Month: October 2012
ART – OCBC
RESULTS IN-LINE, UPPING FV TO S$1.37
- 3Q12 results as expected
- RevPAU grew by 1%
- Can compete with hotels and apartments
3Q12 results in-line
Ascott Residence Trust’s (ART) 3Q12 revenue increased by 6% YoY to S$77.4m, chiefly due to the contribution of Citadines Shinjuku and Citadines Kyoto, and better performance in the UK and China. Gross profit rose by 2% YoY to S$40.7m. 3Q12 DPU inched up 0.4% to 2.24 S cents. YTD 2012 DPU of 6.76 S cents is in-line with our expectations, forming 77% of our prior FY12 estimate of 8.8 S cents, which we now raise to 8.9 S cents. The portfolio will be enlarged by the acquisition of Madison Hamburg in 4Q12.
RevPAU inches up
Revenue per available unit (RevPAU) for the serviced residences (SRs) grew by 1% to S$148/day. In the UK, RevPAU grew by 9% YoY to S$228. The refurbished Citadines Prestige Trafalgar Square commanded higher rates. In China, RevPAU grew by 15% YoY to S$125, partly due to better demand for the refurbished apartments of Somerset Olympic Tower. There was weakness in France, Australia and Singapore. Revenue and gross profit in France fell 6% and 7% in S$ terms, however, in EUR terms, they had increased by 6% and 4% respectively. On a same-store basis, Australia saw RevPAU fall 2%. Singapore’s RevPAU dropped 4% arising from the then-impending closure of Somerset Grand Cairnhill on 27 Sep. As of Jul 2012, Somerset Salcedo Property Makati was renamed Salcedo Residences after conversion from a master lease arrangement to a management contract.
Balanced profile for duration of stay
We find it encouraging that significant fractions of YTD apartment rental income are contributed by stays of one week or less (34%), <1 month (18%) and >12 months (15%). This indicates that ART’s properties are able to compete with hotels, which are targeted at short-stay guests, and apartments (excluding SRs), which appeal to long-stay tenants. Average apartment rental income by length of stay is around four months.
Raise FV to S$1.37
We update our discount rate and capitalisation rate assumptions. Raising our fair value from S$1.30 to S$1.37, we maintain our BUY rating on ART.
Dynasty / CRCT – Lim and Tan
Dynasty Reit: IPO at S$0.86 – 0.92 / Rmb4.40 – 4.70
- Strictly based on yield alone, it seems clear investors should stick to the well-tested CRCT (part of the CapitaLand Group) than subscribe for Dynasty, the new offering from ARA / Li Ka Shing.
- CRCT has declared 2.42 cents for Q3 ended Sept ’12 or 9.63 cents annualized. That’s 5.9% yield, which is in line with Hui Xian‘s, ARA / LKS’ first yuan denominated reit listed in HK, which is still some 20% off its IPO price.
- Dynasty is tempting investors with an indicative yield of 6.8-7.1% for 2012 and 7.0-7.3% for 2013.
- But that is because of the rental support which will come from the IPO proceeds (ie getting partly paid with your own money)!
- Without this, yield would have been 3.2 % and 4.2% respectively.
- Indeed, as advised by ARA’s John Lim, and quoted in Edge ‘s latest issue, Dynasty “will do very well in the mid to long term“, ie it is best suited for investors sitting on surplus Rmb deposits.
CMT – DBSV
Work in progress
• In line with expectations
• Atrium AEI works at its tail end, pre-commitment on track; Westgate secures pre-commitments
• Maintain Hold at an unchanged TP of S$2.10
Highlights
Results in line. Gross revenue and NPI grew by 4-5% y-o-y supported by healthy rental reversion, and increased contributions from completed asset enhancement projects offsetting lower contribution from The Atrium and IMM. Reversion rates remained healthy at 6.1% (1Q12 and 1H12: 6.1 -6.4%) supported by high occupancy rate of 98.4%. Meanwhile, another S$5.9m received from CRCT has been retained, bringing YTD receipts to S$11.3m. These are likely to be kept for working capital purposes. Distributable income rose by a marginal 4.5% y-o-y, translating to DPU of 2.42Scts.
Our View
Pre-commitments for the malls on track. Leasing progress for Bugis+ remains healthy at 98.5% as at 3Q12. The AEI works at the Atrium is also coming to a tail end and is expected to open as early as November. Pre-commitment for the retail space has improved from c.71% last quarter to 80%. Meanwhile, the group has also started marketing the retail space at Westgate and has already secured some pre-commitments including Isetan’s c.60,000 sf space (c. 14% of the mall’s space).
Some downtime in occupancy expected. Phase 1 of IMM’s AEI works amounting to c.40,000 sf of space has commenced and is expected to complete by end of the year, while Phase 2 is commencing soon and will complete in April next year. Occupancy has dipped to 95% and we expect it to trough at c.85% in 1Q13. Elsewhere, the space occupied by Carrefour (c. 81,000 sf) at Plaza Singapura will be vacated in November and the reit is looking for a replacement tenant. Hence, occupancy could see some downtime.
Extending its debt maturity profile. Gearing remains healthy at 67.6%. Refinancing for its 2012 loan has also been completed with longer term loans, which would help to extend its debt maturity profile.
Recommendation
Maintain Hold. While we like CMT for its leadership in the retail market sector and the ability to drive positive rental reversion via AEI works, we believe most of the positives have already been priced into the stock. We have nudged down FY12/13 DPU by c.1.5% to account for the lower occupancies with DCF-backed TP unchanged at S$2.10. Upside risk for share price performance of the stock could likely depend on newsflow on potential acquisitions of new properties in the pipeline.
MLT – DBSV
Moving into growth markets
• 2Q13 results in line; operationally outlook to remain stable with minimal renewals in 2HFY13
• Acquisitions a likely catalyst, we have assumed S$200m in our numbers for FY14
• Maintain BUY, TP raised to S$1.22
Highlights
Stable results in 2Q13. Gross revenues and net property income grew 13.4% and 14.6% y-o-y to S$77.5m and S$67.5m respectively. The strong performance was attributable to contributions from its new acquisitions (7 Japanese properties, 4 in Korea and Malaysia), offsetting the loss of income from 1 building in Japan which was destroyed by a fire in 2011. Distributable income rose 12.8% y-o-y to c$41.3m (after accounting for S$4.7m to perpetual securities holders), translating to a DPU of 1.71 Scts (+1.2% y-o-y, +1% q-o-q). Performance on a sequential basis remained stable.
Operations looking stable. The group has successfully renewed 67% of the 12.7% of leases (by NLA) due in FY13, amounting to 228k sqm, securing average rental hikes of c8%. Portfolio occupancy levels saw an uptick of 0.2ppts to 99.2%, from improving demand in Singapore, Hong Kong and China. Looking ahead, given the relatively sticky nature of warehouse space and with only 4.2% of leases (by NLA) left to be renewed for the remainder of FY13, we expect MLT to continue delivering sustained results.
Distribution reinvestment plan. MLT has also instituted a DRP for this quarter, which we see as a positive development, subjected to takeup, funds can be used to re-deploy for capex/AEIs which are expected to be yield enhancing.
Our View
Capital Re-cycling, further acquisitions to be re-rating catalysts. The completion of the acquisition of Hyundai Logistics Centre in Korea will start contributing positively in 3Q13 and the trust is understood to be in negotiations with a major Japanese 3PL for a built-to-suit development in Iwatsuki Center (destroyed by fire previously) and is expected to return yields higher than its Japan portfolio.
Management continues to look for growth opportunities and targets higher growth countries (China, South Korea) and new markets like Indonesia. In addition, MLT has a visible pipeline worth a potential S$400m that could be executed on in the medium term. We have assumed S$200m worth of asset acquisitions (funded by 40%/60% debt/equity ratio) in our FY14F estimates, raising our estimates slightly by c2%
Recommendation
BUY call maintained, TP S$1.22. Given the availability of a visible pipeline and MLT trading at implied yields of 6.4%, we believe that acquisitions are a likely feature going forward and a further re-rating catalyst. Our TP is adjusted to S$1.22 as we now assume S$200m worth of acquisitions (nil previously) and we have also tweaked our rental growth rates for Singapore/Hong Kong which has continued to rise ahead of expectations. Maintain BUY.
CRCT – OCBC
3Q12 IN-LINE, RAISE FV SLIGHTLY
- Slight upward adjustment to estimates
- AEI showing results
- Solid financial position
Raising estimates up slightly
CapitaRetail China Trust (CRCT) reported 3Q12 DPU of 2.42 S cents, up 14.2% YoY, and in-line with our expectations. YTD 2012 DPU of 7.24 S cents formed 76% of our original 2012 DPU estimate of 9.5 S cents. We raise our estimates up slightly, increasing our FY12 DPU estimate to 9.7 S cents. 3Q12 gross revenue increased by 8.5% YoY to RMB194.2m, underpinned by tenants’ sales growth of 15.6% YoY at its six multi-tenanted malls. On a QoQ basis, tenants’ sales grew by 6.1%. Shopper traffic increased by 21.5% YoY and 8.0% QoQ. Higher revenue was registered across the portfolio except for Minzhongleyuan, which is undergoing asset enhancement. Net property income increased by 10.3% YoY to RMB126.5m. Excluding Minzhongleyuan, NPI grew 12.7% YoY. Strong NPI was posted for Xizhimen, Qibao, Saihan and Wuhu, with YoY growth of 18.5%, 57.2%, 35.5% and 30.4% respectively. Rental reversion across CRCT’s portfolio was good at +18.2%. As of 30 Sep, the weighted lease to expiry by gross rent was 5.3 years.
Good returns from completed AEI
CRCT gave an update on the completed AEI at Minzhongleyuan. Reconfigured space recovered from a Pizza Hut was split into six specialty shop lots, with new tenants such as Starbucks and Cache Cache. The average rental for the recovered space increased by 300%. In progress is the reconfiguring of the layout of a ~2,500 sqm space on level 2 that was previously master-leased. Space occupied by a food court on level 3 (~950 sqm) has been leased to fashion tenants on a short-term basis.
Healthy financial position
We note that CRCT continues to have a strong financial position, with 100% of assets being unencumbered, a gearing of 30.4% and an interest coverage of 10.1x. CRCT has no major financing due in 2012.
Maintain BUY
We raise our fair value slightly from S$1.70 to S$1.71 and maintain our BUY rating on CRCT. The FY12F dividend yield of 6.0% is attractive.