, total office NLA at The Atrium is around 230,000 sf. The 10-year lease will start from April 2012 to March 2022 and total aggregate consideration is $221.8m. CMT has commissioned CBRE to provide an independent opinion on the office lease terms and the consultancy group mentioned that the rental rates are comparable with prevailing market rates and leases of similar office premises.
Telecom Equipment (Singtel) Lease at JCube
CMT also announced that they entered into a retail shop lease with Telecom Equipment (Singtel) for a consideration of S$1.4 m. The Retail Shop Lease is for a term of three years and will commence on or around the date on which JCube obtains its TOP.
We continue to like CMT for its proactive leasing strategy. Upon the pre-commitment of Temasek Holdings, the office space at The Atrium@Orchard would be well committed ahead of its completion at end-2012. We understand that the group has started the marketing for the retail space and we should get an update progressively. Meanwhile, leasing demand at JCube remains healthy with the mall achieving more than 80% pre-commitment. The mall is expected to complete by end-2011. Maintain BUY with TP S$2.05.
CDL H-Trust – Phillip
Poised to grow on three Fronts
•2Q11 revenue $34.6m, NPI $35.6m, distributable income $28.5m
•2Q11 DPU of 2.96 cents
•Increase revenue by 1.7-1.8% for the period between 2012 and 2015
•Raise target price to S$2.10 but maintain Hold
1H11 DPU was in line with our estimates
Better hospitality performance and contribution from Studio M Hotel boosted gross revenue by 12.6% y-y to $34.6m. NPI was $35.6m, up 24.0% from a year before and exceeded the gross revenue for the reporting quarter. This was attributed to the one-off property tax refund of about $3.3 million and improved top-line. Distributable income after deducting the income retained for working capital was $28.5m (+31.3% y-y) and translated to a DPU of 2.96 cents. Adding together 1Q11 DPU of 2.38 cents, the aggregate dividend payout for 1H11 was 5.34 cents forming 49% of our full year DPU estimate. Average occupancy rate (AOR) for Singapore Hotel was 88.1% in 2Q11, a dip of 0.4%-pt compared with the preceding year. Nevertheless, average daily rate (ADR) edged up 5.5% y-y to $232 and made up for the dip in AOR, and thus lifted the revenue per available room (RevPAR) to $205. AOR for Orchard Hotel Shopping Arcade stayed above 96.5% level with an average monthly rental rate of $7.05 per sq ft. CDL HT’s Australia Hotels continued to perform well supported by the commodity-rich sector and static supply of hotel rooms.
Fueled by three growth engines
1. Organic growth: Singapore tends to receive more visitors in second half of the year due to seasonal factors. Increased demand in hotel rooms may exert upward pressure to ADR. ADR, a laggard, will also play catch up with AOR. Therefore, ADR for Singapore hotels is anticipated to gain traction over the next few quarters. 2. Enhancement growth: Phased refurbishments at Orchard Hotel and Novotel Clarke Quay will give rise to higher ADR when remaining rooms are slated for completion. Enhanced product offerings will raise their standards to remain competitive with other hoteliers along Orchard shopping belt and those in the vicinity of River Valley precinct. 3. Acquisition growth: Ample debt headroom also leaves CDL HT well-positioned for further acquisition trail in the Asian hospitality sector in 2011.
Valuation
Hospitality market performance is highly susceptible to the health of tourism market and external economies, and a change in tide may overshadow the optimism on tourism growth story. Despite 2Q11 result was largely on track to meet our full year estimates, we are mindful to raise our revenue forecast between 2012 and 2015 by 1.7-1.8% as our earlier projection was slightly conservative. Coupled with the property tax refund, we revised our target price to $2.10 but maintain Hold as the valuation is not attractive relative to other REITs which are more resilient and command a lower NAV premium. We opine that the CDL HT’s current price is fairly value.
CMT – BT
CapitaMall Trust in office leases with Temasek, Fullerton
Renewal, new leases at Atrium@Orchard; JCube shop lease for SingTel unit
CAPITAMALL Trust (CMT) has entered into office leases with Temasek Holdings and its wholly owned subsidiary Fullerton Fund Management Company, for an aggregate consideration of around $221.8 million.
Temasek is currently an anchor tenant at The Atrium@Orchard, which is part of CMT’s portfolio. Its leases are due to expire on April 30, 2012.
CMT yesterday renewed Temasek’s leases and granted new leases to it. It also entered into a lease with Fullerton.
Temasek has a deemed interest of around 29.97 per cent in CMT and is regarded as a controlling unitholder. As a result, the office leases constitute ‘interested person transactions’ under the Listing Manual and ‘interested party transactions’ under the Property Funds Appendix.
CMT’s manager commissioned CB Richard Ellis (CBRE) to provide an independent opinion on the office leases’ terms. The property consultancy found that the rental rates are comparable with prevailing market rates and leases of similar office premises, and CMT’s manager viewed the aggregate office lease consideration as fair and reasonable.
CMT also entered into a retail shop lease with Singapore Telecommunications’s wholly-owned subsidiary Telecom Equipment, for a consideration of around $1.4 million.
Telecom Equipment will take up a three-year lease at JCube, which is undergoing refurbishment and is due to open in the first quarter of 2012. The lease will start on or around the date JCube receives its Temporary Occupation Permit.
SingTel is a subsidiary of Temasek and CMT also commissioned CBRE to provide an independent opinion on the terms of the retail shop lease.
CBRE’s opinion indicates that the rental rate is at market level and the other commercial terms in the lease are consistent with normal commercial terms. CMT’s manager viewed the retail lease consideration as fair and reasonable.
CMT ended trading on the stock market yesterday at $1.90, one and a half cents higher.
FCT – Lim and Tan
• The proposed acquisition of Bedok Point (Net Lettable Area of 80,985 sf) from Fraser & Neave for $127 mln is yield accretive based on $7 mln income in the “first lease cycle”.
• Before taking into account debt financing options (combination of debt and issuance of new units), the yield of already 5.5% compares favorably with FCT’s yield of 5.3% based on expected DPU of 8.2 cents for year ending Sept’11.
• Note the June’11 quarter was affected by lower Net Property Income because of the extensive $72 mln refurbishment at Causeway Point, which is FCT’s biggest asset, with NLA of 418,543 sf.
• Refurbishment has caused the occupancy to drop to 69% during the March’11 quarter before rebounding to 78% in the June quarter. By end Sept’11, management expects the level to rise to >90%, hence its confidence in paying no less than 8.2 cents for ye Sept’11 as for the previous year.
• Bedok Point brings to 5 suburban malls in FCT’s portfolio. The next acquisition is expected to be Changi City Point (207,479 sf) and likely to take place in fiscal year ending Sept’12.
• Another attraction of FCT is that a whopping 43.2% of its portfolio is due for rental reversion, and hence likely DPU increase in FY2012.
• We maintain BUY.
FCOT – CIMB
Poised for the turn
• In line; maintain Outperform. 3Q11 DPU of 1.38cts meets our forecast and Street expectation at 24% of our FY11 figure. 9M11 DPU forms 74% of our estimate. DPU was up 10% yoy on stronger NPI contributions from almost all its self-managed assets mainly on better occupancy. Occupancy at KeyPoint had improved for the ninth consecutive quarter. An improving underlying portfolio at China Square Central meanwhile should position FCOT for upside when it takes over direct management in Mar 12. No change to our DPU estimates or DDM-based target price of S$0.99 (discount rate: 9.4%). With an improving portfolio, stable capital structure and a strong sponsor in F&N, we see no reason for its 35% discount to book amid forward yields of 7%. We see catalysts from early refinancing, the unlocking of value from AEI at China Square Central and improvements in occupancy and rentals.
• 3Q11 net property income up 10% yoy and 4% qoq. NPI was up 10% yoy on stronger contributions from Central Park, Caroline Chisholm Centre and Keypoint. Qoq, NPI was up 4% as there were improvements at its Australian assets. Occupancy at KeyPoint also continued to improve for the ninth consecutive quarter to 86% since the in-house team took over property leasing in 2Q09. Passing rents were stable at about S$5 psf with limited exposure to higher rollover rents locked in at the 2008 peak.
• Improvements at China Square Central. China Square Central’s underlying occupancy improved 20bp, with recent leases renewed at S$6.30-8.00 psf vs. expiring rents of S$6.30 psf and passing rents of below S$6 psf. Continued improvements in occupancy and rentals on the back of more proactive management by FCOT and an upcoming Telok Ayer MRT station could position FCOT for upside when it takes over direct management following the expiry of the master lease in Mar 12.
• Potential upside from refinancing. Asset leverage had been pared down to about 37% after the divestments of AWPF and Cosmo Plaza. This entire amount (S$745m) will mature in 2012. With a high cost of debt of 4.3% and prolonged low interest rates, FCOT could save in terms of interest following the refinancing of this debt. We estimate that a 50bp interest-rate reduction could lift its DPU by 11%.