Month: October 2012
Suntec – DBSV
Delivering consistently
- 9M DPU 5% higher than our FY12F
- Suntec’s retail mall’s AEI (Phase 1) is proceeding at full steam, pre-commitment levels healthy at 71%
- Maintain BUY at a higher S$1.70 TP
Highlights
Results slightly ahead of our forecast. 3Q12 gross revenue and NPI declined 8% y-o-y and 20% y-o-y respectively to S$62.6m and $38.4m. The drop was largely due to AEI works at Suntec’s retail mall, as well as the income vacuum from the divestment of CHIJMES, which was partly mitigated by higher contributions from ORQ and MBFC Phase 1. Consequently, distributable income came in at S$52.8m translating to a DPU of 2.35 Scts. 9M DPU came in 5% higher than our FY12F but is in line with street estimates.
Our View
Head start in FY13 renewals. Occupancy for its office portfolio held up at 99.9%. The group renewed about c.70,000 sf at a slightly higher monthly rent of S$8.96 psf pm vs S$8.71. For 4Q12, only 38,505 sf NLA (c.1.6% of total) will expire in 2012 with a chunkier 476,560 sf NLA (c.19.7% of total) in FY13. However, the group’s continuous pro-active efforts in forward renewing its leases should help mitigate leasing risk going forward
Suntec’s retail mall Phase 1 AEI going at full steam. As at end 3Q12, almost 50% of the F&B outlets at The Fountain, as well as the Food Republic at Suntec Convention Centre have vacated. Occupancy excluding the AEI works held at 98.6%; we estimate that on a see through basis, occupancy as at end of Sept was closer to c.80%.Meanwhile, the space vacated by Carrefour will be temporarily taken over by Giant from Nov 12 to Feb 13 before it relocates to B1. Pre-commitment of Phase 1 AEI space remained healthy moving up from 58% a quarter ago 71.2%. We estimate that occupancy is likely to trough in the 3Q13 but revenue for the mall should start to see sequential improvement upon the completion of Phase 1 AEI works in 2Q13.
Financial metrics remain healthy. All refinancing has been done for the year with gearing at 37.8%.
Recommendation
Maintain BUY. We continue to like the Suntec REIT for its pro-active leasing strategies and revenue for the mall should start to improve sequentially from 2Q13 onwards post the completion of Phase 1 AEI works. We have nudged up FY12/13F DPU by 4% each to account for better than expected rentals for its offices at Suntec City. We maintain our BUY call at a slightly higher DCF-backed TP of S$1.70.
CDL H-Trust – CIMB
Moderating trends
With visitor arrivals moderating and RevPARs still near previous peaks, we see little room for further outperformance. Acquisitions will be pricey while foreign asset additions could dilute positioning and the appeal of its pure local tourism exposure.
DPUs were broadly in line with our forecast but slightly below the street’s; 3Q formed 23% of our full-year forecast and the 9M formed 73%. We trim FY12-14 DPUs for lower RevPAR growth assumptions. This resulted in a lower DDM target price despite lower discount rate of 7.7% (previously 8.1%). Maintain Neutral.
RevPAR down yoy
3Q12 DPU dipped 2% yoy on a 1% decline in NPI. RevPARs fell 1% yoy to S$209/day on a combination of flat ARR (S$236/day) and a 0.9% pt decline in occupancy from 89.5% in 3Q11 to 88.6% in 3Q12, bucking previous quarter trends of new RevPAR peaks. Individually, local hotels saw yoy revenue declines of 1-2%, except for Orchard Hotel, which saw 1% pick-up due to rooms taken out for refurbishment in 3Q11, and Copthorne King’s Hotel, which saw a 5% revenue drop with the departure of a client group in 2Q.
Weaker corporate market
Overall performance was fairly decent amidst slowdown but the yoy decline might still surprise the street. Flattish occupancy and ARRs appear in-line with peers. Management attributed weaker performance to a slower corporate market. We understand that the main weakness came in Sep due to some cancellation of MICE/corporate events though management has noted a 1% yoy REVPAR growth in the first 24 days of Oct. Tracking Changi Airport passenger movements as an indicator of visitor arrivals, Sep passenger traffic indeed appeared a tad slower with a 5% yoy growth compared to 10% in the first eight months of 2012.
Maintain Neutral
With visitor arrivals moderating and RevPARs still near previous peaks, we see little room for outperformance. Acquisitions could be re-rating catalysts but these could come in pricey and foreign asset additions could dilute CDLHT’s almost pure-local positioning.
CCT – OCBC
AVERAGE PORTFOLIO RENTALS UP
- 3Q12 figures mostly in line
- Average portfolio rentals up
- FV estimate increased to S$1.70
3Q12 distributable income in line
CapitaCommercial Trust (CCT) reported 3Q12 distributable income of S$57.9m – up 11.6% YoY mostly due to contributions from Twenty Anson, higher revenues from portfolio assets and yield protection income from One George Street (OGS). This is mostly in line with expectations and we note 9M12 distributable income now makes up 75% of our FY12 forecast. 3Q12 distributable income translates to a distribution per unit (DPU) of 2.04 S-cents for the quarter, translating to an annualized distribution yield of 5.1% on the last closing price (S$1.58 per unit). 3Q12 topline came in at S$95.5m, increasing 7.0% YoY – again generally within expectations.
Sector fundamentals driving healthy portfolio performance
As indicated in our last two reports, we have expecting an uptick in office fundamentals from 3Q12 till at least 2H13 and believe this was mostly validated by data-points from CCT’s 3Q12 performance: 1) portfolio occupancy edged up QoQ to 97.1% in 3Q12 from 96.2% in 2Q12, and 2) average portfolio rent per square foot increased to S$7.53 – the first increase seen after seven consecutive quarters of decline from 4Q10. We expect this to continue ahead – note that a third of CCT’s office net leasable area is up for renewal in FY13 and that current market rents currently stand at S$9.80 psf.
Maintain BUY
Since we have upgraded CCT to a BUY on 21 Aug 2012, the REIT has appreciated 14% over this time (significantly outperforming the STI which is down marginally -0.1%). At this juncture, we continue to like CCT for its prime assets, relatively stable portfolio drivers and strong execution from management. CCT recently announced a S$34.7m upgrading at Raffles City while OGS’s AEI and CapitalGreen’s construction progression remains on track. Maintain BUY with an increased fair value estimate of S$1.70, versus S$1.62 previously, as we update our model for firmer rental numbers and cap rates.
Suntec – DMG
The cloud is clearing
3Q12 results within expectations. Suntec (SUN) reported its 3Q12 results, posting gross revenue and distributable income of S$62.6m (-7.8% YoY) and S$52.8m (-6.3% YoY) respectively. DPU for the period came in at 2.35S¢; together with 1H12 DPU of 4.81S¢, total DPU delivered thus far accounted for 77.0% of our FY12 DPU forecast. During 3Q12, NPI dropped by 19.5% YoY bringing it to S$38.4m; this is mainly attributable to the loss in income from the divestment of CHIJMES and the commencement of the AEI work at Suntec City since June 2012. Going forward, given a clearer outlook on the effect of Suntec City’s AEI on the trust’s income coupled with a higher than expected pre-commitment rate of 71.2% of the upcoming space at Suntec City, we are positive on the future of SUN and upgraded our rating to BUY with a revised TP of S$1.80. SUN is currently trading at 4.8% spread to 10-year bond yield which is 246bps above its pre-crisis mean spread of 2.4%, our DDM based (COE: 8.0%; TGR: 1.0%) TP of S$1.80 translates to a spread of 4.2%.
Drop in NPI and DPU in 3Q12 due to loss in income and AEI. During 3Q12, both the DPU and NPI fall by 7.2% and 19.5% respectively, mainly attributed to the lost in income due to the divestment of CHIJMES and the commencement of the AEI at Suntec City since June. Going forward, management indicated the proceeds from the divestment of CHIJMES could be deployed to partially fund the AEI at Suntec Singapore and Suntec City Mall; though this is unlikely to happen in FY12.
Value enhancements at Suntec City’s AEI. To date, management indicated that 71.2% of Suntec City’s phase 1 AEI space has been pre-committed. With a forecasted average rental rate of S$12.59 psf/mth (+25%) and a higher NPI of S$7.8m/mth (+33%) post AEI, we expect SUN to benefit greatly from this project when it is completed in 2Q13.
Upgraded to BUY with higher TP of S$1.80. Although the earnings of SUN is likely to remain flattish in the coming two quarters, given a high portfolio occupancy rate (office -100%, retail – 98.2%), together with a clearer outlook of the trust and a strong commitment rate to the new space, we believe SUN will benefit greatly upon the completion of its AEI of Suntec City. With a forecasted FY12/FY13 dividend yield of 5.9% and 6.3% respectively, we are positive on SUN and has upgraded our rating to BUY with a revised TP of S$1.80.
FCOT – OCBC
A BRAND NEW START
- In-line 4Q performance
- Exit of Japan market
- Well-positioned for growth
Strong 4QFY12 results
Frasers Commercial Trust (FCOT) reported its 4QFY12 results last Thursday. NPI grew by 8.7% YoY to S$26.5m, while distributable income jumped 17.3% to S$11.3m. The strong growth came on the back of higher rental contribution from Central Park and an increased stake in Caroline Chisholm Centre. DPU for the quarter stood at 1.75 S cents (+15.1% YoY) and is consistent with our 4Q estimate of 1.76 S cents (consensus: 1.86 S cents). For FY12, DPU amounted to 6.69 Scents (+16.3%), translating to a 5.6% yield. Starting from FY13, FCOT will commence quarterly distributions. Hence, unitholders will receive its final semi-annual distribution for 2HFY12.
Divestment of Japan properties
FCOT also announced the completion of divestment of its Japan properties, after months of market anticipation. Total consideration was a nominal JPY4 as the holding vehicles for the properties were at an aggregate net liability of S$4.9m. Nevertheless, we view the transaction positively because 1) the Japan properties have been recording weak performance, 2) the divestment would improve portfolio occupancy to 94.9% from reported 93.8%, and 3) weighted average lease to expiry would be extended to 5.0 years from 4.7 years. More importantly, gearing ratio is expected to drop from 36.8% to 28.6% (including partial prepayment of its AUD and SGD loans), with no debt maturing until FY15. This will significantly strengthen its financial position and flexibility, and aid FCOT in seeking the release of two properties from its securitized pool.
Maintain BUY
Regarding the space vacated by MMC at China Square Central (CSC), FCOT also updated that 76% of the space has been re-leased, including 49,000 sqft by GroupM starting Apr 2013. Going forward, FCOT intends to embark on Phase 2 of refurbishment works at CSC by end-2012, which should further enhance its positioning. We are positive on FCOT’s transformation, strong execution and growth potential in FY13. We re-jig our forecasts to incorporate the developments, but our fair value is unchanged at S$1.31. BUY.