Month: November 2012
A-HTrust – DBSV
Beating IPO forecasts
• DPU of 1.23 Scts (post-sponsor waiver) above IPO forecasts by 2.2%
• Australian refurbishment exercise on track; Novotel Beijing Sanyuan outperformed expectations
• BUY maintained, TP raised to S$0.98 as we roll forward valuations
Highlights
FYP 2Q13 results above IPO forecasts. Ascendas Hospitality Trust (A-HTRUST) revenues and net property income came in at 2.1% and 8.8% respectively, higher than IPO forecasts but within our expectations. The strong performance came largely from China (Novotel Beijing Sanyuan) which achieved a RevPAR of Rmb535/night vs Rmb491 in the prospectus due to seasonally peak quarters. Australia achieved a RevPAR of AUS$135 (-3.1% vs IPO forecasts) due to disruptions from the ongoing planned refurbishment exercise but should remain stable going forward. Net property income margins improved to 33.2% on the back of various cost-efficiency and new operating measures instituted once Accor took over from Mirvac. It should maintain the higher margins going forward. As such, distributable income of S$8.7m (+2.5% yo-y) translates to a DPU of 1.09 Scts (1.23 Scts after sponsor waiver).
Our View
Australian hotels ramping up nicely. The refurbishment and rebranding exercise that is ongoing at its seven Australian hotels remain on track for completion by the middle of 2013 (1QFY14). We note that occupancy rates remain at a high of 84.3% in 2Q13, implying minimal disruptions to other operations. Upon completion in 2H13, we expect the new Accor-branded Australian portfolio to reap the benefits of hike in room rates and operational performance compared to when it was operated by Mirvac.
North Asian Hotels doing well; gearing to head up to 36% by 4QFY13. While Ariake Sunrote in Japan offers a stable earnings base for the trust, Novotel Beijing Sanyuan outperformed initial expectations, due to robust domestic demand for travel into Beijing. The planned purchase of Ibis Beijing Sanyuan Hotel, will be completed as planned in Jan 13. Gearing of 31.7% is expected to head up to c.36% after completion.
Recommendation
BUY maintained, TP S$0.98 based on DCF. We maintain our BUY call, with revised TP of S$0.98 as we roll forward our valuations. Yield of 7.2-8.2% is one of the highest amongst the SREITs.
PCRT – DBSV
Gaining a little more traction
- Results in line, lifted by Earn Out Support
- Leasing activities gaining a firmer foothold
- Maintain Buy, TP unchanged at $0.84
Highlights
Results in line, supported by Earn Out. PCRT reported 3Q12 results that were in line with projections. Operating income at associate and JCE level was S$1.5m, up 5.5% q-o-q. This was achieved on the back of improved occupancy of 72% at Red Star Macalline Furniture Mall (vs 50.6% in 2Q) while occupancy and average rents at the Shenyang Longemont Shopping Mall held steady at 70%, with rents averaging Rmb3.72psm/day. There was also a top up of S$12.2m of earn out deed support during the period. This was partly offset by higher interest expense of S$1.5m for the recent MTN raised.
Gaining a little traction at Shenyang. PCRT had converted Red Star Macalline’s (RSM) lease at the furniture mall to a master lease from Sep 12. The lease is for more than 10 years at a slightly lower average rent of Rmb1.35psm/day but offers security of long term tenure. Effectively, RSM takes c.60% of the furniture mall’s total GFA. Occupancy of the Shenyang Longemont Mall (SLM) remained relatively flat at 70% with rents unchanged at Rmb3.72psm/day despite tenant mix shifting towards a little more cosmetics and fashion related. The Shenyang office space has seen slightly higher interest for about 10% of space (vs 1% previously) and these are currently under negotiation and review.
Our View
Taking time to ramp up. Looking ahead, we believe 4Q would remain relatively flat q-o-q as PCRT will continue to ramp up take up rates at the Shenyang Longemont shopping mall with more entertainment and education related tenants expected to commence from 1Q13. Meanwhile leasing activities at the office component, scheduled to commence in 4Q12, is expected to accelerate during its Earn Out period. With the conversion of RSM into master lease, the group would focus on leasing out the remaining space and is expected to target wholesale tenants. Perennial Jihua Foshan, currently 50% pre-leased at Rmb4plus psm/day, is expected to open at end 1Q13. This will improve the trust’s operating cashflow position. This should be complemented by the Perennial Qingyang Mall in Chengdu in 2Q14.
Gearing at 30.1%. With the latest $130m MTN note issue, PCRT’s gearing had risen to 30.1%. The proceeds will be deployed to paying for the 1st 15% installment of the Dongzhan Mall as well as investment in the Tongzhou project.
Recommendation
Retain Buy. We maintain our Buy call on PCRT with a RNAVbacked TP of S$0.84. The stock is trading at 0.73x P/Bk NAV. With a remaining Rmb342m of Earn Out Support, distribution visibility to unitholders is certain during the period of operational ramp up. As its projects start to generate income, we expect the gap between RNAV and share price to narrow.
ART – OCBC
PORTFOLIO EXPOSED TO GROWTH REGIONS
- SG SRs account for 10% of lodging
- SG SRs still have room to grow
- ART exposed to the LT growth regions
SG lodging market: 10% serviced residences, 90% hotels
We indicated on 4 Sep 2012 that the supply of serviced residence (SR) units in Singapore is estimated to grow at 5.1% p.a. for 2012-2014 to approximately 5,765 units. This is faster than the 4.8% p.a. rate at which the hotel room stock in Singapore is expected to grow at. While SRs accounted for 9.1% of the rooms and units available as of end-2011, given that their average occupancies are higher than that of hotels (91.8% versus 86.5% for 2011, STB), we estimate that SRs account for approximately 9.6% of the Singapore lodging market (in terms of nights stayed), with hotels accounting for the rest.
SG SR sector not saturated yet
We estimate that SRs have a 20% share of the HK lodging market. According to one of the largest European serviced apartment companies, The Apartment Service (TAS), SRs account for 30% of the Australian lodging market. Against both markets, we see the potential for more growth for Singapore SRs, particularly versus HK – a close hospitality peer. TAS also indicates that SRs make up 8% of the US lodging market, significantly higher than that of UK’s (2%) and Europe’s (1%). By these figures, we believe that the SR sector in Europe has significant potential for expansion.
ART exposed to the LT growth regions
Through ART’s properties in Europe and developing Asia, which respectively accounted for 38% and 25% of its portfolio by asset value as of 30 Sep, it has good exposure to what we believe will be the longer term growth regions for the global SR industry. ART has emphasized that it continues to explore opportunities in Asia as well as London, Paris and key cities in Germany. We also see Europe’s SR industry as being relatively underdeveloped compared to those of the US, HK and Australia. For instance, according to data from CBRE, the number of SR units per 1,000 annual business travelers is 1.2 in London, versus 1.8 in Singapore, 1.9 in NY, 2.6 in Sydney and 5.3 in HK.
Maintain BUY
We maintain our fair value of S$1.37 and BUY rating on ART. We believe that the FY12F DPU yield of 6.9% is very attractive.
PCRT – CIMB
Leasing progress
Further strengthening of operational malls in 3Q12 and leasing progress at upcoming malls ahead of commencement augur well for 2013.While interest costs inched up, loan facilities provided sufficient financing to meet future cash commitments.
3Q DPU accounted for 25% of our full-year estimate while 9M12 DPU made up 74%, in line with our and consensus expectations. We roll over estimates to FY13, reducing the target price to S$0.59, now based on a 30% discount to RNAV (previously 35%) as more assets are operational. We maintain Outperform, with stronger leasing and retail sales as catalysts.
Operational improvements
Underlying operational performance saw a second quarter of pick-up with profits from operational malls growing 6% qoq. While 4Q12 could be slower due to leasing difficulties in winter, we should see further strength in 1Q13. 60% of NLA at Shenyang furniture mall has been converted to a master lease for income stability while further leasing progress has been made at the upcoming Shenyang office, Foshan Jihua mall and Chengdu Qingyang mall.
Balance sheet strength
Interest cost is our main concern following issuance of S$130m of 6.375% 3-year notes in Sep, bringing 3Q’s weighted average financing cost to 4.74% (2Q12: 2.96%). 9M12 interest expense was above at 80% of the FY12 estimate. We expect potential partial onshore funding of Chengdu Longemont to raise financing cost further but loan facilities should be sufficient to meet cash commitments. Factoring in future progress payments, we estimate c.40% gearing in 2013 and 2014, within management’s internal limit of 50% (3Q12: 30%). Monetisation of assets in 2014-16 could fund further acquisitions. Management estimates 25-40% IRR if assets are monetised in 3-4 years after commencement.
Dividend buffer
Earn-out structures alone guarantee 8-9% dividend yield. We see potential for stronger yields in FY13-14 on improved operations.
Cambridge – DMG
Yet another stable quarter
3Q12 results in-line with expectations. Cambridge Industrial Trust (CIT) just released its 3Q12 results posting gross revenue and net property income of S$22.5m (+8.5% YoY) and S$19.2m (+8.9% YoY) respectively. The increase in revenue is mainly attributed to additional contributions from the acquisitions at 16 Tai Seng Street, 25 Pioneer Crescent and 3C Toh Guan Road East. DPU for the quarter came in at 1.204S¢ (+11.3% YoY), equivalent to 25.1% of our FY12 DPU estimate. Going forward, we expect CIT’s DPU to continue to remain strong from 1) additional contributions from its acquisitions including the recently acquired properties at 11 Woodlands Walk and 30 Marsiling Industrial Estate Road 8; 2) resilient industrial rental rates coupled with average security deposits of 12.5 months; 3) new contribution from the BTS project at Tuas View Circuit which was completed in August 2012 and 4) future AEIs in the pipeline. On the back of continual interest in yield plays coupled with a prolonged low interest environment and high liquidity, we continue to favour CIT for its high dividend yield (c.7.2%) and the improvement in quality of its portfolio. Based on the abovementioned factors, we maintain our BUY call on CIT with a revised DDM based (COE: 9.3%, terminal growth: 1.0%) TP of S$0.750. With CIT currently trading at 6.6% spread vs the pre-crisis historical mean of 4.6%, our TP represents a spread of 5.7% posting a potential upside of 12.8%
Multiple acquisitions and AEIs a positive for DPU. Since the beginning of the year, CIT has completed five acquisitions (namely: 16 Tai Seng Street, 25 Pioneer Crescent, 3C Toh Guan Road East, 11 Woodlands Walk and 30 Marsiling Industrial) and proposed a future acquisition at 30 Teban Gardens Crescent and 54 Serangoon North Ave 4. Together with the completion of the BTS project at Tuas View Circuit, we expect CIT’s DPU to grow by c.0.5S¢ (+14%) in FY12.
Maintain BUY with revised TP of S$0.750. Management has been undertaking a portfolio reconstitution exercise since beginning of 2010, divesting nonperforming assets and redeploying capital into yield accretive acquisitions. Amid multiple acquisitions, net gearing has been pared down from 42.6% in Dec 2009 to 37.0% in September 2012. With an internal target gearing 40%, CIT will still has some room for further acquisitions. Together with an attractive forecasted FY12/13 yield of 7.2%/7.9% and defensive earnings, we maintain our BUY rating with a revised TP of S$0.750 as we roll over our forecast into FY13.