Month: June 2012
CDL H-Trust – Kim Eng
Spectre of hotel room glut looms
Growth to moderate. The prospect of a slowing economy in China and India, the unfolding of the Eurozone crisis and the US economy’s snail’s-pace recovery will no doubt impact tourism in Singapore. After a record 2011, the Singapore Tourism Board expects 2012 to see a moderation in growth with around SGD23-24b in tourism receipts and 13.5-14.5m in visitor arrivals.
Supply glut looms. We expect 14.2m tourist arrivals in 2012, up 8% from 13.2m in 2011. From 2011 to 2015, we estimate that hotel room supply (measured in terms of available room nights) will grow at 6.3% CAGR, outstripping demand growth of 5.9%. In all, 11,441 new rooms (23.5% of existing stock) from known projects will be added to the market between 2Q12 and 2015. This will push the number of gazetted hotel rooms past the 50,000 mark by 2015. However, so long as occupancy levels exceed 80%, we expect the average room rate (ARR) to hold above SGD245.
ARR to slow to 3.2% pa over 2011-2015. Singapore hotels have, and will continue to benefit from the growth in tourist arrivals, which we project at 5.2% CAGR over 2011-2015F. But the additional supply of hotel rooms will put a damper on occupancy rates, which we estimate will peak at 90% in 2012F before easing to 84% in 2014F. This means that revenue per available room (RevPAR) could hit a new high of SGD233 in 2012F but fall to SGD227-229 in 2013F-2014F and peak again at SGD237 in 2015F.
Maintain HOLD. In our view, the main share price trigger for CDL Hospitality Trusts (CDREIT) is overall ARR growth for the Singapore hotel segment (76% correlation). The group derived more than 80% of revenue from Singapore hotels in FY11, with the region accounting for over 80% of its asset value. We expect Singapore hotels to register 3.2% ARR CAGR over FY11-15F, which should put a cap on CDREIT’s share price. Reiterate HOLD with a DDM-derived target price of SGD1.94. With volatility in the stock markets and more hotel rooms coming on-stream, we would advise investors to stay cautious. At FY12F DPU yield of 6.4%, they would be better off with the more defensive industrial and retail REITs such as Ascendas REIT (~7% yield) and Frasers Centrepoint Trust (~6% yield).
CDL H-Trust – DBSV
Marching forward
• April tourism data point to a potential record breaking 2Q12 performance for hoteliers
• RevPAR growth momentum continues as hoteliers price room rates higher
• CDL HT (BUY, TP raised to S$2.06) and GENS (S$2.05) offer the best exposure into the industry
Visitor arrivals hit another high in April 12. Latest data from the Singapore Tourism Board (STB) for April12 provides us with a glimpse of how 2Q12 hospitality numbers could turn out. Tourism arrivals in April 12 remained high at 1.2m visitors (+9% y-o-y), a new record. YTD visitor arrivals have hit 4.8m, representing 33% of STB’s higher end target of 13.5-14.5m for 2012. With the industry approaching the seasonally high tourism season of June-July, we are optimistic that the industry could potentially exceed the projections set by STB.
RevPAR hits new high in April, growth momentum picks up. The strong visitor numbers, fueled by major MICE events like Food & Hotel Asia held in April 12, have led to strong demand for rooms, and thus room rates have remained on a firm uptrend on a q-o-q basis. Hotel performance remains robust, with occupancies hovering at a high of c87%. Average room rates at S$261/night, translating to a RevPAR of c.S$227/night, represent a 12% y-o-y jump, surpassing the S$216/night.
We expect hoteliers to report sequentially stronger RevPAR in the coming quarters. Hospitality data should continue to remain robust given the expected strong lineup of MICE events in the coming months (eg.CommunicAsia 2012 to be held from 19-22nd June, F1 race in September12) and the seasonally peak tourist holiday season in June-July. In addition, supply is expected to remain tight, especially in the core city area given the closure of Pan Pacific Singapore (790 rooms, representing close to 1.5% of total room supply in Singapore) for renovations and is expected to re-open only in September12 in time for the Formula one race.
Stock picks. We continue to like CDL Hospitality Trust (BUY, TP raised to S$2.06 as we roll forward numbers to 2013), given its leverage into the robust tourism sector in Singapore. The stock offers FY13-14F yields of close to 6.1 – 6.5%. GENS (BUY, TP S$2.05) should also benefit from expected stronger visitation at Resorts World @ Sentosa during the coming holiday season.
K-REIT – CIMB
Tax boost fromMBFC 1
Tax transparency for MBFC 1 should allow savings translating to 2-3% of DPU annually. We do not dismiss the possibility of similar conversions and structures for ORQ and MBFC 2, which could allow less tax leakages and potential simplification of holding structures.
We raise DPUs and DDM-based target price (discount rate: 8.2%) factoring in tax savings from K-REIT’s one-third stake in MBFC Phase 1.Maintain Outperform on favourable risk-reward. We see catalysts from an earlier bottoming of office market and furthertax savings.
What Happened
K-REIT has announced that BFC Development Pte Ltd, the entity which holds MBFC Phase 1 has been successfully converted to BFC Development Limited Liability Partnership. This will allow it to obtain tax transparency and not pay corporate tax on itsincome from its one-third stake in MBFC Phase 1.
What We Think
We expect this development to result in savings of about S$4m-5m (2-3%) for K-REIT annually. Savings are not retrospective, implying no claw-backs for previous taxes paid.
Management’s efforts on this are commendable. Previously, the tax leakage, income support and complex holding structures for ORQ and MBFC Phase 1 were some of the key contention points that some investors had when they compared K-REIT’s and Suntec REIT’s portfolios against CCT’s. We do not dismiss the possibility of a conversion for the holding company of ORQ and the use of a similar structure for a potential acquisition of MBFC Phase 2 for increased tax savings.
If these take place, not only will there be less tax leakages, but overall holding structures for portfolio could be less complex (e.g. unwinding of shareholders’ loan for tax shelter) to facilitate shareholders’ understanding and a potential narrowingin valuation gap against CCT.
What You Should Do
Overall, weview this news positively for both its tangible and intangible benefits. Maintain Outperform on favourable risk-reward from a potential bottoming of the office market and cheap valuations (0.8x P/BV and 7.5% yield).
Suntec – CIMB
Tax transparency for MBFC 1
Tax transparency for MBFC 1 should allow savings translating to 2-3% of DPU annually. We do not dismiss the possibility of similar conversions and structures for ORQ and MBFC 2, which could allow less tax leakages and potential simplification ofholding structures.
We raise DPUs and DDM-based target price (discount rate: 8.1%) factoring in tax savings from Suntec REIT’s one-third stake in MBFC Phase 1. Maintain Outperform on favourable risk-reward. We see catalysts from earlier bottoming ofoffice market and further tax savings.
What Happened
Suntec REIT has announced that BFC Development Pte Ltd, the entity which holds MBFC Phase 1 has been successfully converted to BFC Development Limited Liability Partnership. This will allow it to obtain tax transparency and not pay corporate tax on its income from its one-third stake in MBFC Phase 1.
What We Think
We expect this development to result in savings of about S$4m-5m (2-3%) for Suntec REIT annually. Savings are not retrospective, implying no claw-backs for previous taxes paid.
Management’s efforts on this are commendable. Previously, the tax leakage, income support and complex holding structures for ORQ and MBFC Phase 1were some of the key contentionpoints that some investors had when they compared K-REIT’s and Suntec REIT’s portfolios against CCT’s. We do not dismiss the possibility of a conversion for the holding company of ORQ and the use of a similar structure for a potential acquisition of MBFC Phase 2 for increased tax savings.
If these changes take place, not only will there be less tax leakages, but overall holding structures fortheportfolio could be less complex (e.g. unwinding of shareholders’ loan for tax shelter) to facilitate investors’ understanding and a potential narrowingin valuation gap against CCT.
What You Should Do
Overall, we view this news positively for both its tangible and intangible benefits. Maintain Outperform on favourable risk-reward from a potential bottoming of the office market and cheap valuations (0.7x P/BV and 6.9% yield).
CMT – Kim Eng
More Plus Points
Bugis+ opens its doors. We visited Bugis+ a week after its major anchor tenant UNIQLO launched its duplex flagship store, which is UNIQLO’s first street-level store in Singapore. We were encouraged by the footfall even though AEI works are not fully complete and we believe that CapitaMall Trust (CMT) will be able to bring Bugis+ up to its desired level of operation as projected. Maintain BUY.
Synergies evident between Bugis Junction and Bugis+. With UNIQLO’s 20,000-sq-ft shop as the main anchor, Bugis+ will be an extension of Bugis Junction, drawing the young and trendy that makes up its targeted captive market. By July, the bulk of the AEI works should be complete, and other offerings like the cineplex will help to attract even more shoppers when they open. Management estimates the yieldon-cost post AEI will be 5.8%, taking it much closer to Bugis Junction and vindicating its acquisition.
Portfolio still substantially catered to necessity shopping. Even though Bugis+ is geared towards lifestyle discretionary spending, CMT’s portfolio of malls remains predominantly catered to necessity shopping, accounting for approximately 73.1% of gross revenue as at end-2011. Apart from the normal rental reversion, DPU growth will also be supported by the incremental contributions from the AEIs at Clarke Quay and Atrium@Orchard when they are completed.
Hougang Plaza divestment completed. The sale of Hougang Plaza to a JV comprising Oxley Holdings and Lian Beng Group for a consideration of SGD119.1m has been completed. The divestment of this non-core asset will net CMT a handsome gain of SGD83.8m, as the new buyers look to redevelop the property. The sale is a positive indicator that the REIT is open to divesting some of its non-core assets if the right offers come along.
A ‘must-own’ stock. Notwithstanding global economic growth concerns, we believe that CMT can extend its steady growth in DPU, making it a “must-own” investment in our view. Maintain BUY, with our DDM-derived target price unchanged at SGD2.20.